The old playbook for multinational companies (MNCs) in China no longer works.

Five years ago, MNCs could translate superior technology, products, and management models into easy profits in the world’s second-largest economy. Today, the competitive landscape has shifted.

Geopolitics, tighter regulation and the rise of Chinese champions have made operating in China more complex than at any time in recent decades. China’s foreign direct investment peaked at $344 billion in 2021 but swung to a record $168 billion net outflow in 2024, the biggest exit since records began in 1990. [1]

For MNCs, the question is no longer whether to stay or leave – it’s about how to redefine their value and reset their strategy in the fast-changing Chinese market. 

Alvarez & Marsal’s China team has worked with companies on these issues for years. Last year, Performance Improvement team published “A Guide to Resetting MNCs’ China Strategy and Operations,” outlining a framework for evaluating the path forward.

To explore the implications, Managing Director and North Asia Co-Head James Dubow discussed the challenges MNCs face in China and strategies for navigating the market's transformation with Managing Director Jia Jin.

The following conversation has been edited for length and clarity.

James Dubow: Today we’re tackling one of the most challenging problems for MNCs in China – their future their future strategy. This means deciding how to grow and sometimes, whether to exit the market. We're joined by Jia Jin, who leads our digital practice and has been helping several MNCs navigate these strategic crossroads in China.

Jia Jin, what are the biggest challenges you’re seeing for MNCs in China?

Jia Jin: It’s completely different from five years ago. Back then, almost all MNCs saw China as a huge market, and they were desperate to expand their business there. But now, the focus is not on growth, but on navigating a new set of challenges.

These challenges fall into three areas. First, geopolitics: US-China tensions and tariff uncertainty create constant instability. Second, tighter regulation in both countries, especially on data security. Third, and most importantly, the rise of local rivals in critical sectors such as electric vehicles (EVs) and consumer electronics.

The edge that MNCs once had is disappearing, making success much harder to achieve today.

James Dubow: When MNCs approach us, do they have clear ideas about what they want to do, or are they confused about their options?

Jia Jin: That’s changed as well. A few years ago, MNC clients sought advice on how to deepen their presence in China. Now, they come to us for help with managing risk and uncertainty as the operating environment grows more complex.

We suggest they think through three dimensions:

• Identify the biggest challenge: Is it geopolitics, regulation, or local competition?
• Reassess China’s strategic value: What role should China play in your global footprint now?
• Define a new competitive edge: For companies that stay, how will they compete against local players?

Adapting to China’s New Reality

James Dubow: I know you’re currently working on a project in this area. What learnings have you and the company gained from that experience?

Jia Jin: The project I’m on now faces almost the exact same challenges. We’re advising a global software services firm that was once a market leader, known for its cutting-edge methodology. At its peak, it had nearly 3,000 employees in China and many success stories, including helping a top Chinese tech company build its entire research and development (R&D) system.

But over time, Chinese competitors not only learned this methodology – they’re even applying it better. As a result, the MNC’s China business came under greater pressure, with both revenue and profitability in decline.

The management team came to us for help rethinking their China strategy. We did a full analysis and identified five main options:

• Do nothing and wait a year or two
• Shut down the China business
• Form a joint venture with a local partner
• Double down on investment to fund a turnaround
• Sell the business

After analyzing the firm's strengths against the competitive landscape and market trends, our recommendation was stark: either sell the business or double down on a major turnaround to bring performance back.

Ultimately, after discussions with their shareholders, they chose to sell. However, like many MNCs, the client didn’t want a complete exit, as China remains an attractive market. We therefore proposed a carve-out sale: split off the underperforming unit and sell it to a suitable local buyer, while retaining the part of the business that leverages China’s talent to serve global clients.

This way, they reduce their geopolitical exposure and address the margin pressure from intense local competition, while avoiding a full exit. A well-known Chinese investment firm is now preparing to take over, and we’re supporting the process.

James Dubow: These are difficult decisions for any company, especially those with substantial employees and investments in China. MNC executives are probably sitting in Europe or the U.S., and many have travelled less to China over the past few years and may be less familiar with the market. How do you help companies make these decisions, especially back at the home office?

Jia Jin: This is exactly where our value lies. Our on-the-ground presence and daily engagement with private equity funds and companies give us the real-time intelligence that overseas executives might lack. Having helped numerous MNCs through the entire lifecycle in China, from entry to exit, we can offer insights grounded in practical experience. This gives management the confidence to make difficult but necessary decisions.

Leveraging China’s Innovation Ecosystem 

James Dubow: Last night we had dinner with some MNC executives in China. Some local management teams believe that their global organizations would miss out if they don't learn from the innovation happening in China, specifically in technology, manufacturing, healthcare, and other areas. From that perspective, it would be important to be in this market to understand what’s happening and learn.

Jia Jin: Exactly. While we all see challenges, China remains indispensable – not just for revenue but for tech access, talent and innovation. This trend is reflected in what we call “China speed” – the incredible pace of development in EVs, manufacturing, and artificial intelligence (AI), where Chinese companies are leading the global market. Even our client, while selling part of its China business, is retaining some operations to leverage the country's innovation ecosystem and talent base. This isn't a market you can simply abandon.

James Dubow: On a personal note, you had a long career at another major consultancy before joining A&M. What have you learned from your different experiences?

Jia Jin: For me, it’s hard to define A&M as just a consulting firm. Traditional consulting often stops at telling you what to do. A&M’s ethos is about getting it done. We have a hands-on, results-oriented approach.

Our interim management practice is a great example. When a client is in crisis, we can step in as interim CEO or CFO to drive a turnaround and deliver tangible financial improvements. We have the capability not only to advise but to implement and execute.

James Dubow: How does that difference show up in your digital transformation work?

Jia Jin: A&M’s DNA is closely tied to the world of private equity, which means we are focused on driving value with urgency. Our clients don’t want a two-year roadmap in a 100-page deck; they expect to see five-page summaries outlining actions, outcomes and timelines.

We adapt to different client needs – agile, pragmatic, relentlessly focused on rapid, tangible improvements.

James Dubow: There's no question that Chinese market is experiencing significant change and disruption. What parts of the economy are you seeing that are unique and growing, with a lot of innovation and excitement happening?

Jia Jin: China's innovation drive is powered by a strong emphasis on education, a massive pool of university graduates, and fierce domestic competition. It’s a market where innovation is a prerequisite for survival, which has created a powerful ecosystem for new ideas and technologies.

Even as MNCs diversify their supply chains, many are keeping their R&D centers in China for this reason. We’re seeing it not just in EVs and AI, but increasingly in areas like innovative drugs. For any MNC, learning to effectively leverage this innovation is key to optimizing its global strategy.

Source:
[1]. Bloomberg: China Has Record Foreign Investment Outflow as $168 Billion Exit https://www.bloomberg.com/news/articles/2025-02-14/china-has-record-foreign-investment-outflow-as-168-billion-exit