Two weeks ago we covered the highlights of the increased focus of multinational companies on the China domestic market, no longer only seeing China as a low-cost location for manufacturing. However, to stay competitive, there is need to reduce costs and implement best practices in their operations.

Turning to the other issues reported, steadily increasing costs and limited availability of labour had been a major issue for manufacturers in China but the reduced demand due to the global economic crisis dramatically reduced this effect for a while. Now, again, though, these human capital challenges are as severe as they have ever been.

Manufacturers are choosing to broaden their value propositions for workers to strengthen employee recruitment and retention. A strong majority of respondents said they were providing more training and career development assistance to employees rather than relying on compensation to attract and retain workers.

Also, while much has been made of China's environmental problems, perhaps not enough has been said about the significant steps taken by China to address this issue, such as higher factory emission standards, an emphasis on developing renewable energy technologies, and stricter oversight of potential polluters.

Western multinationals have a strong record of bringing best-practice environmental standards to China and this year's survey results bear this out. Three-quarters of respondents are adopting green technology in their China operations and 60% expect savings on operations from their green investments. The number one priority was to increase energy efficiency, followed by conserving or recycling water.

It is interesting to us to hear that, unlike in other markets, it is difficult to price green products competitively in China. Only 30% of respondents said that they could demand higher prices for green products and services in China, compared to 46% of companies that said they do so in other markets around the world.

The final major issue is that, while China, particularly eastern China, remains extremely attractive to foreign manufacturers as an investment destination, increasing costs and labour availability are driving companies to consider other options for their lower-cost, export-driven operations.

In 2009, approximately twice the percentage of companies considered relocation or expansion plans for their manufacturing operations than in 2008, both within and outside of China.

For those considering plans to relocate or expand outside of China, more than half said they would stay within Asia, identifying India and Vietnam as their top choices. We are sorry to report that Thailand is well down the list.

However, the people conducting the study advise that companies must balance the savings in cost against forfeiting the advantages that China offers relative to other low-cost countries. These include increasingly strong supply chain and logistics capabilities, a growing consumer market, an improved operating and regulatory environment, and access to technology. These progressive techniques and processes are even less prevalent in surrounding low-cost countries than China.

In conclusion, the study authors say that China remains an extraordinarily attractive country in which to establish and expand manufacturing operations. However, in 2009 there was a definite shift in the duality strategy that so many multinationals have adopted, as companies increasingly viewed access to the local Chinese market as more important than sourcing from a low-cost country.

This changing landscape offers substantial opportunities for multinationals but, as per above commentary, they must be proactive and diligent about taking advantage of them.

In addition, companies will need to revisit their talent acquisition development programmes. The emphasis should be on creating a workforce that is loyal, productive and highly skilled. This could be difficult and costly in the early stages, but well worth the effort. In the end, investing in a company's workforce in China will pay dividends in quality and output gains.

Most of all, the authors emphasise, companies must avoid complacency when they are addressing the global cost competitiveness of their operations. As labour and material costs expand, companies will increasingly seek options within and outside of China to cut operating costs.