Multinational corporations are now driven more by sustainable profits than by cutting costs, which will have a big impact on China's companies and workforce.

That's according to international consultant Deloitte Tourch Tohmatsu. It says the nation will have to cram decades of learning into a much shorter timeframe if it wants to compete in a global marketplace that has shifted in the last year.

"Consistently they (multinationals) are saying 'we have reached the diminishing returns on cost control'," said Gary Coleman, global managing director for manufacturing at Deloitte.

Eighty percent of 800 multinationals surveyed by Deloitte said they have already streamlined their operations as much as they can.

The days of cutting costs to achieve prosperity have all but ended. That is not necessarily because corporations are spending madly but rather because cost control is already imbedded in day-to-day operations, said Coleman.

Company leaders are now focused on sustainable profits.

In an interview with China Daily yesterday, Coleman said four key strategies are at the core of this changing attitude.

The first is developing a very efficient global value chain. Another is taking advantage of emerging markets. Both are framed by a need for constant innovation and the necessity to win the war for talent. The latter is the critical one.

"There is a war for talent, for people who have the innovative thinking that is necessary... the people who have the know-how around global value chains to make them more efficient, the people who know how to win in emerging markets."

Expansion with a constant and stable bottom line is the current modus operandi and most of that expansion is in China, according to Deloitte's latest studies.

China is the largest and potentially most rewarding emerging market in the world. It is the largest battleground for both multinationals looking to drive up profits and Chinese companies looking to establish a footprint most of which plan to focus on the domestic market.

Among US manufacturers, more than 55 percent will enter or expand marketing and sales operations in China in the next three years. China is also the top sourcing target for most of them, with 56 percent of manufacturers planning to enter or expand here, well ahead of Mexico and Central America with 26 percent.

The most dramatic tell-tale sign of China's emergence may be the number of engineering and research and development facilities, with 26 percent of companies planning to enter or expand here in the next three years, well ahead of second place India with 14 percent.

As more multinationals set their sights on China, local companies are battling for pieces of the same pie before aiming for the global market. Deloitte found 91 percent of Chinese companies plan to focus on the domestic market over the next three years.

There may be a few global success stories like Lenovo the computer maker that bought IBM's PC making division and recreated itself as a global brand but most local companies are looking at their own market first.

The battle will be fought over innovation and the people that drive it, and that may require a reshaping of the workforce.

"It took the US 30 years to downgrade the (manufacturing) labor force from 35 percent to 10 percent," said Ted Lee, Deloitte's Shanghai-based managing partner for global client services. "China has a window that is much less than that."

"With competition coming in with even cheaper products, better products... China could be in trouble."

Multinationals may already have a leg up.

They have streamlined their workforces and processes as much as they can and cutting costs is built into their day-to-day operations.

Chinese corporations still have that battle looming ahead. Already more than 10 million jobs have been cut from State-owned enterprises, jobs that were either redundant or simply not necessary. Much more of the same will be needed for thousands of other Chinese companies to reach similar levels of financial fitness.

Corporations and the government should begin developing a workforce to produce new and more sophisticated products.

Developed countries started converting their workforces decades ago to get employees who are more flexible and plugged in. The idea was to generate talent that could shift from one job to another when necessary and be backed by a wide network.

"That would be one model the Chinese companies need to look to and get ready for rather than waiting for it to happen and then not knowing what to do," said Coleman. "Prepare now."

(China Daily October 26, 2005)