Foresight 2023

Striving for Stability and Sustainability on

Development and Cooperation
FORESIGHT
2023
4 Foresight 2023

PREFACE

In 2022, China Experienced A "Perfect At the end of 2022, China finally loosened the Covid-
Storm" control policies and signaled the reopening to the world.
This new development immediately lifted the market
In 2022, while Covid still was circulating around the
sentiment. There is a possibility that China’s recovery
world, the war in Ukraine unleashed for the world an
could alleviate global economic prospects for 2023. Yet,
economic shockwave only matched by the oil shocks in
things are more likely to get worse in the first few months
the past. Inflation already had been rising since 2018
of 2023 before it can get better, considering the giant
and the beginning of the trade war between China
population of surging Covid cases in the coming months
and the US, then fueled by logistical bottlenecks and
and referring to the experience of reopening of other
demand surge during and post Covid waves. Inflation
Asian economies.
then got a global booster due to spiking energy prices
and tightening monetary policies as a response triggered
further pressure on demand addressed to China. And 2023 Will See A Bumpy Recovery Route
the Covid resurgence in China since the early 2022 has
The weakening global demand is unlikely to help much
added a slower domestic market as well.
on China’s recovery in 2023, as we have seen in Q3-
Q4 with a quick slow down. The IMF in October 2022
In the same time the world has witnessed the
cut the global growth forecast to 2.7% for 2023, and
ac c eleration of the climate emergency with more
more recently they saw higher chance of global growth
ex t r e m e we at h e r d u r i n g t h e s u m m e r 2 0 2 2 , w i t h
below 2%, amid continued effects of the war in Ukraine
devastating damages across the world, in both emerging
and simultaneous slowdowns in Europe and the United
and developed economies. The convergence of all the
States, facing the risk of recession. It can be observed
disruptions and challenges turned into a “perfect storm”
that China exports remained resilient in the first nine
that created much pressure and debate on the resilience
months of 2022, yet since October, China expor ts
of the Chinese economy.
has slowed down and dropped 8.7% in the November
compared to 2021, and this softer demand is expected to
The Covid-control policy inevitably disrupted economic
continue till 2023.
activity, especially on the consumption side. Yet, some
fundamentals of the Chinese economy have been
The energy crisis is creating structural change on the
resilient: China exports remain high in 2022, in spite
global and Chinese supply chain. Since the energy crisis
of the slow down in Q3-Q4, and increased 9% in the
hit Europe and spread globally, we are seeing quite
first 11 months compared to 2021, which was already
some energy intensive production shift to America, the
an excellent year for export growth. The inflation and
Middle East and Asia, to minimize the impact of high
currency fluctuation also stayed in comparably moderate
oil, gas and electricity prices, and to anticipate potential
compared to many countries. It has created a solid
shortages. We observed that China has been exporting
foundation for the recovery. But more problems still
more ammonia, other chemical commodities, glass and
linger down the road.
some metal or construction materials since Q2 2022.
This may play an even bigger role in the beginning of
2023, depending how European production systems
may or may not be crippled by a further deterioration of
the energy situation. Winter 2022-2023 may to a certain
extent see a replay of the 2021 situation when China’s
supply chain supported the economic recovery in Europe
and in the US, because of its flexibility and availability.
This will possibly help China’s recovery, provided that
its own production facilities are not in turn crippled by
Covid. Uncertainty will certainly dominate the first half of
2023.
In the medium term, the resilient fundamentals of the
Chinese economy will provide strong potential for the
recovery. While exports are poised to slowdown and
property will take a longer path to recover, consumption
must become a strong engine for China’s recovery. With
relaxation of Covid measures, sectors that have been
most disrupted by Covid have much room to recover,
such as the services industry, food, catering and retail,
tourism, entertainment etc. China has 1.4 billion people
and per capita GDP now exceeding USD 10,000, which
makes it the world’s biggest consumer market with the
greatest potential.
To unleash further demand and consumption, more
disposable income is the key. This additional wealth can
only be generated by an increase in productivity, as the
old engines, such as infrastructure, construction and real
estate, are stalled. To yield that productivity, the Chinese
economy must increase in quality, therefore value,
not only size and quantity. Industrial modernization is
therefore key as an enabler for this uplift of consumption,
as well as the crucial lever to reach the objective of
common prosperity.
[continue … ] The surge in exports in 2021 and first
9 months in 2022 has actually helped to achieve this:
financing the modernization of the production system.
Manufacturing represents one third of China’s fixed
asset investment, from January to October in 2022,
manufacturing investment has been growing 9.7%, faster
than the overall fixed asset investment growth of 5.7%.
Among that, investment in advanced manufacturing has
been growing 24%. With industrial modernization as core
to China’s 14th Five-Year Plan, the Chinese production
system will remain powerful for the world, even more so
thanks to enhanced, low carbon productivity and Asia
leverage in the future.
2023 Challenges And Opportunities: Risk
Mitigation, Performance Improvement,
Globalization, Decarbonization And
Common Prosperity
In the past few years, we have witnessed that black
s wa n s a n d g r ey r h i n o s a r e m a k i n g t h e ex te r n a l
environment increasing unstable. Companies and
organizations are easily c aught bet ween urgency
and uncertainty. Therefore, risk has to be thoroughly
screened and mitigated, and concerns around political
and operational issues need to be carefully addressed,
which is crucial for both domestic companies and MNCs.
With slowing down in global economy, esc alating
geopolitical tensions and intensifying contend on high-
tech sectors, companies are faced with increasing
competition domestically and globally, as well as the
threats of consolidation. Therefore, it is the critical time
for Chinese companies to accelerate the pace to improve
their performance and cost, push the development of
new products and channels, and clearly define their wealthy wealthier, but adding tens of millions of people
globalization strategy, particularly in industries such as that are today on the fringe of the lower middle class,
automotive, consumer electronics etc. into that group. We already see some pilots, in Zhejiang
and other provinces, to shift population from rural into
With a slowing down domestic economy, Chinese suburban areas and lifting their disposable income. For
companies will also increasingly need to turn to viable mass market brands, this new trend could become a
international markets for growth and profitability. Some mainstream opportunity.
companies have what it takes: innovation, superior
business flexibility, advanced products offerings and
productivity. Yet they sometimes lack critical features
such as internationally recognizable brands, international
management capabilities, global production footprint
enabling better supply chain integration and local
acceptance, etc. Amongst For tune 500 companies,
145 are Chinese companies (Global list of 2022), yet
only less than 25 can really considered multinationals –
Broad gap to fill, but high potential.
With the EU carbon border adjustment mechanism and
similar or differentiated tax approaches being planned
across the planet, China as key exporter of manufactured
goods to the rest of the world, can keep this position
and its growth engines only if it further decarbonizes.
Chinese companies will have to accelerate the progress
of energy transition and decarbonization to maintain and
reinforce this competitiveness.
Finally, multinational as well as domestic companies in
China should not forget the overarching goal of "common
prosperity", first introduced during the course of 2021.
While most analysts have been expecting aggressive
tax or redistribution measures, this has not materialized
and we believe in a different direction: increasing the
Denis Depoux
size of the domestic market by expanding the middle
Global Managing Director
class. This is not about redistribution or making the
Roland Berger
CONTENTS

05 Preface 34 Transportation 76 Pharma & Healthcare 112 Operations & Performance

& Logistics Improvement

10 Automotive 44 Consumer Goods 84 Financial 118 Next Generation

& Retail Services Manufacturing

18 Industrial Products 54 Digital 92 Real Estate 124 Robust Organizations

& Services

24 Chemicals 60 Culture, Entertainment 98 Civil 130 Sustainability & Climate

& Materials & Sports Economics Action

28 Energy 68 Technology & Internet

104 Investor Support / 134 Smart Mobility
Mergers & Acqusitions
10 Foresight 2023 Foresight 2023 11

Automotive

2022 has been an unconventional year for the global automotive industry. Though
impacted by events such as the Russo-Ukrainian War, chip shortage, the soaring
lithium price, and the cool down of capital market in autonomous driving, China's
auto industry still showed great resilience and vitality, with the ecosystem evolution
still on track The continuously rising NEV sales, the increasing export volume, the
emerging local smart technology, the constant exploration of Robotaxi and new
aftermarket models were representative highlights of the industry in 2022. Last year,
local brands' market share, NEV penetration rate, and the export volume of vehicles
all set new records, marking important milestones in the development of the Chinese
automotive industry. These results have confirmed Roland Berger automotive team's
trend estimation at the beginning of 2022.

As we enter 2023, although the world is undergoing significant changes, China

is weaving a new developing story with its' solid foundations and up-to-date
competitiveness. Opening-up and win-win partnership will likely set the tone of
economic growth in 2023, which will also give the auto industry another boost. As
one of China's emerging sectors with strategic importance, the intelligent connected
vehicles industry will further contribute to the high-quality, innovation-driven and low-
carbon development of Chinese economy. We also expect that in 2023, the Chinese
automotive industry will make breakthroughs of key technologies in the value chain
and further strengthen its influence in the global supply chain network with the
accelerating smart electrification trend and business model transformation.
12 Foresight 2023 Foresight 2023 13

Trend Rebalancing of Global Supply Chain premium sector. Besides, rich accumulation in global user operation experiences and innovative

01
service model of leading local brands will also greatly help accelerate the breakthroughs
Global politics and economic instability is increasing as we entered the post-COVID era. After
in overseas market. We believe that in 2023 will witness accelerating global expansion of
the heated discussion on supply chain security in 2022, we believe that China will strengthen
Chinese automakers and component suppliers, as well as the increasing importance of Chinese
its role as the "New Highland" within the global automotive supply chain,and gradually become
automotive industry.
the "New Center" of NEV and smart connectivity. Automakers and component suppliers will

Trend
certainly expand their supply chain layout in China through various forms.
Overall, China's automotive supply chain is expected to demonstrate the following characteristics Chinese Brands Go Premium

03
in 2023: The fast penetration of NEVs in China and its spindle-shaped market structure have opened an
• Steadier Market Demand: According to Roland Berger's Automotive Disruption Radar Edition
opportunity for the high-end market. With first-mover advantage and technological innovations
12, China leads ahead the NEV trend once again due to customers' high acceptance on
in NEV, local brands have managed to enter the premium segment. Many local brands have
smart NEV. The adjustment of zero-COVID policy and economic recovery will strongly boost
launched luxury NEV sub-brands, such as Yangwang (BYD) and Mengshi(Dongfeng). Through
the purchasing demand, with customers showing greater interest in high-value intelligent
establishing new business models, nurturing ecosystem and launching new products, Chinese
connected NEVs.
brands keep pushing the envelope and setting new standards for themselves.
• Stronger Supply Chain Capability: Along with the disruptive development of the CASE trend
(Connected, Autonomous, Shared and Electric), the component supply chain structure has
In addition to defending existing market share, new entrants targeting mass market (such as
changed dramatically. Chinese battery suppliers have accounted for over 50 percent of the
Aion, NETA, Leapmotor) and traditional automakers (such as Geely and Chang'an) are also
global market .Furthermore, China has become one of the major destinations for global chip
moving upwards by leveraging cultural confidence leading technology advantage, shaping
productivity transfer. As local companies continue to improve competitiveness, the clustering
a globalised brand image, creating brand propositions appealing to young consumers and
effect advantage of China's supply chain will become more apparent.
nurturing their respective ecosystems. Moreover, these Chinese brands are also levelling up
• Higher Localization Requirement : On the one hand, China's stabilised business environment
in trend foresight among local consumers and zeroing in on the emerging high-end segment
is now able to ensure stable supply. On the other hand, Chinese consumers never stop
through strengthening precision marketing for better results. The race will come to a higher level
pursuing better user experience. These two factors will push automakers to further localise
driven by more product launches, improved brand propositions, and better ecosystem. In 2023,
their supply chain to better and faster meet the demands from China market.
the competition among Chinese NEV brands will be open and diverse.

Therefore, Chinese market has not only an apparent short-term importance, but also long-

Trend
term strategic advantages. For global automakers and component suppliers, it's imperative for
A New Chapter of User Operation
them to re-evaluate the Chinese market, reposition their business in China, and rebalance their

04
investment throughout 2023. The concept of user operation has been deeply embedded into the automotive value chain.
Automakers, suppliers, and service providers are all exploring their own definition of user

Trend
operation and best approach for implementation. Some treat user operation as a supplementary
Chinese Automakers' Accelerated Global Expansion way of marketing, and some regard it as an innovative channel for direct sales. Some consider

02
We have entered 2023 with the backdrop of political and economic turmoil, technological
evolution, accelerated decarbonisation, and shifting consumer values. A new round of
globalisation opportunities may appear for the automotive industry. As we have observed,
China's NEV expor t in 2022 reached outstanding results. Not only had it achieved a
breakthrough in total export volume, but also successfully entered mid to high-end markets in
European countries. At the same time, we also see that European consumers have accepted
Chinese brands' price premium and new service models. Different Chinese brands, such as
BYD, Lynk & Co, SAIC, Chang’an Automobile, NIO and Li Auto, have all announced plans
in European markets, accelerating their overseas expansion. We believe that when it comes
to electric and smart technologies, Chinese automakers have the first-mover advantage and
therefore have leading product competitiveness. Combined with a relatively complete supply
chain, these factors will drive Chinese brands' overseas expansion and their upgrade into the
it as the cornerstone for building monetizable user assets, and others view it as a necessary
passageway to connect different data sources.
As automakers start to invest in the infrastructure for user operations, some have accumulated
a quite large active user pool . Entering 2023, the focus will move onto the realisation of user
values. By clarifying its growth path as well as measurement matrix, automakers can facilitate
the optimization of business initiatives and thus support the value realization of user operation.
Meanwhile, user operation will gradually enter the new stage of lean management for better
value creation, which will create challenges in coordinating operation capability as well as digital
tools readiness. The first half of the game of constructing a user operation system is to changing
automakers' mindset through sporadic tactical campaigns. The second half will start a new
chapter with the focus on building lean management capability and value creation
14 Foresight 2023
Trend Further Accelerating Digital Transition of the Industry Value Chain
05
While automakers are transforming themselves into user-centric enterprises, user needs will
become the focal point for product design, manufacturing and delivery throughout the whole
value chain, including R&D, sales forecast, order management, production scheduling, logistics,
and supply chain management. Methodologies, processes, internal responsible bodies,
supported departments, and cooperation models with supported will all be adjusted, and
a more systematic, intelligent and holistic deployment of digitalisation can link up every unit
along the value chain. User need will be embedded into the R&D process, and the automated
production scheduling and supply chain management will be efficiently implemented based
on customised needs. After realising transparent and digital control from order to delivery,
automakers will be able to further develop capabilities in proactive analysis and dynamic
adjustment, truly energizing the value chain with digitalisation. In 2022, we have already
observed some initial steps. In 2023, we believe that more automakers will explore and develop
suitable solutions for their own needs.
Trend Commercial Vehicle's New Era of Zero-Carbon Logistics
06
The energy revolution has brought rapid growth for new energy commercial vehicles. It also
serves as a catalyst for the leaders along the commercial vehicle value chain to envision ways
under the NEV and zero-carbon logistic trends. This covers from vehicle parts, complete
vehicle, to the full journey of purchase, usage, management, maintenance, and replacement.
Currently, the new winning formula for industry leaders in the sector is the innovation of business
models. It includes vehicle service in rental, finance and aftermarket, exploring and constructing
new ecosystem models in energy, logistic and carbon asset management. The first movers will
be able to build competitive barriers to defend their market share. Meanwhile, market players
in related industries such as energy, logistics, depots and service providers have also entered
the game, and co-build the new era of zero-carbon logistics in ways of wholly owned venture,
equity investment and cooperation between stakeholders.
Meanwhile, traditional automakers actively seek innovations and transformations in core
components and electrical/ electronic architecture to establishlong-term advantages in the new
energy age. The proactive actions from global leaders, such as new product launches (Tesla
Semi, and Mercedes-Benz eActros Longhaul 500km), will further expedite the upgrade of
technologies. In the light commercial vehicle sector, new products with customized loaded body
built on skateboard platform will also spring up. The technology upgrade will also bring new
business models such as subscription-based services, and TaaS (Truck as a Service).
The year 2023 will witness many new entrants and accelerated improvement of traditional
players in new energy commercial vehicles They will all l try new business models, new
products, and new mechanisms to stand out in this competition.
Foresight 2023 15
Trend New Localisation Opportunities for Intelligent Components
07
The technological innovation of core automotive components plays a crucial role in
dif ferentiation and long-term profit growth of automakers. Nowadays, it is smar t-tech
components that matter most. Facing great uncertainties brough by the COVID-19 and
geopolitical conflicts, leading automakers in China have been actively seeking local solutions
to ensure stable supply and to lower costs, with the maturing R&D and production capability of
Chinese suppliers. As such, technology innovation and domestic substitution will be the main
consideration for investment in the upstream of the auto industry.
The discussion about local supply security is not just about components. With the more
rigorous regulations, data security and compliance are also on the agenda. Foreign companies
in China developing smart cockpit and autonomous driving will have to prepare in advance.
We believe the localisation trend with the focus on intelligent components, data, and services
will speed up steadily. To better respond to Chinese market’s ever-changing needs proactively,
entities established by foreign companied will have more autonomy, particularly in financial
investments and personnel decisions.
Trend
Rationalisation of the Demand-supply of Core Materials
08
The global chip shortage is expected to be relieved in the second half of 2023, as the world
is recovering from the COVID, and the production capacity of semiconductors is also steadily
increasing. The semiconductor industry will present the following three trends in 2023: firstly,
shortage level will vary among different chip types. The computing chip manufactured with the
traditional process for Micro Control Unit (MCU) will still be in short supply in 2023. This means
automakers will remain relatively conservative in production volume estimation and vehicle
configurations. Secondly, the automotive semiconductor value chain will remain complicated
and fragile in the long term. The stakeholders need to manage and mitigate mid- to long-term
risks. Thirdly, the progress of domestic substitution will continue to accelerate, especially in the
fields of power semiconductors such as Insulated Gate Bipolar Transistor (IGBT), memory chips
and computing chips with advanced process such as System on a Chip (SoC). Many local chip
suppliers have entered the certification process of automakers and component suppliers, and
some even have begun mass production for vehicle models.
With the fast ramp up of NEV sales in 2022, the supply and demand of materials for lithium
battery have lost balance, leading to rocketing demand and price. In the first half of 2022, due
to the recovery of demands previously suppressed by COVID and the delayed production
capacity expansion, global battery material price hit a record high. The tension between supply
and demand will remain in the short-term as lithium and nickel ore will be able to produce just
enough to meet demand in the next 10 years. However, considering the accelerated production
capacity expansion of battery material suppliers both globally and domestically, the tension will
be relieved to a certain extent in 2023. The supply-demand relation and price will return to a
rational balance.
16 Foresight 2023 Foresight 2023 17

Looking forward, the macro-economic environment will continue to remain highly uncertain,
automotive chip value chain has not been back to normal, and the mismatch between demand
and supply side of battery material will still exist. Automotive industry stakeholders need to
penetrate further into the supply chain as well as take strategic actions to prepare for potential
shortage of raw materials.

Trend Exploring the Commercial Integration of Autonomous driving

09
Facing bottlenecks in autonomous driving implementation and user satisfaction, automakers
and suppliers are exploring new operation models to enhance user acceptance and experience
as well as to realise commercialisation in the business aspect. We believe that in 2023,
autonomous driving technology will be introduced to users in the form of a new service. To solve
users' pain points such as "bad experiences in high-frequency scenarios" (such as automatic
parking), or "low-frequency usage in mature scenarios", automakers are exploring different
business models based on their resource advantages, including proprietary technologies, user
operation structures and business capabilities, to monetise autonomous driving function as
an asset. For instance, provide the autonomous driving function for the user's frequent routes
(instead of offering basic/intermediate/advanced versions) together with subscription-based
services; or set up operation centres on the backend (human and automatic assistance), and
provide situational remote takeover support (with policy support in place) with integration of this
service into the larger user operation system which automakers have already built. At the same
time, related insurance policies are also in discussion within the industry. For example, some
automakers have launched "parking insurance" and integrated it into the user service bundle for
sales. Tesla, which has already been granted an insurance license, can now provide autopilot
kits and related services in the United States as an "automaker and insurance company". We
can expect that the car insurance value chain will be realigned with the commercialisation of
autonomous driving technology. Automakers will become one of the major insurers in the future.
Insurance policies (such as product liability insurance) and categories will also diversify.

Trend Aftermarket to be "Forced" into Evolution

10
With the accelerating penetration of NEV and intelligent technology, combined with the
resurgence of COVID, the automotive aftermarket in China is facing unprecedented challenges,
particularly for independent aftermarket players. It is estimated that since 2020, approximately
80,000 independent aftermarket stores have closed or been sold, most of which are small
to mid-size businesses. The integration and elimination progress within the industry has
accelerated.

Additionally, vehicle battery will become a much larger sector by creating "operation" value
through its full lifecycle, covering rental, charging, inspection, heavy repair and recycling. Based
on different cooperation ways between automakers and battery suppliers, new business models
will emerge in the aftermarket, such as battery asset management and 3E repair centers, which
require higher capabilities in financial management, refined operation, and local relationships for
market players.
18 Foresight 2023 罗兰贝格中国行业趋势报告
Foresight 2023 19 19

Industrial
Products &
Services
In 2022, the resurgence of COVID and the uncertain global environment dealt a
blow to China's manufacturing industry. Facing these waves of challenges, many
Chinese manufacturing companies enhanced their management to overcome macro
environment challenges. At the same time, more companies were exploring new
opportunities and new long-term growth direction, which has effectively accelerated
the transformation and upgrading of China's manufacturing industry. In 2023, we
expect "transformation and upgrading" will continue to be the dominant tone of
China's manufacturing industry development. In the meanwhile, the increasing
implementation of digital intelligence will propel the transformation Chinese
manufacturing companies. They will holistically enhance their competence in
product, service, marketing and cost control to redefine the competitive landscape.
We believe that a "Made-in-China with China quality" value chain will emerge in
2023, where major industrial manufacturing companies will join hands to benefit
each other's growth and contribute a significant share of China's economy growth.
20 Foresight 2023
Trend Structural demand changes from downstream industries call for
01
product upgrade
In the past 10 years, infrastructure investment, urban renewal, consumer electronics and other
pillar industries have shouldered the historical mission of leading the high-quality development
of China's manufacturing industry and creating its world-class manufacturing capability and
supply chain network. In the next 10 years, climate change and digital intelligence will be
the two key propellers driving manufacturing industry's next phase of growth. New energy
vehicles, renewable energy generation and storage equipment and semiconductor industry,
which are all related to the two factors, have become the new drivers of manufacturing industry
growth. In 2022, global industrial groups have all closely followed these two trends to develop
new technologies and products: from the electrification of engineering machinery equipment
to the large-scale commercial adaptation of green energy on ships; from the upgrading of
energy-saving efficient electric motors to technology breakthroughs of industrial heat pumps
and high temperature heat pumps. We expect industrial products will undergo a new round
of electrification upgrading and iteration in 2023, where leading industrial manufacturers will
accelerate their development and investment in new products and technologies. Chinese
industrial manufacturers should make forward-looking plans to create technology reserves and
launch upgraded products. They should especially concentrate on launching new electric, smart
and digitalised products in power and energy, transmission and power execution and control
equipment verticals.
Trend
Industrial components to be produced as modular systems
02
With developments in manufacturing supply chain, manufacturing technologies and quality
control technologies, many Chinese manufacturers have significantly enhanced their product
quality and supply chain management. Many Made-in-China components have already
reached automotive grade or quality requirement for Apple supply chain. At the same time,
many companies have realised that they must launch differentiated products to overcome the
increasingly painful challenge of little profit growth on top of remarkable sales growth. Roland
Berge believes that one of the key reasons of this predicament is that the complexity and
functionality of industrial products have grown significantly, which created exponential growth
in difficulties of technology R&D and supply chain management. To tackle this challenge,
many downstream companies have adopted the strategies of developing technology platforms
and hardware modules. From 3-in-1/6-in-1 new energy vehicle electric drive assembly to the
flexible manufacturing line of machine tool. In the new industry reality, industrial component
manufacturers must enhance their influence in the value chain by systematically researching
and developing new products, developing digitalisation functions and integrating supply chains.
They should acquire more capabilities to develop modular sub-systems to transform themselves
from a low-level component vendor to a more sophisticated system solution provider.
Foresight 2023 21
Trend PaaS model emerging as digitalisation transition creates room for
03
aftermarket service growth
The sales of industrial equipment are often affected by the industrial investment cycle. The
uncertainties of global recovery and supply chain have further undermined the confidence
of industrial equipment investment. For industrial companies relying on new product sales,
they will face continuous market fluctuation. Since a few years ago, European and Japanese
industrial equipment manufacturers have begun to develop the aftermarket service sector. By
offering digital modifications of existing equipment and systems, they helped clients to unlock
more value from industrial equipment with long life cycles. For example, global escalator and lift
manufacturers have accelerated their digital modification of existing products to win more share
of maintenance and repairment market. Foreign processing equipment makers now offer factory-
level digital link modifications for their products in the form of smart manufacturing solutions.
Roland Berger believes that Chinese industrial equipment makers should join this competition
through R&D of digitalisation products and upgrading clients' existing equipment. They should
fully tap the growth potential of long-life-cycle equipment market.
Trend
Enhance marketing capabilities to grasp opportunities created by
04
market transitions
The development of new energy vehicle, semiconductor and renewable energy industries have
changed the name list of manufacturing industries' key clients, who would buy in a different way
with an upgraded set of requirements. For example, automotive industry clients often have a long
and complicated procurement procedure, which are time-consuming and often demanding. This
means process manufacturers need to improve their coordinating capabilities across research,
produce and sales activities. For some manufacturers leading certain industries, their previous
fast growth were caused by tight balance between demand and supply, so all they needed to
do was to concentrate on production. However, as many industries are undergoing structural
changes, the balance of supply and demand has shifted. Facing the mounting pressure,
manufacturers should build new core competence by holistically transforming themselves into
market- and client-centric companies and being led by market demands.
Trend Chinese manufacturers to benefit from domestic substitution and
05
localisation of supply chain
The booming of domestic clients in automotive, renewable energy and semiconductor industries
has benefited their domestic suppliers in process industries, who are their natural preferred
vendors. On the other hand, foreign component suppliers had met challenges in clients'
requirement to cut cost, global supply chain disruption caused by COVID and global trade
tensions. They regarded the localisation of supply chain as a strategically important priority
and have proactively accelerated the process. These factors have created new opportunities
for Chinese process industry manufacturers. However, it's worth mentioning that this window of
opportunity might close at any time. Manufacturers must grasp it as soon as possible to win an
upper hand in the future.
22 Foresight 2023
Trend Full product line manufacturers to face challenges on both high- and
06
low-end sectors
In retrospect, some industry-leading manufacturers have earned their status by adopting a
full product line strategy. They might have chosen this to quickly expand their scale or meet
the demand of guaranteeing domestic supply chain. However, the current market competition
has caused a two-pronged challenge for them. At the low-end, the costs of raw materials and
production have kept rising. At the high-end, their products aren't good enough to compete
against specialist companies or global giants. These full product line companies urgently need
to explore their new business models.
Trend Company transition to be decided by product line reshuffle,
07
communication of brand value proposition, operational cost
reduction
Amid the current transition, companies must reshuffle their product structure, which means they
have to decide whether they want to continue their full product line strategy or to focus on a
niche mid-tier or high-end sector. This choice will dictate the direction of their coordinated and
integrated transformation of research, produce and sales activities.During the transformation,
companies will also need to treat brand propositioning and communication of brand value as
strategic priorities. They must clearly articulate their brand value and product features to make
this transition a success. At the same time, the process industry companies will always need to
optimise their operations to cut cost.
Trend As decarbonisation expand upstream, companies have to develop
08
holistic sustainability strategy
The steady progress of China's carbon neutrality policy has expanded the decarbonisation
transition’s influence on companies along the upstream value chain in the process industry. It is
imperative now for businesses to develop their comprehensive sustainability strategy. According
to Roland Berger’s observation, many companies are now proactively piloting and even have
become leaders in usage of recyclable materials, R&D of high-performance products, optimising
energy structure and reshuffling product line.
Trend
Chinese companies going global as foreign markets becoming
09
increasingly important
As the domestic competition intensifies, Chinese manufacturers begin to focus on overseas
markets to find their "second curve". Their strategies included exporting products, buying raw
material assets and building foreign plants to serve downstream clients which have expanded
overseas. On the other hand, Chinese manufacturers have become mature and now want to
grasp the window of opportunity of global supply chain reshuffle to earn a foothold at the global
market. That being said, these companies have to learn to stand out in a global competition,
build a robust supportive system and develop critical capabilities.
Foresight 2023 23
Trend Manufacturing companies need to build competitiveness in value
10
chain management, lean production and innovation to survive and
thrive in the wave of transformation
Optimise value chain and production capacity layout to enhance resource allocation
competence: As the global industry chain is undergoing a major reshuffle, manufacturing
companies should start with optimising their value chain management, and then improving
flexibility by partnering with upstream and downstream suppliers/clients; at the same time,
they should optimise production capacity allocation according to regional political environment
changes as well as redesign their supply chain to achieve security through diversity.
Leverage lean production to enhance operational competitiveness and become market
consolidator or niche market leader: There is plenty of room for improvement in the management
and operation of China's manufacturing industry. With industry consolidation and accelerated
liquidation of weaker companies, the earlier a company can realise lean production, the more
likely it will consolidate the market and become the leader of its sector.
Digitalisation transition to support business and operation upgrading: Currently, companies
should expand their pilot digitalisation projects to cover a bigger part of their businesses to
enhance operational efficiency. At the same time, they need to develop new capabilities through
digitalised innovative product development, digital marketing and digital business models. In
the long term, manufacturing companies need to join forces with Internet companies to develop
digitalised manufacturing operation models and cloud-based platforms, export their newly
gained capabilities and lead the whole industry's upgrading.
Make early plans to build long-term internal competitiveness – innovation and talent pool:
Manufacturing companies need to overhaul their R&D systems and models as soon as possible
to optimise their innovation resources and conversion efficiency. Manufacturing industry is
increasingly short of advanced and multifaceted talents. Companies should begin their long-
term plan to build their pool of highly efficient, adaptive and digital savvy talents.
In addition to profit margin, companies shall pay more attention to ROE and business portfolio
management: Compared with previous single-business model, manufacturing companies will
face a future consisting of long-term development, diversified business model and frequent
transformations. It is more important to manage capital's entrance and exit. Compared with
profit margin, manufacturing companies should also pay attention to return on equity (ROE) and
business portfolio management to realise multi-layer value growth.
24 Foresight 2023 罗兰贝格中国行业趋势报告
Foresight 2023 25 25

Chemicals &
Materials

In 2023, as China's macroeconomy booster policies start to take effect, we expect

chemical and materials industry to bottom out. Many companies of this industry will
continue their domestic substitution strategy and start to explore overseas markets.
Even though it's a traditional industry, companies are also innovating their brand
building and marketing efforts to develop a new set of "soft powers" to complement
their "hard technological competitiveness".
26 Foresight 2023 Foresight 2023 27

Trend Industry to bottom out as demand returns on the challenges brought by Chinese companies' similar products. Their strategy is to retain

01
their market share and influence as long as possible by fully leveraging their advantages in
Since the beginning of 2022, the global economy had been under pressure as the inflation rates
technology, process and management capabilities. For example, many foreign companies have
went up in many countries and the US Fed continued to hike interest rate. In China, the economy
expanded or plan to expand their systems to produce nylon 66, which is a downstream product
also slowed down due to the resurgence of COVID and the decline of real estate industry. As
of adiponitrile.
the downstream industries were on the defensive, China’s chemicals and materials industry had
a year to forget in 2022.
In 2023, as chemical companies increase their fixed asset investment in China, foreign
companies will continue to play an important role domestically through change or increase
In 2023, we expect the US Fed to raise interest rates less frequently than last year. Given that
production capabilities. This also reflected that thanks to China's complete supply chain and
China’s economic boosting policies are going to take effect, the demand for chemicals and
complementary facilities and resources, it is still a very attractive destination for foreign direct
materials will rebound. Real estate and many other equally struggling industries are benefiting
investment.
from newly released supportive policies, so their demands for upstream materials will rebound.

Trend
At the same time, as the Russo-Ukrainian conflict had caused shortage of natural gas in Europe,
chemical companies in EU were not able to produce at full swing. This has also created room High-rising investment into new energy materials, but once blue sea

04
for China to increase chemical export. It is worth mentioning that the global economy still has is turning red
many challenges in 2023. The uncertainty in the global market will significantly impact Chinese
The recent fast growth of new energy vehicles in China has triggered a wave of production
chemical industry’s recovery.
capacity expansions of lithium-ion battery and raw materials. However, we can already see

Trend
an oversupply looming on the horizon. For example, by 2025, the planned production capacity
Domestic substitute strategy to continue, Chinese companies to for major raw materials of lithium-ion battery, such as lithium iron phosphate, anode materials,

02
upgrade global expansion electrolyte solution, and lithium hexafluorophosphate, are 1.5 – 4 times that of the estimated

Recently, the backlash against globalisation has forced Chinese chemical companies to demand in that year.

strengthen their technological competitiveness. Domestic substitution has become the

mainstream strategy for future growth. Currently, this progress has gained new momentum as In 2023, the oversupply might intensify the market competition. The challenging reality will

companies keep investing in R&D of advanced technologies, rebuilding supply chain networks force domestic manufacturers to continuously improve their technologies, production efficiency

and screening alternative products to prepare for foreign supply disruption. In 2022, a few and client relationship. Only those with high-quality product, cost advantage and close client

Chinese companies started their adiponitrile plant projects, indicating that Chinese companies relationship can eventually stand out.

now also have technologies to produce this crucially important mid-product. Also, many new
polylactic acid projects were announced in 2022, reflecting that the lactide synthesis technology
Trend 'Soft power' increasingly important as marketing begins to matter

05
has become available to Chinese companies. Some basic chemical product manufacturers,
As Chinese chemical companies enhance their technological and R&D capabilities as well
domestic substitute chemical product makers, and some companies in sectors where Chinese
as production efficiency, developing a new set of "soft powers", such as brand building and
companies have inherent advantages are proactively looking at the overseas market. They are
marketing, has also moved up on business leaders’ list of priority. The cost of acquiring
not satisfied with selling to China alone, hoping to reach foreign clients through trade channels.
information has declined so much in the digital era that B2B clients now have higher

Trend
expectations on service experiences and product functionality. They also judge the quality of a
Foreign companies plan to move production capabilities. China is solution based on its full-circle client experience. Against this backdrop, chemical companies

03
still the preferred candidate.
Due to the serious and lasting impact of Russo-Ukrainian war, the energy price in Europe
has soared. Some global chemical giants are thinking of moving plants to other continents.
The attributes of an ideal destination mainly include stable energy price, complete supportive
supply chain, and a big local consumer market. China is still one of the preferred candidates.
At the same time, as Chinese companies continue to make breakthroughs in key fundamental
technologies, foreign firms had to revisit their business model in China of protecting marketing
share and profitability by retaining technological barrier to entry. Many foreign firms have
chosen to quickly expand their production volume of products and downstream products to take
start to review their existing corporate culture and brand propositioning to see if they are up
to clients' standards. Top global chemical companies often pay a lot of attention to their brand
value communications and excel at providing excellent client experiences. They integrate client
experiences into their corporate philosophy and have strategically reshaped themselves from a
product-centric provider to a service/solution-centric supplier.
In 2023, Chinese chemical companies will also embark on their journey to building "soft powers".
In addition to outstanding R&D and production capabilities, excellent branding and marketing will
also help them to build their competitive differentiation.
28 Foresight 2023 罗兰贝格中国行业趋势报告
Foresight 2023 29 29

Energy

The volatile global energy market and China's pledge in pursuing its carbon peaking
and carbon neutrality targets are deeply reshaping China's energy industry. Many
energy companies are at a historical crossroads. The Report to the 20th National
Congress of the Communist Party of China reiterated the importance of dominating
its own energy supply. But at the same time, we also need to take into consideration of
China's energy reserve structure and take a well-planned approach in implementing
the carbon peaking and carbon neutrality policies during the transition. It is crucial
for energy companies to align their pace with the national transition agenda to win in
the future.
30 Foresight 2023 Foresight 2023 31

Trend Thermal power to return as backbone of China's energy security The first batch of "large-scale bases" has a designed capacity of 97.05GW, expected to be grid-

01
connected this year. The second batch has a capacity of 42GW and will get-connected in 2024.
The majority of China's thermal power industry lost money in 2021 and 2022, and the industry
The third batch is in the application and approval stage. China is expected to install about 200
as a whole still faces many challenges, such as the low utility of installed generation capacity
million KW of wind and solar power generation capacities during the 14th Five Year Plan period,
as well as higher cost of power generation than income. In addition, the industry is struggling
mostly in deserts and Gobi. Compared with average subsidy-free PV projects, wind and solar
with weak profitability and high debt-to-asset ratio.Thermal power companies have some
power in large-scale renewable energy bases have many non-technological advantages over
options to turn around the situation. In the upstream sector (i.e., coal supply sector), they can
land cost and transmitting grids. This will be a major battlefield for big energy companies in the
form coal-electricity joint ventures. In the midstream sector (i.e., power generation sector), they
short term.
should improve efficiency, enhance end-of-pipe treatment and make a clean transformation.
In the downstream sector (i.e., power consumption sector), they should invest in flexibility
Distributed PV will play an increasingly important role in China's future energy supply structure.
transformation and heat supply transformation projects. To become the backbone of China's
The trend is propelled by China's carbon neutrality policy and other related supportive policies,
energy security, thermal power companies must complete transformations in three aspects:
as well as abundant places available for installation. Such systems are being built extensively
now. Relatively speaking, industrial and commercial spaces are more mature candidate
1. From supplying electricity to supplying flexible capacity, which calls for accelerating the
locations to install distributed PV, while the so-called county-level PV projects and building-
flexibility transformation. Since thermal power makes up the majority of China's energy supply,
integrated photovoltaics (BIPV) projects have bigger potential, which are closely followed by
the country's energy flexibility transformation must start with thermal power plants. Thermal
venture capitals. The county-level PV projects developed quickly in 2022 and will become the
power generating units must undergo more extensive and in-depth transformations. These
new source of incremental generation capacities in the coming years. However, such projects
upgrades would help thermal power plants to agilely respond to the fluctuations in the power
will meet challenges in lack of sufficient distribution gird capacity in rural areas and increasing
grid, and realize the three goals of lowering minimum load, shortening start-stop time, as well as
marginal construction difficulties. New business models are emerging for these projects, among
increasing ramping speed.
which Build-Own (BO) mode will remain dominant, while Build-Transfer (BT) mode is expected
to increase in share.
2. From a high carbon emission electricity source to a low carbon emission source, which
means it must accelerate the ultra-low emission transformation. In the short term, thermal power

Trend
plants should further promote the application of ultra-low emission technologies and energy-
Further deepening of electric power system reform
saving equipment to continuously reduce the level of pollutant emissions and per unit coal

03
consumption. In the long term, with the increased maturity and profitability of CCUS technology, In 2022, China made steady progress in its power system development and transformation

the retrofitting of thermal power plants with CCUS will become a trend, driving the industry towards marketization. Currently, China has established a power trading market system with the

towards Net Zero. following features:

* Geographically, supports intra- and inter-provincial trading,

3. From being a single energy source to providing multiple complementary energy supply, * Time wise, supports supports spot, mid- and long-term trading,

which means they should encourage coal-electricity joint venture to boost revenue. China has * Product wise, allows trading over power, auxiliary service, etc.

released many preferential policies to encourage coal-electricity convergence, CHP, CCHP as

well as circular economy projects. Thermal power companies should proactively take advantage It is expected that in 2025, a unified national-level power trading system will be initially

of policy benefits and develop industrial user market with heating and cooling services, thus completed, with which the national-and provincial-level markets will run collaboratively; by 2030,

increasing the heat-electricity ratio. Furthermore, they should develop incremental C(C)HP the unified system should be mostly completed when the national- and provincial-level markets

projects according to needs of industrial clients, contributing to further increasing energy will run as one.

efficiency and cutting per unit carbon emission.

The power spot market is in pilot stage with the first batch of provincial power spot markets in
continuous trading, the second batch in simulated trading and the other pilot markets in the
Trend Wind and solar power industry to grow with both 'Mega base' and stage of application approval. The trial settlement of inter-province spot markets has started.

02
distributed models Commercial and industrial clients can join the trading directly or indirectly through grids-
owned brokerages. In terms of auxiliary service market, some regional markets launched peak
During the 14th Five Year Plan period (2021-2025), the policy on constructing large-scale
regulation auxiliary service before spot market being set up to increase the flexibility of power
renewable energy bases will further drive the growth of renewable power generation capacity.
system as well as reduce peak and trough load gap. We expect the demand for auxiliary service
32 Foresight 2023 Foresight 2023 33

will grow quickly. Currently, auxiliary service supplies only 1% of total electricity consumption.
Trend Decarbonisation transition of energy consumption side

05
With the upcoming extensive addition of renewable energy sources, auxiliary service will likely
After the Kyoto Protocol, carbon neutrality has gradually become the grasp of the EU and
contribute about 5%, on par with that in advanced countries.
other developed countries to establish new international rules and consolidate their vested
interests. In 2022, the EU took the lead in adopting the Carbon Border Adjustment Mechanism
The tariff system will migrate from calculating only the electricity usage to calculating multiple
(CBAM), which will begin to levy a tariff on listed imports (e.g. iron and steel) according to
aspects (e.g. auxiliary service usage) so as to diversify power plants' income sources. The costs
their carbon footprint in 2026. Other developed countries such as the US, Japan and Canada
of generating electricity will, therefore, be passed on to downstream users, and will be fairly
are also expected to follow suit. These efforts are launched to prevent "carbon leakage" and
distributed among C&I and residential users. The power price for residents and agricultural
create a level playing field for domestic companies which are required to meet decarbonisation
users will remain relatively stable, but it’s possible that the price will go up with the introduction
requirements.
of peak-trough price scheme and widening price difference of stepped tariff.

For most products, they can reduce carbon emission throughout the life cycle from production

Trend Natural gas to grow but with fluctuations aspect: from green power procurement, green product innovation tenergy consumption reduction

04
during usage, and green sales. For chemical, steel and other emission-intensive industries,
Due to Russia-Ukraine conflict and other "black swan" events, natural gas price remained at
switching to green power is the best decarbonisation approach. More energy companies have
a high level but fluctuated wildly in 2022. Combined with the impact of COVID resurgence in
jointed their clients' transition through co-creating investment strategies, exploring business
China, the overall domestic demand for natural gas dropped slightly last year. However, against
directions, adjusting energy structures and optimising operational management. Through these
the backdrop of carbon peaking and carbon neutrality targets, natural gas has become the
initiatives, they can achieve mutal advantages with their clients by cutting cost and carbon
only strategically transitional energy source. It is expected to grow again in the near future with
emission, creating additional income source and boosting the global low-carbon competitiveness
following three attributes:
of the final products.

1. Steady growth. Due to being lower-carbon among fossil fuels, natural gas will become an
important alternative in China during the period of energy structure transformation, and its
usage in power generation and industries will contribute the majority part of incremental natural
gas consumption during the 14th and 15th Five Year Plan period. On the one hand, natural gas-
based thermal power plant is the best option as a flexible and clean back-up energy, with huge
room for growth before the carbon peaking year of 2030. On the other hand, it is quite difficult for
industrial users to replace coal with electricity in the short term. Most of them might use natural
gas as a short-term transitional decarbonisation solution.

2. Earlier peaking. During the decarbonisation transition, while natural gas will be widely used
to replace coal, it will also be phased out by electricity or other renewable energy sources. We
expect that the peak of natural gas consumption will be reached between 2035 – 2040, earlier
than previous estimations.

3. Low peak. In non-power generation sectors, as the energy efficiency being improved, as well
as fossil fuels being replaced by green power and hydrogen energy, the peak demand for natural
gas in the carbon neutrality scenario will also be lower than previous estimation.
34 Foresight 2023 罗兰贝格中国行业趋势报告
Foresight 2023 35 35

Transportation
& Logistics

In 2023, China's transportation and logistics industry needs to grasp opportunities

brought by the domestic economic recovery, because the international environment
is still full of challenges, such as global geopolitical conflicts, the energy crisis in
Europe and Sino-US tension. To leverage the macro trends, the industry must
draft strategies to restructure supply chains, improve transportation networks,
enhance state-owned enterprises' efficiency, redefine commercial trade and
logistics, reintegrate ecosystems and further upgrade operational efficiencies. In
terms of corporate development strategies, transportation and logistics companies
need to build capabilities of digitalisation, green and decarbonisation operations,
organisational efficiency, as well as mergers and acquisitions so that they can win in
the future.
36 Foresight 2023
Leverage: Following macro trends
Trend
Restructure supply chain: Under the instability of global economic
01
development, it is imperative to rearrange industrial chain and supply
chain to build resilient and secure supplies.
In 2023, the global economics will continue to be affected by a series of factors, such as the
Russo-Ukrainian war, economic stagflation and protectionism in global trade, which will hinder
China's further integration into the global economy. However, China is still working hard to
participate in the international market at a deeper level. Regional trade deals like the Regional
Comprehensive Economic Partnership (RCEP) are expected to make substantial progress. In
the meanwhile, companies are still exploring new models such as B2C cross-border e-commerce.
At the same time, it is imperative for some industries, especially the manufacturing industry,
to change their industrial supply chain structure. They need to switch from building one global
supply chain to several sub continental supply chain modules, from a centralised supply chain
model to a decentralised supply cluster model, which can effectively enhance the resilience and
safety of their supply chains. As for companies in the transportation industry, these realignments
provide them with an opportunity to review their proposition in the value chain and grasp more
market share.
Domestic market: While international logistics giants used to dominate the key logistics routes,
the localisation of supply chain will enable domestic companies to further take advantage of
their regional networks within China. They will be able to provide clients with more customised
services and better stability in key channels and logistics networks.
International market: Domestic manufacturing companies (such as electric vehicle OEMs and
lithium battery manufacturers) and other shippers have become more dominant in the world
market and started to expand overseas. More services are required to support their globalisation
in both localised and international supply chain sectors. With the implementation of RCEP
policies, some labour-intensive industries have moved to other countries, and regional supply
chain networks between China and Southeast Asia will be more important. Supply chain service
providers should leverage this momentum when shippers open their plants overseas. Logistics
companies also need to cooperate with companies in upstream sectors, including shipping raw
materials to battery module plants and then to battery production bases, to provide them with
integrated industry chain services. In addition, many regional markets, such as the Southeast
Asia, are following the path of China's e-commerce boom, and the demand for logistics services
has surged. Leveraging operating experience and management capabilities accumulated
domestically, Chinese logistics companies are expected to accelerate growth in overseas
markets.
Foresight 2023 37
Trend Improve transportation networks: Local state-owned transportation
02
companies must make good use of this opportunity window to
holistically optimise transportation network.
China's economy is expected to remain Asia's bright spot in 2023. The State Council's "Twenty
Measures for Prevention and Control" and "New Ten Measures" have given people positive
expectations. China's economy has entered the recovery and reconstruction period of the
post-pandemic era. As the backbone of economy, transportation infrastructure is expected to
continuously enable the steady growth. At the same time, the smooth transportation operation
relies on extensive infrastructure construction. There is room for further improvement in
multimodal transport facilities, cold chain infrastructure networks (such as warehouses at farm
gates), and emergency logistics system networks.
The government and local transportation investment companies need to look at the big
picture to coordinate and plan a diversified transportation network, including sea, land, air and
railway. They should improve facilities, target the shortcomings, improve the collaboration of
transportation networks and optimise the allocation of resources. In addition, the pilot projects of
real estate investment trust (REITs) in the infrastructure sector have generally work out smoothly
since their launch in 2020. Major stakeholders have reacted positively. In 2023, more funding
models will be explored based on these achievements to attract more private capital to invest in
this sector.
Trend Improve state-owned enterprises' efficiency: China's top-level
03
strategy has highlighted the values of both transportation system
and state-owned enterprises. State-owned transportation and
logistics companies will rejuvenate through restructuring and stock
market listing.
The report to the 20th National Congress of the Communist Party of China reiterated that "to
build a modern socialist country in all respects, we must, first and foremost, pursue high-quality
development". Modernising the industrial system is an important task, especially that China
must boost its strength in transportation, build an efficient and smooth logistics system to help
cut distribution costs. The report also emphasised the importance of making China’s industrial
and supply chains more resilient and secure. These statements have given a clear direction of
transportation and logistics industry’s future development.
At the same time, the report has highlighted the role of state-owned capital and enterprises'
role in constructing a high-level "socialist market economic system". Compared with previous
official statements, this report for the first time included "state-owned enterprises" in the phrase
of "to see state-owned capital and enterprises get stronger, do better, and grow bigger". It also
emphasised " enhance the core competitiveness of SOE", pointing out the development path for
state-owned transportation and logistics enterprises.
38 Foresight 2023
The SOE reform will be further advanced to consolidate the achievements of the "three-
year action plan for SOE reform" (2020-2022) and further implement the requirements of the
20th National Congress of CPC (including enhancing the core competitiveness of SOEs).
After the port industry underwent a round of integrations in the past few years, the state-
owned enterprises in the transportation industry will also carry out strategic restructuring and
integrations, further optimising the industry's landscape and structure. The state-owned capital
Trend
investment platforms will play a more prominent role in the process, which are expected to
improve the efficiently of state-owned asset management. Mixed-ownership reforms and stock
06
market listing might be the main drivers to rejuvenate state-owned enterprises in this industry.
Trend
Redefine commercial trade and logistics: The need to "improve
04
efficiency and cut costs" will redefine the relationships between
logistic service suppliers and shippers
Modern industrial upgrades call for more complicated supply chains. The construction of an
efficient and smooth transportation system requires more tightly organised connections between
logistics and trades. These have changed the relationship between logistic service suppliers and
cargo owners of each link, who used to be less connected to each other. The new trend means
shippers are in need for better visibility of the flow of their goods, tracking goods location and in
the end, achieve value creation through in-depth control of the flow. On the one hand, this will
propel cargo owners to participate more directly in supply chain management either through co-
creation or self-operation. On the other hand, it will accelerate the traditional traders and logistic
service providers to transform into supply chain service providers, especially in automobile
manufacturing, agricultural product supply and commodity trading.
In the automobile industry, electric vehicle sales have soared recently. These companies now
are becoming more dominant and active in the decision-making process of export logistic
services, as to enhance their global end-to-end supply chain management capabilities. As for
the consumer goods industry, the omni-channel operation model increases the demand for
integrated supply chain 3PL services. The new model can efficiently manage omni-channel
Trend
inventory, better respond to unexpectedly peak volume of orders, fulfil complex orders, etc. The
end-to-end integrated solution capabilities will become the current core competence of logistics
07
service providers. In commodity trading industry, traditional traders need to gradually transform
into supply chain service providers to be more deeply involved along the value chain.
Trend
Reintegrate ecosystems: Leading logistics companies must integrate
05
with supply chains thoroughly, improving supply chain service
capabilities.
The slowdown of domestic economic development and weak consumption demand have
undermined the logistics market growth, including courier and express delivery sectors. The
industry entered the era of competing for a fixed size market. Leading logistics companies
usually have a core asset foundation of warehouses and transportation resources, upon which
Foresight 2023 39
they have developed efficient warehousing and transportation capabilities. By upgrading into
an integrated service provider model, logistic companies can increase their revenue while
forming a closer relationship with shippers. Logistic companies not only need to optimise their
warehousing and transportation service efficiency, but also have to better understand vertical
industries’ supply chain demand and enhance capabilities of providing comprehensive solutions.
Fur t h e r up g r a d e o p e r a t i o n s: A s t r a f f i c vo lu m e r e b oun d s,
transportation and logistics service providers must keep flexibility
and guarantee basic service capacity
At the end of 2022, the State Council’s "Twenty Measures" and "New Ten Measures" and other
major COVID policy adjustments have brought positive expectations. The traffic on roads and
aviation may fluctuate significantly across time and geographical dimensions. From the time
perspective, the relaxing of pandemic controls may cause a burst of pent-up travel demand,
putting enormous pressure upon a transportation system which had been operating at a very
low level in the past three years.
For example, when the Europe and North American governments relaxed pandemic control
restrictions during the summer tourism season, their passenger transport volume quickly
returned to the level of 2019. However, some airports and airlines were not well prepared in
terms of human resource allocation, operational organisation and post-pandemic supervision.
It caused operational tensions, serious delays and massive flight cancellations in some core
air hubs. Domestic infrastructure operators and transportation service providers need to grasp
the critical opportunity window to make forward-looking arrangements, enhance full-network
operation efficiency, and prepare buffering resources to deal with unexpected demand. These
efforts will help prevent major operational disruptions.
Win: Building micro capabilities
Digital enablement
Smart infrastructure and network: Smart transportation infrastructure (such as smart roads,
smart docks) is the underlying core component of a smart transportation network. Transportation
regulators and infrastructure investors will continue to invest in the combination of Internet
of Things (IoT) and automation technologies, in the scenarios like smart highways and smart
ports, to improve operational management efficiency. These changes are pushed by policies
such as "digital transportation" and "new infrastructure construction action plan", and are also
responding to the changes in pandemic handling policies and multiple requirements such as
"guaranteed traffic and smooth flow".
40 Foresight 2023 Foresight 2023 41

Full-chain digital intelligence in operational service: The technical capability of digital products
Trend Green and low-carbon operation

08
has been improved. In addition, the market is requiring companies to provide customised
As the second largest carbon-emitting industry, the transportation sector has a long way to
services to serve differentiated needs. These changes will continue to drive logistics service
go in decarbonisation. All parties should continue to optimise the transportation structure,
providers to further improve their digitalisation levels in non-Vehicle Operating Common Carrier
adopt decarbonise transportation equipment, and build environmental-friendly transportation
and non-Vessel Operating Common Carrier services, transportation capacity integration
infrastructure.
management, and vehicle carbon emission management, etc. The improvements will help close
information gap as well as increase supply chain resilience and operational efficiency. In addition
Optimise the transportation structure: The transitions of multimodal transport such as shifting
to the digitalisation transitions of transportation, warehousing and delivery services, there should
from road to water, or from road to rail, will be further implemented in bulk cargo and in the
also be long-term plans of integrated digitalisation throughout the entire supply chain such as
medium- and long-distance delivery services. The supporting infrastructure and facilities of
in procurement, logistics, production, and sales. However, it should also be noted that cargo
multimodal transport still need to be improved.
owners and logistics service providers have made varied progresses in digital infrastructure
construction, data connection, data contribution and data security. The digitalisation of the
Further progress in decarbonising transportation equipment: At present, the transportation
whole supply chain will take time. Digitalisation transition service providers for the logistics
equipment in some areas, such as ports and certain road scenarios have completed effective
sector must be prepared to provide long-term service and repeated upgrades.
decarbonisation modification. Such efforts in other service scenarios including long-distance land
transportation, ships and other asset-heavy transportation formats have entered deep end of its
reform. Some vertical industries have already applied and expanded pure electric transportation
in manufacturing scenario. In the future, the logistics industry will continue to take advantage
of breakthroughs in vehicle equipment technologies, improvement in energy infrastructure
networks, and optimisation in cooperation models (such as providing low-carbon products
to long-term buyers who need green supply chains).

Building environmental-friendly transportation infrastructure: The green energy transition and

upgrade of transportation infrastructure will continue. Ports and logistics real estate companies
have started meaningful pilot projects with energy-saving and low-carbon systems. Infrastructure
investment and operation companies will adopt more green concepts in transpor tation
infrastructure planning, construction, operation and other areas.

Trend Efficient organisation

09
Building a dynamic organisation with balanced short-term and long-term capabilities:
Global transportation companies have all been impacted by various "black swan" events in
recent years. They are facing the challenge of being both "fast" in the short term and "strong" in
the long term.

On the one hand, in the short term, the turmoil in the global supply chain system and the pandemic
have caused a shortage of global delivery capacities. The demands on logistics companies are
higher as they need to meet customer needs with limited resources. Companies must change
their existing management procedures, establish flexible and virtual internal organisations,
deploying resources closer to the front-line and become more client-centric. On the other
hand, in the long run, major changes and crises in the global supply chain might happen more
frequently. (For example, after logistics companies had invested heavily in international cross-
border air and ocean freight capacity over the past one to two years, they now face the risk of
42 Foresight 2023 Foresight 2023 43

excessive capacity and falling prices again.) In the future, they must learn to remain robust
in a more volatile environment. To achieve this, they need to improve front-line operational
capabilities, establish and stabilise a standardised foundation, and allocate company resources
in a prudent and scientific manner.

The two goals of being "fast" in the short term and "strong" in the long term in fact created two
different sets of management requirements. In the future, they need to be more careful when
setting up organisational structures of the front, middle and back offices. Companies need to
plan in more details when constructing rigid and flexible processes, so that they can achieve
both short-term and long-term goals as well as improve companies’ resilience.

Developing multi-talented employees and teams：

Logistics companies are undertaking digitalisation and decarbonisation transitions in their
traditional businesses. At the same time, they're also pursuing new types of businesses, such
as cross-border e-commerce and JIC (Just in Case) supply chain management. These changes
call for more diversified competitive capabilities. As a result, logistics can not longer apply
traditional talent profiles to nurture and recruit employees. In this new business reality, logistics
companies need to review their existing talent acquisition, retention, incentive and development
programmes to see if they can support building multi-talented and diversified teams. If these set-
ups cannot be changed quickly, logistics companies need to find solutions to efficiently integrate
talents of diversified expertise into well-functioning teams by providing them with flexible, open
and smooth internal coordination schemes and communication platforms.

Trend Merger and acquisitions

10
For logistics companies to consolidate their positions in a fixed-size market, they will remain
active in merger and acquisition activities and enter more diversified niche sectors, which can
also help them obtain complementary resources and capabilities, extend service network and
explore their "second growth curve".For example, general transportation service companies
such as courier and express delivery services will accelerate M&A of similar companies and
networks. Logistics service providers concentrating on a single process in cross-border logistics
will also strengthen their end-to-end network through M&A to acquire upstream and downstream
businesses. When evaluating an M&A target, logistics companies need to look at target
companies' business potential and analyse if their corporate culture and foundational capabilities
are complementary. A good M&A deal will create synergy in creating more value and unlocking
potential.
44 Foresight 2023 罗兰贝格中国行业趋势报告
Foresight 2023 45 45

Consumer
Goods & Retail

In retrospect, China's consumer goods and retail industry was searching for
opportunities in a year of challenges. Offline retail industry, including clothing and
restaurants, experienced an unprecedentedly difficult time due to the repeated
pandemic outbreaks and the strict prevention and control measures. At the same
time, online retail faced challenges in both stagnant traffic growth as well as logistics
and distribution disruptions.In terms of categories, sectors like fresh grocery,
food and home appliance had structural opportunities and challenges brought by
Chinese consumers' stockpiling: some companies were well prepared and grasped
the fleeting opportunities, while more had difficulties in manufacturing and shipping
products amid supply chain disruptions to meet the unexpectedly huge demand. In the
meantime, the tightened control on real estate industry, lower income expectations
of homebuyers and the commercial crisis of leading developers had slowed down
the overall consumer demand for home building materials, while companies of
different status in this sector were exploring new ways of survival and growth fitting
their condition.In the domestic market, the overall consumer demand had been
suppressed for a short while. However, the new round of overseas growth of Chinese
cross-border e-commerce platforms has created new opportunities for long-tail
manufacturing companies in clothing and daily goods sectors. With this article, we're
looking forward to working with everyone to brave headwinds, explore new themes
to overcome current predicament, find smart solutions with high efficiency and low
cost, as well as achieve new growth through proactive innovations and acquiring new
capabilities.
46 Foresight 2023
Trend Premiumisation and value for money propel growth of consumer
01
goods industry
We believe that new consumption trends will happen in 2023, which marks the beginning of the
post-pandemic era. Many have expected three themes to emerge, i.e. "make-up consumption",
"back to the pre-pandemic norm" and "the establishment of a new normal". The adjustment,
innovation and even disruption of each category will unfold.We believe that "premiumisation"
and “good value for money” will remain the top two trends based on which consumer goods
and retail companies should draft their strategies. On the one hand, the growth of high-end
brands will continue to exceed that of low-to middle-tier ones, reflecting Chinese consumers'
unwavering pursuit of high-quality products, great brands and decent services. For emerging
brands which can quickly capture new consumer needs, there is huge room for growth. On the
other hand, some Chinese consumers have become more prudent due to the impact of COVID
and are proactively comparing prices. They exam trends like professionals and review their
personal needs more rationally, which created huge demand for products and retail channels
that can offer great value for money.Consumer product companies and retailers must leverage
these two trends to quickly build their differentiated core competence.
Trend
New generation creating six consumption trends
02
Nowadays, consumer goods brands are increasingly focusing on GenZ consumers, who were
born between 1995 and 2009. For brands, they are not only the youngest generation accessible,
but also the group which will matter most in the future. Through extensive research, we have
found that most GenZ consumers have displayed the attitude of "cautious now, positive future" in
the face of the highly uncertain environment. This evidence suggests that their spending power
has much potential to be tapped into in the future.
In the meantime, this new generation's consumption has also shown unique trends and
characteristics different from previous generations. At the macro-level, GenZ consumers have
high potential, high vitality and high profile in fashion-related consumption. At the micro-level,
their purchasing has indicated six major trends, including:
1. Breaking up geographical and spiritual silos
2. Returning to "real me" needs
3. Rejecting stereotypes
4. Appreciating Chinese culture and like high-quality products that have cultural roots
5. Mixing virtual and real spaces
6. Preferring professional insightful contents and proactively sharing viewpoints
We believe that it is imperative for brands to reshape their communication methods with this
young segmentation by leveraging these insights, which are future-oriented topics that require
further focused research and understanding.
Foresight 2023 47
Trend Prime time for D2C model when digital asset leads omnichannel retail
03
strategy
Against the backdrop of online and offline integration, retailors are facing multiple challenges,
including high-cost and low-efficient new consumer acquisition, outdated brand image and
inaccurate understanding of users' needs. These have been widely felt by consumer goods and
retail companies, especially in cosmetics, sports and pet categories. However, the development
of D2C model is a feasible solution, which is also an important lever to implement consumer-
centricity strategy and extend customers' life cycle. In essence, the core of D2C model is:
1. Directly facing consumers by cutting out middlemen, 2. Accumulating digital intelligence
assets, and using digital transformation to improve operation.
Through the D2C model, companies can establish a centralised, trackable, and implementable
omnichannel and consumer segmentation strategy. This approach can continuously increase
and consolidate a brand’s share in its targeted consumer segment, as well as retain consumer
loyalty across channels as the brand can provide consistent service and experiences.By
adopting the D2C model, consumer goods companies will have more tools and methodologies
to break down the abovementioned operational problems into feasible actions, identify
approachable breaking points, and combine their corporate DNA and inherent advantages to
build their long-term model of business operational capabilities.
Trend
Upgrading offline stores to provide ultimate experience and service
04
With the rise of e-commerce and D2C models, the role of offline retail stores has significantly
changed, when in some scenarios more than 60 percent of consumers who have visited a brick-
and-mortar store would eventually buy from online channels. More retail stores have been
transformed from sales points to retail centres, service centres and experience centres. It is an
outdated practice to regard sales volume as the main KPI to measure a physical store’s value.
The traditional channels are facing multiple challenges, such as low brand awareness, passive
and inefficient brand message communication, and low added value from their services. Many
brands are transforming offline stores so that they can be more cutting-edge, timely, engaging
as well as provide richer sensory experiences. These efforts can increase the value of physical
stores by embedding lifestyle into shopping, offering holistic sensory experiences and rendering
heart-warming services. A leading fashion and lifestyle retail brand, for example, has turned a
store into a scenic spot-styled service centre, which is equipped with a photogenic studio and
often hosts online to offline interaction events. This strategy has greatly enhanced consumers'
engagement with the brand and will lead the development of retail stores in the future.
Trend
FMCG brands targeting rural markets to find incremental sales
05
In the post-pandemic era, the rural consumer market has shown a stronger recovery compared
with the urban market. Against the backdrop of higher Internet penetration, rural revitalisation
and urban-rural integration, investment into rural market has begun to pay off. FMCG companies
48 Foresight 2023 Foresight 2023 49

perspectives of consumer trends, technological advancement and accumulative share of mind.

are all trying to win a bigger share of rural markets by competing in all aspects from product
Innovations around these themes, if presented in a relevant and evolving way, will become safe
to channel.From product perspective: FMCG companies are providing differentiated products,
but surprisingly amazing practices to improve success rates. Even if there are failures, they can
packaging, and services by leveraging the trends of basic categories going premium and
be turned into tread stones for final success.At the same time, we believe that if brands want to
upgrading categories penetrating lower-tier markets.From channel perspective: A leading
go beyond from "extreme" to "make sense", digital consumer insights and consumer interaction
FMCG brand, for example, has built a "deep distribution" model to optimise its retail operation
need to be incorporated into every step of product innovation process to ensure that the new
and management in rural area. It has also leveraged digital tools to significantly improve its
designs are reasonable. A technology company, for example, owns tools that can identify the
performance in business expansion efficiency, network coverage and POS growth capabilities.In
characteristics of various popular products and predict the direction of the next best-selling
addition, brands now have a better understanding of rural consumers' spending habits through
product with the help of big data algorithms. Such digital tools will further enable consumer
in-depth market research. By actively strengthening cooperation with social e-commerce
product innovation in the next era.
platforms such as Pinduoduo, TikTok, and Kuaishou, FMCG companies can approach targeted
consumers more accurately. These initiatives will help them gain core competitive advantage in

Trend
the rural market.
Consumer brands to practice sustainability in multiple dimensions

Trend 08
In the context of increasingly strict global regulations and rapidly rising consumer concerns,
Persona centric and digitalisation strategy to lead brands to victory the sustainability transition has become a top priority for many consumer goods companies.

06
Consequently, they are actively investing in many aspects of sustainability transitions, such as
In the past decade, digitalisation has been the direction for brands to find new source of growth.
supply chain, packaging and promotion. Their efforts include:
Nowadays, digitalised consumer segment management practice has evolved from a tactical
1. Building a green supply chain by optimising material consumption, increasing the use of low-
method of improving growth efficiency to a brand philosophy that can unlock a brand’s long-
carbon raw materials and recycling production waste.
term growth. The digitalisation of marketing has transformed the "people-centric" segmentation
2. Working with upstream and downstream industries such as material suppliers and packaging
asset management from a mere marketing concept into the top driver of growth. Its crux is
suppliers, and focusing on weight reduction, recycling, reuse, material innovation and other
to nurture emotional connections between the brand and its consumers. Careful operation of
technologies to co-develop the green transition of packaging process.
consumer segments can be realised through analysing and tracking their interests and content
3. Proactively investing and participating in sustainability-related movements and social
preferences, and designing customised activation plans and methods to cater for different
activities.
consumer groups. During the process, a wide range of digital assets and marketing tools can
help brands have better insights, measurement and optimisation of their relationship with
Going forward, we believe that companies need to establish a healthy closed loop business
consumers. They can also help break down the complete coordinated operation circle from
cycle from raw materials, creativity, production, marketing, retail, to consumers, so that the
macro strategic planning stage to micro daily execution tasks. It not only covers marketing-
investment in sustainable transition from the business side can flow back to be reinvested. As a
related issues such as resource integration, marketing efficiency, brand building, etc., but
result, the continuous supply of sustainable products will gradually change consumers’ lifestyle.
also creates value by providing answers to key commercial questions, such as daily sales
promotions, online to offline synergy, new product launches, etc. We believe that brands need

Trend
to further adjust their organisational structure to better facilitate digitalised consumer segment
Sales organisations becoming brand-oriented to adopt to market
management as well as plan their decentralised brand value positioning and strategic direction

09
changes
to achieve better internal coordination and integration.
Today, the positioning of the sales organisation in consumer goods and retail companies has

Trend
been fundamentally changed. With the boom of touchpoints and consumers' time online, brands
Digitalisation to unlock extreme product innovation have more diversified channels to communicate with consumers. At the same time, consumers

07
"Extreme makes sense" is leading the way how cutting-edge consumer brands innovate are increasingly expecting a purchasing experience which is effective in both brand building and

products. Looking back at innovative practices in the past few years, we found that the extreme sales conversion. These trends have propelled companies to reform their sales organisations

product positioning is the key to create top-selling products. As long as the product is not from "channel-oriented" to "brand-oriented". We noticed that more consumer product companies

"mediocre", there’s a possibility of success no matter how the product evolves. Let’s take have adopted a sales organisation structure with an agile front office and a large-scale middle

fashion industry as an example. In 2022, both international outdoor luxury brands emphasizing office to enhance strong decision-making capabilities. A leading domestic cosmetics brand,

their ultimate functionality and Chinese trendy brands doubling down in minimalist vibes for example, changed its performance review system to reset various departments’ goals and

achieved remarkable results. When finding innovation themes, brands can combine the three way of working to improve their agile response capability of its sales organisation.At the same
50 Foresight 2023 Foresight 2023 51

time, some companies also attempted to integrate online and offline teams within the sales
organisation through aligning online and offline products, supply chain, marketing and pricing
mechanism. This practice has formed smaller closed loop integrated marketing processes.
Organisational innovations in this direction greatly enable brands to respond to shifts in the
market and help them better reach, understand and serve consumers.
same time, brand communications, including PR of corporate social responsibility campaigns
and regularly publishing corporate sustainability reports, will win the recognition and support of
mature consumers.

Trend Luxury brands to create momentum by leveraging technologies

Trend
12
Agricultural product brands getting mature to serve multi-tier In the past few years, the development of Chinese luxury industry has gone beyond "store

10
demands marketing" and "circle of interest marketing". They have stepped into the stage of "omni-
touchpoint digital marketing" by leveraging the power of digital technologies.With the
The consumption upgrade for meat, poultry and eggs doesn't simply mean a bigger price tag.
development of Metaverse, virtual reality and other digital technologies, the boundary between
The overall growth rate of new proteins such as beef, aquatic is higher than traditional proteins
virtual and reality has blurred. Brands are integrating their real world and digital/print/TV
like pork and eggs. To respond to the challenge, pork and egg brands are leading the pack by
campaigns. For luxury brands, these trends not only have retained their brand DNA, but also
upgrading from meeting the basic health and safety standard to offering special attractions
created growth momentum in an unprecedented way, enriched their brand meanings and further
as well as organic and non-antibacterial products, from basic primal cuts gradually to ultra-
consolidated their luxury image among new generation consumers. Specifically, the digital
processed cuts and further shifting to flavoured products.The demand upgrading is driven by
marketing innovations are happening on the following three dimensions:
the differentiated and multi-tier demands of some key target consumer segments, such as
1. Business model innovation, such as launching and collection of branded NFT products
supermoms (in some families it’s open-minded grandmothers), the new middle class and rookie
2. Presentation format innovation, such as AR, VR, motion graphics
white collars. For example, the pre-made meals which were particularly popular during the
3. Shopping experience innovation, such as online luxury shopping.
pandemic can be divided into two categories. One is "pre-made main course" targeting family-
oriented consumers, who are sensitive to the quality of ingredients and can hardly cook by
We believe that in such a new digitalised environment, a promising luxury brand building
themselves. The other one is "pre-made fast food", serving those whose needs are convenience,
organisation should be able to obtain capabilities of both "consistent communications" and
cost-efficiency and good taste. Agricultural product companies need to develop differentiated
"endless design creativity". They can use digital technologies to precisely capture consumer
strategies to target different consumer groups. For instance, if the products are targeting
insights throughout the consumer life cycle. As long as luxury brands can occupy and
supermoms, it is important to integrate "plant and harvest in one" content or vertical e-commerce
consolidate their share of consumer’s mind, the sales conversion will surely happen sooner
platforms or interact with these consumers via multi-channels. The leading agricultural giants
rather than later.
that have direct control over sales channels are expected to enable the whole industry chain's
service with digital tools, so that they can lead industry transformation and improve efficiency by
leveraging the advantages of all players along the chain.
Trend Premium cosmetics brand to grow with eco-design and differentiated

13
channel strategy

Trend Sustainable fashion remains popular while new narrative wins The ecosystem of China's premium cosmetics industry is undergoing a complex change of

11
consumer trust landscape.For the industry, the offshore duty-free complex in Hainan has become an emerging
growth bright spot, but it has also caused impact on the domestic pricing structure. Meanwhile,
In 2023, we believe that "sustainable fashion" still has huge potential in China. According to
unofficial overseas channels, especially the South Korean travel retails, continued to challenge
our research, more than 90 percent of consumers are "concerned" about sustainability issues,
the domestic pricing structure as well. Confronted with such a complex situation, more premium
including environmental pollution, carbon emissions, plastic usage and waste of resources.
cosmetics brands began to optimise their overall ecosystem.They have assigned different roles
More than half of surveyed consumers have also noticed and recognised the actions brands
for each channel, clarifying their value positioning, pricing strategy, investment requirements
have taken to promote sustainable fashion. Meanwhile, consumers are changing their attitudes
and operation models. The new strategy will further distinguish the local market from foreign
and behaviours via buying sustainable fashion items and are willing to pay for certain price
travel retail and refine the innovation of the overall ecosystem. We believe these initiatives will
premium. They’re also expecting brands and authorities to be more decisive in supporting the
help premium cosmetics brands to attract more consumers and increase their total share in the
sustainability transition of the fashion industry.From consumer insight perspective, we suggest
Chinese market.
that fashion brands should closely follow the keywords of "environmental protection", "carbon
reduction", "plastic reduction", "healthy wear", "organic materials" and "extended product life
cycle" as their breakthrough points for sustainable fashion narratives and innovations. At the
52 Foresight 2023 Foresight 2023 53

Trend Parenting industry to brave headwinds, reshaping channels and

14
business models
The parenting and baby product industry is facing a more complicated situation, as its existing
business model is facing multiple challenges. Leading brands are proactively looking for new
room for growth through reshaping their business model and redefining the value of offline
channels. On the one hand, to serve the specific needs of new generation parents, parenting
and baby brands provide them with more refined products and services. They also extend
users' life cycle and unlock growth potential by expanding product lines as well as innovating
offerings based on deep consumer insights. A leading parenting and baby brand, for example,
has found that the new generation parents had a strong need for one-stop shopping solution of
baby products. Based on this insight, it gradually expanded its offerings from the baby carrier
category, where it started, to cover thousands of others, including diapers, wet wipes, feeding,
bathing & care, toys, strollers, pregnant mother items, early education, etc. At the same time,
the brand transformed its offline channels to attract consumers by offering unique experiences
and innovative services, which help parents turn their shopping time into the more valuable
parent-child time. This initiative has upgraded its stores into a core retail channel that has sales,
brand building and innovative service piloting functions, establishing a more lasting and intimate
connection with consumers.

Trend Durable goods industry into era of elimination, efficiency and

15
consumer-centric marketing will determine brands' fate
Previously, brands often relied on opportunist growth model. In the future, they will have to cut
their production cost to the lowest possible level while maximise their sales network coverage.
Only by enhancing the overall efficiency of the value chain can a brand stand out in the future.
Companies with lower capital cost and excellent M&A integration capabilities are likely to
become the super leaders of this industry and capture an ultra-large share of consumer's wallet.
More importantly, the retail channels of durable goods will evolve into the "3.0 era". The Chinese
retail industry often describe the retail activity as being composed of three factors: people,
product and venue, which refers to where the "buy" happens. In the new era, the "venue"
no longer refers to only a physical or digital space. In fact, it is now the consumer’s mindset.
Durable good brands must allocate more commercial resources to the front line by focusing
on people-centric experiences and providing consumers with products better matching their
needs. It is inevitable that the circulation chain will continue to become shorter.Durable good
consumers will become more connected through common interests. By better understanding
their interest, brands can offer them more customised products and services, holistically serving
them through understanding the interest circles they’re in, reshaping shopping venues and
improving recommended products.
54 Foresight 2023 罗兰贝格中国行业趋势报告
Foresight 2023 55 55

Digital

In an era when economic situation and market landscape are constantly changing,
digitalisation has become a key factor shaping many industries' development
direction. In 2023, various industries will continue their drive to deploy more digital
applications, with "customer experience" and "operational efficiency" being the top
two buzzwords. Investing to enhance customer experience is one of the key objectives
of business digitalisation. Developing an aligned experience across online and offline
touchpoints will be a strategic initiative. Virtual reality and Metaverse will expand from
the gaming sector to host more business applications, enabling more innovations
in sales and experiential scenarios. Customised services based on data analytics
will become a mainstream offer and inject new momentum into the development
of experience-based services. Automation technologies are also becoming more
mature, as collaborative robot and software agent will be used more widely. These
trends are supported by the developments in certain digitalisation technologies and
applications, such as IoT, digital twin, no-code AI application development and AI-
related information security solutions. Wider applications of digital technologies
will also support the sustainability transitions of other industries, and vice versa.
Companies should further leverage the power of digitalisation, while fulfilling
their compliance obligations, to improve customer experience and lift commercial
performance. Digitalisation will become an efficient and sustainable growth engine
amid an uncertain environment.
56 Foresight 2023 Foresight 2023 57

Trend Customer experience will make or break a business guide companies' efforts in designing products and services that fit users' habits so as to largely

01
enhance customer experiences. The popularity of smart devices which are outfitted with various
2023 will still be a year of challenges. As consumers increasingly expect great experiences,
types of sensors has enabled the collection of consumer product usage data. While fulfilling
companies will have to offer seamless customer experiences to propel revenue growth
compliance obligations, companies can analyse these data to design and launch new products
and retain consumer loyalty. In the new norm brought by COVID, many businesses have
that can better serve consumers' experiential needs. In additional to product optimisation, the
established a matrix of digital touchpoints consisting of App, mini-programme, etc. However,
most typical business innovation enabled by applied observability is the usage-based auto
many companies' touchpoints have become disconnected data silos due to different standards
insurance. This new type of insurance rate potential buyers through usage data collected via
applied. In some cases, one consumer has to register multiple IDs across different platforms of
Internet of vehicles, such as their driving habits and skill as well as the information of the vehicle
the same company. These "data silos" have become roadblocks in companies' efforts to improve
and surrounding environment. By establishing a multi-dimensional evaluation model which
user experiences. As a burning digitalisation issue on the To-Consumer side, companies need
takes into account the driver, vehicle and road (environment) factors, the insurance company
to link up all digital touchpoints within its ecosystem and along the purchasing journey of their
can give every potential buyer an accurate "safety score". The higher the score, the greater the
consumer’s life circle to align online and offline experiences. Companies should start from the
discounts on insurance costs. At the same time, similar technologies will also support innovative
data lakehouse architecture level to build a unified customer account management system.
business models, such as usage-based payment, outcome-based payment or rental-as-sales,
Customer journey orchestration technology could be a useful tool to pull online and offline
to be created in more industries that belong to the category of "real economy".
touchpoints together around the customer experience to define its main business operations. By
coordinating, rebuilding and optimising its internal business information flow, companies will be
able to develop consistent customer experiences. In the future, user operation department will Trend Lifting efficiency through automation to become main application of

04
play a bigger and leading role internally because it will help the business stand out by providing digitalisation
great customised experiences.
As companies increasingly focus on creating more value with less cost, combined with the
rising labour cost and inflation, investment into automation will grow significantly. One of the

Trend VR and Metaverse to become mature enough to support business most obvious pieces of evidence is the rise of collaborative robot, which can complete many

02
applications daily tasks automatically, from accomplishing manufacturing jobs in workshops to undertaking
transportation tasks in warehouses. More industries are going to use robots on a daily basis.
Currently, Metaverse only has a meaningful existence in gaming and entertainment industries,
In the meanwhile, more humanoid robots, drones and self-driving automobiles will enter our
thanks to its ability to create immersive user experiences. However, as more technological
daily lives, play more roles in business services and enhance customer experiences. Software
problems are solved and smart gears become more available, VR and Metaverse are going to be
agent, also known as RPA – Robotic Process Automation, will have better capabilities in
used in business applications for more industries and create leapfrog improvements in customer
replicating human behaviours and completing similar jobs. They will be widely applied in
experience and operational efficiency. People will browse brands' new product demonstration
insurance, banking, financial and healthcare industries. We can also expect further improvement
in Metaverse and simulate their usage experiences through wearable gears. Brands' marketing
in machine-to-machine communication technologies. It is highly likely that in 2023 we'll have
campaigns, if launched in Metaverse, will create multi-sensory interactions with consumers.
breakthroughs in global interplatform and intersystem standards and protocols, which will enable
By leveraging virtual avatar creation and motion capture technologies, companies will be able
communications between different devices. This development means robots can work with
to duplicate avatars that are identical with the users, which means Metaverse meeting and
robots to accomplish more types of tasks.
training will have a more immersive environment for communications. At the same time, there
are ample room for industry Metaverse applications, because digital simulation can improve
their operational efficiency and workplace safety level. It is estimated that by 2030, Metaverse
Trend IoT to further converge with digital twin

05
will create an incremental GDP of 5 trillion US dollars globally. 2023 will decide the development
Digital twin refers to the virtual replication of a physical object, system or process in order to
direction of the Metaverse in the next 10 years.
mirror, diagnose or handle the version in the real world. The concept was initiated in the space
sector, and then applied to manufacturing industry. With the development in IoT and digital twin

Trend More products will be designed based on user habits, and be convergence, precise enough data have been collected by connected devices and sensors

03
designed better to build digital twins, which can emulate the real subject and accurately predict outcomes
which were previously only available through expensive and complicated modelling works.
Applied obser vability is the applied use of obser vable data which are collected during
This development will greatly increase digital twin's potential to be applied in a wider range of
consumers' usage of products and services in a highly orchestrated and integrated approach to
industries. In the manufacturing industry, granular data collected through IoT enables digital twin
58 Foresight 2023 Foresight 2023 59

to generate more accurate predictive results, so that designers and developers can have the test
results even before a real product is made, and then purposefully optimise their designs. In the
automotive industry, digital twins of vehicles can help companies to simulate crash test results
and continuously improve automobiles’ safety features. In the public service area, digital twins
can be created to mirror a city's water and electricity networks, which enables utility companies
to manage infrastructures more efficiently and smartly. We expect that in 2023, digital twin
applications will be created for more industries to cut cost and improve profitability.
The unexpected and abusive applications of certain AI technologies might also cause privacy
breaches. One of the key solutions to these issues is adversarial machine learning, which
proactively attack existing models to expose their loopholes and develop emergency readiness
plans to defend the system and ensure AI applications’ safe and normal operation. We expect
that in 2023, as AI technology is applied in more areas, its information security investment will
also grow in proportion to secure its reliability, trustworthiness and safety.

Trend No-code software development solution will popularise programming

06
capabilities
In recent years, no-code software development automation has attracted more attention. No-
code development refers to the approach with which developers can create software without
manually editing codes. As the demand for digitalisation transition keeps increasing, professional
information technicians become less available. No-code development solution can enable more
employees to write programmes by themselves to increase work efficiency through automation.
Among all no-code development trends, the popularisation of no-code AI will significantly
reshape the work environment for many industries. With the help of AI tools, employees without
professional knowledge can also extract and analyse Big Data by themselves, and make
decisions based the combination of data mining results and their own expertise. In 2023, we
expect no-code technology will be applied in more industries, and the majority end-user-oriented
business applications will be developed through the no-code development approach.

Trend Sustainability transition to drive more digitalisation investment

07
Sustainability is one of the major challenges facing our society. China has made commitments
in carbon neutrality, biodiversity and sustainable development, and called for the optimisation
of governance and economic growth models as well as social life. Digitalisation will also play a
pivotal role in promoting the sustainable development of economy and society. The combination
of IoT and digital twin can help companies to better monitor their consumption of resources
so as to change for better. Decision intelligence can help cut energy consumption and carbon
emissions caused by machines and production lines more efficiently. 3D printing can reduce
material wastage during production to make full use of resources. Mobility-as-a-Service can
reduce traffic congestions and vehicle emission through shared mobility and greener traffic
solutions. We expect more companies to invest in their sustainability capabilities to fulfil their
corporate social responsibility obligations as well as to reduce cost and increase efficiency.

Trend More focus on AI-related information security infrastructure

08
Information security has always been an integral part of digitalisation. Currently, as AI has
become one of the key digitalisation trends, its information security, data security and privacy
have increasingly become a public concern. During its development, as AI model becomes more
complicated, the structural loopholes of algorithms might expose systems to hacker attacks.
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Culture
Entertainment
& Sports
With the release of China's "New Ten Measures" to relax the COVID control,
Chinese people’s lives will gradually come back to normal, and the film industry
also began to recover. Under the impact of the pandemic, it became apparent that
the film industry is not sophisticated enough to withstand such a shockwave. Its
digitalisation and industrial progress may make up for its shortcomings. Supported
by preferential policies, virtual reality technology will enter the stage of industrial
development. Content-based cultural and entertainment companies need to become
stronger in digital capabilities, and find VR applications with partners in the virtual
reality industry. China's three leading long-form video platforms (Tencent, iQIYI and
Youku) continued to reduce costs and increase efficiency to improve profitability. The
strategic cooperation deal between iQIYI and Douyin (Chinese version of Tiktok) was
a milestone in the healthy and orderly development of the video industry. With the
suspension of Tencent's Magic Core Digital Collection Platform, the interest in digital
collection market has waned. The industry expects new policies to guide and clarify
its future direction. Leading enterprises continue to adventure into the Metaverse in
gaming, film, television, sports and other entertainment formats, attempting to recruit
trial consumers for Metaverse contents. They also lead the establishment of various
alliances to co-develop with other industries. The gaming industry has declined in
both revenue and user scale as it entered a buffer period. The FIFA World Cup Qatar
2022 VAR (Visual Assistant Referee) system will become a benchmark of future
integration of Big Data technology and major global sport events, or even the whole
industry. At the same time, the revision of China's sports law marks a new chapter of
its rule of law.

Culture, entertainment and sports industries are among the most active industries in
China and may have the biggest growth potential. Roland Berger is a firm believer of
their future and has been following their development closely. In 2023, we'll work with
these industries to shape their bright future.
62 Foresight 2023
Trend Film industry gradually recovers; Digitisation and industrial development
01
will drive the industry forward
The resurgence of COVID in 2022 forced cinemas to restrict or even cancel attendance. It has
also limited production of films and prevented new films from being aired. The number of new
films and box office revenue plummeted last year. Every part of the film industry was fighting for
their lives. With the release of the "New Ten Measures" to relax the pandemic control, Chinese
people’s lives will gradually come back to normal. Various experiential industries are making a
Trend
comeback, and cinema audiences will return. The releases of blockbuster films such as "Avatar
2" and "The Wandering Earth 2" will accelerate the recovery of China’s film industry.
03
The pandemic has also exposed many underlying issues of this industry, such as insufficient
content supply, film supply structure not mismatching market demand, limited content types and
styles, slow industrial transition, and lack of digital capabilities. It became apparent that the film
industry is not sophisticated enough to withstand such a shockwave.
This industry needs to accelerate its digitalisation and industrial transition. Digital technology will
fundamentally change its development. The wide application of new technologies such as 5G,
Big Data, XR (extended reality), artificial intelligence, and blockchain will upgrade various links
along the film industry chain, such as film production models, film production scenarios and their
affiliated software and hardware, promotion channels and intellectual property protection efforts.
Digitalisation will also speed up its industrial transformation which will gradually create a clear
and detailed "assembly line" production model with professional members working on dedicated
roles. Digital technologies can optimise the quality of each process in the film industry,
promoting smart film production management, and improving the overall production efficiency.
Trend Industrial development of VR to enhance diversified immersive
02
entertainment applications
The "Action Plan for the Integration and Development of Virtual Reality and Industry Applications
(2022-2026)" jointly issued by five national ministries and commissions (Ministry of Industry
and Information Technology, Ministry of Education of China, Ministry of Culture and Tourism,
National Radio and Television Administration, and General Administration of Sport of China)
noted that: by 2026, China should have made breakthroughs in key 3D and real/virtual reality
Trend
mix technologies for immersive audio and video applications. By then, virtual reality will be
applied in important economic and social industries at scale. The China Centre for Information
04
Industry Development predicts that the scale of China’s virtual reality industry is expected to
exceed 250 billion yuan in 2025, which may create a wider trillion-yuan market.
With the development of the hardware and software of "XR" (VR-virtual reality/AR-augmented
reality/MR-mixed reality) and their declining cost, more digital technologies will be widely used
to create more diversified subjects, such as "virtual person", "virtual object" and "virtualised
interactive scene". XR technologies will be used in diversified experiential consumption
Foresight 2023 63
scenarios, including cultural tourism, social games, digital music, film, television animation and
sports events. Content-based cultural and entertainment companies need to accelerate their
transition of using immersive virtual technologies for content creation and leveraging content
intellectual property resources. Leading content-centric cultural and entertainment companies
have to become more like a digital technology firm and work with VR industry partners to co-
create application scenarios so that all can co-create in a shared ecosystem.
Long-form video platforms continue to reduce costs and increase
efficiency; Long- and short-form video platforms join hands to
optimise industry ecosystem
The three long-form video platforms, Tencent, iQIYI and Youku, continued to reduce costs
and increase efficiency to improve profitability. These leaders managed to lift average revenue
per user (ARPU) by raising membership prices. The growth of membership is approaching
a bottleneck, and it is increasingly challenging to fur ther tap their members' spending
potential. Generally speaking, long-form video platforms were losing ad revenue due to the
weak macroeconomic sentiment, rising popularity of short videos, and their own lack of
competitiveness. Short-format video platforms have better conversion rates because they offer
more precise audience matching based on Big Data profile algorithm as well as more diversified
ad formats. By comparison, long-format video ad inventories, such as mid-roll ads and app open
ads, were less attractive to brand owners. Their advertising business will continue to be under
pressure. High-quality content is still the lifeline of long-form video platforms. Only by producing
more high-quality contents and nurturing their full-fledge content ecosystem can top long-form
video platforms retain users’ loyalty and advertisers' interest.
After iQIYI struck a strategic cooperation deal with Douyin, the long video and the short
video industries finally broke the ice. The two parties are going to cooperate in remaking and
promoting long video contents. By combing the high-quality long video content with Douyin's
huge user base, the agreement has created significant synergy for the two to widen income
source as well as add value for creators, copyright owners and users to eventually achieve a
win-win outcome for all stakeholders. Meanwhile, it is a milestone in self-regulating and promote
the healthy and orderly development of the video industry.
Interest in digital collection has waned; Industry expects policies to
guide and clarify future direction
Since the explosive growth of NFTs (non-fungible tokens) happened across the world in 2021,
the domestic market quickly followed up. Leading Internet companies have developed NFT
businesses with "digital collections". Ant Group's Whale Explorer and Tencent's Magic Core had
stood out and became the leading platforms. Other Internet companies such as Baidu, Xiaomi,
JD.com, ByteDance and Bilibili have also invested in their own digital collection ventures. State-
owned cultural groups such as Henan Satellite TV, China Digital Culture Group, China Central
Television and the National Museum also launched digital collection platforms or those based
64 Foresight 2023 Foresight 2023 65

on their traditional cultural heritage. Digital collection formats included pictures, audio, video, 3D
Trend More new local policies to encourage commercialisation of Metaverse

06
models and other content forms. They have been widely applied in various sub-industries such
The Metaverse is an integrated practice of the digital economy. Since 2022, nearly 15 Chinese
as literature, games, sports, music and animation.
cities have issued preferential policies to support the commercialisation of Metaverse and
included this sector into their annual government work report. At the same time, Shanghai,
However, the sudden suspension of the Tencent Magic Core digital collection platform in mid-
Beijing, Guangzhou, Xiamen, Hangzhou, Wuhan and other cities proposed to establish special
August 2022 exposed the risks and regulatory uncertainties around this sector. China will further
funds for Metaverse sector, which should provide a good environment to accelerate the
strengthen the supervision of digital collection platforms to prevent NFTs becoming virtual
commercialisation of metaverse technologies. These technologies have been applied to cultural,
currency and reduce hidden risks of illegal financial activities, especially the market hype caused
tourism and entertainment industries, creating many innovative cultural and entertainment
by manipulated "scarcity". For a certain period of time, this stance will limit the secondary
consumption scenarios and contents.
market’s trading function and curb its trading volume. In addition, further legislation is needed
to clarify the rights of digital artifact collectors and original creators. In the future, state-owned
Leading enterprises continue to adventure into the Metaverse in gaming, film, television, sports
cultural property rights trading institutions are expected to run legitimate secondary trading
and other entertainment formats, attempting to recruit trial consumers for Metaverse contents.
platforms for digital collections, which will promote this sector’s orderly development.
They also lead the establishment of various alliances, such as computing capability end
device alliance, Metaverse alliance, rich computing capability end device alliance, Metaverse

Trend Digital technology to enable sport events’ further development application alliance, etc. to promote the industry’s development in an integrated and collaborative

05
manner. Related industry entities, including governments, enterprises, academic institutions and
The development of China's sports industry will be influenced by artificial intelligence, the
industry funds, are also further exploring and investing in key Metaverse technologies, such as
Internet of Things, cloud computing and many other digital technologies. During FIFA World Cup
holographic displays, future network technologies, VR/AR/MR terminals and 3D engines.
Qatar 2022, Big Data technology has been applied to game management, audience experience
optimisation, venue operations and many aspects of the tournament.

The VAR system can analyse every second and detail of the games. The Qatar World Cup has
Trend Gaming industry hits soft patch; Leaders double down on content

07
deployed a semi-automated offside system for the first time. Every stadium has 12 dedicated and technology
cameras to track the ball and up to 29 data points of each individual player, 50 times per
In 2022, the global gaming market declined for the first time in seven years. About one fifth
second, calculating their exact position on the pitch. Once an offside is called, the system
developers have closed. Mobile gaming market revenue dipped 2 percent year-on-year. In the
will automatically notify the referees and generate a 3D animation that details the position of
first half of 2022, China's gaming industry declined in both revenue and user scale as it entered
the involved players’ limbs at the moment the ball was played. After each match, teams can
a buffer period. Leading companies are expected to stay on the offensive to double down on
also watch replays from multiple camera angles and receive analysis data through the "FIFA
content and technology.
Player" programme, getting recommendations for future games. In terms of the game viewing
experience, the organisers provided visually impaired people with Bonocle, the world's first
At the beginning of 2022, Microsoft announced its plan to acquire Activision Blizzard, the world's
Braille entertainment platform. It uses tactile palm communication technology, called Feelix
largest game developer, at an eye-popping price of US$68.7 billion. Tencent, which leads
Palm, to help them "watch" the game. Some stadiums set up sensory rooms for viewers with
gaming industry in China, is also cooperating with game developers around the world. In August,
autism where they could feel comfortable during the matches with the help of interactive
Tencent and Sony jointly invested in the Japanese game developer FromSoftware. Just a week
equipment and controllable lightings. At the same time, numerous sensors have been installed
later, Tencent announced an investment in the French game developer Ubisoft. As lockdown
at the venues to enable real-time navigation and traffic alerts, improving the efficiency of crowd
measures have been gradually lifted around the world, leading game publishers now focus on
control.
accumulating high-quality intellectual property resources and building barriers to entry based
on contents. China’s gaming industry has migrated from a speed-centric period into a quality-
FIFA World Cup Qatar 2022 will become a benchmark of future integration of Big Data
centric era.
technology and major global sport events, or even the whole industry. We can expect more
advanced technologies to be used at major sports competitions, creating both fairer results and
Cloud gaming service will become a new trend which combines cloud storage, cloud computing
optimising game watching experiences. Athletes and coaches will be able to understand their
and graphic rendering on cloud servers. Cloud games can offer a richer gaming experience as
performance better and concentrate their efforts at what matters most. Digital technologies will
they are accessible through various end devices, such as smart TV, VR headsets and smart
holistically accelerate the development of sport events.
66 Foresight 2023 Foresight 2023 67

cars. These games also have a significantly lower spec requirement on end device. In 2022,
Netflix announced that it would enter the cloud gaming service. At present, it has 55 cloud
games. Chinese game giants miHoYo, Netease and Tencent led the industry by launching three
iOS cloud games. It is expected that cloud gaming will attract more players and create bigger
room for growth for the gaming industry.

Trend Amendments to the Sports Law will guide sports industry development

08
On June 24, 2022, the revision of "Sports Law of the People's Republic of China" was passed.
It came into force on January 1, 2023. This revision is the first time since the Sports Law was
promulgated in 1995, marking a new chapter of the sports industry's rule of law.

The Sports Law promotes the development of the sports industry, encourages professional
sports, and calls for national fitness. The new version added a chapter called "Sports Industry",
which indicated that the planning of sports industry development is of national importance.
The law now calls for the development of sport related industries, such as sporting goods
manufacturing, sports services and sports training. At the same time, the law emphasises that
athletes, coaches, and sports clubs will play important roles in the development of professional
sports. The new version renamed the "Social Sports" chapter as "National Fitness", which
encourages every Chinese to participate in sports. It urges the establishment of a system
where community organisations carry out fitness activities; government at or above the county-
level to organise national fitness evaluations; while sports administrative departments provide
management support. The law requires different departments to work on different roles to help
promote sports activities in China.

This revision of the Sports Law will lay the foundation to build a standardised, professional, and
market-oriented sports industry in China. Under its guidance, government departments at all
levels will pay more attention to national fitness, lead the public to participate in sports activities
in a scientific and efficient manner. More private capital will flow into the sports industry to
further meet the public’s needs for sports, including more sports venues, high-quality sporting
goods and better supporting facilities.
68 Foresight 2023 罗兰贝格中国行业趋势报告
Foresight 2023 69 69

Technology &
Internet

For China's telecom and technology industry, the year of 2022 was challenging but
groundbreaking. Due to the external environment changes, it is facing more limitations.
The global consumption demand remained lukewarm and lacked confidence. The
resurgence of COVID created more uncertainties. But we believe only the strong
stand in a cold winter, only the brave keep going forward in the dark before the
dawn, only the wise focus on improving themselves during thunderstorms. China's
technology industry will always remember where they came from and trudge along
this difficult road to bring prosperity to the country. In 2023, we expect the technology
industry will continue to enable other industries to enhance their operational efficiency
and benefit more people with their innovations.
70 Foresight 2023 Foresight 2023 71

Trend Computing, communication, cloud, AI, smart devices and other must be realised through ecosystems. Many factors will affect the end user's experience, such

01
technologies to be applied to more industries as solution integration, application development, computing platform and telecom network.
Developing a robust ecosystem will continue to be crucial in 2023.
From smart device to advanced equipment, from personal cloud drive to cloud-based public
services, the applications of information and communication technologies are no longer limited
only to enhance the experience of personal users, such as video, gaming, and food delivery. In
Trend Supply chain resilience to withstand uncertainty for technology

02
the future, these technologies will be used to help traditional industries' digitalisation transitions. industry
Technology industry is one of the most vulnerable to global supply chain disruptions, because
There are two underlying factors propelling this trend in China. Firstly, the fast development
it relies heavily on the seamless cooperation of upstream and downstream companies along
of technology industries, such as Internet, communication, and cloud computing, has laid a
its value chain, which has a very high-level of division of labour and expertise. For example,
solid foundation consisting of sophisticated digital technologies and hardware infrastructure.
the whole technology stack of cloud computing industry will halt to function if any one link
According to "Digital China Development Report", China has installed 1.42 million 5G base
is suspended, which includes semiconductor, server, data centre, virtual platform tool and
stations, accounting for more than 60 percent of the world’s total. Each year, China generates 6.6
application software, to name a few. To make things worse, the shockwave hitting cloud
ZB of data, equivalent to 9.9 percent of the world's total and is larger than any other countries.
computing can spread into many other industries which will impact everyone’s work and life.
China's computing capability has reached 140E FLOPS, the second largest in the world. China
Against this backdrop, the resilience of a supply chain refers to its member companies' ability to
also has a large volume of patents in the fields of AI, cloud computing, Big Data, blockchain
perceive, withstand and respond to shockwaves amid various internal and external risks.
and quantum information technologies. These assets will not only provide other industries with
sophisticated solutions to support their transition, but also are ready-to-use infrastructure to
The core value of technology industry's supply chain resilience is to keep its normal operation
be connected to their future digital systems which will empower their businesses. Secondly,
amid the disruptions brought by sudden global geopolitical, economic and public affair changes.
these technologies will also help solve many industries' business pain points. China possesses
Still there are numerous factors which might stop normal R&D process, halt ordinary business
one of the most sophisticated industry categories around the globe, which offers tremendous
operations and wipe out client's confidence, such as product and technology export limitations
application scenarios. For instance, technology can assist hospitals in allocating medical
brought by protectionism, tensions of supply chain cooperation caused by gloomy global
equipment and doctors, and manufacturing industry's dream of realising lean manufacturing
economic outlook, or uncertainty in the post COVID era. Hence, the key actions to build supply
and smart manufacturing. There lies ample room for technologies to unlock the potential of
chain resilience include: 1) Build holistic visibility for the whole supply chain to control damage
traditional industries.
in a timely fashion. Technology companies should observe the "big picture" from various
dimensions, such as region, process, material category, technology category and service
There are two models for technologies to enable traditional industries: "0 to 1" and "1 to N".
category, to develop a holistic view to cover the whole supply chain. By doing so, technology
The "0 to 1" model refers to those scenarios where technologies can help a traditional industry
companies can spot, or even predict, the disruption of their supply chain and earn enough time
to solve bottom line issues, such as have or have not, to be or not to be, safe or not safe. For
to deal with the situation. 2) Develop a disruption readiness plan to absorb shockwaves. This
example, the financial industry's operation hinges upon the integrity and originality of its data,
plan should include securing advantaged procurement privilege, preparing dynamic mechanism
from personal log-in credential to interbank transaction records, in the process of extraction,
of backup supplier, building buffer inventory, and communicating with clients in a transparent
storage and transmission. By applying proper technology solutions, such as zero trust security,
and timely way. A robust disruption back-up plan can help minimize the negative impact. 3)
blockchain, adversarial machine learning, the financial industry can effectively resolve data
Never stop evaluating and evolving their supply chain network. Based on previous and potential
breach risks which will threaten its survival. The "1 to N" model focuses on enhancing the
disruptions, tech companies should develop plans to create buffer in all dimensions, such as
efficiency of various industries. For instance, in the pharmaceutical industry, it takes 10 years
location, category, technology and services to ensure the strength, stability and resilience of the
and 1 billion US dollars to develop a new drug. AI technology can significantly reduce time
supply chain.
and cost for many key processes, such as identifying drug targets, discovering new drugs and
medicine optimisation.

Trend Commercialisation of Metaverse accelerates, key components,

03
Looking forward, technology companies need to get ready to embrace this trend. First of all, device and content are potential sources of growth
no two industries are the same. They all have unique needs. As a technology solution provider,
Metaverse is the next generation Internet system where interactions mostly happen through
technology companies need to both identify the common demands that can serve many
virtual reality and whose technology foundation is WEB 3.0. As its business model takes shape,
industries so as to avoid repeated development, and at the same time customise their offer
Metaverse will soon become a mainstream technology.
where necessary to meet unique requirements. Secondly, industry-level technology solutions
72 Foresight 2023 Foresight 2023 73

We predict the Metaverse industry to have two major business models: content-driven and
device-driven, both will help the industry to finally become self-sustaining. Content-driven
companies will try to lower the costs of entry-level devices to recruit as many users as possible
to generate revenue through gaming, video, livestreaming and software tools. These companies
are more likely to appear in To-Consumer markets, and will use ARPU and per user immersive
time as their key commercial performance index. Device-driven companies, on the other hand,
will see the sales of hardware as their cash cow. After Oculus 2 launched the Passthrough API
Experimental solution for mixed reality, we expect such devices will have much more applicable
scenarios and will create value for more users and industries, which means their devices will be
sold at much higher premium.
Whether a company has an agile decision-making process will decide its ability to find correct
strategic directions and take course correction actions. The process is often supported by an
advanced market insight system, which relies on the timely collection and transmission of market
intelligence. Samsung, for example, has a Special task force as part of its group headquarter
functions. It keeps monitoring key issues, such as labour cost increase, COVID pandemic
situation and raw material cost inflation, and reports directly to the group's vice chairman. An
agile decision-making process is also supported by a new organisational structure. Samsung
has reshuffled its organisation to allow group CEO directly lead regional markets, instead
of having the instructions cascaded slowly through business units. A quick and closed-loop
decision-making process was then created.

However, the maturing of business model also raises the bar for technology, device and content High-quality talents are fundamental to high-quality execution. In the future, technology
providers. There are still ample room for innovation in many aspects of the Metaverse industry. companies should adopt a two-pronged human resources strategy: recruit high-end talents
Firstly, in the key component sector, many hardware experience problems still remain unsolved externally and nurture junior talents internally. Tech companies' future competitiveness comes
in augmented reality/virtual reality/mixed reality devices, such as weight, battery life and latency. from accumulation of technologies and product functionality. So the talent acquisition efforts
In the near future, the crucial areas for breakthrough will be Pancake-style optical lens structure should focus on the fields of computing science, electronic engineering, and basic sciences, etc.
solution, structural components, industrial design, 3D human motion capture algorithm and For internal talent fostering, the HR departments should judge high potential talents not from
battery module solution.Secondly, the device sector will become polarised where entry-level their current performance, but should also adopt a growth mindset. Instead of paying too much
devices will become cheaper and flagship gears will be more expensive. Providers of entry-level attention to their current capabilities, experiences and seniority level, their potential should be
device will set the price at around 1,000 yuan to lure more trial users. They will need integrate evaluated througxh the lens of hidden attributes, such as mental model, self-driven motivation
key components and leverage computing supplemented virtual reality creation technology to as well as values and beliefs.
meaningfully lower the hardware production cost. Flagship devices, which will be sold at 10,000
yuan, will not only include the virtual see-through solution achieved by VR+AR, but also be able
to provide To-Business customised applications to serve industry-specific scenarios, such as
in manufacturing, healthcare and education verticals, which will expand the demand for these
expensive devices.Last but not least, currently Metaverse are mostly using contents copied from
other platforms. It's inevitable that it will have its native content. We can expect entertainment
contents, such as gaming, virtual livestreaming and virtual community, to be created soon. At
the same time, productivity contents, such as digital twins and remote assist applications, will
also be produced specifically for the Metaverse environment.

Trend Lean organization structure will become new norm for technology

04
companies
Technology is the commanding heights that all countries want to take control of. Thus,
technology companies are prone to be hit by political, economic, societal and technological
shockwaves. Having a lean organisation structure will be fundamental for technology companies
to absorb disruptions, achieve agile transformation and become profitable quickly. It's their
talisman to better cope with various types of risks, such as the blockade of their global
expansion due to trade tensions, or low demand caused by the weak worldwide economic
growth. Looking forward, we believe companies with a lean organisation structure will have at
least two attributes: agile decision-making process and efficient execution.
74 Foresight 2023 Foresight 2023 75

Trend ESG will become the new name tag of future competition among

05
technology companies
After decades of fast economic growth, China needs to establish good practices in the fields of
environment, society and governance (ESG) to pursue high-quality, sustainable and sharable
development of tomorrow. For technology companies, ESG not only means bigger social
responsibilities, but also new opportunities for commercial growth.

Technology companies are mostly involved in telecom, Internet, software and semiconductor
industries and often have large company size and social influence. They will play an important
role in implementing good ESG practices. For example, to help China realise its 2060 carbon
neutrality target, technology companies need to efficiently use energy and resources to reduce
carbon emission. Data centres should enhance power usage effectiveness. Smart device
manufacturers need to minimise their carbon footprint. It is imperative for IT equipment makers
to use more renewable materials in their supply chains. In the future, technology companies
should take three actions: identify, optimise and replace. To start with, they need to identify the
sources and level of carbon emission in their industry within multiple scopes. Then, they need
to optimise their business flow design and industry design to further enhance efficiency. Last
but not least, they need to replace old technologies and materials with renewable solutions to
eliminate carbon emission from their industry chains.

We should also remember that technology companies' expertise can also help other industries
realise their ESG targets, which in turn can create many business growth opportunities. For
instance, the simulation applications based on digital twin technology can help other industries
cut waste of resources. In manufacturing, it can find the most optimised temperature to avoid
redundant energy consumption in electroplating process. In new energy industry, it can simulate
the wind direction to find the best location for wind power plants. In property management, it can
use AI learning to simulate the real-world consumption pattern of electricity of each building so
to develop the best electricity supply models for every hour. These are just a few examples of
how technology companies can create values to help clients along their journey of sustainability
transition.
76 Foresight 2023 罗兰贝格中国行业趋势报告
Foresight 2023 77 77

Pharma &
Healthcare

Healthcare industry recovers as COVID fades into background, reshaping of market

creates new opportunities The year of 2022 marks the third year since the outbreak
of the COVID-19 pandemic. In the first six months, China's healthcare industry was
severely disrupted by the sporadic resurgences of COVID-19 cases, on top of many
other risks brought by the Russo-Ukrainian conflict, geopolitical tensions, energy
crisis, high inflation, etc. In this context, the innovation and transformation of Chinese
healthcare companies, the operation of medical institutions and the investment
activities of the pharmaceutical sector were seriously challenged. In the second half
of 2022, the overall political and economic tensions began to ease. Given the much
higher transmissibility but lower pathogenicity of the Omicron variant, China began
to accelerate its process of normalising COVID control policies.

Since November 2022, China's joint prevention and control mechanism of the State
Council has released " Twenty New Measures" and " Ten New Measures" to optimise
pandemic control protocols. Amid the new normal, China’s healthcare industry is
expected to return to its pre-pandemic ways of working. We have seen many positive
signs, including the original healthcare demand, reactivation of product innovation
and commercialization, revaluation in the capital markets, switch of valuation and
more confidence in investments and fundraising. We believe that 2023 will not only
become a critical year for China’s transition to the post-pandemic era, but also a key
opportunity window for the reshaping of its healthcare industry and the transformation
of companies in this industry.
78 Foresight 2023
Trend Ageing population and stronger awareness of health management
01
spurring medical demands, diagnosis and treatment rates set to
grow, medical service scenarios to be more diversified
According to the National Population Development Plan (2016-2030), China's elderly population
– people aged 60 and over – has grown steadily and is projected to accelerate between 2021
and 2030. By 2030, the elderly age group will make up around 25% of the total population, with
increases in both the number and proportion of people aged 80 and over. The middle-aged
and elderly population have huge medical demands because they are more likely to develop
diseases, especially tumours, cardiovascular, autoimmune, ophthalmic and dental diseases.
Take diabetes for example: according to the Guideline for the Management of Diabetes Mellitus
in the Elderly in China (2021 edition), around 30% of China's elderly population have diabetes,
much higher than the global average of 19%. Meanwhile, the awareness rate (37%) and
treatment rate (33%) among Chinese diabetes patients are relatively low, lagging considerably
behind those of US patients (awareness rate at 76% and treatment rate at 78%). Similarly, the
diagnosis and treatment rates of various diseases need to be improved in the future.
According to the World Bank, life expectancy of Chinese people reached 77.1 years in 2020 and
would continue to rise. Longer life expectancy and higher disposable income will create more
demands for multilayered and diversified health management programmes, healthcare products
and services, as well as non-basic medical services, such as consumer medical care and
private high-end medical care.
Trend
Volume-based Procurement (VBP) stabilising, leading companies to
02
seek breakthroughs via product innovation and channel expansion
VBP polices continued roll out in 2022. However, the policies have become remarkably "milder",
as evidenced by the national procurement of high-value consumable materials (spine related)
in the sixth and seventh rounds of drug bulk-buy, as well as the cross-provincial alliance
procurementof electrophysiology devices and biochemical reagents for liver function tests.
By adopting new bidding rules, government payers have kept price cuts at a reasonable level,
avoiding price wars and reducing fallout rate at the same time. In this way, not only did the
government effectively maintain the stability of suppliers, but also recognised the differences
in products and services provided by different companies. As the market gradually stabilises,
leading companies are seeking breakthroughs via product innovation, operation efficiency
improvement and channel expansion. As a side effect the life cycles of drug and medical
devices has expedited after commercialization. To nurture the growth of innovative drugs and
medical devices, the National Healthcare Security Administration have announced this category
will not be included in VBP programmes. Rather, they will receive government support through
accelerated approval process. Leading pharmaceutical and medical devices companies are also
trying to achieve higher profitability and ROI by expanding into non-VBP market, especially the
retail channels.
Foresight 2023 79
Trend Digital medical services to expand to disease prevention and health
03
management, 'future of health' scaling up
Since the outbreak of COVID pandemic, the healthcare service journeys for Chinese consumers
and patients have shifted from offline to online across all types of touchpoints. Many medical
services now can be accesse digitally, such as appointment booking, medical consultation,
repeat prescription ordering, doctor-patient interaction and self-health management. The
pandemic has further accelerated their digitalisation transition. In September 2022, Roland
Berger's The Future of Health 4 – the Patients of Tomorrow report surveyed nearly 2,500
patients in 19 countries. More than 70 percent of Chinese respondents were open to digital
healthcare services provided by tech providers; about 50 percent of them were willing to make
out-of-pocket payments for the convenience and other benefits that digital solutions could bring
– both proportions were the highest among all countries surveyed.
In addition to consumers' openness to digital healthcare, the accumulation of healthcare big
data, the expansion of digital application scenarios and the collaboration with the government
and other stakeholders have pushed the boundaries of China's healthcare services from
treatment to prevention and health management. A prominent example is the innovation of
health insurance. By collaborating with medical institutions in health education, health-related
consumptions and medical check-up activities, insurers also help the healthy population to
better manage their health, which not only lowers the insurers' claim risk and improves their
profitability, but also effectively reinforces customer loyalty as well as keep and grow their
customer base. In the future, more innovative business models are expected to emerge, bringing
inclusive, customised and integrated digital healthcare experience to consumers.
Trend Healthcare infrastructure boom to create huge demand for medical
04
devices and equipment
Since the outbreak of COVID-19 in 2020, China has ramped up its "new healthcare infrastructure
plan" to address the structural shortcomings in medical service supply. Guided and supported
by a set of policies such as "the Implementation Plan for Building a High-quality and Highly
efficiency Medical Health Service System during the 14th Five-year Plan Period", a significantly
higher number of healthcare infrastructure projects have been approved, including expansions
of Class III hospitals and upgrades of primary hospitals.
In September 2022, the National Health Commission announced the policy of providing interest-
subsidised loans for the upgrading and renovation of medical equipment. With an estimate total
of over 200 billion yuan earmarked, the policy is expected to effectively relieve the financial
pressure on governments at all levels and medical institutions, further boosting the development
of new healthcare infrastructure projects.
As a result, there will be more demands for:
Phase 1: Civil works during the beginning phase,
Phase 2: Medical equipment in the operating room, ICU, imaging department, pathology
80 Foresight 2023
department, clinical lab and pharmacy during the middle phase,
Phase 3: Health information technology systems during the closing phase.
As incentive policies and interest-subsidised loans come into effect, it is estimated that more
medical equipment purchase orders will appear in the first half of 2023, further driving the scale
and growth rate of the medical device and equipment market.
Trend Medical payments still under pressure, payment side transformation
05
urgently needed
At the end of 2021, China's National Healthcare Security Administration released the Three-
Year Action Plan for DRG/DIP Payment Methods Reform, proposing to carry out the Diagnosis
Related Groups/Diagnosis-Intervention Packet (DRG/DIP) payment model in all participating
regions by the end of 2024, and scale up to basically achieve full coverage of government
funded costs and disease types by the end of 2025. The DRG/DIP simulation in pilot cities,
combined with the phased implementation of VBP, has effectively relieved constraint pressure
on China's health insurance fund. However, there are still structural shortcomings on China’s
medical payment side: less than 5 percent of direct medical expenditures are paid by
commercial health insurance, which means patients shouldered most of the financial burden.
The overall participation rate of Huiminbao, which refers to the customised supplementary
medical insurance for urban residents launched by many Chinese cities, was only 6 percent
by the end of 2021, according to the 2022 Trends Report on the Sustainable Development of
Huiminbao by China Life Reinsurance Co., Ltd. Thanks to the rapid development of commercial
health insurance, more related parties such as the government, pharmaceutical company,
medical device makers and third-party service providers will enter the market, bringing
channels, credibility endorsement and value-added services to improve the innovation, quality
and coverage of health insurances.
Trend
Domestic substitution to expand along biopharma industry chain,
06
supported by preferential policy, technological breakthroughs and
supply chain reshuffle
China's Development Plan of the Pharmaceutical Industry during the 14th Five-year Plan
Period clearly stated that "the industry chain should be stable and controllable; key generic
technologies should be mastered; shortcomings in key areas should be fixed". The newly revised
Law on Scientific and Technological Progress further requires that government procurement
should prioritise innovative products and services from domestic brands. As the global supply
chain braces for COVID impact and geopolitical tensions, China’s medtech industry must break
through the barriers blockade and accelerate domestic substitution. Before 2019, life sciences
and drug-making equipment and consumables in China were predominantly supplied by
foreign companies. Since the COVID outbreak, especially after 2022, Chinese manufacturers
have capitalised on the relatively stable domestic supply chain and technological capabilities
accumulated over the years to realise product innovation breakthroughs and expand production
capacity. To date, Chinese manufacturers have emerged as an important player in the domestic
Foresight 2023 81
and global markets of pharmaceutical manufacturing equipment and packaging materials,
as well as biological reagents and consumables. In the future, with more preferential policies
supporting domestic demands and strengthening supply chains, Chinese manufacturers are
expected to move up the biopharma supply chain while maintaining rapid and high-quality
development.
Trend Market valuation of key healthcare segments recovering, driven by
07
the pursuit of tech innovation and profitable growth
Innovative drugs and medical devices/equipment: As the Chinese government continues to
support the development of local innovative drugs and medical devices, domestic companies
are expected to continue technological innovation and strengthen their foothold in the global
industry chain. In the new normal of post-pandemic era, companies should prove the quality
of their innovation capabilities, R&D system and the meaningful differentiation of their product
pipeline to attract interest from the capital market.
• Innovative biodrugs will continue to be the core focus area for healthcare investment. Notably,
gene therapy, immune cell therapy and other segments that have been market-proven will
continue to excite the capital market for its sustained demand of technological innovation and
room for growth.
• In vitro diagnostic, medical equipment and medical consumables companies have
accumulated a sizable amount of cash during the pandemic. Some leading companies are
gearing up to expand into overseas markets. New healthcare infrastructure and subsidised
loans will further spur medical institutions' renovation and expansion, expanding the medical
equipment market. In particular, domestic high-tech medical equipment makers are expected
to benefit from favourable policies and grab more market share.
CXO: Demand for CXO services will grow thanks to the booming biopharmaceutical innovations
at home and abroad which has pushed the number of drug R&D pipelines to a record high.
Chinese CXO companies will continue their development due to the scaling effects accumulated
over time, advantages in cost and platform technology, as well as strong domestic and overseas
demands.
Life science and upstream segments of biopharmaceutical industry: When the global
supply chain is being reshaped by the COVID-19 pandemic, Chinese manufacturers of
biopharmaceutical equipment, consumables and packaging material have started to substitute
foreign counterparts and play an increasingly important role in the global market, leveraging its
stable supply chain and technology capabilities.
Consumer health: The trend of population ageing is irreversible. The large number of middle-
aged, elderly and chronic disease patients China will create a huge consumer health market.
On top of that, COVID pandemic has boosted consumers' health awareness, further increasing
the market size. Notably, we expect to see the growth of potential in ophthalmology, aesthetic
medicine, self-health management and nutrient supplements.
82 Foresight 2023 Foresight 2023 83

Traditional Chinese medicine (TCM): The Development Plan of the Traditional Chinese
Medicine during the 14th Five-year Plan Period has introduced 15 quantitative indicators for
the development of the TCM industry, such as the number of TCM medical institutions and the
number of beds per 1,000 population in public TCM hospitals. After the completion of a pilot
sale programme, TCM formula granules can now be sold in all medical institutions with TCM
practice license and are included in category B of the National Reimbursement Drug List (NRDL).
With relatively low risk of VBP, the TCM industry will continue to grow, mainly driven by leading
companies.

Trend Cross-border transaction cooperation to increase, mostly around

08
high-quality investment target, overseas market access and supply
chain availability
The investment and fundraising amount of China's healthcare industry has kept increasing in
recent years. It had an explosive growth in 2020 and peaked at 602.5 billion yuan in 2021. Such
activities cooled down in the first half of 2022 due to the pandemic impact. The structure of the
healthcare industry investment changed in 2022, when pharmaceutical companies gradually
tapped into the global market and became active in cross-border cooperation. Meanwhile,
overseas capital and businesses were also proactively seeking strategic opportunities to enter
the Chinese market.

For Chinese pharmaceutical companies, they had to explore new growth models amid the
rollout of drug Volume based procurement and NRDL price negotiations. However, their R&D
capabilities are increasingly being recognised overseas, that's why many Chinese companies
have turned to overseas markets for future growth by tapping into the huge potential and serving
unmet needs in emerging markets. In 2021, Chinese innovative drug companies' overseas
expansion achieved around 30 innovative drug license-out projects (US$15.8 billion in scale), a
significant growth from previous years. The strong momentum continued into 2022, with about
20 license-out projects completed in the first half.At the same time, Chinese pharmaceutical
companies are also proactively acquiring cutting-edge technologies from around the world and,
by combining with their own R&D capabilities, rapidly building competitive advantages. In 2021,
93 innovative drug license-in projects were completed in China and another 57 were completed
in the first half of 2022, mainly focusing on cancer treatment. In the context of active cross-
border transaction cooperation, Chinese pharmaceutical companies should seize opportunities
by developing capabilities to identify high-quality subject, gain overseas market access and
leverage the complete supply chain around the world. As we enter the new normal of post-
COVID era in 2023, we believe the demand for cross-border transaction services will become
stronger and more diversified, further optimising the resource allocation in the industry value
chain.
84 Foresight 2023 罗兰贝格中国行业趋势报告
Foresight 2023 85 85

Financial Services

In 2022, China's economy witnessed a V-shaped trajectory due to the internal and
external factors that exceeded market expectations, such as Russo-Ukraine conflict,
US Fed Reserve raising interest rates, the resurgence of COVID and the decline of
Chinese real estate market.

Looking forward, we expect that in 2023 China will be guided by the "general principle
of pursuing progress while ensuring stability" via adopting the proactive fiscal policy
and accommodative monetary policy for the post-COVID era. The country will issue
a series of coordinated industry, technology and society policies to improve the
confidence of market players as well as boost their confidence and expectations,
especially for private firms, platform companies and the real estate industry. China
will also increase its investment in technological innovations and green transition,
reverse the weak consumption, ensure a quicker recovery, and induce the high-quality
development which has been stated in the Report to the 20th National Congress of
the Communist Party of China.
86 Foresight 2023 Foresight 2023 87

Trend Af ter f luctuations, commercial banks' wealth management This notice has particularly warned trust companies not to provide "channeling" services or use

01
subsidiaries to seek differentiated growth non-standard capital pools in any form, reflecting the government's firm attitude against high-risk
fundraising trust services in the shadow banking sector. Hence, trust companies must reinvent
In the fourth quarter of 2022, China's bond market underwent large fluctuations with many
their models outside of the once prosperous fundraising business to comply with the new rules’
funds and asset management products falling below net values. This triggered a massive selloff
requirements and achieve high-quality development.
and even deeper declines, pushing the market into a downward spiral. Wealth management
subsidiaries of commercial banks used to rely on fixed income products. The slide is a real test
For the trust industry, 2023 will be a year of rebirth as the new rules means trust companies
for their investment and risk management capabilities after China issued the Guiding Opinions
have to embrace the new reality. They need to thoroughly understand the legitimate business
on Regulating the Asset Management Business of Financial Institutions, widely known as
scope of trust licenses, develop asset management trusts according to new regulations as well
"China's new asset management regulations". Given that the stock market dived in March 2020
as accelerate the growth of asset servicing trust and charitable trust businesses.
when many stocks also dropped below their net values, 2022 was a really challenging year for
these bank-affiliated wealth management subsidiaries (WMS).
Trust companies have many unique advantages, such as extensive partner relationships with
financial institutions and local governments, covering both credit and capital markets, managing
According to the new asset management regulations, the compliance requirement for WMS is
financial and real assets and being regulated in a unique framework. There is room for them to
the same for the wider asset management industry. Commercial banks' wealth management
grow in family service trust, family office trust, life insurance trust, trust management service
subsidiaries need to develop capabilities and knowledge in many areas to catch up with their
for securitisation assets and charitable trusts. In the future, as the legal and trust custody
peers, such as managing portfolio investment concentration level, evaluating the value of their
environments become mature, trust companies will be able to build a new business model
products, managing liquidity and leverage ratio, building investment research systems and
which will be more customised on the client side, have a larger scale of services and be
transiting to a net asset value-based management system. They must upgrade their business
more professional in various asset classes. Their rebirth can be realised through increasing
model and ditch the habits formed during the time when they won competition by selling
investment in asset management and service teams as well as in rebuilding the processes to
products with guaranteed repayment of principal and interest.
support new service portfolios.

Many leading commercial banks' wealth management subsidiaries have been established

Trend
for over three years. More than 10 of them are now managing over 1 trillion yuan of assets
New cooperation era for bancassurance to accelerate high-quality
or have surpassed the 1-billion-yuan net profit threshold. In 2023, their emphasis would be

03
achieving high-quality growth. These previously identical companies will have to find their
differentiated growth models based on various factors, such as their parent banks' client and
channel resources, operating platform, corporate culture, their core team members’ research
and risk management capabilities, etc. Also we expect these commercial bank-affiliated wealth
management subsidiaries will launch more innovative products to meet investors' diversified
demands on risk and liquidity. They also have to respond to the catfish effect brought by the
five joint-venture wealth management companies. These new moves might include extending
the term of close-end funds, launching long-running asset management products, exploring the
sector of senior service asset management products and ESG thematic products. In terms of
sales channels, there will be a frenemy relationship between the wealth management units of
banks, brokerage houses, insurers as well as mutual funds and private equities.
growth of insurance industry
Since 2017, the bancassurance has undergone a period of strict supervision. For example,
in terms of product design, short-term policy products were restricted and long-term deposit-
or coverage-centric insurance policies were encouraged, to reflect the "back-to-basics"
principle. In terms of product payments, according to the Measures for the Administration of
the Bancassurance Business of Commercial Banks issued in 2019, policies with instalment
payments are encouraged over the policies with lump-sum payments. In terms of pricing, 4.025
percent assumed interest rate annuities have been phased out since 2019.
According to the recent growth data of life insurance, the bancassurance channel is making a
come-back and has found its potential as many life insurers have achieved double-digit growth.
By contrast, the insurance agent channel is in continuous decline, which was probably driven by
three factors, i.e. higher requirements from clients on quality, insurers' retreat from team-size-

Trend The rebirth of trust companies driven strategy and low-efficiency operation model, and evolving mindset of banks. In addition,

02
the regulatory bodies of the two industries merged in March 2018 to form CBIRC, which has
In September 2022, China's banking and insurance regulator published an industry-reshaping
naturally improved the alignment between them. These elements have contributed to the closer
notice to divide the businesses of trust companies into three categories: asset management,
cooperation between banks and insurers.
asset servicing and charitable trusts.
88 Foresight 2023 Foresight 2023 89

Looking forward, the cooperation between banks and insurers will upgrade from the previous
Trend China's Transition Finance in the fast lane

05
simple distribution-channel partnership to the real bancassurance era. Both parties need to
During the G20 Bali Summit in Indonesia from November 15 to 16, 2022, the G20 Sustainable
focus on their targeted clients to develop customised solutions. Insurers need to tailor policies
Finance Report was approved together with the G20 Framework for Transition Finance. It is the
based on each of their partner bank’s customer groups and present in a format easier to be sold
first global consensus on transition finance since the agreement on green finance during G20
through bank channels. They also need to provide highly digitalised training and commercial
Hangzhou Summit back in 2016.
support. For banks, cooperation with insurers are no longer just a means to increase front-line
sales for fee-income only. Rather, they need to integrate insurance as part of their offerings to
Since the Paris Agreement was inked in 2016, the scale of green finance in China and other
suitable client segments. Against the backdrop of bancassurance cooperation, banks should
major economies has kept growing. For example, by end of Q3, 2022, the outstanding value
provide clients with holistic wealth management and coverage planning based on a list of policy
of green loans in China reached more than 20 trillion yuan, 40 percent higher than a year
options, such as annuities, life insurance, long-term health insurances, etc. These services
ago. However, if compared with the large size of China’s economy, itis still a relatively small
should be recommended according to client’s life stage and offered based on asset allocation
proportion. In the meantime, the world has realised that to facilitate an effective, rapid, whole-
principles, which could become an important means to retain clients with services of long-erm
of-economy climate transition, it is not enough to just support the low- or zero-emissions firms/
value.
projects currently viewed as “pure green”. Policy action is needed to send correct market
signals to incentivise and accelerate the mobilisation of private capital flows to enhance the

Trend Financial leasing industry to become more professional through sustainability or support the orderly transition of high-emitting and/or hard-to-abate sectors.

04
equipment-based financing services
As such, the G20 Sustainable Finance Working Group, co-chaired by China and the United
After the China Banking and Insurance Regulatory Commission issued the Notice Concerning
States, spent 10 months to draft the Framework for Transition Finance with a set of 22 high-level
Strengthening the Compliance Regulation of the Financial Leasing Business of Financial
specific principles around five pillars, i.e. Identification of transitional activities and investments,
Leasing Companies, such companies have to transform their business models. The notice
Reporting of information on transition activities and investments, Transition-related finance
has encouraged them to focus on their core business offering and accelerate equipment-
instruments, Designing policy measures, and Assessing and mitigating negative social and
based financing services to better support real economies, such as advanced manufacturing
economic impacts. It will guide G20 members to design specific financial policies based on their
industries, green industries and emerging strategic sectors.
realities.

Financial leasing business is a quite fragmented industry in China. By June 2022, there are
As the largest developing country and a major contributor to the Framework for Transition
more than 11,600 such companies with a contracted leasing value of 6.03 trillion yuan. Among
Finance, China's move will be closely watched. In 2023, the country would be expected to
them, 72 are CBIRC-licensed financial leasing companies, contributing 41 percent of the leasing
accelerate its standard setting works and down-to-earth piloting practices. On the one hand,
industry's total leasing asset value by end of 2021. Since 2018, the market demand has gone
businesses are urging regulatory bodies to release defining criteria and disclosure requirements
southward, as the regulator tightened its control and the COVID hit the economy. The financial
for transition finance. On the other hand, the drafting of transition catalogue involves
leasing industry has stopped to grow, and the number of companies dropped. According to
participation of many government authorities. Hence the final details have to go through several
CBIRC, nearly 70 percent of financial leasing companies are now shell or “zombie” companies.
rounds of discussions. It is expected that the standard setting work and real-world practices will
be closely intertwined to drive each other forward.
As the funding cost of financial leasing companies is relatively higher, for quite a long time
financial leasing companies were basically "financing everything with leasing license" by offering
China has rich experiences in the "pilot-summarise-rollout" model. Some local governments are
so-called "quasi loans". They often expand into areas where banks' risk appetite could not cover
already taking the lead. Huzhou and other cities have been nominated as pilot zones for reform
with their "flexible" solutions. Some even ran projects that policy makers would highly restrict
and innovation of green finance, while areas such as Chongqing’s Liangjiang New Area have
or forbid, including those relevant to the hidden debts of some local governments, and were
become pilot areas for climate investment and financing. China’s financial institutions, such as
eventually put under strict supervisions. In the future, financial leasing companies with in-depth
China Construction Bank and Bank of China have released their versions of transition finance
industry understandings and expertise in equipment-based financing will stand out and become
framework or guidelines and incentive measures. These explorations will pave the foundation for
sustainable winners.
a set of national standards in the future.
90 Foresight 2023 Foresight 2023 91

Trend Regional equity markets to become springboard for 'emerging niche

06
giants'
In November 2022, the general offices of China Securities Regulatory Commission and the
Ministry of Industry and Information Technology jointed published the "Guiding Opinion on the
High-Quality Construction of Special Boards of Enterprises that Use Special and Sophisticated
Technologies to Produce Novel and Unique Products in Regional Equity Markets" (the Guiding
Opinion). It has confirmed that the mission of these "Special Boards" is to support the growth of
emerging niche giants. The government will encourage the regional equity exchange markets to
play an active role in leveraging the power of China's multi-tier capital market system to serve
them.Regional equity exchange markets should establish a market-tier system for enterprises
on the special board and provide basic services and comprehensive financial services to
them according to their characteristics and needs. The three “market tiers” are incubation tier,
standardisation tier and cultivation tier.

China now has 35 regional equity exchange markets, which formed the foundation of China's
multi-tier capital market system. They provide venues, facilities and services for the private
placement and transfer of qualified non-publicly-issued securities. The services include the
listing and display of information on enterprises and securities; the centralised registration,
custody and settlement of equities, claims and other securities of non-publicly-listed enterprises;
non-public issuance of stocks or private placement and cultivation for IPO.By June 2022, about
39,900 companies are listed, 138,800 companies are displayed, 57,000 companies are kept
in custody in these markets with a total of 922,400 investors. They have raised 1.76 trillion
yuan accumulatively, including 405.5 billion yuan in equity financing, 452.2 billion yuan in debt
financing and 637.7 billion yuan in equity pledge financing. The accumulative transfer value
reached 401 billion yuan.Among the enterprises served by regional equity markets, 78 have
been upgraded to list at Shanghai, Shenzhen or Beijing stock exchanges, 762 to the New Third
Board and 65 were acquired by companies listed on those boards.

According to the experiences of overseas OTC markets, to develop a mature multi-tier capital
market system, China needs to organically connect OTC and main boards so that listed
companies can be promoted or demoted among them so that the stronger ones can have bigger
access to more capitals. This Guiding Opinion will largely boost the development of China's
capital market system, improve the ecosystem and inject new momentum into the growth of
these regional equity exchange markets.
92 Foresight 2023 罗兰贝格中国行业趋势报告
Foresight 2023 93 93

Real Estate

The steady and healthy development of China's real estate industry is crucial to the
stability of financial markets as well as the country's overall social and economic
development. In the short term, the government’s major task is to reverse the
downward spiral of the industry and those hazards come with it. The government will
work hard to ensure housing project delivery as well as the well-being of the people
relevant to real estate, such as apartment buyers, real estate employees and vendors.
It will also work hard to restore the property market's steady and healthy growth,
stabilize the industry's expectation and make sure the real estate industry can once
again help to support macro economy development. In the mid- and long-term, the
government will accelerate the establishment of "a housing system featuring multiple
suppliers and various channels of support that encourages both housing rentals and
purchases". This system is the future goal of China’s real estate industry transition
and will become a new pattern for the sector to continue propel China's economic
development.
94 Foresight 2023
Trend Move faster to build a new housing system
01
The Report to the 20th National Congress of the Communist Party of China has reiterated the
principle that "housing is for living in and not for speculation", which further consolidated the
strategic importance of real estate industry to Chinese people’s well-being. The report has also
stated that the country will "move faster to build a housing system featuring multiple suppliers
and various channels of support that encourages both housing rentals and purchases", which
is the goal of China’s real estate industry’s transition.“Multiple suppliers” emphasizes the
importance of supplier diversity. "Various channels of support" points out the imperative of
accelerating a multi-channel housing support system, which will include homes with shared
ownership and government-subsidized rental housing for financially challenged families, young
people, new immigrants from other cities and new urbanites. "Encourage both housing rentals
and purchases" refers to the urgency of developing the rental market, which will help solve the
long-lasting structural issue of housing rental and purchasing difficulties. The government will
encourage the growth of a large number of professional housing rental agencies to support the
healthy development of rental market.
The future development of real estate industry also has to align with the framework of "improving
the people’s well-being and raising quality of life" which was stated in the 20th CPC National
Congress report. The future housing system reform will aim to achieve the balance of “ensuring
people’s well-being” and “improving quality of life”.
Trend
'Three arrows' pump liquidity into real estate market to ensure its
02
development
Guided by the decisions of State Council's major financial industry decision-making body,
Chinese ministries have launched a series of policies to ease the financial burdens of the
real estate industry, including 16-point set of financial measures, new tools to further support
private property companies' bond financing activities, and 5-point optimized policies of equity
financing. The combination of these loan, debt and equity financing changes, known as "three
(policy) arrows", will effectively help real estate companies to mitigate their liquidity crisis, enable
capital markets to leverage the developers' existing assets, secure housing project delivery
and protect consumer rights. These arrows have also created a window of opportunity for real
estate companies to extend their debts, accelerate the resolution of potential risks, prevent this
industry's hazards expanding into other industries, and eventually solve the debt crisis that has
been accumulated since the second half of last year. Also during the process, by leveraging the
benefits brought by the "three arrows", outstanding developers will be able to accelerate the
recovery of their cash flow from operations as well as from debt and equity financing, so as to
improve their balance sheets and restore market capitalization.
Foresight 2023 95
Trend Publicly traded REITs to accelerate development of government-
subsidized rental housing
03
Government-subsidized rental housing is an integral part of the new housing system that
encourages both housing rentals and purchases. The official launch of several publicly traded
REITs of subsidized rental housing is a significant indicator that the capital market has been
invited to play a bigger role in this transition. China Securities Regulatory Commission has
announced that it will welcome the advent of such REITs. This arrangement will accelerate the
development of previously untapped state-owned leasable land and collectively owned buildable
land for these purposes, increase the supply of rental housing and effectively solve the structural
shortage of rental property. The business model of China's housing market is migrating from
chasing a bigger scale in an ever-expanding market to winning a bigger share in a market of
fixed size. As more subsidized rental housing REITs hit the market, they will expand to second-
tier cities and will come in more diversified formats to support more projects.
Trend
Work actively and prudently towards property tax trial
04
In the long-term, property tax will inevitably replace land leasing income to become local
governments' major fiscal income source. The new tax might become the important revenue
source to quench local fiscal pressure. China's Ministry of Finance has mentioned several
times about "actively and prudently advance the legislation and reform of property tax",
"further explore the trial of property tax reform". The ministry has also recently published its
"Implementation Opinions on Supporting Shenzhen in Exploring and Innovating on the Fiscal
Policy System and Management System", indicating it wants to carry out a new round of property
tax pilot reforms in Shenzhen. However, given the unprecedented pressure the real estate
industry is now under, the ministry has changed its tone and said that there are no conditions in
the short-term for expanding the trails of property tax reform. But that doesn’t necessarily mean
a halt of legislation preparation for this tax. With the advancement of property tax pilot reform in
Shenzhen, we will see a clearer roadmap and timetable for future full-scale implementation of it.
Trend
Leverage the power of digitalization and learn from advanced
05
manufacturing industry
Real estate companies can no longer rely on their previous model of chasing speed- and
size-centric growth by leveraging external financial levers. They have to develop high-quality
consumer-centric products, continuously improve their management capabilities by leveraging
the power of digitalization, and learn from advanced manufacturing industry to enhance
efficiency through better management. In this on-going industry overhaul, the management level
will decide who will be the new market leaders.
To become a truly consumer-centric company, real estate companies need to undertake in-
dept consumer researches to optimize their strategy and product offerings. They also have to
listen to consumers' voice, enhance their consumer experiences and retain valuable customers.
96 Foresight 2023 Foresight 2023 97

At the same time, they also need to keep up with the development of Chinese society and
the evolving consumer needs to upgrade their products through R&D and innovation. It’s also
important for them to accelerate the pace to improve their performance and cost. They need to
fully tap the potential of their respective value chain. In this regard, they can learn many lessons
from China’s advanced manufacturing industry in terms of sophisticated strategy, management
and methodology. By doing so, the real estate companies can learn to improve their process
control, quality maintenance and efficiency. These efforts will definitely help them to enhance
their management capability. Digitalization and smart technologies can also help them greatly
improve efficiency, cut production cost, enhance competitiveness and optimize the whole value
chain from production to operation.

Trend Decarbonization to force the industry's green transition

06
The Report to the 20th National Congress of the Communist Party of China has called for the
country to "accelerate the transition to a model of green development, conserve resources of
all types and use them efficiently, accelerate the R&D, promotion, and application of advanced
energy-saving and carbon emission reduction technologies, as well as promote green and low-
carbon ways of production and life". For a very long period, China's traditional construction
industry has been very inefficient and caused much pollution. According to China Association
of Building Energy Efficiency, China’s construction activities in 2019 created 5 billion tons of
carbon emission, accounting to 50.6% of the country's total amount. The industry consumed
2.23 billion tons of coal, equivalent to 46.5% of China’s energy consumption of that year. The
decarbonization of real estate will contribute greatly to China's emission control goal of 14th
Five-Year Plan as well as the target of reaching carbon emission peak in 2030.

Companies of the real estate value chain should further embed the concepts of ESG and green/
low carbon into their business model through adjusting and optimizing their design, production,
procurement, construction and operation activities. The era of green construction has created
a huge opportunity for prefabricated buildings. This type of buildings, which is strongly
encouraged by the government, can shorten the time of construction, reduce material waste, cut
human labor and can easily implement wet operations to control dust and other pollutions. As
prefabricated buildings continue to reinvent itself and lower the costs, combined with favorable
national policies, this sector will enter the fast lane of growth. At the same time, there will be
ample room for the implementation of digital technologies, including Big Data, IoT and AI, which
can greatly enhance efficiency and help the industry to greatly advance its decarbonization
transition.
98 Foresight 2023 罗兰贝格中国行业趋势报告
Foresight 2023 99 99

Civil Economics

Now, we are at a time of momentous changes unseen in a century. The new round
of technology and industrial revolutions has advanced further. A backlash against
globalisation is rising. China has embarked on a new journey to build itself into a
modern socialist country in all respects. Can emerging economies, such as China,
become the new focus of the world and become new engines to drive globalisation
forward? This article is a summary of recommended priorities for readers interested
in China's civil economics in 2023. When drafting local industrial development policy,
Chinese leaders need to align with the country’s new pattern of development that is
focused on the domestic economy and features positive interplay between domestic
and international economic flows, a.k.a. "Dual Circulation". They need to enhance the
global competitiveness and influences of the modern industry systems in their city/
region. When planning city development, they need to focus on growing their centre
cities into truly "global cities", promoting high-quality development and shaping their
global influences. In major global issues, they need to showcase the "Chinese way of
governance", make China's voice heard, and strengthen China's voice in international
governance affairs. For regional officials, it is crucial that they are making plans in a
global context.
100 Foresight 2023 Foresight 2023 101

Trend Centre cities kick off their journey to become a "global city" resources, and re-calculate total supply chain costs. They also should redefine concentration

01
of industries to take advantages of new corridors and develop industry clusters around new
Against the backdrop of "dual circulation", many regional centre cities have kicked off their
hubs. The government leaders should redefine their policy advantages by taking up pilot roles in
campaigns to become a global metropolitan by strengthening economic influence in certain
institutional opening-up trials. This will help identify policy breakthrough opportunities in certain
global areas, growing their capabilities in coordinating resources and having more cultural
areas or industries.
exchanges with foreign counterparts.

Trend
Below is a list of works that these cities should focus on.
Strengthen global competitiveness through fostering industry
• Globalise their industries. Encourage their businesses, lead by its leading industry clusters, to

04
consortia
expand globally and build industry resource allocation capabilities at a global level.
• Globalise their technology and innovation capabilities. Develop connections between local Following the trend of industry convergence and the emerging of consortia, Chinese government

and global research institutions as well as link up with innovation resources, companies and leaders should encourage the forming of "industry consortia" in its leading sectors. Industry

organisations in key industries. consortium refers to an alliance of member companies, universities, and organisations from the

• Globalise their city image. Undertake high-quality urban renewal projects by benchmarking same industry. The government should develop coordinating schemes to solve practical issues

against the standards of global metropolitans, emphasise their cities' unique cultural heritage of these industries to enhance their global competitiveness. The officials should also facilitate

and characteristics, launch multidimensional city image promotion campaigns. industry-level resource coordination, encourage mergers and acquisitions, promote more

• Globalise their population. Attract foreign talents, encourage the convergence of diverse cooperations in R&D activities and across niche sectors, as well as urge the standardisation of

cultures from every part of the world, gradually build up expats’ sense of belonging of the city,
boost their city’s soft power.
technology systems.The government should lead all industries to start their digital and smart
transitions, build industry-level data sharing and digitalisation coordination programmes. Leading
companies should become pioneers and invite small and medium firms to follow suit. The
government should also coordinate local companies' overseas expansion strategies, promote

Trend Sino-European industrial cooperation has brought new opportunities "group globalisation", orderly purchase foreign patents and production capacities, encourage

02
as multinational companies reshuffle global supply chain networks them to share overseas sales and service channels.

Due to the new geopolitical tension and the huge market created by the signing of Regional
Comprehensive Economic Partnership, European investment into China is now growing again.
Trend Build innovation consortia to integrate innovation resources and

05
Currently, Sino-European industrial cooperation is focusing on helping European companies capabilities
re-arrange their global industrial chain network. For major industrial investment projects which
Chinese local governments should build innovation consortia to further enable cross-industry
are driven by potential energy crisis, the Chinese side should attract them with advanced local
and cross-discipline scientific and technology research coordination, which will nurture
industry clusters, vast market size and new institutional opening-up measures, such as relaxing
the forming of regional innovation centre networks. They should invest in key laboratories,
of joint venture ownership limit for foreign companies.For small- and medium-size projects,
coordinate the investment in major scientific research equipment and research focus, as well as
the Chinese side should develop a comprehensive service platform to meet their needs and
create a multi-tier network of scientific research and innovations. They should develop service
organise more exchange activities to solve their concerns about uncertainties in China. The
platforms for science and technology-related affairs and improve the efficiency of connecting
huge market size created by RCEP is a good incentive to attract European companies to
fundamental research results with commercialisation innovations. For key technologies with
rebalance their regional presence with the format of "China headquarters + RCEP supply chain
significant potential, they should identify them early and introduce a high-level framework to
network", which can become a new supply chain hub to serve the whole world.
support wider cooperations around them.They need to develop new types of research and
development institutions, create new platforms for scientific research institutions and companies

Trend Development new opening-up corridors has created opportunities to to co-innovate, and form a new commercialisation system of scientific and research findings

03
rearrange industrial chain networks which is driven by market demands, supported by capital investment and will share benefits and
profits among all stakeholders.
China is building many new opening-up corridors supported by multimodel transportation
networks. The Sino-Europe, Sino-SEA connectivity upgrading projects are reshaping "hub
economies". Government and business leaders need to redefine the importance of geographical
locations, re-evaluate the boundary of accessible markets, redefine their hinterland of
102 Foresight 2023
Trend Decarbonisation is driving the new restructuring of global industries
06
As more countries begin to implement their decarbonisation policy, combined with the impact
of energy crisis, more emission-intensive companies are re-evaluating their global presence.
In addition to human resources, land, capital and legal environment, the availability of low-
carbon infrastructure and resources will play an important role in reshaping the global and
domestic industry chains. China's middle and western regions, which have rich renewable
energy resources, now have a great opportunity to receive manufacturing capabilities moving
from other places. However, they, and other parts of China as well, need to further optimise their
green energy supply service, low-carbon technology applications and innovation resources to
materialise these opportunities. It is also imperative to align regional low-carbon institutional
policies with that of global protocols.
Trend
Balance regional decarbonisation transition and energy security
07
In the long term, it will help China to ensure holistic energy security by replacing carbon-
intensive fossil fuel with renewable energy sources. However, if the transition is not well
planned or not supported by robust technology readiness, it might cause regional energy supply
fluctuation, or even energy supply accidents. Local governments should define milestones for
each phase of their low-carbon transition, enhance the construction of new energy infrastructure,
such as energy storage network and energy Internet. They should complete the design of
renewable energy allocation and consumption arrangements as well as create buffering for the
technology upgrading works of regional decarbonisation transition. All regional decarbonisation
transition must be undertaken without sacrificing the stable supply of energy.
Trend
Local industry investment funds to build full-circle industry operational
08
capabilities
As local governments' direct vehicles to boost industry development, local industry investment
funds are changing their roles from supporters of investment attracting activities to professional
full-circle industry operators. They need to better integrate three types of resources, i.e. local
industrial resources, funding resources, and preferential policies to guide investment into local
industries. Industry investment funds in high-growth emerging industries can enter developed
cities to get closer to innovation resources, and align with fitting regional industrial resources
to accelerate local companies' development. Funds in mature industries can lead local industry
consolidation, support large-scale companies to merge and acquire smaller ones as well as
consolidate companies in new areas. These funds should invest in the wider industrial commons
to secure industrial chain stability and enhance their control of this industry.
Foresight 2023 103
Trend Regional state-owned asset management bodies to transform into
09
industry and resource operation platforms
At the moment, China will continue its easy monetary policy. The market capitalisation of
emerging industries will keep declining. The reform of regional state-owned asset management
bodies will move forward. It is a good time for these asset management bodies to transform into
resource integration and industry operation platforms.They can help coordinate and leverage
existing assets, such as inviting private capital and professional agencies to enter the fields
of urban rail transportation, urban renewal projects as well as cultural and tourism industries.
These sectors' long-term value and unique industry natures will make them very attractive.
During the transition, the asset management bodies can optimise their asset structure through
high-quality equity investment, and change from infrastructure-centric city investment model
to industry operation-centric investment model. These asset management bodies should act
as an investment hub to strike a balance between the demands of fiscal investment and private
capitals. They can realise their value by becoming a platform to coordinate state-owned assets
from different backgrounds.
Trend
Real estate industry accelerates its recovery with a new business
10
model
Multiple shockwaves have forced China's real estate industry to find new business models. After
a struggling year of 2022, this industry is expected to stabilise and even recover in 2023. We
have seen many obvious structural changes, such as the higher market share concentration and
the increase of regional focus, instead of national expansion, among real estate companies. The
new real estate financial models will dictate the future of real estate industry business models.
The new philosophy of real estate finance has guided the business model change of this
industry. Now the real estate operator mindset decides whether to buy a land or not. Thematic
real estate projects need to refocus on proving their value for long-term operations. There are
also more financial policies favouring long-term value creation, which have pushed real estate
companies to focus on long-term operation and reasonable profitability. The real estate industry
is now more like a public utility industry and its value will continue to increase.
104 Foresight 2023 罗兰贝格中国行业趋势报告
Foresight 2023 105 105

Investor
Support / Mergers
& Acquisitions

After encountered a sudden drop in 2022 recovering and highly active year of 2021,
the private equity market slumped into winter in 2022, facing in the most uncertain
and complicated market environment in recent years. Many "black swan" events
happened at the beginning of 2022, which intensified global economic turmoil
and caused the global inflation rate to rise far above expectations. Meanwhile, the
geopolitical tensions and the reshuffling of the global supply chain have caused
global investors' deeper concerns for risks. In this uncertain economic environment,
a slow down in capital market activities is inevitable. Investment institutions are
facing many challenges, such as the "dual pressure" on both fund raising and target
finding, negative valuation gap between primary and secondary market, and exit
difficulty. As a result, many of them chose to wait until a better economic environment
in 2022, being more cautious in investing and M&A deals. Based on data from
Merger market, the global transaction value in Q1 to Q3 of 2022 dropped by about
45 percent compared to last year's. Entering the new year, openness, win-win and
recovery have become the new buzzwords of economic development. We expect
that inflation, interest rates and the economic environment may have some room for
improvement. For private equity, the year of 2023 is expected to be a year of rebound
and new opportunities.
106 Foresight 2023 Foresight 2023 107

Trend Global buyout market to become active again registered in China, of which four did so in 2021. However, the number jumped to 43 in 2022,

01
highlighting the huge interest of global capital in the Chinese market. In addition, since the
Against the backdrop of global economic slowdown, policy makers around the world are taking
implementation of China’s Foreign Investment Law in 2020, it has been much easier for foreign
strong measures to rein in the unexpectedly high inflation rate. The US Federal Reserve has
capital to buy equities of Chinese companies. In the first 10 months of 2022, China attracted
substantially raised interest rates four times in a row. The European Central Bank announced a
US$168.34 billion of foreign direct investment, a year-on-year increase of 18.5 percent.
rate rise of 75 basis points at the end of October 2022. The Bank of Canada hiked interest rates
six times in 2022. In addition to the world's major economies, central banks in other countries,
Generally speaking, as the world's second largest economy, China is still hugely attractive to
including Brazil, Turkey, and Russia, have also aggressively raised interest rates. Other drastic
global capital investors, especially given its recently improved policy environment and recovering
policy measures included: easing constraints on the labour market to increase the labour force
macro economy. The Chinese market not only has the stability of a mature market, but also the
participation rate; increasing global commodity supply, i.e. increasing food and energy supplies;
great vitality of an developing country. Although there will still be concerns for geopolitical risks
strengthening the global trade networks, i.e. easing global supply bottlenecks and supporting a
for a certain period of time, no one will doubt the long-term importance of China in the global
rules-based international economic order. The International Monetary Fund (IMF) has forecasted
equity investment industry.
that the global inflation will ease in 2023 when countries around the world work together to lower
inflation and resolve supply disruption crisis.

At the same time, as many governments have relaxed COVID-control measures, the global
Trend Investment focus switched from digital to real economy

03
economy will begin to recover. Investors are proactively adjusting their strategies to adapt to the
new environment. As a matter of fact, some better investment opportunities could emerge in a
sluggish market and a challenging business environment. Global investors are expected to start
to make bold decisions after careful considerations and adjustment of strategies. This will help
the global M&A recover in 2023, and gradually restore its vitality.
Trend China to remain on positive trajectory over the long run
In terms of choosing industry for investment, China's equity M&A market has undergone
significant changes, such as the switch from digital economy to real economy in the past year.
• The traditional popular industries have lost their charms: the technology, media, and telecom
(TMT) sector has not only lost their growth in traffic, but also is facing increasing regulatory
and compliance pressure. As a result, it has lost its momentum in both the primary and
secondary markets. In 2022, there were no major M&A cases in e-commerce and financial
service sectors. The investment activities also became less active in software and SaaS
sectors.
• The "chip" related is the new buzzword: geopolitical frictions have forced China to accelerate

02
its effort in building an independent and self-sustaining semiconductor industry chain. This
Due to the resurgence of COVID and the drastic measures to control it, combined with a sliding
concept has gained market consensus. The investment in electronic industry grew significantly
real estate market, China's economic growth slowed down in 2022. Although China's economy
compared with last year, while the semiconductor sector maintained its fast growth from 2021.
will still face challenges and pressures in short term, it will still remain as the global economy
• Industries with stable outlook continued to grow: As investor's risk aversion reached
growth engine in long run. In May 2022, the Chinese government issued a package of policies to
historically high level, mature traditional industries, such as construction, manufacturing as
stabilise the economy and announced a series of follow-up measures in August. These policies
well as chemicals and materials, attracted more investors in 2022. Benefiting from the strong
covered six aspects, including offering fiscal support, launching currency and financial policies,
momentum of NEVs, the automotive industry has also achieved steady growth.
stabilising investment and promoting consumption, ensuring food and energy security, ensuring
stability in industrial supply chains as well as protecting people's basic welfare. More importantly,
Overall, we believe that the new trend in choice of industries reflects that the equity investment
the 20th National Congress of the Communist Party of China in October emphasised the
market is becoming more rational and shows attributes of a mature market. Investors are no
importance of promoting high-quality development, deepening reform and opening up, and
longer making high-stake gambles, but instead looking for opportunities within industries that are
giving full play to the decisive role of the market in resource allocation. These announcements
aligned with Chinese government's policy preferences. At the same time, during this transitional
will promote economic development in the med-and long-term. Therefore, the International
period, it is inevitable for investors to favour the traditional industries to mitigate risks. It also
Finance Forum (IFF) predicts that the global economic growth may reach 2.8 percent in 2023,
reflects the maturity of the equity M&A industry, which returns to the basics of seeking profits
but China's economic growth is expected to reach 4.6 percent.
through value discovery and value creation through operations. These changes are consistent
with what we saw in the private equity market after the European crisis of 2012-2013.
With positive expectations for China's economic growth, plus China's significant change of
pandemic control policies, global capital investors remain optimistic about China and are
actively investing here. By the end of 2021, only 33 foreign-funded private equity institutions had
108 Foresight 2023
From a long-term perspective, the adjustment in 2022 also created three potential investment
areas:
Valuation rationalization of over-priced sectors:This round of market retreat has rationalized
the valuation of many targets in over-priced sectors. In the domestic market, the recovery
progress of sectors impacted by epidemic needs to be closely monitored. In the global market,
many countries are still suffering from high inflation due to unmet demand, which will potentially
have more needs for Chinese imported goods. We recommend closely follow the developments
of related sectors, such as offline consumption and cross-border retail.
Horizontal integration of scale-based industr y: The traditional industries were well
positioned to navigate business to mitigate risks. In fact, their large scale is their entry barrier by
nature could even improve due to supply-demand fluctuation. In addition, scale is their natural
entry barrier for the large companies in these industries. And their value creation logic is straight
forward. We recommend focusing on industries like traditional manufacturing, chemicals and
courier services. However, these industries do require investors to have better industry know-
how to be more skillful in valuation and post-investment management.
Trend
Opportunistic takeover of targets in financing difficulty: During the market downturn,
there are many cases when business owners, including many targets with strong commercial
05
fundamentals, are forced to sell due to their internal managemental reasons or external short-
term shockwaves. To grasp these opportunities, investors need to systematically monitor pre-
selected industries, understand the macro market cycle and preemptively reach out to potential
targets.
Under new trends, investors need to quickly adapt to changes in each industry, optimise their
investment logic, and enhance their core capabilities to outperform the market throughout the
business circle.
Trend
ESG concept increasingly embedded into investment
04
In 2022, extreme weather events occurred frequently around the world; the overall global social
environment was in turmoil, and the COVID pandemic continued to disrupt economic activities.
Against this backdrop, the sustainable development of our society and businesses have become
a popular topic.
In the business world, a company’s ESG performance has been increasingly embedded into
the core business evaluation system by major investment institutions in Western countries.
It has become the key benchmark to effectively measure a company's sustainability, ethical
integrity and governance. Global private equity giants such as KKR, Carlyle, and Blackrock
have established ESG focus funds for sustainability related assets. Meanwhile, in recent years,
investing strategies of investment institutions have also diversified, from using ESG to exclude
certain targets to the current approach of integrating ESG perspective for decision-making or
proactively investing in targets of ESG concept.
Foresight 2023 109
Most Chinese companies are still in the early stages of developing their ESG practice
framework. As there are more requirements for ESG transparency and the concept become
more accepted, more investment was made based on ESG principles. Since the ESG investment
concept is well aligned with Chinese government’s policies in recent years, many leading private
equity institutions in China joined the United Nations Principles for Responsible Investment
(PRI) in 2022 to practice long-term sustainable investment. In particular, the institutions further
explored investment opportunities created by China’s carbon peaking and carbon neutrality
targets.
At the same time, as an important component of the ecosystem, ESG rating has become
another popular topic in the market, which can help implement the ESG concept in investment
activities. In reality, many investment institutions have incorporated ESG rating results into their
investment principles. ESG factors have also been taken into consideration during due diligence
and decision-making processes. Through well designed governance structures, investment
institutions can cooperate with invested companies to further enhance their ESG performance,
ensuring an upward cycle of future growth.
Capabilities to improve throughout the whole deal cycle
In the post-COVID era, the global economy was suffering from high inflation and slow growth,
and many countries have seen liquidity tightening. Additionally, the easing of China-US tension
is still uncertain. Investors in China need to further enhance their capabilities throughout the
whole transaction cycle.
• Fundraising –fundraising becomes more challenging; foreign capital has dropped significantly:
Amid a global environment of shrinking balance sheet, combined with the ongoing China-
US trade and regulatory tensions, the raised fund of foreign currency in the first half of 2022
dropped significantly, down 55 percent compared to last year's. Although the RMB funds'
fundraising increased slightly (by 2.4 percent) over the same period, it was still much lower
than the second half of 2021.
• Investment – Investors need to be cautious and fast at the same time; more difficult to
outperform the market: Under the pressure of rising inflation, LPs (Limited Partners) now
require higher investment return. But at the same time, structural risks from potential "black
swan" macroeconomics and geopolitics events have forced ICs (Investment Committee)
to act more cautiously. However, the high valuations level lasting for two to three years
due to overheated market had a continuous impact on today’s buyout market. Under such
a complicated situation, the investment execution team needs not only to evaluate their
targets holistically, fully consider the macroeconomy and industry trends, but also to analyse
potential risks thoroughly and systematically. In addition, the dry powder of global private
equity reached a new historical high of US$2,331 billion, which inevitably will intensify the
competition among funds. Facing these challenges, executive teams need to make swift but
prudent investment decisions.
110 Foresight 2023 Foresight 2023 111

• Value creation – "Cashing-burning growth" will phase out, post investment value creation industrial background, which can bring direct upstream and downstream synergies. As always,
will gain importance: Historically, most Chinese funds prefer investing in high-growth but struggling market will lead to intensified competition for good quality targets.
overheated sector. Targets typically have aggressive expansion plan fueled by cash-burning.
Compared to mature markets, as competition intensifies, it is eager for investors have more As we have mentioned earlier, the bar has raised for all capacities throughout the whole deal
eager to improve in value creation capabilities e.g., portfolio management and synergy cycle for investors. We believe the industry will undergo a new round of reshuffle, which is a key
realisation of portfolio companies. In 2021, we noticed the trend that the decline of the stage for the best to emerge and the market to improve efficiency. Looking forward, considering
valuation in secondary market has triggered a round of valuation correction in the primary the lasting uncertainty, intensified competition and diversified sectors of potential targets, we
market, which is expected to continue in the future. All indicate that the current "invest – burn believe extensive and in-depth industrial know-how, well-designed portfolio and post merge
cash – monopolise" type of investment approach will be outdated. It will be an irreversible value creation capabilities are the key differentiators of the funds outperforming the market.
trend for investors shifting from simple cashing-burning growth strategy to better post
investment management.
• Exit – Domestic listing has been more popular, overseas listing still struggles: Successful exit
with satisfying return remain an industry-wise challenge to investors due to the difficulties to
go listing in US and the low valuation in secondary market. In the first and second quarters
of 2022, the number of listed Chinese companies and the total capital raised continued to
decline. There was a strong rebound in the third quarter when the capital raised returned to
the year-ago level. The total capital raised from overseas stock markets in the quarter reached
43.5 billion RMB. Although it is less than half of the 128.4 billion RMB in the first quarter of
2021, it still significantly improved from the first half year of 2022, when the amount was less
than 10 billion RMB. The total amount of capital raised within China stock market reached
173.1 billion RMB, close to a historical high, reflecting the shifting trends from overseas to
domestic market. In the future, as the accounting standard disputes between China and the
US becomes increasingly clear, the difficulty of exit is expected to be eased in 2023.

Private equities are facing higher requirements due to increasing difficulties in fundraising,
investing, portfolio and post-merger management, and exiting. In 2023, we expect that the
challenges are more likely to continue. But at the same time, it will also bring opportunities for
highly competitive funds to enter the market at lower costs. We have observed that some mature
funds have included as many aspects as possible in their due diligence, including operation
improvement potential, in-depth industry trends and risks identification etc. They are holistically
evaluating the targets' value creation methods and proactively align themselves with the new
macroeconomic and market environment. We believe that this will consistently be the evolving
direction for private equity industry.

Trend Industry reshuffle is inevitable

06
Last year, more than 1,300 Chinese private equity and venture capital funds were deregistered,
indicating an industry reshuffle has begun. On the investing side, the days are gone when
some industries can guarantee high growth and return. Investors are under the triple pressure:
urgency of making investment decisions caused by high capital level of dry powder, limited
number of high-quality targets and LPs' increasing expectations on return on investment. On
the fund-raising side, high-quality targets would prefer investors from leading institutions or with
112 Foresight 2023 罗兰贝格中国行业趋势报告
Foresight 2023 113 113

Operations &
Performance
Improvement

The year of 2022 was a year of COVID and fast global political and economic changes.
These fluid scenarios have posed unprecedented challenges to business operations
and management. Looking forward to 2023, the pandemic will go, but the evolutions
of consumer needs and global supply chain landscape will remain. To navigate the
business cycle and achieve sustainable growth in the VUCA world, companies need
to equip themselves with both a correct strategy and operational excellence.
114 Foresight 2023
Trend To digitalise or to lose the future
01
The customers of tomorrow will require more innovations, more customizations, faster service …
and all at a lower cost. Companies which can deliver first and at a reasonable cost will become
winners. If a company can be the first to achieve an extra 30 percent increase in operation
efficiency, it will be among the first batch to find breakthrough in revenue growth.
Companies unable to find the second curve of productivity growth through digitalization will be
left behind in the global competition. A company not fully digitalized is like a soldier joining a
modern warfare with cold weapons – even its survival is in question.
Though it’s not a breaking news for a company to embark on a digitalization journey, most of
them are still in the "pilot", or even "conceptualization" phase. Typical challenges include the lack
of a clear roadmap which will guide them in the next few years, lack of real cases which have
successfully lifted commercial KPIs, lack of necessary organizational capabilities, trying to build
a "lighthouse factory" with very limited digital expansions, the absence of C-suite engagement
and support, little involvement of ecosystem partners ("reinvent the wheels, all of them"), and
no engagement of business leaders ("just another IT project"). According to the global and local
experiences of Roland Berger experts, combined with our latest digitalization cases, we believe
our organic digitalization engine SBOT is pivotal to success. SBOT refers to "lead by business
Strategy, driven by end-to-end Business value creation, reshape of Organization and technique,
and expandable Technology framework and partner ecosystem".
Trend Mine the Big Data to unlock value of digital assets
02
After many years' efforts, leading companies now can collect key operational data in real time,
and their databases have accumulated large amount of historical data. The next key task for
leading companies is to mine these Big Data to unlock their commercial value.
By leveraging mature algorithms, such as decision tree and random forest, businesses can
create a wide range of data applications for many scenarios. They can optimize production
ingredients based on changes in commodity markets, process, as well as sales and production
strategies; optimize planning and decision-making of their supply chain network; continuously
optimize complicated production process; predictively kick off maintenance of key equipment;
set emission alert for environment protection facilities; and automatically optimize parameters.
More leading companies are introducing Big Data models to leverage existing data assets to
serve business purposes. This move will unleash AI’s power to enhance their real time predictive
capabilities and achieve supply chain, production and sales strategy optimizations. Companies
can enhance their core competence by leverage digitalization transition to further improve their
full value chain management and commercial performances.
Foresight 2023 115
Trend Standardization: Powerful weapon to fight uncertainty and embrace
03
change
The year 2023 will still be full of changes. More and more business leaders start to realize that
standardization is a powerful weapon to fight uncertainty. Its impact goes way beyond cutting
cost and increasing output: a set of clearly defined standard management methodology, tool
and actions, combined with best practices, will effectively reduce the uncertainty of business
operations and significantly improve a company’s efficiency in change.
All business units, functions and markets should be aligned with a unified set of narrative,
management tool and methodology, commercial KPIs and corporate culture. With its help,
management teams can effectively shorten time to identify key reasons which has caused
business performance bottlenecks or variations from plan, and save more time for solving these
issues. Executives can also use it to benchmark performances across business units, which can
effectively identify areas needing improvements, thus realizing continuous operational iteration.
Trend
Launching new business: Prepare adequately and make quick small
04
steps
China's economy has entered a period of continuous transition. Sticking to existing offerings
can no longer meet businesses' needs for fast growth. Many mature companies have chosen
to adopt an "old start-up company" mentality or adventure into new business areas, such as
those related to China's carbon peak and carbon neutrality targets. However, new businesses
are often in a different area. They require new product features, create technological challenges,
and often need better coordination between supply chain and sales force. Companies have to
expand their capabilities to support new business.
Based on Roland Berger's previous experiences of co-building new business with clients, we
believe that adequate preparation is the key to a successful new offering launch. To help a new
business or a new product line to ramp up production capacity and occupy market share quickly,
the company need to draft new plans for supply chain network, standardise new production
models and processes, build a new sales system and strategy, establish a new organisation and
a new set of incentives. Companies also need to develop an agile work model to make quick but
small steps to solve many emerging issues which could not be fully anticipated. Only through
agile iteration and changes can companies realise fast improvement of commercial outcomes.
Trend
Change of sales model: From selling raw material to selling solutions
05
to key clients
Traditional raw material manufacturers often use the distributor model, which completed the
“material sales” through previously agreed up on price and volume. But as the market share of
lower stream market continues to consolidate, market demand becomes more diversified and
upgraded, raw material manufacturers are pushed by clients to customise their products, or even
to become solution providers.
116 Foresight 2023 Foresight 2023 117

It is now crucial for material manufacturers to change their sales model and become solution
Trend Chinese manufacturers to build global operations amid worldwide

08
providers through better internal alignment and coordination. Material makers need to
change their internal structure, acquire new capabilities and break up the silos between R&D,
production, distribution and sales teams. They should switch to a "key account-centric model",
which calls for co-operating with major clients to jointly develop solutions, design and test new
products, design product applications, develop production process, and commit to continuous
technology support. Only by truly purposefully collaborate with downstream clients can material
manufacturers obtain new competitive advantages.
industry chain redistribution
As the global political and economical uncertainty continues, major multinational companies
have met challenges in their supply chain management, including design, manufacturing,
logistics and delivery. Many consumer-facing businesses have to rebalance efficiency and
business resilience by increasing the reliability and redundancy of their supply chains. More
Chinese companies have entered the global stage, either by themselves or follow their clients.
Setting up overseas factories can help them continue to win brands' orders and retain their
share in the value chain. As overseas factories are closer to clients' foreign markets, some niche

Trend Breaking up silos, seeking synergy through adopting ‘whole value companies have even witnessed higher profit margins from their foreign plants compared with

06
chain' operation strategy their domestic peers. Some leading Chinese global brand builders have fully leveraged their
first-mover advantages and continue to win more global market shares.
The best performance of each step doesn't necessarily add up to the best performance of the
whole process. In an ever-changing market, companies increasingly need a powerful brain
In consumer electronics, for example, the migration of supply chain often begins with the
to agilely adjust operational strategies, break up department silos brought by an outdated
assembly operations and followed by low-tech spare parts. The whole process might take a long
KPI system, and coordinate procurement, production, R&D and sales activities to maximise
time. We think it’s natural that the move of industry chain to be slow because there are gaps
the overall performance. By adopting the "total value chain" strategy, leading companies can
in culture, work force quality and local industry support to be closed.Compared with exporting
closely monitor commodity price fluctuations to achieve best-economic-performance recipe
products, "exporting" a factory is much more difficult, because it involves the dealing with
management to keep their competitive edge.
complicated cultural issues, understanding local policy and legal environment, and efficiently
managing local infrastructure construction. When a factory is built, Chinese companies need

Trend
to work on the training of local employees, building a standardised management system and
China's carbon policy will significantly impact business operations
incorporating local suppliers into the China-based supply chain network. These works are

07
Various industries in China now have to face both challenges and opportunities brought by crucial for new foreign plants to quickly ramp up production capacity and steadily improve
China’s carbon peak and carbon neutrality policy. As the government requires companies to cut efficiency, making a successful step in overseas expansion.
energy consumption and carbon emission, businesses will have to limit production outputs and
face higher costs. It is imperative to upgrade business strategy and operational models.

For energy- and emission-intensive companies, they need to relentlessly upgrade to new
production processes, change business structure as well as develop a more sustainable and
circular model. Key initiatives include securing low-carbon raw material supply, investing in
key renewable energy sources, introducing low-carbon technologies, phasing out obsolete
production capabilities, continuously improving energy efficiency and cutting per unit emission
through promoting operational excellence.

At the same time, carbon peak and carbon neutrality policy has also brought opportunities
for companies to improve their operations. For existing businesses, companies can leverage
this trend to differentiate and develop more premium offerings. By introducing "carbon
cost", companies can build new cost advantages and gain the first-mover advantage among
their respective industries. For incremental businesses, companies can find fast-growing
opportunities in clean energy, new energy vehicle, biomaterial, circular economy and green
building industries, which need new material, equipment and applications.
118 Foresight 2023 罗兰贝格中国行业趋势报告
Foresight 2023 119 119

Next Generation
Manufacturing

"Manufacturing" is the key value creation link of a business" operation. While it is

being reshaped by our times, manufacturing still drives the development of our
society. In 2022, the anti-globalisation trend has accelerated in semiconductor
and other advanced manufacturing industries. Against the backdrop of intensified
geopolitical tensions in the world, it has risen to a new height. At this moment,
advanced countries in North America and Europe are busy building key links of
industrial chains on their own territories to bring manufacturing back home and
reverse the deindustrialisation trend. These moves are disrupting the conventional
division of labour and manufacturing capacity footprint in the global manufacturing
industry. In 2023, the world’s major economies, especially those with advanced
manufacturing industries, will continue to significantly invest in local manufacturing
industry chain. They will encourage the development of smart manufacturing and
innovation to enhance domestic manufacturing companies' core competence. These
actions will help their economies withstand the potential shockwave and limitations
brought by the imminent collapse and chaos of global industry chain. In the future,
the existing foundation of global division of labour will be totally overhauled. Chinese
manufacturing companies will face both opportunities and challenges in this massive
landscape reshuffle.
120 Foresight 2023
Trend Global division of labour and manufacturing foothold undergoing
01
reshuffle, key manufacturing activities to go home
In the post-COVID era, the rise of protectionism and anti-globalisation is reshaping the global
manufacturing industry in an unprecedented way. In recent years, many European and American
manufacturing companies have ditched their overseas production bases and accelerated their
"home-coming" progress. Their decisions are driven by home countries' preferential policies
for brining manufacturing home, rising of protectionism rhetoric in their domestic political
Trend
discussions and higher costs of going global. In 2022, the outbreak of Russo-Ukrainian war
triggered the widespread of trade conflicts, inflation and financial unrest around the world. The
03
already fragile global supply chain was dealt another heavy blow. Manufacturers around the
world all faced multiple challenges, including shortage of raw materials, disruption of logistics,
broken of supply chain and delayed delivery. Companies lost a sizable share of their production
and delivery capacities. Hence, manufacturing companies’ top priority has become managing
risk and securing the stability of supply chain.
Roland Berger has noticed that to mitigate these challenges, more multinational corporations are
considering decentralising their global manufacturing resources into several regional clusters.
Firstly, by strategically choosing the right geographical location, they can jumpstart a new growth
zone for businesses and improve profitability. Secondly, running multiple regional manufacturing
hubs can lower the risk of one single supply chain being disrupted. Companies can effectively
shorten the distance between factories and clients to cut delivery time. All manufacturing
and logistics services can happen within the same region. Last but not least, multinational
corporations can effectively take advantage of each region’s natural resource endowment, such
as raw materials, infrastructure, local reputation and local preferential policies, to strengthen
their sustainable development and become truly local leaders of advanced manufacturing.
Trend Fully implementing smart manufacturing, doubling down on R&D
02
In the future, though there is still room for small-scale niche manufacturing companies,
Trend
implementing smar t manufacturing will become the ultimate strategy for mainstream
manufacturing companies to enhance core competence, quickly scale up and lead market
04
integration. In "Foresight 2022", Roland Berge said that China's smar t manufacturing
transformation has entered its mature and acceleration stage. This year, we will stick to this
point of view. Global automation system vendors are paying more attention to strengthen their
foothold in the Chinese market. They have quickened their pace in not only building more
local bases, but also developing their industry ecosystems to provide solutions to downstream
clients. Chinese automation equipment and robotics manufacturers have made significant
progress in key spare parts, core algorithms and solutions. With breakthroughs in features and
functions, Chinese smart manufacturing solutions have been acknowledged by an increasing
number of sub-industry leaders and have become fully qualified competitors. Software and
Internet companies have also deeply participated in the competitions of this sector. More PaaS
(Platform as a Service) and SaaS (Software as a Service) products have hit the market, helping
manufacturing companies further integrate their IT and OT systems.
Foresight 2023 121
In 2023, for companies to become a truly "smart" enterprise, they must complete their smart
manufacturing transformation and double down on R&D. On the one hand, it can enhance
production line efficiency, unlock new production modes, significantly reduce the cost and
complexity of manufacturing activities, and build cost competitive advantage. On the other hand,
companies need to considerably increase their investment in new technology, collect accurate
manufacturing data, analyse product quality in real-time, detect abnormal situations during
manufacturing, effectively cut time cost and improve client experience.
Helping workers to acquire new skills, enhancing operational
management
The era of digital intelligence is arriving. During the implementation of smart manufacturing
systems, workers must improve their abilities and learn to master new tools to fully realise the
potential of more advanced practices. It is imperative for companies to help workers acquire
new skills and knowledge to keep up with these transformations. On the other hand, the quality
of workforce is a critical factor in fully realise the return on investment on new production
lines, because they play critical roles in managing product quality and manufacturing pace of
key production and quality control points. We must reiterate that in addition to building smart
manufacturing infrastructure, companies must focus on improving the skill of their workers to
build a modernised workforce.
In 2023, more manufacturing companies will launch digital enablement programmes among
their employees. According to global best practices, besides traditional training, leading smart
manufacturing companies can also help their workers to develop through multiple dimensions:
1. Using AI to guide low-skilled workers in complicated processes;
2. Offering training programmes and courses to equip workers with critical knowledge to adopt
to industry changes;
3. Attracting young talents with various incentive programmes and opportunities of gaining real-
world experiences to break their stereotypes about manufacturing industry.
Building green infrastructure to promote sustainability practices
Traditional, clients made decisions based on quality, functionality and cost of products. In the
future, manufacturers' sustainability performance will become one of the key factors to win
market recognition. On the one hand, ESG has become a critical factor in supplier screening
procedure of European and North American companies. On the other hand, globalised
downstream clients have also enhanced their requirement for ESG practices and lifted the bar
for their suppliers' decarbonisation performance. In recent years, advanced countries in Europe
and North America have enhanced their requirement for ESG ratings, which have become an
important barrier for Chinese companies to enter advanced markets. Against the backdrop of
China’s carbon peaking and carbon neutrality targets, more Chinese companies have also paid
attention to sustainability transition and embarked on their green manufacturing transformation
journey. Roland Berger believes the most urgent task for Chinese manufacturing companies
going global is to build their green infrastructure and increase sustainability investment.
122 Foresight 2023 Foresight 2023 123

Firstly, they can cut carbon emission and build their green brand reputation by building energy-
saving plants, launching new energy products, using green logistic methods and reducing
resource waste. Secondly, they should develop a circular economy model by completely
recovering and using renewable energy and launching recyclable products. More efficient usage
of raw materials can help cut resource waste. Last but not least, companies can consider buying
raw materials from green suppliers, optimising factory lighting systems, installing water saving
facilities to enhance sustainability performance.

Trend Enhancing full circle digitalisation capability to lift core competence

05
and management resilience
The development and deployment of IoT have enabled manufacturing companies to leverage
Big Data technologies. But business leaders must understand how to fully mine the value of Big
Data. Roland Berger believes businesses should figure out how to organise and use Big Data
from operational and management perspectives.

Firstly, by using end-to-end full circle data, companies can upgrade from the traditional
optimisation approach which was based on experience and sample statistics data. By relying on
full circle data and algorithm, companies can identify full circle optimisation opportunities, control
precisely and effectively as well as automate algorithm upgrading. After companies complete
their automation transformation, full circle upgrading will become the key approach to lift overall
effectiveness. Electronics manufacturing industry, for example, can lift overall equipment
effectiveness (OEE) by 5 percent through manually identifying optimisation opportunities by
tapping into full circle data, such as product order, supply chain situation and equipment status.

Secondly, as companies change their business models, small-amount, temporary orders and
other complicated client requests will require internal departments to collaborate more closely.
It has created further complexity in daily management. Roland Berger believes that business
leaders should on the one hand actively push forward organisational changes; on the other
hand, proactively try new decision-making tools, such as Data Intelligence, to realise real-time
display, tracking and managing of end-to-end key business performance indicators. Companies
can continuously find opportunities to optimise their operations and enhance business
resilience.
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Foresight 2023 125 125

Robust
Organization

Chinese companies were under unexpected pressure in the past year due to global
inflation, geopolitical tensions and the resurgence of COVID. Since the beginning
of 2022, Roland Berger has observed Chinese companies' efforts in dealing with
challenges on multiple dimensions, such as dwindling demand from consumers amid
gloomy macro economy environment, disruptions in supply chain caused by frequent
logistic congestion and drastic transition of supply models, systematic transformation
requirements in sustainability, digital innovation and channel upgrading. But every
cloud has a silver lining. Through our conversations with clients across various
industries, we are awed by their remarkable resilience and extraordinary awakening
in the face of these challenges, especially by their bold moves to reinvent themselves.
Last year, we had many similar conversations with Chinese business leaders on
the following questions about business transformations: How come our previously
successful strategy and management approach no longer work? What short-term
adjustments should we make? When will the next disruption happen to redefine
my industry? What actions should I take to build our long-term organisational
capabilities? Against this backdrop, Roland Berger has summarised some trends in
organisation management for companies in China. Hope our two pennyworth can
help our readers make better informed decisions.
126 Foresight 2023
Trend VUCA is here to stay: Companies must strike balance between short-
01
term agility and long-term resilience.
Roland Berger has analysed the stability of global supply chain and major political events in the
recent 50 years. We found an increase in both the frequency and intensity of breaking global
crisis. It used to be once every five to 10 years, but now it's every one to two years. In the recent
10 years, we have witnessed Arab Spring, Annexation of Crimea, global trade war, COVID
pandemic and Russo-Ukrainian War, etc.
The faster and more drastic changes at the global scale have presented diversified challenges
for companies operating in China. As Roland Berger's Robust Organization analysis system
has summarised, on the one hand, companies have to react quickly to short-term challenges,
such as new client and consumer demand, sales channel and touchpoints change, supply chain
evolution as well as shifts in macroeconomic, financial and policy environments. Companies
have to survive first. On the other hand, in the face of major crisis that are both highly possible
and unpredictable, companies have to think long-term and enhance internal capabilities to
become more resilient and realise sustainable growth regardless of external changes. It is
true that to be both "fast" and "strong" is a somewhat inherently conflicting for corporation
management. Companies have to undergo systematic changes in the next phase to strike a
perfect balance between the two.
Trend Back to basics: Organisational development to support business
02
needs
From our accumulative interactions with leading Chinese state-owned and private companies,
Roland Berge noticed that more companies have gone beyond superficial discussions about
organisational structure and divisional unit set-up, and to the more sophisticated conversation
of organisational capabilities and topics of the similar high calibre, such as division of
responsibilities and governance mechanism.
Roland Berger believes that on the one hand, the building of a company's organisational
capabilities should focus on developing future core competitiveness and be aligned with its
actual business scenarios. Such efforts should cover every unit of the company, from sales
and customer management at the front end, to operation, supply chain management, product
development in the middle office, to digitalisation, human resource and financial control at the
back end. It should not be perceived as a piecemeal campaign targeting only a few isolated
modules or specific units. On the other hand, the creation of new organisational capability
doesn't necessarily mean changing the structure. This could also be achieved through
establishing "virtual organisations", such as project-centric teams, decision-making councils, or
through creating across-the-board alignment scheme or duty-power matching scheme. These
initiatives can effectively develop a company’s organisational capabilities.
Foresight 2023 127
Trend People first: When individuals flourish, the company will succeed
03
For quite some time, Chinese companies have been in the transitional and growth period from
start-up stage to development/standardisation stage. Hence, they focused more on learning
from western companies' internal management standard and arrangements, and spent a lot of
time and money on developing their own management flow and standard processes.
Against this backdrop, clients are most interested in discussing "consolidating organisational
structure and process", "replacing individual talent with organisational capability" with
consultancy companies. They held the belief that once a standard process is in place, corporate
management and organisational capability can be left to the auto-pilot mode, and would
automatically upgrade themselves. But when we're in China, we have to think about the market
reality and China’s cultural DNA. Roland Berger believes that given the potentially more volatile
internal and external environments, combined with more frequent breaking global events, it might
not be a good idea to blindly rely only on "standard process" or "well-established organisations"
to run a business. When we build an organisation, we have to leverage both individual talent and
organisational capability. On the one hand, organisational capabilities create standards, build
foundations and epitomise the best practices and methodologies. On the other hand, individual
talents are indispensable in innovation, leading direction, shaping value, passing on heritages as
well as breaking bottlenecks. The onus is on Chinese companies to converge the management
of individuals and echelons with the development of organisational structure and capabilities.
Trend
The profit comes from inside: Reform and innovation should be
04
driven by both client-facing and employee-centric changes
As economic growth slows down, companies are facing more pressure on bottom lines.
Business leaders have to switch their focus from chasing external market share to reforming
and innovating their own company. They need to steadily grow revenue size and at the same
time accelerate the quality improvement of their own business. On the one hand, reform and
innovation still means increasing a company’s external competitiveness. On the other hand, the
re-invention of the organisation itself is the only path for a business to lift efficiency and build the
foundation for future rounds of reform and innovations. This trend requires companies to improve
their management, invest more time and resources in internal arrangements and capabilities to
withstand the long-term challenges from external business environment changes.
Roland Berger believes to lay a solid foundation for long-term development, a company must
keep reviewing, iterating and strengthening its internal organisational capabilities, which includes
actions in the following dimensions. From the talent dimension, companies should focus more on
internal talents to fully leverage their abilities and energies. They can inspire them through new
schemes with new opportunities so that they can do what they do best as well as can perform
at their best. From the organisation dimension, companies need to enhance their insights and
decision-making capabilities to spot strategic opportunities amid a highly uncertain environment.
They need to fully tap into their most valuable clients, markets and verticals through well-aligned
128 Foresight 2023 Foresight 2023 129

actions. For large groups whose business covers multiple industries, to achieve high-quality
growth in a post-COVID norm they have to retain the flexibility of allocating resources across
business units to achieve "value multiplier effect". A successful organisational reform should
create synergy from aligning its units better.
and management with holistic and multidimensional support from digital technologies. By
promoting the full-circle digitalisation, which means digitalising a company's organisation and
business, a company can effectively connect its sub-organisations, system and terminals and
realise purposeful collaboration. It will also have real-time insights and smart decision-making
capabilities to serve every process of its operation circle, every element of its business and

Trend
every aspect of the organisation.
Adopt the holistic view to find a spark to ignite the organisation’s

05
energy "Network collaboration" has enabled a new breed of organisations which are well connected

To build a robust organisation is a systematic project which cannot be achieved through a internally and externally, decentralised and agile. They have achieved efficient internal and

piecemeal approach and treated as an overnight task. To start with, an ever-lasting organisation external alignment through working on platforms and ecosystems, redefined how to collaborate

is always underpinned by an evolving set of brand purpose, strategy and culture which is within a company and the boundary of management scope. The "digital intelligence" capability

embraced by all members. Such an organisation can swiftly reallocate resources as required can process data through collection, transmission, calculation and storage to turn them into

by the change of corporate strategic priorities, ensuring that all actions have been aligned digitalised information and knowledge. It can provide insights and wisdom to optimise an

to its framework of principles. The system can create the foundation to galvanise a robust organisation’s operation, management and decision-making, discover new knowledge, create

organisation through various perspectives. new values and enhance new capabilities. Digital technologies can fully leverage the "network
collaboration" effect and the value of "digital intelligence" to accelerate the digitalisation

People management perspective: The organisation should be led by an inspiring management transition. By further digitalising operations and aligning digital transition with businesses,

team and suppor ted by properly empowered teams at the operational level. All work organisations can eventually obtain smart and scientific decision-making capability.

assignments should be aligned to the company’s objectives and match the capabilities of each
team/individual. Financial control perspective: The organisation should have sufficient short-term
liquidity and enough financial buffering space. Its investment portfolio should be balanced and
can support long-term growth. It should have the ability to swiftly reallocate financial resources.
Process and organisational structure perspective: The organisation should focus on building
strong middle office and back-end teams that can support across-the-board business units. It
should have a set of agile processes so as to set up or reconfigure teams quickly. Ecosystem
perspective: The organisation should be able to grasp external opportunities, leverage the
power of partners, perceive or even predict the trends of innovation and changes as well as
draw resources and capabilities that it doesn't readily own. The organisation should develop
new value propositions from the considerable resources that its value chain and supply chain
can offer. Technology perspective: The organisation should leverage technologies to explore
new business models, innovate new products and ramp up their productions. All commercial
decisions should be made upon the accumulation, analysis and sharing of data. By taking
correct and aligned actions through this set of perspectives, an organisation can effectively
consolidate its foundation for future development and thrive, regardless how challenging the
external environment will become.

Trend Rebuild an organisation's structure and operating mechanism

06
through steady digitalisation transition
Digital technologies have reshaped how organisations should collaborate and function, as well
as redefine their management style and decision-making logic. Supported by powerful cloud-
based computing, organisations now have a highly collaborative digital network and a smart
"digital brain" sitting at its heart. The organisation can realise and plan strategy, business
130 Foresight 2023 罗兰贝格中国行业趋势报告
Foresight 2023 131 131

Sustainability &
Climate Action

In 2023, China will make steady and progressive efforts to deal with climate change.
As Europe further advances its decarbonisation transition, the global supply chain
will have to align to their higher requirements. In China, the main trends include more
efforts in establishing standards, more urgency of realising carbon peaking, new
breakthroughs in local green technologies and the expanded focus of greenhouse
gases beyond carbon dioxide.
132 Foresight 2023
Trend European companies raise bar higher for decarbonisation, forcing
01
Chinese suppliers to go greener
Guided by the European Union's "Fit for 55" package of measures which were designed to
reduce EU greenhouse gas emissions by 55 percent by 2030, EU has kept its decarbonisation
transition on track and continued to raise the bar. At the end of 2022, the European Parliament
Trend
and the Council of the European Union reached agreement over the Carbon Border Adjustment
Mechanism (CBAM). As CBAM begins to operate from October 1, 2023, EU will become the
03
world’s first trade bloc to set carbon pricing for its imports. In the long-term, countries exporting
goods to the EU will have to make sure that their carbon footprint is on par with that in EU to
retain accessibility to and competitiveness in the market.
Looking forward, downstream clients, especially European companies, will continue to demand
their supply chain to become "greener", which will in turn force Chinese companies and
other exporters to accelerate their decarbonisation transition. European clients in iron and
steel, aluminium, cement and other carbon-intensive industries are gradually setting up well-
defined carbon-footprint calculating systems. This will enforce upstream suppliers to develop
carbon transparency and their mid- to long-term decarbonisation agenda. More importantly,
this dynamic is now being passed upwards along the supply chain. Downstream clients,
especially European companies, will become the major factor to accelerate Chinese companies'
decarbonisation transition.
Trend Standards continue to be upgraded to help achieve carbon peaking
02
target
In 2022, "the Implementation Plan for Establishing and Improving the Measurement System
for Carbon Peaking and Carbon Neutrality Standards" was jointly issued by nine Chinese
Trend
ministry-level departments, including the State Administration for Market Regulation, the
National Development and Reform Commission and the Ministry of Industry and Information
04
Technology. This is clear evidence that China is going to build a more holistic, multidimensional
and multi-tiered decarbonisation measurement system. Currently, carbon-intensive companies
and industries are proactively developing their own versions of carbon peaking and carbon
neutrality standard system. These systems often have several sub-systems, including common
foundation, decarbonisation and emission trading system, and will have customised designs to
serve objects at various levels, such as region, industrial park, company and product. To realise
the near- and mid-term carbon peaking target, industries like iron and steel and chemicals have
moved ahead of others to proactively launch various standards, including industry-level carbon
emission calculating methodology, carbon emission reviewing standards, information disclosure
requirement for carbon emission management, industry-level carbon emission management
performance evaluation and verification.
Foresight 2023 133
In 2023, the continuous optimisation of these standards will provide strategic support for and
lead innovations in China's transition to realise the carbon peaking and carbon neutrality targets,
especially the former. At the same time, more companies and industries will begin to focus on
how to steadily and effectively reach carbon peaking goals.
Technological breakthroughs on the horizon, decarbonisation
process could be accelerated
Chinese society and businesses have agreed that we should promote and rely on technology
innovations to realise carbon neutrality targets. Currently, many countries are exploring
technological breakthroughs along the two routes: "reducing carbon emission" and "increasing
carbon sink". They include three major dimensions: building zero-carbon energy system, low-
carbon industry transition as well as increase carbon sink/carbon capture, utilisation and
sequestration capabilities. It is expected that breakthroughs in low-carbon technologies and their
applications will help accelerate the decarbonisation transition. In 2022, China made remarkable
progresses in low-carbon technologies and industries. China kicked off the construction of the
world’s first green hydrogen zero-carbon fluidised bed steelmaking technology project. The
world’s first carbon dioxide capturing and condenser system of glass melting furnace also went
online.
In 2023, thanks to China's advantages in green energy industries, such as wind power,
photovoltaics and new energy reservation, as well as in New Energy Vehicle industries, the
country is expected to witness a series of low-carbon technological breakthroughs. These
progressive innovations will provide crucial support to the acceleration and advancement of
green transitions at country, industry and company levels.
Greenhouse gas list to be expanded to include methane
In recent years, greenhouse gases other than carbon dioxide have attracted more attention.
After the massive gas leaks occurred on the Nord Stream natural gas pipelines in September
2022, a huge amount of methane was released into the air, which triggered many countries'
attention on reducing methane emission. Methane accounts for a relatively bigger share of
mixed greenhouse gas emission and has a bigger potential of global warming effect compared
with carbon dioxide. During the 2022 United Nations Climate Change Conference, China stated
that it is in the process of approving an action plan on curbing methane emission and keeps
improving its methane emission monitoring system.
In 2023, as China gets closer to its target of achieving carbon peaking in 2030 as well as clearer
top-level policies and guidance are released, more industries will increasingly pay attention to
curb greenhouse gas emissions other than carbon dioxide.
134 Foresight 2023 罗兰贝格中国行业趋势报告
Foresight 2023 135 135

Smart Mobility

In the majority part of 2022, China deployed drastic measures to curb the resurgence
of COVID. When strict lockdown measures were in place, manufacturing and
innovation activities in automobile industry were significantly affected, resulting
in a year lack of changes. In Roland Berger’s latest Automotive Disruption Radar
Report (Edition 12), China was unseated by Singapore, which was crowned for the
first time thanks to its earlier rebound from COVID than other countries and latest
breakthroughs in the shared mobility sector. That being said, China is still the distant
leader of the new energy vehicle industry. It has comfortably kept its No.1 position
in both electric vehicle sales and expansion efficiency of EV charging system. The
corporate fleet electrification has also become a hot topic in global markets. Many
stakeholders of city logistics service are trying to build their versions of a smart
urban network, but they need a good collaboration framework to achieve a win-win
outcome. Toward the end of 2022, Chinese government gradually relaxed its COVID
control measures. We can expect the long-haul travel demand to benefit directly and
will have an accelerated recovery.
136 Foresight 2023 Foresight 2023 137

Trend Long-haul travel 1) – Demand recovery varies by country. North replacing ICEs, but a systematic transformation project consisting of opportunity exploration in

01
America fully recovers to pre-COVID level first, China and Europe still 11 dimensions across three aspects, ranging from asset and infrastructure transition, financial
need more time and investment decision-making to organisational capability building. It will become the hottest
topic in the electrification area in the short- to mid-term. According to a Roland Berger survey in
The demand recovery for long-haul distance travel varied significantly by country, depending
2022 covering 59 leading global companies in logistics, utility, CPG and other industries, more
on their COVID-control measures and the severity of impacts from the energy crisis. Many
than 90 percent have confirmed that they will have the need for fleet electrification in the next
countries have launched or are preparing for a "COVID exit" strategy to return to the pre-
three years.
pandemic norm. Countries getting rid of travel restrictions have witnessed very strong rebound
of long-haul travel demand, especially in the North American markets. According to American
Automotive Association, more than 54 million people made long-haul travels with public Trend Smar t urban logistics – Currently various stakeholders have

03
transportation, including plane, rail, and buses, during 2022 Thanksgiving holiday season, launched disconnected efforts to build their version of a smart urban
surpassing the pre-epidemic level in 2019. Some companies which had benefited from COVID system, better coordination will bring a win-win outcome
lockdowns have lost much of their market capitalisation. For example, the stock price of online
Due to the impact of COVID and lockdown measures, consumers increasingly rely on
communication platform Zoom Meetings fell by 90 percent from its peak in 2020.
e-commerce and have higher expectations on delivery speed, which has caused an explosive
surge in demand for urban logistic services. However, the fragmented nature of such business
China's recovery was postponed due to previous strict travel restrictions. But as it adjusted and
is in conflict with logistic companies’ long-term goal of achieving economies of scale. Thus,
relaxed COVID control measures in the end of 2022, we expect long-haul travel demand will
logistics companies have seen their profits dwindled in recent years. We believe that urban
recover quickly in 2023. In Europe, a full recovery will have to wait until around 2026 due to the
logistics industry will inevitably become more consolidated. Currently, various stakeholders are
geopolitical conflicts and energy crisis.
exploring new models and leveraging new technologies. For example, logistic companies are
sharing facilities and orders as well as optimising route-finding AI algorithm; city management

Trend Fleet electrification – It's not as simple as "EV replacing ICE". It authorities have published policies to reinforce safety and environmental protection;

02
is a systematic transformation project which includes asset and infrastructure builders have set up mobile parcel hubs; automakers are designing vehicles
infrastructure transition, financial and investment decision, and specially built for urban logistics services.However, these efforts are often isolated, and
organisational capability building sometimes conflicting with each other. We believe stakeholders in the urban logistics ecosystem
will eventually share assets, infrastructure, goods and information. These moves will win policy
Major countries have accelerated their decarbonisation transition by announcing guidance
supports from the government as well as will further reduce costs and improve efficiency to
and rules to regulate companies' greenhouse emission. In the meanwhile, companies' market
2)
achieve a win-win outcome.
capitalisation and brand value are increasingly connected to their ESG performance. In
Europe and North America, a large number of companies are proactively looking for a fleet
1) Long-distance travel: trips with travel distance greater than 200KM
electrification solution suitable for their business models, including logistics companies and
2) ESG – Environment, Society, Governance, three dimensions to assess a company's sustainability
CPG giants closely working with third-party logistics service vendors. It's not just about EV
and impact to social value formation
138 Foresight 2023 Foresight 2023 139

Trend EV charging – Geopolitical tension influences global consumers'

04
preference for EVs, but impact varies by region, Europe most badly
hit
Currently the world is still full of uncertainty. The COVID pandemic, geopolitical tensions and
a sluggish global economy all have profound impact on everyone's life. That being said, EV
charging sector has managed to buck the trend and eked out a 1 percent on-year growth in the
first half of 2022. However, the underlying dynamics was no longer "business as usual". China
remains the world's distant leader in EV charging infrastructure development, largely thanks to
the strong government support – within the first half of 2022, the number of EV charging piles
in China grew by 50 percent from a year ago to 3.9 million, of which public piles accounted for
about 38 percent. The EV to pile ratio has dropped from 2.7 to 2.4 in recent 6 months, which
means charging piles are more available. However, European countries, which used to be the
main growth engine in the world, are now experiencing an energy crisis. The soaring electricity
price has changed consumers' perception towards EV and has also dealt a blow to the subsidy
of building EV charging infrastructure. The year-on-year expansion rate of chargers fell to 37
percent in the first half of 2022 from 119 percent in the second half of 2021. In the US market,
leading EV charging service providers have lost a significant share of their market capitalisation.
Most leading companies' stock prices was more than 50 percent lower than their peak price
in 2021.Fortunately, Southeast Asia stepped up to become the other highlight of this sector in
2022. It reported a 173 percent increase in the number of EV charging piles from a year ago.
This region is taking off.

Trend Advanced Air Mobility (AAM) – APAC to become key pioneering

05
region, as frontrunner cities plan to launch service by 2025
Advanced Air Mobility (AAM) is appealing to cities as it brings a whole new travel experience –
faster, saving more time, more sustainable and more reliable. We have forecasted the market
size of AAM will soar to 90 billion US dollars by 2050, with CAGR from 2030 to 2050 of appx.
20 percent. APAC region is becoming the pioneer for AAM technology – it accounts for more
than half of VTOL3) aircrafts in operation and contributes more than 40 percent of revenues in
the world, and is expected to keep this share until 2050.Currently airlines, automakers and tech
start-ups have announced many partnership deals in this region. For example, Hyundai Motor,
Korea Telecomm, Korean Air have signed an agreement to jointly develop AAM service and
will launch the first air-taxi model by 2025. Hyundai has also been working with the Indonesia
government to establish an AAM system in its new capital city Nusantara. Besides, AAM
frontrunner cities in APAC like Tokyo, Seoul, and Singapore all have announced their plans to
launch AAM service in 2025.

3) VTOL – Vertical Take-Off and Landing

 Foresight 2023 141

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