McKinsey recently released a new report- Whats Next for China, January 2013.

The main finding: As China gradually shifts to a more consumer-driven economy, companies must adapt their offerings and ways of doing business.

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Among other topics discussed were the implications of China’s changing consumer market on foreign businesses. The top 6 areas of impact to consider were–

1. Design city specific solutions: Smaller cities will be the main hub of growth, adapt your offering to fit local consumers’ habits and needs.

“Companies should not apply a one-size-fits-all approach but instead differentiate marketing and operating models across cities. More granular and in-depth consumer and business insights are necessary to design effective marketing campaigns, allocate capital and human resources more efficiently, and develop innovative products.”

2. Allocate resources intelligently: Consider what is a necessity in the hub cities- where costs are high. Move the rest to a more economical area (like the many development zones).

3. Serve the People: As consumerism grows people will want everything with convenience. Know your consumer and how to serve them.

“For consumer-goods companies, the big opportunity encompasses the expansion of the modern commercial retail network to small cities and rural areas, the development of new consumer industries, and the improvement of service quality in existing ones. Time-stressed residents of coastal China, for example, are turning increasingly to catering and product-delivery services. Business services, such as finance, consultancy, and logistics, will see faster growth with the development of industry sectors. Creative services, such as education or culture and entertainment, also have great potential due to changing spending patterns.”

4. Brand management entails a multibrand portfolio: consider partnering with a local company to take advantage of the Chinese partner’s already established distribution channels and customer base– and also the hard to build guanxi.

5. Balance the Human Capital Equation: As China evolves so does its workforce. Build up local talent and work hard to retain them. Because of the one-child policy the workforce is shrinking and good talent is getting harder to find– and keep.

6. to Innovate for China– and Beyond: Know the market but keep taking risks.

“Many foreign brands have succeeded only after they tweaked their products for China—from offering tray tables in luxury cars to custom menus at fast-food restaurants. As was once true for Japan, China has become known for excellence in imitation; the next stage is to become adept at innovation, through R&D and improved consumer insights.”