Foreign companies must alter their business models and operations to tap China's rapidly growing mass markets where scale matters and price is king. Prosperity outside of major coastal cities, an evolving middle class and fierce competition will drive more companies to develop innovative, low-cost business models to reach new markets and customers across diverse regions of China. Companies will need to transform key areas of their businesses - including sales channels, distribution, R&D, procurement and human resources - to capture this historic opportunity.

In recent years, most established foreign multinational companies (MNCs) have enjoyed strong revenue growth and profitability by riding on the back of China's spectacular economic growth. China already contributes on average nearly 10 percent of the global revenues of the 180 MNCs in our 2006 survey. At the same time, in 2006 the American Chamber of Commerce in Shanghai reported 64 percent of its member companies were profitable and 65 percent had profit levels in China equal to or higher than in other countries.

But in China's rapidly changing environment, recent success is no guarantee for the future. Industrial and consumer products companies alike will have to reevaluate their business models and operations to sustain rapid revenue growth and profits.

In industries ranging from automobiles to electronics, lower-end product segments often account for the largest portion of the total market and these segments are typically growing the fastest. MNCs counting on China for strong revenue and profit growth - or simply hoping to maintain market share - will need new approaches to win in price-sensitive mass markets while preserving their market leadership in higher-margin, premium-end market segments.

How can companies capture the China mass market opportunity profitably? What are the business model implications and how will changes impact their China and global operations?

This white paper was published in March 2007.

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