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Western multinationals (MNCs) have been grappling with the fallout from ongoing trade tensions between China and the U.S. Notwithstanding a change of administration in the U.S., it appears unlikely there will be a rapid near-term reset in relations between these economic powers. There is also a growing concern that this tension could start involving other large trade partners of China, such as Australia.

As a result, there is one critical question on the minds of most global CEOs and board members: How do we make sense of China within the context of a world that some assert is “decoupling”—that is, a world where other industrialized nations seek to reduce their dependence on China for geopolitical reasons?

Getting a calibrated view on this topic is very important for the strategic and capital agenda of any global firm. Since this requires a holistic business-oriented perspective, we would like to present a strategic framework for thinking about China. We’ll use three lenses and share ideas on how best to effectively leverage insights from those lenses.

The market lens: China as a growth engine

Post COVID-19, China is the only sizable market that has bounced back—and arguably one of the only growth engines for the world today. China hosts three out of the world’s top 10 shopping malls; has a larger beer consumption market than the U.S. or Germany, and accounted pre-COVID for one-third of the global sales of luxury goods, a ratio that has only accelerated post-COVID. It is also on the World Bank list of top 10 economies showing improvement across multiple areas for ease of doing business.

Clearly, China is too large of a market to ignore, and it promises to be an excellent growth destination for any multinational.

China is also leading the world in terms of business model innovations and smart go-to-market strategies. For example, in marketing and product development, livestreaming for sales and KOC (key opinion customers) are examples of novel concepts developed locally that other countries can learn from. Platform-based collaborations in the electric-vehicle industry and related charging infrastructure are another example of business model innovation where China is far ahead of the rest of the world.

The technology lens: China as a global force in digitalization

Based on recent estimates, China spends about $530 billion per annum on research and development, which represents a 13-fold increase over the past two decades and puts the nation only slightly shy of the U.S. This sustained investment has positioned China as a serious contender in the global technology race, with artificial intelligence, digitalization, space exploration, and high-end manufacturing as some of the core themes playing out.

A 2020 report on A.I. by Boston Consulting Group and MIT shows that Chinese companies are leading in A.I. adoption compared to Western firms, due to presence of a large digital ecosystem and their participation in relevant local platforms that allow them to scale rapidly.

The manufacturing lens: China’s evolving supply-chain role

China has arguably the world’s largest trained manufacturing workforce, with over 100 million workers and a robust infrastructure. Rising wages and the stated policy objective by the government of optimizing China’s exports are some of the signals for MNCs that they should focus on leveraging China for more high-end manufacturing, while moving the lower-end products to other parts of the world. It is worth sharing an example here of Samsung making two significant announcements at the end of 2019: one related to the closure of its last handset assembling factory in China and the other an additional investment of $8 billion toward advanced chip manufacturing locally in China.

Thinking of China from a holistic perspective, looking through these three lenses, has strategic implications. Here, we share three building blocks for incorporating China within a company’s global strategic construct, along with ideas for mitigating any related risks.

China-for-China strategy: become Chinese in China

China is simply too big and important in terms of its market size and growth potential to ignore. From this perspective, geopolitical “decoupling” does not translate into withdrawing from China. Rather, MNCs should double down on their plans to tap into the growth potential of the Chinese domestic market. From a manufacturing perspective, it is critical to ensure that local supply chains are scalable, and that they actively leverage value-added production to meet domestic demand in an efficient way.

Global firms will have to work smarter, given that they’ll face tougher competition from local companies that are increasingly getting digitized and scaling rapidly. Local teams will need to be close to the market and its latest developments, to draw inspirations from innovative business models sprouting in China. Local design centers and collaboration with digital natives will have to be forged to keep pace with new developments, the better to offer unique solutions to an ever-demanding local consumer. To enable this, MNCs will need to build empowered local teams and capabilities. Additionally, the China operations must feel “local” and be connected to the consumer pulse and to the innovation ecosystem.

It is, however, worth mentioning that doubling down on China-for-China strategy comes with its own set of challenges. A very local team with limited expats potentially poses challenges from a control, governance, and integration perspective. Posting a mature and seasoned expat leader, with a “chairman and guide” type of profile, coupled with a structured global rotation program for early-stage global and local talent can help create a more inclusive and collaborative culture.

Also, to allow for a dispassionate view on the market and an appreciation of the latest “cultural-sensitivity” climate, it is advisable that the CEO and board appoint a local advisory board for their Chinese operations. It is worth learning from recent cases wherein several Western brands (such as the National Basketball Association and luxury-goods provider Coach) faced serious backlash on local social media for taking unpopular positions on sensitive topics.

China for the rest of the world: actively learning from China

When viewed through the market lens, China has a lot to offer to the rest of the world, especially in the areas of innovative business models, ideas on product development, and opportunities to experiment with newer segments and categories.

Local marketers in China develop products quickly and with a mobile-first mindset. One example of bold product development is Nestlé’s peelable banana ice cream. The product was developed in the China market, and the concept was successfully exported to other geographies. Many Western retailers are now actively studying and learning from the omni-channel constructs and fulfillment models of local e-commerce pioneers like Taobao and JD.com.

With its relatively mild data privacy requirements and a robust ecosystem for digital innovation, it may be easier to experiment with new digital business models in China before rolling out more refined versions globally. As an example, BMW took its Munich-based Startup Garage program to China in order to gain exposure to new innovative technologies (e.g., electrification and automation) from a more advanced local ecosystem.

From a manufacturing lens, China offers a proven location for building high-end quality precision components, as well as a source of competitive price benchmarks for components across the value chain of multiple industries.

It is worth noting that not everything that is done in China can be exported directly or entirely to other locations, for intellectual property, technology, or security reasons. For sensitive I.P., it may be worthwhile exploring dual development, leveraging China alongside a China Plus One strategy (that is, de-risking manufacturing operations in China by having a parallel based in another Southeast Asian country like Vietnam).

Take-to-China: bringing global strengths to your China operations

The market and manufacturing lenses draw attention to a very important area of ESG capabilities, which are likely to be more sophisticated in multinationals’ Western operations. Expertise in ESG from global best practices can support China’s operations as they catch up in this area.

We see multiple pieces of evidence of this playing out. For example, the local packaging industry in China is taking inspiration from proven Western best practices on recycling and sustainability to experiment with similar initiatives. And as China confronts an aging demographic and rising household debt levels, MNCs can bring lessons learned and products from other developed geographies for launching locally.

Another aspect where China can learn from the world is on IP protection and related measures. Some of the best practices from the rest of the world can be embedded in the local processes and governance frameworks, to allow for innovation to flourish while keeping the IP protected.

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China is too large and dynamic of a market, with too many significant benefits to offer, for any global company’s CEO or board to ignore. CEOs need to embrace a business-oriented framework for viewing, making sense of and leveraging China in this complex world, one that should be relevant independent of the geopolitical climate. In the words of Chinese philosopher Sun Tzu: “In the midst of chaos, there is also opportunity.”

Fran?ois Candelon is a managing director and senior partner at BCG, and global director of the BCG Henderson Institute. Akhil Puri is a partner & director at BCG. Shameen Prashantham is associate dean (MBA) and professor of international business and strategy at China Europe International Business School.