Shifting Sands

Impressive strides

Many of the Chinese companies, after their domestic successes, are looking at overseas mergers and acquisitions to make use of their growing revenues.

From 2006 to 2009, annual investment into the EU by Chinese companies more than tripled from less than $1 billion every year to $3 billion. From 2009 to 2011, it tripled again to $10 billion, according to the China Invests in Europe report released by Rohdium Group in June.

The trend of Chinese companies investing overseas has continued to grow this year. During the first three months of this year, overall overseas investments jumped by more than 118 percent to $21.1 billion, according to a survey by A Capital, a private equity fund with offices in Beijing, Shanghai and Paris.

Straddling an understanding of both Chinese and Western business practices, premium consultancies are helping bridge the overseas investment gap by connecting Chinese companies with potential partners.

Premium power

But it is not just companies looking to travel beyond China's borders that are joining the new flux of Chinese businesses looking to consulting firms. There have also been efforts by domestic companies to bring management practices to global standards, even if there are no plans of expanding their products internationally.

This has led to a majority of big Chinese companies flocking to premium consulting firms to adopt the most up-to-date management practices, says Norman Sze, managing partner for consulting at Deloitte China. With a client list including five of China's top banks, three top telecom companies and several major oil and gas companies, Deloitte is no stranger to working closely with China's State-owned enterprises.

Sze, a pioneer in China's consulting business who started his own company 18 years ago when the industry was just beginning, says often the biggest problem with large enterprises, State-owned or otherwise, is the method in which the companies were formed and the rapid pace at which they have grown.

"Many of the large companies started out with several subsidiaries, each one an individual company, but later consolidated together to form a group, often more like a holding company," he says.

"When that consolidation takes place, the holding companies do not inherit anything to monitor the performance of each subsidiary or business unit."

Deloitte and other big firms have mostly been tasked with the crucial role of helping China's top companies implement internal controls, reporting, financial and human resources systems. "These are the things they really need to improve on aside from the expansion and growth strategy," Sze says.

Streamlining dated management practices for private companies is also a driving force behind the increase in the number of Chinese companies seeking advice from consulting firms.

"You have many private companies where the founders now are getting to an age and a family situation where they think about succession planning and think about handing over the company to other people," Nettesheim says.

"Many of these companies need more modern management practices than if it's just a founder-led company. They need to have high-quality management that is independent from the person."

But changing the management style of a company is akin to changing the culture and while companies may hold a desire for more globalized practices, the implementation of a new management style often encounters resistance.

"Working with Chinese clients presents a different set of challenges than others," Sze from Deloitte says.

"Often domestic companies can expect us to provide global ideas and we do, but when we share it with them they realize that it is something they cannot execute."

This is why being able to understand how Chinese culture works and adapting global practices to the local culture is crucial for any sort of consulting work, he says.