lready the No. 1 market in a host of industries, including automobiles, home appliances and mobile phones, China is a leading profitable growth engine for multinational companies (MNCs). But it’s as challenging to global companies as it is important.

The competition has never been tougher as a new generation of domestic companies is quickly setting the standard for low-cost and good-enough products. Chinese players are showing how easy it is to outpace MNCs. In consumer goods, local player Hosa overcame Italy’s Arena to become the No. 1 seller of swimwear by targeting the mass market. In healthcare, domestic ultrasound manufacturer Mindray became the No. 1 player by using technology that was reliable but less advanced and offering 30% to 40% lower prices than similar models from MNCs.

To compete, the pace of M&As and joint ventures (JVs) by multinationals has dramatically intensified beyond restricted industries like banking or insurance where there is still no alternative for MNCs. In fact, only about 25% of Fortune 200 companies will rely solely on organic growth in China.

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Increasingly, these deals are proving transformative. They provide companies with upstream activ­ities, R&D, intellectual property (IP) contributions and core capabilities sharing. In addition to gain­ing regulatory access, inorganic growth enables MNCs to lower costs for both domestic production and exports, fill portfolio gaps and strengthen their go-to-market capabilities—areas where domestic players typically have the edge. Buying or partnering with a Chinese company can help level the playing field,