As China is Shunned, Starbucks, UBS Expand There

Starbucks still bets its future on China--and so do many other MNCs, so what gives?

There is a tendency nowadays to sell everything China-related: companies in the PRC, companies that export a lot to the PRC, countries headquartered near the PRC (read: the Asia-Pacific) and so on and so forth. Call it financial guilt by association--if it has even a whiff of China, sell it. So, it must come as a surprise that, actually, there are Western multinational corporations that are not only bullish on China, but plan to expand their operations greatly there in the very near future. That they represent a range of industries is also suggestive of something.

First we have the Swiss banking giants UBS:

Sergio Ermotti, CEO UBS Group, said on Monday that the company will increase its workforce in China over the next five years. In an interview with Bloomberg, Mr. Ermotti said UBS will double its headcount by adding 600 employees to its offices in China. He revealed that these additions would be made across fixed income and asset management, equities, investment banking, and wealth management divisions. He further added that some workforce expansion will also take place in back-office operations as well.

The CEO believes it is the right time to expand in China, as volatility has given rise to growth opportunities. In his statement to Bloomberg TV, Mr. Ermotti said: “Those are also the good times to plan for the future, and that’s the reason why we are starting to implement our strategic plan.”

The coffee empire Starbucks' largest growth market remains...wait for it...China. In 2016, it's still full speed ahead for them in the PRC:

Starbucks Corp. plans to accelerate its expansion in China, shrugging off concerns about a slowdown in the coffee chain’s second-largest market behind the U.S. and a potential further depreciation of the yuan. The company plans to add about 500 new stores in the year ending Sept. 27, up from 450 new outlets in the previous year. China is Starbucks’ fastest-growing market, and the coffee chain is looking to have 3,400 locations there by 2019, compared with about 2,000 now.

“We have no intention of slowing down and we remain very optimistic and bullish on the opportunities that Starbucks has in China, both in the short term as well as in the long term,” John Culver, Starbucks president of the China and Asia-Pacific region, said in a phone interview Tuesday. Starbucks joins SAP SE, the world’s biggest maker of business-management software, in expressing optimism about China, betting on a sales boost as consumption and corporate spending grows even as a decline in the yuan would erode the value of profits they generate in the country.

Are they crazy? Isn't China about to collapse like a house of cards? My inclination is to believe this: China is no longer a "frontier" market where MNCs thought you could gain an tidy profit by getting there first. Rather, it has matured to such a point where MNCs competing with other MNCs and even local firms means that a shakeout of foreign investors is long overdue. Just like in any other endeavor, there will be those who succeed and others who fail. By adapting to local market conditions and building a good name in China, UBS and Starbucks among others aim to consolidate their gains there as others leave.

It's simple as that. As I mentioned at the top of the post, indiscriminately selling anything remotely China-related is not likely to pay off. Instead, pick those names that actually have done well in China and will likely continue to do so. Yes, be discriminating since it's hardly believable that everything there has turned sour all at once. There are still opportunities, but you have to be selective since China is maturing more quickly than you think, whether it be in coffee houses or financial services.