Driving profitable growth: China’s productivity challenge

Operational practices of companies in China

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Where are productivity improvements going to come from?

To answer this, we analyzed the operational effectiveness of the companies in our survey across a wide range of competency areas, both to assess their capability in terms of productivity achievement and to identify common trends.

Local firms still lag behind but the gap is closing

Foreign multinationals still have an edge over domestic companies when it comes to operational practices, but not by a big margin.

Domestic companies are catching up fast. Over a quarter of state-owned enterprises and private domestic enterprises now consider themselves to be the equal or superior of the average foreign multinational in terms of their overall operational effectiveness, a trend that is likely to continue.

That said, the majority of local firms are still lagging behind their foreign counterparts and they undoubtedly have substantial scope to drive productivity by introducing leading practices to their operations.

For the economy as a whole, probably the single biggest opportunity for improving productivity will come from targeted improvements in those companies that are ‘lagging’ their peers. 

Wide differences in operational maturity in all sectors

The strongest performers overall in terms of operational practices were high end sectors such as financial services and telecommunications, plus highly competitive sectors like industrial goods, which have had to do the most to upgrade their operational efficiency.

On average, industries dominated by state-owned enterprises performed less well. These included basic materials and utilities, although consumer services was also relatively weak overall. The biggest gains for the economy overall can be made through targeted productivity improvements in these sectors.

There was a wide range in operational performance in all sectors, suggesting that there is a lot of room for lagging companies — or ‘followers’ — to improve. The biggest gap between the top and bottom 10 percentile was found in the consumer goods and healthcare sectors, probably reflecting the rapid, recent emergence of companies in these sectors.