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Accenture Outlook a Tale of Two Chin as May 2009

Accenture Outlook a Tale of Two Chin as May 2009

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Published by: Supply Knowledge on Jul 12, 2010
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This article originally appearedin the June 2009 issue of 
A tale of two Chinas
By Gong Li, Andrew Sleigh and Paul F. Nunes
The rise o a new economic superstructure in China—eaturingcompanies that are already world-class—is one o two sides tothe new China story. The other side is the extent to which manyother Chinese companies are struggling.
The journal of high-performance business
However, recent Accenture researchsuggests that although no companyin China will escape the eectso the downturn, some businessesare dramatically better positionedthan others to weather this storm.During the past decade, the country’sstrongest companies began to openup noticeable leads over others intheir industries (see “About theresearch,” above).Lately, their leads have widened.The research indicates that thechoices that put these companieson a path to high perormancebeore the crisis will also enablethem to ride out the current tur-moil and emerge even stronger.The rise o this new economicsuperstructure in China—eaturingcompanies that are already world-class in their successes today andtheir positioning or tomorrow—isone o two sides to the new Chinastory. The other side is the extentto which many other Chinese com-panies are struggling.The implications or global businessleaders are proound. On the onehand, they need to recognize justhow muscular China’s top perorm-ers have become and adjust their strategies accordingly. Yet theymust not generalize about ChineseZhejiang province, with its entre-preneurial spirit and small busi-nesses producing low-cost goods,has in many ways been emblematico China’s extraordinary economicgrowth. Following its own devel-opment model, the eastern coastalprovince became one o China’srichest; in 2007, it boasted a GDPo about $255 billion and per capitadisposal income or its urban resi-dents o $2,800.Then the global economy hit a wall.Today, China’s businesses stagger under the burden o rising costs,sinking demand, talent shortagesand tougher regulations. Asexport activity sags and Beijingencourages the phasing out o “backward production practices,”a major shakeout is well under way in many industries. And inonce-booming Zhejiang in thesecond hal o 2008, companieswere shuttered at a rate o morethan 200 a month.China’s companies nd themselvescaught in a kind o economicperect storm. The world is sink-ing deeper into recession just asthese enterprises are losing their traditional competitive advantageso low-cost labor, natural resourcesand capital.
About the research
To build up a comprehensive picture o high-perormancebusiness in China, Accenture applied its proprietary fnancialanalysis to examine 13 industries in the country—the secondyear running that we have done so. The latest candidate poolincluded 30 additional companies that now meet the criteri-on o being publicly listed or fve years or more. We createda detailed survey that was answered by nearly 100 seniorexecutives rom large, publicly listed Chinese companies. Wealso gathered valuable input by discussing our fndings andtheories with several board-level representatives o Chinesehigh-perormance businesses.Out o the pool o 200-plus companies, 36 met Accenture’sdefnition o high perormance—companies that are unequivo-cally outperorming their local peers in terms o returns toshareholders, revenue growth, proftability, consistency andpositioning or the uture.
Outlook 2009
Number 2
This widening perormance gap hasserious implications or competitors,Chinese and non-Chinese alike. Bylearning what propels China’s mostsuccessul companies—the Grees andLenovos as well as the next wave o strong players, such as Wuhan Ironand Steel Corp. and pharmaceuticalsgiant Yunnan Baiyao Group Co.—business leaders in the rest o theworld will be better able to competewith them in global arenas. At the same time, the railty o manyother Chinese businesses gives thecountry’s solid companies new open-ings or growth. Understanding whatcreates high perormance will helpthe average contenders to reach paritywith the best Chinese companies andthereby allow them to tap into newopportunities aorded by the wide-ranging domestic stimulus packagenow being implemented by Beijing.The downturn, coupled with theperormance gap, has also revealedto non-Chinese companies oppor-tunities in China that the country’sblazing economic expansion hasobscured until now. Those alreadywith a presence there are well placedto capitalize on the push to boostdomestic demand. Not only canthey promptly gauge local customer needs—or example, assessing wherethe rural component o the govern-ment’s stimulus and reorms will o-er the most opportunities—but theyalready have the commercial andpolitical links and the establisheddistribution channels to quickly takeadvantage o those opportunities. At the same time, they are positionedto decide which o China’s weak per-ormers are worth trying to acquire,or at least to acquire key assets rom.Others that have yet to engage—perhaps in the belie that most op-portunities were spoken or by toughdomestic players—can now envisionhow to participate in China’s nextwave o growth, possibly throughacquisitions or joint ventures.competition; instead, they need toassess the myriad opportunities nowbeing revealed as so many other Chinese companies lag behind.China’s leading companies arepulling ahead o their peers at anastonishing clip. Companies suchas computer maker Lenovo, GreeElectric Appliances and ChinaMobile are achieving world-classlevels o perormance, movingsmartly up the value chain withhigher-priced, higher-quality prod-ucts and services whose improvedeatures appeal to careully targetedcustomers. In act, nearly 90 per-cent o China’s high perormers areprioritizing investments that willadd more value to their productsand services over the next three years (see chart, page 4).By contrast, hal o the low perorm-ers are still relying on the low-costadvantages that have served Chinesecompanies so well until recently. At the same time, many o their local competitors are strugglingnow that the basis o competi-tion has changed so dramatically.Earlier this decade, China’s poor-est perormers, powered by their low-cost advantages, were grow-ing nearly seven times aster thantheir global peers. But in the pastew years, they have allen behindthem in revenue growth.In terms o protability—generatingreturns on invested capital higher than the cost o capital—the pic-ture has been consistently gloomy.Measured over the long term,Chinese companies have achievedlower and even negative economicprots compared with their globalcounterparts. In the short term,China’s high perormers have madehuge strides to narrow the prot-ability gap with the world’s bestcompanies. But the nation’s averageand low perormers have actuallydestroyed economic value.
The railty o manyChinese businessesgives the country’ssolid companiesnew opportunitiesor growth.
Outlook 2009
Number 2

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