Reforms create chance for global firms to move in

PUBLISHED : Friday, 22 July, 1994, 12:00am
UPDATED : Friday, 22 July, 1994, 12:00am

MANAGEMENT consultants McKinsey and Co warn that multinational companies risk being locked out of the China market if they do not quickly grasp the opportunities thrown up in the reform of state-owned enterprises.

''At the moment, multinational companies have a genuine, but brief, opportunity to ally with - or even acquire - key regional manufacturers and gain a beachhead for future nation-wide expansion,'' say Trevor MacMurray and Jonathan Woetzel in an article scheduled for publication in The McKinsey Quarterly .

Mr MacMurray is the managing director of McKinsey in Hong Kong and Mr Woetzel is a consultant.

''Odds are, the most attractive candidates, brands, and assets will be snapped up quickly. Hesitation could mean being locked out of the market altogether,'' they say.

Multinationals would thus need to monitor closely the evolution of the industries in which they operate and be clear about who the emerging competitors and the candidates for acquisition were.

''Where state-owned enterprises enjoy meaningful cost advantages, they may well become serious competitors and/or global suppliers,'' the authors say.

They predict that the emerging competitive landscape in the jockeying for market positions in China will see multinational companies clustering in the high value-added industries.

So will the world-class state-owned enterprises which develop either from entrepreneurial conglomerates or from capital-intensive companies with good regulatory relationships, engineering skills, and a long-term commitment to their businesses.

A second tier of less-competitive state-owned enterprises will dominate more narrowly defined and lower value-added segments, while the township and village enterprises will find niches exploiting geographical cost advantages and their strengths in distribution.

The authors say in such a competitive landscape, the government will continue to be most receptive to multinationals whose contributions go beyond simply investment or acquisition.

''It will welcome creative proposals to help state-owned enterprises partners and suppliers set international aspirations, improve cost, productivity, quality standards, and to strengthen systems and technology.'' They cite the example of Xian-Jassen Pharmaceutical, which was recently ranked the top Sino-foreign joint venture.

The pioneering pharmaceutical group, powered by the Belgian-based subsidiary of the giant United States' Johnson and Johnson, is to help 50 Chinese factories establish good manufacturing practices and has set up China's first Western-funded medical and pharmaceutical research award with a Chinese partner.

Another multinational, AT & T, will set up training programmes for its three sponsoring ministries and take part in a comprehensive network management programme with the Ministry of Posts and Telecommunications.

The authors say that, given the scale and pace of state-owned enterprises reform, the creation of this competitive landscape will be painful for some enterprises in the short run.

The current enterprise reform will affect more than 100,000 state-owned enterprises that generate about half the country's industrial output.