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(China Daily: Hong Kong Edition Via Acquire Media NewsEdge) Global consultancy firms must change their strategy in China
Do international management consultancy firms still have the right answers for China?
Edward Tse, former chairman, Greater China of Booz & Co, thinks they do not. Regarded as one of China's leading management thinkers and author of The China Strategy, Tse has recently launched his own Chinese management consultancy Gao Feng Advisory.
He says most international consultancies now have their DNA locked away in the United States and increasingly do not understand the complexities of the China market.
Instead, according to Tse, they just merely resort to selling one-size-fits-all products and services devised in New York, Chicago or elsewhere, that have little relevance to the problems most companies face in China.
His comments come amid speculation that US consultancy firms may be banned from working for Chinese state-owned enterprises, a major part of the business of certain firms, particularly McKinsey & Co.
Tse says the gap in the China market is for a consultancy of scale with many of the existing Chinese operators lacking the operational reach to take on the big players and he now aims to create one.
In his Shanghai office, Charles-Edouard Bouee, president of Roland Berger Strategy Consultants Asia, one of the few international management consultancy firms that is European in origin its eponymous 76-year-old founder setting it up in Munich in 1967 agrees with Tse that some consultancies no longer understand China.
"I think he is right but we do (understand it)," he says.
Bouee says the US consultancies had the right model for China for reform and opening up in the late 1970s until about 2008, which he sees as a major change year for the country.
"I think that year was a turning point. I think in the 30 years until that year China pursued an American spirit. Deng Xiaoping had said getting glorious was rich and I think this provided a fertile ground for the American management consultancies. People wanted to know how business was done," he says.
"Then we had the Olympics and the financial crisis and we went from the American to the Chinese Dream. China realized even if not consciously that the old model had reached its limit. It had led to inequalities, pollution, bad business practices and corruption. We are seeing now a shift to a new management model."
Terence Tsai, assistant professor of management at China-Europe International School, or CEIBS, believes that Tse is right that there is now an opportunity for the sort of Chinese management consultancy he wants to create.
"There are a lot of unhappy voices among Chinese firms working with the big US-based multinational firms about not getting good service. US consulting firms have a tendency to apply in the Chinese market what they have learnt in the US without a lot of modification.
"There are many differences here (in China). If you take the large State-owned enterprises, in the upper echelons of the management, you have professional managers but you also often have the involvement of Party officials. Often they have greater influence than the professional managers and the consultancies sometimes overlook that."
In his office on the 22nd floor of the Hang Seng Bank Tower in Shanghai's Lujiazui financial district, Johnson Chng, managing partner of AT Kearney Greater China, a leading global consultancy that has been in China since the early 1990s, says China is different from other markets.
"China is pretty much the exception. I have lived and worked in North America and in Europe and have served more than 10 markets in Asia but China is by far the toughest."
The 46-year-old Singaporean says one of the differences is that many Chinese companies place a high value on experience rather than "how smart you are".
"In other markets, we might stress what business schools we went to. In China, we don't even bother since it is not seen as relevant. What is important is what experience you have had and what you have done before. The first thing they ask is whether you have previous experience of the topic they want advice on."
Chng says there is also a reluctance to think laterally, whereas in the West this is often the key to management decision-making.
"If you take a Chinese bank, they will always ask you how Citibank does a, b or c or how HSBC does x, y or z. This wouldn't occur to Citibank. They would perhaps be looking for ideas outside their industry, maybe from the fast food industry or whatever. That is because as a leading player they are playing top-up while the Chinese are playing catch-up.
"A Chinese company would typically tell you it is not interested in what is happening in another industry. It wouldn't see the connection."
Over at his 30th-floor office in Shanghai Central Plaza on Huaihaizhong Road, Gong Li, senior managing director and chairman, Greater China, of Accenture, another leading US-based global consultancy, admits there are aspects that make China a different market to operate.
"There are some characteristics that are very unique, like, for example, state-owned enterprises. They are companies but many of them are former ministries that give them a hierarchical structure, where people's grades correspond to the government structure.
"The No 1 or No 2 guys are appointed rather than recruited from competition. They can also be moved at any time to be the governor of a local province, for example."
The 55-year-old, who has wide international experience and worked in Argentina in the mid-1980s, says every market has its own idiosyncrasies.
"I was in Argentina at the starting point of reform and there was huge historical baggage, no investment and very little activity before privatization took place. So every country has its unique environment.
"If you just simply applied the US or UK development market practices without being aware of the local specifics, you would fail and that is also true of China."
One of the major questions is whether management consultancy itself is largely an American phenomenon and does not translate to Asia or other regions.
The very concept of the management consultancy certainly began in the United States in the late 19th century, allied to the birth of management theory as an academic subject.
Booz & Co (which has recently been rebranded as Strategy& after its acquisition by PriceWaterhouseCoopers) was formed exactly 100 years ago.
The 1920s saw the launch of McKinsey & Co by James O. McKinsey, a managerial accounting professor at Chicago University, as well as other firms. AT Kearney itself grew out of McKinsey itself with Andrew Thomas Kearney being McKinsey's first partner.
Simon Learmount, a lecturer in corporate governance at the University of Cambridge, UK, has spent a lot of time in China and has recently been involved in a research project looking at management in Shenzhen.
He believes there is something fundamentally Western about the whole idea of management consultancy.
"The idea that you send external people into an organization to fix it is to some extent anathema in Asia. It has been a problem for American firms in Japan where an organization is more like family that you belong to and is not therefore open to outsiders coming in and bossing everyone around.
"There are similar kinds of issues in China where relationships are very important and also issues such as (Chinese) face. In the United States, an organization is just a machine, people come and go and bosses come and go."
Learmount, who is director of both the MBA and Executive MBA programs at Cambridge, believes there are dangers in some of Tse's ideas that there needs to be new thinking applied to China and other places.
"My anxiety - and this, to some extent, has already happened in business schools with EMBA programs - is that you come up with an American style of things, a Chinese style of things, an Italian style of things and even something specific for tech firms. You end up with this compartmentalization, which I believe is counterproductive.
"The principles of management are universal. What might be different in a country like China is the context and that is what you have to deal with. The differences are more in relation to applying ideas."
Back in China, James B. Heimowitz, the former China chairman and CEO for Asia of public relations giant Hill and Knowlton, is also a new player in the management consultancy arena.
Like Tse, he has set up his own management consultancy, New Frontier Advisors, but although it is registered in Hong Kong and based in the Chinese capital, he doesn't claim that it is Chinese.
"I would say it is a sort of hybrid," he says. "I think there is a Western model of management consultancy and the problems that Western or Chinese companies face are basically the same. However, if the question is whether there is space for a management consultancy that is better attuned or aligned with the way Chinese management thinks and operates then I think the answer is absolutely yes."
Whether a Chinese company could rival the likes of McKinsey or Accenture within the next 10 or 20 years is perhaps a more difficult hurdle, however.
Bouee at Roland Berger, who is also the author of China's Management Revolution: Spirit, Land and Energy, believes it is not something that is easy to achieve.
"Japan has been a major global economy for 40 years and no consulting firm has emerged from there in that time," he says. "Management consulting is an invention of the West."
Heimowitz, however, believes Tse's aim to build a Chinese management consultancy of scale is possible, despite the Japan experience.
"Although the American management consultancies are dominant, I believe that will change. If you look at Chinese manufacturing, that has evolved and you are now looking at COMAC (Commercial Aircraft Corporation of China) building an airliner to take on Boeing and Airbus," he says.
"I don't see in the services area, given China's talent pool of MBAs, why they can't also produce a major management consultancy over time."
Tsai at CEIBS, however, believes there are market factors in China that will work against Chinese management consultancy firms becoming global players.
"I think the existing Chinese ones are pretty happy with the domestic market and it is going to get even bigger.
"They now have the third, fourth and fifth-tier cities coming up so they have enough to deal with. They don't have to go international."
He believes the existing Chinese firms remain outclassed by the major international firms.
"They just don't have the good database as firms like McKinsey, Bain or Strategy&.
The quality of data of a firm like McKinsey is actually second to none. Chinese firms are not in the habit of collecting good quality data. I have reviewed many reports and often the quality is really poor," he says.
Li at Accenture agrees that the international consultancies retain a strong position in the market place. "Our main competition remains the international players. We run into local players because the entry barriers to our industry are quite low and two smart people can form a company," he says.
"It takes years or decades to gain the experience and to achieve a certain scale. A company like ours has a global network and we can just tap into experts anywhere in the world in various fields whenever we need them."
Song Chen / China Daily
(China Daily 06/09/2014 page13)
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