Can China Avoid a Growth Crisis?

Yes—if its companies globalize their cultures and strategies.

by

J. Stewart Black

and

Allen J. Morrison

by

J. Stewart Black

and

Allen J. Morrison

From the Magazine (September–October 2019) · Long read

Richard John Seymour

Summary.

In 2018, Fortune’s Global 500 ranking included 111 firms headquartered in China—just a handful fewer than the United States’ 126. In 1995, only three Chinese firms made the list; in 2018, three were in the top 10. No wonder some observers predict that China will soon overtake the U.S. as the home to the highest number of Global 500 firms.

It’s entirely possible that this could happen, but the triumph may be fleeting. In the late 1990s, Japanese firms came close to outnumbering U.S. companies on the list, until a combination of a graying workforce and declining productivity caused them to slide back off. Japan’s experience, which is similar to that of China today, provides an uncomfortable precedent for the consequences of a slowdown in domestic growth.

To keep their places on the Global 500, Chinese companies will have to develop a global mindset more characteristic of multinationals from small countries like Switzerland, a transformation that has to date eluded most Japanese businesses.

Idea in Brief

The Problem

Although it is very likely that China will soon overtake the United States as the home to the highest number of Fortune 500 firms, that triumph could be short-lived.

Why It’s Happening

China’s Fortune 500 firms are heavily reliant on domestic revenues, and a rapidly falling working-age population will severely reduce domestic GDP growth in the absence of improvements in labor productivity (which are unlikely to occur). Japan provides an uncomfortable precedent for the consequences of this demographic shift.

The Solution

To keep their places on the Fortune 500, China’s domestic giants will have to develop a global mindset more characteristic of multinationals from small countries like Switzerland—a transformation that has to date eluded most of Japan’s businesses.

There’s no question that China is on the rise. In 2018, Fortune’s Global 500 ranking included 111 firms headquartered in China—just a handful fewer than the United States’ 126. In 1995, only three Chinese firms made the list; in 2018, three were in the top 10. No wonder some observers predict that China will soon overtake the U.S. as the home to the highest number of Fortune 500 firms.

A version of this article appeared in the September–October 2019 issue of Harvard Business Review.

JB

J. Stewart Black is a professor of global leadership and strategy at INSEAD and a coauthor of Competing in and with China: Implications and Strategies for Western Business Executives (Thinkers50). Email: stewart.black@insead.edu
AM

Allen J. Morrison is a professor of global management at Arizona State University’s Thunderbird School of Global Management and a coauthor of Competing in and with China: Implications and Strategies for Western Business Executives (Thinkers50). Email: Allen.Morrison@thunderbird.asu.edu

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Can China Avoid a Growth Crisis?

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