Overheated China Chatter From McKinsey?
Consulting firm McKinsey & Co. has reputation for thoughtful analysis, but its latest bulletin on China veers toward the sensational.
I received an e-mail this week from The McKinsey Quarterly with an article titled “Competition From China: Two McKinsey Surveys.” It had this somewhat alarming lead sentence: “Executives around the world expect competition from Chinese companies to increase, mainly because of their low production costs, yet surprisingly few are acting to meet the threat, a McKinsey survey shows.”
In particular, McKinsey notes that less than 30 percent of executives surveyed say they work for a company that has changed its approach to sourcing a great deal during the last three years in response to competition from China. And less than 20 percent of the execs said their firms made substantial changes to marketing, organizational structure and global strategies in response to China.
The lack of dramatic steps vis-a-vis China is not surprising, though, for reasons McKinsey itself uncovers. For one, competition from China in many cases remains weak. According to McKinsey’s survey of global executives, 41 percent of the respondents view Chinese companies as weaker competitors than companies from other countries. Just 8 percent of the execs said superior products or services were a competitive advantage for companies based in China. Only 7 percent said “attractive brands” gave China-based firms a competitive edge. Product quality and brand awareness are crucial factors for sustainable success in business today.
Yes, the surveyed execs expect China to make progress in those areas in the next three years—24 percent said superior products or services will become a competitive advantage, and 22 said the same for attractive brands.
But another part of the McKinsey report highlights how difficult it will be for China to move up the value chain, as they say. McKinsey surveyed executives at companies based in China and found that those leaders see a dearth of management skill as the biggest obstacle to the global growth of their companies. Forty-four percent cited a lack of managerial talent as a barrier to globalization, well ahead of insufficient capital, which ranked second.
“This jibes with the view of executives from other countries, only 1 percent of whom cite stronger managerial talent in Chinese companies as giving them a competitive edge,” McKinsey stated.
Companies in developed countries, too, are concerned about management skills. But China is an acute case. We noted China’s managerial talent problem in a special report last year, pointing out how a shortage of leaders often puts junior officials on a too-fast track.
Companies in China are working to solve the issue. But partly because China’s Cultural Revolution hurt the education of many citizens, there is no quick fix.
So on the whole, a measured response to China by companies makes sense, even if McKinsey is shouting otherwise.














