Foresight 2023Striving for Stability and Sustainability on Development and CooperationFORESIGHTFORESIGHT20234Foresight 2023In 2022,China Experienced A Perfect Storm In 2022,while Covid still was circulating around the world,the war in Ukraine unleashed for the world an economic shockwave only matched by the oil shocks in the past.Inflation already had been rising since 2018 and the beginning of the trade war between China and the US,then fueled by logistical bottlenecks and demand surge during and post Covid waves.Inflation 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 the Covid resurgence in China since the early 2022 has added a slower domestic market as well.In the same time the world has witnessed the acceleration of the climate emergency with more extreme weather during the summer 2022,with devastating damages across the world,in both emerging and developed economies.The convergence of all the disruptions and challenges turned into a“perfect storm”that created much pressure and debate on the resilience of the Chinese economy.The Covid-control policy inevitably disrupted economic activity,especially on the consumption side.Yet,some fundamentals of the Chinese economy have been resilient:China exports remain high in 2022,in spite of the slow down in Q3-Q4,and increased 9%in the first 11 months compared to 2021,which was already an excellent year for export growth.The inflation and currency fluctuation also stayed in comparably moderate compared to many countries.It has created a solid foundation for the recovery.But more problems still linger down the road.At the end of 2022,China finally loosened the Covid-control policies and signaled the reopening to the world.This new development immediately lifted the market sentiment.There is a possibility that Chinas recovery could alleviate global economic prospects for 2023.Yet,things are more likely to get worse in the first few months of 2023 before it can get better,considering the giant population of surging Covid cases in the coming months and referring to the experience of reopening of other Asian economies.2023 Will See A Bumpy Recovery Route The weakening global demand is unlikely to help much on Chinas recovery in 2023,as we have seen in Q3-Q4 with a quick slow down.The IMF in October 2022 cut the global growth forecast to 2.7%for 2023,and more recently they saw higher chance of global growth below 2%,amid continued effects of the war in Ukraine and simultaneous slowdowns in Europe and the United States,facing the risk of recession.It can be observed that China exports remained resilient in the first nine months of 2022,yet since October,China exports has slowed down and dropped 8.7%in the November compared to 2021,and this softer demand is expected to continue till 2023.The energy crisis is creating structural change on the global and Chinese supply chain.Since the energy crisis hit Europe and spread globally,we are seeing quite some energy intensive production shift to America,the Middle East and Asia,to minimize the impact of high oil,gas and electricity prices,and to anticipate potential shortages.We observed that China has been exporting more ammonia,other chemical commodities,glass and PREFACEsome 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 Chinas supply chain supported the economic recovery in Europe and in the US,because of its flexibility and availability.This will possibly help Chinas 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 Chinas 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 worlds 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 Chinas 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 Chinas 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 ProsperityIn the past few years,we have witnessed that black swans and grey rhinos are making the external environment increasing unstable.Companies and organizations are easily caught between 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,escalating 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 globalization strategy,particularly in industries such as automotive,consumer electronics etc.With a slowing down domestic economy,Chinese companies will also increasingly need to turn to viable international markets for growth and profitability.Some 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 Fortune 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 size of the domestic market by expanding the middle class.This is not about redistribution or making the Denis DepouxGlobal Managing DirectorRoland Bergerwealthy wealthier,but adding tens of millions of people that are today on the fringe of the lower middle class,into that group.We already see some pilots,in Zhejiang and other provinces,to shift population from rural into suburban areas and lifting their disposable income.For mass market brands,this new trend could become a mainstream opportunity.340510184454Chemicals&MaterialsEnergyPrefaceAutomotiveIndustrial Products&ServicesDigitalConsumer Goods&RetailTransportation&LogisticsCulture,Entertainment&SportsTechnology&InternetCONTENTS24286068Pharma&HealthcareFinancial ServicesReal EstateCivil EconomicsInvestor Support/Mergers&AcqusitionsOperations&Performance ImprovementNext Generation ManufacturingRobust OrganizationsSustainability&Climate ActionSmart Mobility7684929810411211812413013410Foresight 2023Automotive2022 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,Chinas 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 teams 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 Chinas 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.11Foresight 202312Foresight 2023Rebalancing of Global Supply Chain Global politics and economic instability is increasing as we entered the post-COVID era.After the heated discussion on supply chain security in 2022,we believe that China will strengthen its role as the New Highland within the global automotive supply chain,and gradually become the New Center of NEV and smart connectivity.Automakers and component suppliers will certainly expand their supply chain layout in China through various forms.Overall,Chinas automotive supply chain is expected to demonstrate the following characteristics in 2023:Steadier Market Demand:According to Roland Bergers Automotive Disruption Radar Edition 12,China leads ahead the NEV trend once again due to customers high acceptance on smart NEV.The adjustment of zero-COVID policy and economic recovery will strongly boost the purchasing demand,with customers showing greater interest in high-value intelligent connected NEVs.Stronger Supply Chain Capability:Along with the disruptive development of the CASE trend(Connected,Autonomous,Shared and Electric),the component supply chain structure has changed dramatically.Chinese battery suppliers have accounted for over 50 percent of the global market.Furthermore,China has become one of the major destinations for global chip productivity transfer.As local companies continue to improve competitiveness,the clustering effect advantage of Chinas supply chain will become more apparent.Higher Localization Requirement:On the one hand,Chinas stabilised business environment is now able to ensure stable supply.On the other hand,Chinese consumers never stop pursuing better user experience.These two factors will push automakers to further localise their supply chain to better and faster meet the demands from China market.Therefore,Chinese market has not only an apparent short-term importance,but also long-term strategic advantages.For global automakers and component suppliers,its imperative for them to re-evaluate the Chinese market,reposition their business in China,and rebalance their investment throughout 2023.Chinese Automakers Accelerated Global ExpansionWe 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,Chinas NEV export 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,Changan 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 Trend02Trend0113Foresight 2023A New Chapter of User OperationThe 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 operation and best approach for implementation.Some treat user operation as a supplementary way of marketing,and some regard it as an innovative channel for direct sales.Some consider 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 creationTrend03Trend04premium sector.Besides,rich accumulation in global user operation experiences and innovative service model of leading local brands will also greatly help accelerate the breakthroughs in overseas market.We believe that in 2023 will witness accelerating global expansion of Chinese automakers and component suppliers,as well as the increasing importance of Chinese automotive industry.Chinese Brands Go PremiumThe fast penetration of NEVs in China and its spindle-shaped market structure have opened an opportunity for the high-end market.With first-mover advantage and technological innovations in NEV,local brands have managed to enter the premium segment.Many local brands have launched luxury NEV sub-brands,such as Yangwang(BYD)and Mengshi(Dongfeng).Through establishing new business models,nurturing ecosystem and launching new products,Chinese brands keep pushing the envelope and setting new standards for themselves.In addition to defending existing market share,new entrants targeting mass market(such as Aion,NETA,Leapmotor)and traditional automakers(such as Geely and Changan)are also moving upwards by leveraging cultural confidence leading technology advantage,shaping a globalised brand image,creating brand propositions appealing to young consumers and nurturing their respective ecosystems.Moreover,these Chinese brands are also levelling up in trend foresight among local consumers and zeroing in on the emerging high-end segment through strengthening precision marketing for better results.The race will come to a higher level driven by more product launches,improved brand propositions,and better ecosystem.In 2023,the competition among Chinese NEV brands will be open and diverse.14Foresight 2023Commercial Vehicles New Era of Zero-Carbon Logistics 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.Further Accelerating Digital Transition of the Industry Value ChainWhile 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.Trend05Trend0615Foresight 2023 New Localisation Opportunities for Intelligent Components The technological innovation of core automotive components plays a crucial role in differentiation and long-term profit growth of automakers.Nowadays,it is smart-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 markets ever-changing needs proactively,entities established by foreign companied will have more autonomy,particularly in financial investments and personnel decisions.Rationalisation of the Demand-supply of Core Materials 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.Trend07Trend0816Foresight 2023Exploring the Commercial Integration of Autonomous driving 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 users 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.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.Trend09Trend10Aftermarket to be Forced into EvolutionWith 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.17Foresight 202318Foresight 2023Industrial Products&ServicesIn 2022,the resurgence of COVID and the uncertain global environment dealt a blow to Chinas 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 Chinas manufacturing industry.In 2023,we expect transformation and upgrading will continue to be the dominant tone of Chinas 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 others growth and contribute a significant share of Chinas economy growth.19Foresight 202319罗兰贝格中国行业趋势报告20Foresight 2023Trend01Trend02Structural demand changes from downstream industries call for product upgradeIn 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 Chinas 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 industrys 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.Industrial components to be produced as modular systemsWith 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.21Foresight 2023Enhance marketing capabilities to grasp opportunities created by market transitionsThe 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.Trend03Trend04PaaS model emerging as digitalisation transition creates room for aftermarket service growthThe 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.Chinese manufacturers to benefit from domestic substitution and localisation of supply chainThe 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,its 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.Trend0522Foresight 2023Chinese companies going global as foreign markets becoming 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.Trend09As decarbonisation expand upstream,companies have to develop holistic sustainability strategy The steady progress of Chinas carbon neutrality policy has expanded the decarbonisation transitions 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 Bergers 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.Full product line manufacturers to face challenges on both high-and 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 arent good enough to compete against specialist companies or global giants.These full product line companies urgently need to explore their new business models.Company transition to be decided by product line reshuffle,communication of brand value proposition,operational cost reductionAmid 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.Trend06Trend08Trend0723Foresight 2023Manufacturing companies need to build competitiveness in value chain management,lean production and innovation to survive and thrive in the wave of transformationOptimise 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 Chinas 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 industrys 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 capitals 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.Trend1024Foresight 2023Chemicals&MaterialsIn 2023,as Chinas 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 its 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.25Foresight 202325罗兰贝格中国行业趋势报告26Foresight 2023Industry to bottom out as demand returnsSince the beginning of 2022,the global economy had been under pressure as the inflation rates went up in many countries and the US Fed continued to hike interest rate.In China,the economy also slowed down due to the resurgence of COVID and the decline of real estate industry.As the downstream industries were on the defensive,Chinas chemicals and materials industry had a year to forget in 2022.In 2023,we expect the US Fed to raise interest rates less frequently than last year.Given that Chinas economic boosting policies are going to take effect,the demand for chemicals and materials will rebound.Real estate and many other equally struggling industries are benefiting from newly released supportive policies,so their demands for upstream materials will rebound.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 for China to increase chemical export.It is worth mentioning that the global economy still has many challenges in 2023.The uncertainty in the global market will significantly impact Chinese chemical industrys recovery.Foreign companies plan to move production capabilities.China is 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 Domestic substitute strategy to continue,Chinese companies to upgrade global expansionRecently,the backlash against globalisation has forced Chinese chemical companies to strengthen their technological competitiveness.Domestic substitution has become the mainstream strategy for future growth.Currently,this progress has gained new momentum as companies keep investing in R&D of advanced technologies,rebuilding supply chain networks and screening alternative products to prepare for foreign supply disruption.In 2022,a few Chinese companies started their adiponitrile plant projects,indicating that Chinese companies 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 has become available to Chinese companies.Some basic chemical product manufacturers,domestic substitute chemical product makers,and some companies in sectors where Chinese companies have inherent advantages are proactively looking at the overseas market.They are not satisfied with selling to China alone,hoping to reach foreign clients through trade channels.Trend01Trend02Trend0327Foresight 2023High-rising investment into new energy materials,but once blue sea is turning redThe recent fast growth of new energy vehicles in China has triggered a wave of production capacity expansions of lithium-ion battery and raw materials.However,we can already see an oversupply looming on the horizon.For example,by 2025,the planned production capacity for major raw materials of lithium-ion battery,such as lithium iron phosphate,anode materials,electrolyte solution,and lithium hexafluorophosphate,are 1.5 4 times that of the estimated demand in that year.In 2023,the oversupply might intensify the market competition.The challenging reality will force domestic manufacturers to continuously improve their technologies,production efficiency and client relationship.Only those with high-quality product,cost advantage and close client relationship can eventually stand out.Soft power increasingly important as marketing begins to matterAs Chinese chemical companies enhance their technological and R&D capabilities as well as production efficiency,developing a new set of soft powers,such as brand building and marketing,has also moved up on business leaders list of priority.The cost of acquiring information has declined so much in the digital era that B2B clients now have higher expectations on service experiences and product functionality.They also judge the quality of a solution based on its full-circle client experience.Against this backdrop,chemical companies 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.Trend04Trend05on the challenges brought by Chinese companies similar products.Their strategy is to retain their market share and influence as long as possible by fully leveraging their advantages in technology,process and management capabilities.For example,many foreign companies have expanded or plan to expand their systems to produce nylon 66,which is a downstream product of adiponitrile.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 production capabilities.This also reflected that thanks to Chinas complete supply chain and complementary facilities and resources,it is still a very attractive destination for foreign direct investment.28Foresight 2023EnergyThe volatile global energy market and Chinas pledge in pursuing its carbon peaking and carbon neutrality targets are deeply reshaping Chinas 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 Chinas 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.29Foresight 202329罗兰贝格中国行业趋势报告30Foresight 2023Thermal power to return as backbone of Chinas energy securityThe majority of Chinas thermal power industry lost money in 2021 and 2022,and the industry as a whole still faces many challenges,such as the low utility of installed generation capacity as well as higher cost of power generation than income.In addition,the industry is struggling with weak profitability and high debt-to-asset ratio.Thermal power companies have some options to turn around the situation.In the upstream sector(i.e.,coal supply sector),they can form coal-electricity joint ventures.In the midstream sector(i.e.,power generation sector),they 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 transformation and heat supply transformation projects.To become the backbone of Chinas energy security,thermal power companies must complete transformations in three aspects:1.From supplying electricity to supplying flexible capacity,which calls for accelerating the flexibility transformation.Since thermal power makes up the majority of Chinas energy supply,the countrys energy flexibility transformation must start with thermal power plants.Thermal power generating units must undergo more extensive and in-depth transformations.These upgrades would help thermal power plants to agilely respond to the fluctuations in the power grid,and realize the three goals of lowering minimum load,shortening start-stop time,as well as increasing ramping speed.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 plants should further promote the application of ultra-low emission technologies and energy-saving equipment to continuously reduce the level of pollutant emissions and per unit coal consumption.In the long term,with the increased maturity and profitability of CCUS technology,the retrofitting of thermal power plants with CCUS will become a trend,driving the industry towards Net Zero.3.From being a single energy source to providing multiple complementary energy supply,which means they should encourage coal-electricity joint venture to boost revenue.China has released many preferential policies to encourage coal-electricity convergence,CHP,CCHP as well as circular economy projects.Thermal power companies should proactively take advantage of policy benefits and develop industrial user market with heating and cooling services,thus increasing the heat-electricity ratio.Furthermore,they should develop incremental C(C)HP projects according to needs of industrial clients,contributing to further increasing energy efficiency and cutting per unit carbon emission.Wind and solar power industry to grow with both Mega base and distributed modelsDuring the 14th Five Year Plan period(2021-2025),the policy on constructing large-scale renewable energy bases will further drive the growth of renewable power generation capacity.Trend02Trend0131Foresight 2023Further deepening of electric power system reformIn 2022,China made steady progress in its power system development and transformation towards marketization.Currently,China has established a power trading market system with the following features:*Geographically,supports intra-and inter-provincial trading,*Time wise,supports supports spot,mid-and long-term trading,*Product wise,allows trading over power,auxiliary service,etc.It is expected that in 2025,a unified national-level power trading system will be initially completed,with which the national-and provincial-level markets will run collaboratively;by 2030,the unified system should be mostly completed when the national-and provincial-level markets will run as one.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 stage of application approval.The trial settlement of inter-province spot markets has started.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 regulation auxiliary service before spot market being set up to increase the flexibility of power system as well as reduce peak and trough load gap.We expect the demand for auxiliary service Trend03The first batch of large-scale bases has a designed capacity of 97.05GW,expected to be grid-connected this year.The second batch has a capacity of 42GW and will get-connected in 2024.The third batch is in the application and approval stage.China is expected to install about 200 million KW of wind and solar power generation capacities during the 14th Five Year Plan period,mostly in deserts and Gobi.Compared with average subsidy-free PV projects,wind and solar power in large-scale renewable energy bases have many non-technological advantages over land cost and transmitting grids.This will be a major battlefield for big energy companies in the short term.Distributed PV will play an increasingly important role in Chinas future energy supply structure.The trend is propelled by Chinas carbon neutrality policy and other related supportive policies,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 locations to install distributed PV,while the so-called county-level PV projects and building-integrated photovoltaics(BIPV)projects have bigger potential,which are closely followed by venture capitals.The county-level PV projects developed quickly in 2022 and will become the new source of incremental generation capacities in the coming years.However,such projects will meet challenges in lack of sufficient distribution gird capacity in rural areas and increasing marginal construction difficulties.New business models are emerging for these projects,among which Build-Own(BO)mode will remain dominant,while Build-Transfer(BT)mode is expected to increase in share.32Foresight 2023Natural gas to grow but with fluctuations Due to Russia-Ukraine conflict and other black swan events,natural gas price remained at a high level but fluctuated wildly in 2022.Combined with the impact of COVID resurgence in China,the overall domestic demand for natural gas dropped slightly last year.However,against the backdrop of carbon peaking and carbon neutrality targets,natural gas has become the only strategically transitional energy source.It is expected to grow again in the near future with following three attributes: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.will grow quickly.Currently,auxiliary service supplies only 1%of total electricity consumption.With the upcoming extensive addition of renewable energy sources,auxiliary service will likely contribute about 5%,on par with that in advanced countries.The tariff system will migrate from calculating only the electricity usage to calculating multiple aspects(e.g.auxiliary service usage)so as to diversify power plants income sources.The costs of generating electricity will,therefore,be passed on to downstream users,and will be fairly distributed among C&I and residential users.The power price for residents and agricultural users will remain relatively stable,but its possible that the price will go up with the introduction of peak-trough price scheme and widening price difference of stepped tariff.Trend0433Foresight 2023Decarbonisation transition of energy consumption side After the Kyoto Protocol,carbon neutrality has gradually become the grasp of the EU and 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(CBAM),which will begin to levy a tariff on listed imports(e.g.iron and steel)according to their carbon footprint in 2026.Other developed countries such as the US,Japan and Canada are also expected to follow suit.These efforts are launched to prevent carbon leakage and create a level playing field for domestic companies which are required to meet decarbonisation requirements.For most products,they can reduce carbon emission throughout the life cycle from production aspect:from green power procurement,green product innovation tenergy consumption reduction during usage,and green sales.For chemical,steel and other emission-intensive industries,switching to green power is the best decarbonisation approach.More energy companies have jointed their clients transition through co-creating investment strategies,exploring business directions,adjusting energy structures and optimising operational management.Through these initiatives,they can achieve mutal advantages with their clients by cutting cost and carbon emission,creating additional income source and boosting the global low-carbon competitiveness of the final products.Trend0534Foresight 2023Transportation&Logistics In 2023,Chinas 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.35Foresight 202335罗兰贝格中国行业趋势报告36Foresight 2023Restructure supply chain:Under the instability of global economic 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 Chinas 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 Chinas 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.Leverage:Following macro trendsTrend0137Foresight 2023Improve transportation networks:Local state-owned transportation companies must make good use of this opportunity window to holistically optimise transportation network.Chinas economy is expected to remain Asias bright spot in 2023.The State Councils Twenty Measures for Prevention and Control and New Ten Measures have given people positive expectations.Chinas 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.Improve state-owned enterprises efficiency:Chinas top-level 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 Chinas industrial and supply chains more resilient and secure.These statements have given a clear direction of transportation and logistics industrys 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.Trend02Trend0338Foresight 2023Reintegrate ecosystems:Leading logistics companies must integrate 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 Redefine commercial trade and logistics:The need to improve efficiency and cut costs will redefine the relationships between logistic service suppliers and shippersModern 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 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 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.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 industrys landscape and structure.The state-owned capital 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 market listing might be the main drivers to rejuvenate state-owned enterprises in this industry.Trend04Trend0539Foresight 2023Further upgrade operations:As traffic volume rebounds,transportation and logistics service providers must keep flexibility and guarantee basic service capacityAt the end of 2022,the State Councils 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.Trend06Trend07they 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.Digital enablementSmart 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.Win:Building micro capabilities40Foresight 2023Full-chain digital intelligence in operational service:The technical capability of digital products has been improved.In addition,the market is requiring companies to provide customised services to serve differentiated needs.These changes will continue to drive logistics service providers to further improve their digitalisation levels in non-Vehicle Operating Common Carrier and non-Vessel Operating Common Carrier services,transportation capacity integration 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 to the digitalisation transitions of transportation,warehousing and delivery services,there should also be long-term plans of integrated digitalisation throughout the entire supply chain such as in procurement,logistics,production,and sales.However,it should also be noted that cargo owners and logistics service providers have made varied progresses in digital infrastructure construction,data connection,data contribution and data security.The digitalisation of the whole supply chain will take time.Digitalisation transition service providers for the logistics sector must be prepared to provide long-term service and repeated upgrades.41Foresight 2023Green and low-carbon operationAs the second largest carbon-emitting industry,the transportation sector has a long way to go in decarbonisation.All parties should continue to optimise the transportation structure,adopt decarbonise transportation equipment,and build environmental-friendly transportation infrastructure.Optimise the transportation structure:The transitions of multimodal transport such as shifting from road to water,or from road to rail,will be further implemented in bulk cargo and in the medium-and long-distance delivery services.The supporting infrastructure and facilities of multimodal transport still need to be improved.Further progress in decarbonising transportation equipment:At present,the transportation equipment in some areas,such as ports and certain road scenarios have completed effective 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 transportation infrastructure planning,construction,operation and other areas.Trend08Efficient organisationBuilding 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 Trend0942Foresight 2023Merger and acquisitionsFor 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.Trend10excessive 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,theyre 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.43Foresight 202344Foresight 2023Consumer Goods&RetailIn retrospect,Chinas 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,were 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.45Foresight 202345罗兰贝格中国行业趋势报告46Foresight 2023Premiumisation and value for money propel growth of consumer 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.New generation creating six consumption trendsNowadays,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 generations 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 silos2.Returning to real me needs3.Rejecting stereotypes4.Appreciating Chinese culture and like high-quality products that have cultural roots5.Mixing virtual and real spaces6.Preferring professional insightful contents and proactively sharing viewpointsWe 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.Trend02Trend0147Foresight 2023Prime time for D2C model when digital asset leads omnichannel retail strategyAgainst 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 brands 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.Upgrading offline stores to provide ultimate experience and serviceWith 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 stores 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.Trend03Trend04Trend05FMCG brands targeting rural markets to find incremental salesIn 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 48Foresight 2023Persona centric and digitalisation strategy to lead brands to victoryIn the past decade,digitalisation has been the direction for brands to find new source of growth.Nowadays,digitalised consumer segment management practice has evolved from a tactical method of improving growth efficiency to a brand philosophy that can unlock a brands long-term growth.The digitalisation of marketing has transformed the people-centric segmentation asset management from a mere marketing concept into the top driver of growth.Its crux is to nurture emotional connections between the brand and its consumers.Careful operation of consumer segments can be realised through analysing and tracking their interests and content preferences,and designing customised activation plans and methods to cater for different 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 consumers.They can also help break down the complete coordinated operation circle from macro strategic planning stage to micro daily execution tasks.It not only covers marketing-related issues such as resource integration,marketing efficiency,brand building,etc.,but 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 to further adjust their organisational structure to better facilitate digitalised consumer segment management as well as plan their decentralised brand value positioning and strategic direction to achieve better internal coordination and integration.Digitalisation to unlock extreme product innovation Extreme makes sense is leading the way how cutting-edge consumer brands innovate products.Looking back at innovative practices in the past few years,we found that the extreme product positioning is the key to create top-selling products.As long as the product is not mediocre,theres a possibility of success no matter how the product evolves.Lets take fashion industry as an example.In 2022,both international outdoor luxury brands emphasizing their ultimate functionality and Chinese trendy brands doubling down in minimalist vibes achieved remarkable results.When finding innovation themes,brands can combine the three are all trying to win a bigger share of rural markets by competing in all aspects from product to channel.From product perspective:FMCG companies are providing differentiated products,packaging,and services by leveraging the trends of basic categories going premium and upgrading categories penetrating lower-tier markets.From channel perspective:A leading FMCG brand,for example,has built a deep distribution model to optimise its retail operation and management in rural area.It has also leveraged digital tools to significantly improve its performance in business expansion efficiency,network coverage and POS growth capabilities.In addition,brands now have a better understanding of rural consumers spending habits through in-depth market research.By actively strengthening cooperation with social e-commerce 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 the rural market.Trend06Trend0749Foresight 2023Consumer brands to practice sustainability in multiple dimensionsIn the context of increasingly strict global regulations and rapidly rising consumer concerns,the sustainability transition has become a top priority for many consumer goods companies.Consequently,they are actively investing in many aspects of sustainability transitions,such as supply chain,packaging and promotion.Their efforts include:1.Building a green supply chain by optimising material consumption,increasing the use of low-carbon raw materials and recycling production waste.2.Working with upstream and downstream industries such as material suppliers and packaging suppliers,and focusing on weight reduction,recycling,reuse,material innovation and other technologies to co-develop the green transition of packaging process.3.Proactively investing and participating in sustainability-related movements and social activities.Going forward,we believe that companies need to establish a healthy closed loop business cycle from raw materials,creativity,production,marketing,retail,to consumers,so that the investment in sustainable transition from the business side can flow back to be reinvested.As a result,the continuous supply of sustainable products will gradually change consumers lifestyle.Trend08Trend09perspectives of consumer trends,technological advancement and accumulative share of mind.Innovations around these themes,if presented in a relevant and evolving way,will become safe but surprisingly amazing practices to improve success rates.Even if there are failures,they can be turned into tread stones for final success.At the same time,we believe that if brands want to go beyond from extreme to make sense,digital consumer insights and consumer interaction need to be incorporated into every step of product innovation process to ensure that the new designs are reasonable.A technology company,for example,owns tools that can identify the characteristics of various popular products and predict the direction of the next best-selling product with the help of big data algorithms.Such digital tools will further enable consumer product innovation in the next era.Sales organisations becoming brand-oriented to adopt to market changesToday,the positioning of the sales organisation in consumer goods and retail companies has been fundamentally changed.With the boom of touchpoints and consumers time online,brands have more diversified channels to communicate with consumers.At the same time,consumers are increasingly expecting a purchasing experience which is effective in both brand building and sales conversion.These trends have propelled companies to reform their sales organisations from channel-oriented to brand-oriented.We noticed that more consumer product companies have adopted a sales organisation structure with an agile front office and a large-scale middle office to enhance strong decision-making capabilities.A leading domestic cosmetics brand,for example,changed its performance review system to reset various departments goals and way of working to improve their agile response capability of its sales organisation.At the same 50Foresight 2023Agricultural product brands getting mature to serve multi-tier demandsThe consumption upgrade for meat,poultry and eggs doesnt simply mean a bigger price tag.The overall growth rate of new proteins such as beef,aquatic is higher than traditional proteins like pork and eggs.To respond to the challenge,pork and egg brands are leading the pack by upgrading from meeting the basic health and safety standard to offering special attractions as well as organic and non-antibacterial products,from basic primal cuts gradually to ultra-processed cuts and further shifting to flavoured products.The demand upgrading is driven by the differentiated and multi-tier demands of some key target consumer segments,such as supermoms(in some families its open-minded grandmothers),the new middle class and rookie white collars.For example,the pre-made meals which were particularly popular during the 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 themselves.The other one is pre-made fast food,serving those whose needs are convenience,cost-efficiency and good taste.Agricultural product companies need to develop differentiated strategies to target different consumer groups.For instance,if the products are targeting supermoms,it is important to integrate plant and harvest in one content or vertical e-commerce platforms or interact with these consumers via multi-channels.The leading agricultural giants that have direct control over sales channels are expected to enable the whole industry chains service with digital tools,so that they can lead industry transformation and improve efficiency by leveraging the advantages of all players along the chain.Sustainable fashion remains popular while new narrative wins consumer trustIn 2023,we believe that sustainable fashion still has huge potential in China.According to our research,more than 90 percent of consumers are concerned about sustainability issues,including environmental pollution,carbon emissions,plastic usage and waste of resources.More than half of surveyed consumers have also noticed and recognised the actions brands have taken to promote sustainable fashion.Meanwhile,consumers are changing their attitudes and behaviours via buying sustainable fashion items and are willing to pay for certain price premium.Theyre also expecting brands and authorities to be more decisive in supporting the sustainability transition of the fashion industry.From consumer insight perspective,we suggest 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 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.Trend10Trend1151Foresight 2023Luxury brands to create momentum by leveraging technologiesIn the past few years,the development of Chinese luxury industry has gone beyond store 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 development of Metaverse,virtual reality and other digital technologies,the boundary between virtual and reality has blurred.Brands are integrating their real world and digital/print/TV campaigns.For luxury brands,these trends not only have retained their brand DNA,but also created growth momentum in an unprecedented way,enriched their brand meanings and further consolidated their luxury image among new generation consumers.Specifically,the digital marketing innovations are happening on the following three dimensions:1.Business model innovation,such as launching and collection of branded NFT products 2.Presentation format innovation,such as AR,VR,motion graphics3.Shopping experience innovation,such as online luxury shopping.We believe that in such a new digitalised environment,a promising luxury brand building organisation should be able to obtain capabilities of both consistent communications and endless design creativity.They can use digital technologies to precisely capture consumer insights throughout the consumer life cycle.As long as luxury brands can occupy and consolidate their share of consumers mind,the sales conversion will surely happen sooner rather than later.Trend12Trend13same 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.Premium cosmetics brand to grow with eco-design and differentiated channel strategyThe ecosystem of Chinas premium cosmetics industry is undergoing a complex change of 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,unofficial overseas channels,especially the South Korean travel retails,continued to challenge the domestic pricing structure as well.Confronted with such a complex situation,more premium cosmetics brands began to optimise their overall ecosystem.They have assigned different roles for each channel,clarifying their value positioning,pricing strategy,investment requirements and operation models.The new strategy will further distinguish the local market from foreign travel retail and refine the innovation of the overall ecosystem.We believe these initiatives will help premium cosmetics brands to attract more consumers and increase their total share in the Chinese market.52Foresight 2023Durable goods industry into era of elimination,efficiency and consumer-centric marketing will determine brands fatePreviously,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 consumers 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 consumers 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 theyre in,reshaping shopping venues and improving recommended products.Parenting industry to brave headwinds,reshaping channels and business modelsThe 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 c