McKinsey: Few world-class companies in China

02 November 2012 Consultancy.uk

Several Chinese companies belong to the world's largest organizations in terms of sales and status. Nevertheless, only few of them succeed in becoming a world-class company, according to research by strategy consulting firm McKinsey & Company.

China now has 73 companies among the 500 largest companies in the world, including 42 state-owned companies. However, the predicate of world-class may be given to less than ten Chinese Companies.

Transformation management system

To achieve a world-class level, many Chinese companies should increase their profitability and sustainability. According to McKinsey, to achieve this China needs to have managers that can transform the management system. In the next five to ten years the country will have to attract at least 100 chief executives with the talent to lead a Fortune 500-company, according to the consulting firm. China also needs 100,000 talented and gifted managers and millions of skilled workers to let a modern industrial environment function properly.

McKinsey - China

Challenges in the global market

“The growth of the Chinese state-owned companies is often the result of their competitive advantage in the domestic market”, says Xu Haoxun, director at McKinsey & Company in China. “These companies usually have a favorable regulation and often a monopoly position. When these companies enter the global market, they are faced with many more challenges.” Last year, the big Chinese state-owned companies had an average profit margin of only 2.2%. The global average of 4.8% was significantly higher.

Sinopec

An example: Energy Sinopec Group is the largest company in China. It is number five in the Fortune 500 with a turnover of $375 billion. In contrast, the profit margin was only 2.5%. The U.S. ExxonMobil is number two in the Fortune 500 with a turnover of nearly $453 billion. However, ExxonMobil had a profit margin of 9.1%. McKinsey concludes: “In order to conquer a larger share of the world market, which in many cases will prove necessary in order to survive, the Chinese companies will have to increase their profitability and sustainability.”

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