Why do foreign firms stay in China amid rising labor costs?

Walmart stays in China in the hope of capturing the Chinese market. (Photo/China Daily)

People's Daily Online Business Podcast by Li Zhenyu
China is now moving toward a new growth model that relies more on domestic consumption. The country's successful transition to a consumption-led economy is certainly good news for foreign businesses, since the hidden potential of the 1.3 billion Chinese consumers, once unleashed, will make China the largest consumer market in the world.

And in the eyes of Doug Guthrie, professor of International Business at The George Washington University (GWU), some foreign companies have already seen the potential of the Chinese market, despite China's rising labor costs.

"I've already seen that in some ways," Guthrie told me when referring to the opportunities China's consumption transition brings to global businesses.

"If you look at companies like Walmart, people think Walmart is just here because of cheap labor and the cheap labor it gets for exporting back to the United State, but Walmart is in China because it wants to capture the Chinese market."

"And for most American or Western companies you see very clearly that the reason why they are here, even as labor costs rise and as labor markets become tighter, they want to stay here because they need to access the internal markets," Guthrie added.

Western companies looked to China as a place of outsourcing and production. Now these trends are certainly continuing, but another important part, the consumer part, is making more weight. The emergence of the Chinese consumers is offering new compelling opportunities for global companies to boost sales and expand their business.

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