Has China really lost its allure? Should multinationals continue to invest in China? What are the growth opportunities ahead? Stephen Shang, President and CEO of Honeywell China
recently shared his thoughts on these hot topics when announcing the Company’s biggest investment in China in decades.
China’s economic growth is slowing down. This, coupled with the growing pressure on the global economy, has resulted in challenges and uncertainties in the market.
“While the growth in some of our businesses has slowed down, we also have others that still enjoyed high, double-digit growth in China,” said Shang. “Looking forward, we have reasons to believe that there are still some significant growth opportunities ahead.”
Honeywell has recently announced plans to invest $100 million to expand its Asia Pacific regional headquarters
and Research and Development facilities in Shanghai’s Zhangjiang High-Tech Park. With this new investment in China, which is Honeywell’s largest since 1980s, the company plans to increase the size by more than 50% to accommodate its continued and consistent business growth across the country.
“More than a decade ago, we made a strategic decision to move our regional Research & Development center and headquarters to Shanghai and it has worked,” said Shang. “Since 2004, we have grown from about 1,000 people to almost 13,000 people across the country. Nearly one-fourth are scientists and engineers. China is now Honeywell’s biggest market outside of the United States and the single largest contributor to Honeywell’s growth. We believe that this is the place to be now and in the long term, for innovation and growth.”
Changing Dynamics of China Market
As much of the attention has been focused on the slowdown of China’s economy, two other areas deserve some attention. One is China’s service industry, which has contributed to over half of the country’s economic output for the first time in history and the second is China’s scale. China’s economy still ranks top in terms of absolute increment thanks to its scale. China posted a 6.9% GDP growth last year, the increment it brings is similar to the country’s 14.2% annual growth in 2007 and even surpasses the increment of the USA, UK, Japan and Germany combined in 2015.
“It remains true today – and for a long time to come – that China will continue to be the essential source of growth,” Shang said. “Honeywell needs to pay close attention to China’s long-term macro trends and growth prospects whilst managing the short-term impact of its slowdown. For example, as China’s middle-class continues to expand, we expect to see the emergence of a gigantic market of 1 billion urban consumers – an unprecedented development in human history. In addition, these increasingly affluent Chinese households will expect more technology-intensive products that are healthier, safer and greener.”
In the past, Honeywell has been an industrial manufacturing company. Today, under our East for East (E4E) strategy, many of Honeywell’s technologies and solutions designed for use in critical industrial sectors – including aerospace – are crossing over into residential market and home products. For example, in 2015 sales revenue from our air and water related products grew by more than 300% in the China market.
In the meanwhile, Honeywell has been proactively driving an East to Rest (E2R) strategy, promoting China developed products and technologies for the rest of the world – especially High Growth Regions. In the past year, the growth rate of such exports has exceeded 30%. With the further roll-out of the Chinese Government’s One Belt, One Road scheme, Honeywell believes this will enable the Company to “Follow The Growth” and partner with leading Chinese companies to “go out”, especially in international infrastructure development.
In a difficult environment, good businesses strengthen their leadership and competitiveness by addressing the difficulties. Despite of the slowdown, China’s transformation still presents Honeywell with enormous growth opportunities --- service industry, consumer markets, energy efficiency and environment protection, big data, connectivity, all have plenty of strategic opportunities in China.
“Now it’s time for us to show an even bigger commitment to Becoming THE Chinese Competitor (BCC) and accelerating our growth in this dynamic market,” said Shang.