Editor's note:

While China remains a top attraction for multinational companies, they are finding new challenges as the market gets mature and economic growth slows down.

The multinational companies are still keen to invest in China, especially in the manufacturing and retailing industries, as the country's 7-8 percent economic growth annually will create a large and growing source of revenue for them, KPMG said in a report released last week.

Meanwhile, challenges such as higher labor costs, increasing operational spending, and complexity of regulations are highlighted in the report.

Here are some comments quoted by the report.

Eddy Chan

Head of China for FedEx

Challenges:

Our main worry is China's willingness and ability to reform going forward. We have seen that reforms slowed down during the previous three to five years, especially after the global crisis and especially towards foreign investment.

Efficient logistics relies on two factors. First is the hardware, or infrastructure, such as airports and highways. Second is the software, or the government regulation that affects the performance of the industry. It is the second that worries us most, as the licensing regime is unclear and the implementation of policies is changing constantly. That's where more clarity is needed.

Opportunities:

E-commerce offers us huge opportunities. China currently has more than 500 million internet users. With the expanding middle-class we are seeing the trend of growing demand for domestic delivery with the rapid development of e-commerce in China. We have seen the rapid development of high-end products entering the China market. But when the value of your goods is higher, you are also more selective in terms of a reliable transportation provider.

Christophe Roussel

CEO of global non-food sourcing and logistics for Tesco

Challenges:

Labour costs remain our biggest challenge. More and more factories are running below capacity. The good news, however, is that factories are responding and finding other ways to cut costs, such as by investing in capital equipment, introducing lean manufacturing techniques, or reconfiguring production lines. From a sourcing perspective, we are concerned about moves to cut export subsidies as part of the government's policies to develop the domestic economy. Generally, certainty is important for us in order to make long-term plans.

Opportunities:

In the domestic market, people are consuming more, but also want to feel reassured about the quality of the product and where it was sourced from. This is especially true for food and baby products. We are focused on the coastal cities for the moment, as that's where the demand is, but there is also massive opportunity in the interior cities, especially the second- and third-tier cities.

Jason Lo

Head of China Strategy for Honeywell

Challenges:

We are proceeding diligently on protecting our technologies and intellectual properties. We know that Chinese companies can learn quickly. And with the staff turnover, there is going to be an outflow of skills from the company, even if there is no outright intellectual property right infringement.

Some companies are willing to transfer technologies in exchange for market access. We have to weigh it carefully, particularly when it comes to technologies where we have years of lead time.

Opportunities:

China got rich by attracting inbound investments. And we expect outbound investments to even surpass inbound investment in a few years. So we are excited about the prospects of working alongside with Chinese firms as they invest abroad. These firms are likely to choose partners with a China presence and a global footprint. And we are well prepared to do so.

Masayuki Kamiya

Senior Executive Officer of Asahi Glass Co

Challenges:

China is a very huge and diversified market. You can find a big market for both low-end and high-end products like mobile phone. The same is true for automotives. Sure, there are a lot of low-end cars that are sold, but there are also many high class BMWs and Mercedes. So we need to have diversified view points on our markets. We also need to have a good marketing ability in China in order to watch what is going on in each of those markets.

Opportunities:

I speak regularly with government officials, heads of state-owned firms, and private businessmen. Their style and attitudes have been changing significantly. They have clear visions and are making quick decisions. The speed of implementation is also marvelous. This is something that Japanese and other foreign multinationals find difficult to compete with.

Frank Liao

General Manager of China for Avery Dennison RBIS, an integrated apparel and footwear industry solutions provider

Challenges:

The multinationals started in the big cities and only then tried to go to the villages. That's different from the local firms that started in the villages. It's probably easier going from a fourth-tier city to a third-tier. Therefore, I think it will be very challenging for multinationals to do the reverse.

Twenty years ago, if multinationals risked coming to China, chances were high that they were going to be successful. But that's going to be more challenging as they look for growth in the rural areas. I expect their success rate will drop significantly due to the tough business environment.

Opportunities:

The global economic crisis has certainly made China's domestic market more important to us. But it may also entirely change our business ? the typical commodity might sell for US$10 in the US, but only US$2 to US$3 in China; profit margins are also lower and the local competition more intense; the local consumer also behaves differently from consumers in our traditional markets.

Ashley Micklewright

CEO of Bluebell Far East, a Hong Kong-headquartered promoter representing some of Europe's best-known luxury brands in Asia Pacific

Challenges:

Chinese mainland's luxury market is currently dominated by a small number of mega-brands. The landlords are clearly comfortable with these larger players, and the stores are getting bigger and bigger. So it is much tougher for a lesser known luxury brand to enter the market. That's not true in Hong Kong or Taipei where you can more easily introduce new brands and let consumers make their choice.

Opportunities:

Sooner or later people are not going to go into these big shops. They are going to get bored because so many people are buying the same products. And eventually, there is going to be demand for these small brands. The second- and third-tier cities are where the business model starts to make more sense. The trade-off between rent and demand is better in the second- and third-tier cities.