In internal discussions in 2019, we anticipated a rising tide of deglobalization. As developing countries grow, they will inevitably capture more mid- to high-end manufacturing and services. Resources per capita in developed economies will come under pressure, fueling international tensions and strengthening right-wing political movements. History also shows that countries within regions tend to band together to secure resources and influence and avoid becoming suppliers of cheap inputs. Regional alliances may therefore become a principal form of political organization.
For China, a manufacturing powerhouse, the Belt and Road Initiative addresses two practical needs: retaining overseas consumer markets and securing stable access to manufacturing inputs. It is also a national strategy for strengthening China’s influence across Asia and Europe. In our view, it could have three important implications for international brands operating in China:
- Supply chain: Rail transport along Belt and Road routes can save substantial time, indirectly reducing financing costs and improving competitiveness.
- Policy: Chinese customs and other authorities may support the national strategy by facilitating goods from countries along the routes.
- Traffic: Japanese and Korean products have held substantial shares of China’s consumer market by offering strong value, while brands from the United States and other countries have also performed well. As international relations evolve, online traffic is likely to be directed more toward Chinese-made products and countries not seen as parties to conflict. The sharp decline of Korean brands’ market share in China and the gradual weakening of Japanese brands support this view. This could be a significant advantage for brands from Belt and Road countries.
This does not mean every brand will perform better in China. China’s own manufacturing strength leaves little room for some low-end manufactured goods. Better opportunities may exist for distinctive local products—such as processed fruit and medicines from Southeast Asia or foods from West Asia—and for European mid- to high-end consumer brands with sufficient margins. Europe’s many distinctive niche brands span a wide range of categories and could gradually take share from American and Japanese competitors.