Shifting Sands

Changing market paradigms prompt foreign consultancy firms to change tack in China

For several years large international consulting firms have helped Western companies dip their toes into the complex waters of the Chinese business market. But shifting market tides and global economic turbulence have changed all that and given rise to a host of Chinese businesses hungry to expand in the West and keen on strategies to navigate in the new business landscape.

With a massive push among Chinese companies to go global, Western consultancy firms have started to realize that battle plans need to be changed in China and more help sought from bases back home to help Chinese companies understand exactly how the West works.

"More and more Chinese companies are going in for premium consultancy services, especially from international consultancies, as they need to professionalize," says Christoph Nettesheim, senior partner and managing director of the Boston Consulting Group, Greater China, the longest operating international consulting group in China.

While five to 10 years ago BCG's clients were predominantly international companies looking for ways to tap China's potential, it has now been replaced by an increasing number of domestic companies bolstering efforts to operate on global standards.

"I would not say it's a shift, I would use a slightly different word. It is an addition to the existing market," Nettesheim says, adding that international companies still account for a significant portion of the consulting clientele.

Regardless of how it is labeled, the newfound patronage has provided a beacon of hope for an industry that just three years ago suffered one of its biggest hits in more than a decade. In the UK alone consultants suffered more than a 7 percent loss in revenues and 13 percent loss of jobs in 2009, according to a report from the Management Consultancy Agency.

While the market has since stabilized, China is proving an invaluable area of expansion for most of the large consulting firms.

According to a report released by IBIS World, a business research firm, management consulting in China has enjoyed an annualized growth rate of more than 10 percent, though the premium segment enjoyed slightly higher growth rates of 15 to 20 percent, a robust performance compared with the single-digit growth in the US and Europe.

"It's the kind of growth our US colleagues would dream of," says Nigel Knight, managing partner of Ernst & Young, Greater China.

Driving the double-digit growth rates for the industry is also the government encouragement for companies to actively shore up knowledge of international business practices.

"A majority of Chinese companies are still at an early stage on the road," Zhao Qizheng, head of the Foreign Affairs Committee of the National Committee of the Chinese People's Political Consultative Conference, told reporters during the annual session of the CPPCC earlier this year. "They lack in-depth and comprehensive knowledge about overseas markets, practices and rules."

Offering global contacts, local information and knowledge of best business practices, big firms like BCG, Deloitte Touche Tohmatsu, Ernst and Young, and McKinsey are helping the biggest Chinese businesses gain in-depth insight across all industries from manufacturing to finance.

"Chinese companies need to diversify if they want to continue to grow fast. They need to internationalize and really get into strategic questions about the future - which they didn't have in the past," Nettesheim says.

"Our role is to help them understand how global leaders operate and translate that into a Chinese situation."

Christoph Nettesheim, senior partner and managing director of the Boston Consulting Group, Greater China. [Photo/China Daily]