Chapter 22  Management Consulting Services

As an essential part of the modern services industry, management consulting services contribute to 1% of the world GDP. In developed countries, its share of GDP even reaches 2-3%.

By the end of 2003, there were altogether 7881 consulting firms in Shanghai, employing about 190,000 people with annual revenue amounting to RMB12.8 billion. Up to June 2004, the number of foreign investment projects in social services in Shanghai stood at 2943 with a total contracted amount of USD3.62 billion. Among these projects, 1399 fall under information and consulting services, accounting for 47.5% of the total. Already a number of global consulting and accounting firms are offering their services in Shanghai, including Mc Kinsey, BCG, DNB ,KPMG, PwC, CGEY, Deloitte, Hewitt, Accenture, RoLand Berger, Bain, Bosiwit, and Mercer. According to the rating of Consultant News of the United States in 2002, these companies all ranked among the top 50 global management consulting companies in terms of their earnings, business scale, professionalism, and ownership.

    Over the past three years since China’s accession to the WTO, there has been quite diversified development in consulting services in China with a dramatic increase in the number of non-limited-liability, private, and wholly-owned firms, accompanied by the fledgling non-governmental non-profit consulting firms. Though groups with different social backgrounds have been actively involved, the overall level of development in consulting services still can’t keep in pace with the development of the national economy. It is estimated that there are hundreds of thousands of management consulting firms in China, which is quite a large number compared with that in Japan in absolute terms. However, most of them are still in the start-up period, relying heavily on individual ideas, experience and relationship. Their development is shackled by a general lack of economy of scale, market recognition, human resources, capital, and standardized operation. Therefore, few of them are able to achieve an annual turnover above RMB10 million. For Mc Kinsey & Company (US) alone, their global business turnover is close to USD3 billion every year. It shows that there is a substantial gap between domestic management consulting firms and large international firms in the industry. Under the circumstances, Chinese firms will have to find their niche market, focus on small and medium clients, and cooperate with international firms. Only by doing so can they improve the quality of their services and survive the ever increasing competition.

Box 22.1 China’s commitments and international practices

    According to the commitments made by the Chinese government, management consulting services will be open to foreign investors upon accession, but only in the form of joint venture. Within 6 years after the entry, restrictions shall be removed, allowing foreign companies to establish wholly-owned subsidiaries.

    Presently, management consulting services are quite advanced and sophisticated in developed countries like the US, UK, and Germany, in which the industry is playing an increasingly important role in the national economies. Famous global consulting firms, such as Mc Kinsey, Gallop, KPMG and CGEY, are all multinational corporations. Every year, the laurels for top 50 global management and consulting firms all go to companies in developed countries like the US, UK, Germany, France, and Canada, etc. Other countries are providing incentives to their domestic industries. For instance, the Indian government gives priority to consulting services in the country in order to boost export growth. In addition to financial support given to the industry, the Indian government has also set up such programs as market development support and preliminary project planning in order to promote the development of the industry.

    Up to now, the commitments made by WTO members regarding the market access for consulting services mainly involve management consulting services and technical consulting services in other industrial sectors. With respect to the market access for management consulting services, countries such as the US, Japan, Australia, Israel, the European Union, South Korea, Brazil, Argentina, Chile impose no restrictions on cross-border supply, consumption abroad or commercial existence while no commitments have been made regarding the movement of natural persons except for those included in the horizontal commitments。

    There are some restrictions made by Mexico and Malaysia. For instance, Mexico requires the registered capital of foreign-invested management consulting firms to be 100% foreign investment while no restrictions are imposed on cross-border supply and consumption abroad. With regard to the movement of natural persons, the Mexican government made no other commitments than horizontal commitments. As for Malaysia, while there are no restrictions are cross-border supply or consumption abroad, there are restrictions on the commercial existence of foreign firms in that foreign investors are only allowed to offer services through forming joint ventures with companies either owned by individual Malays or mainly held by Malays. Local Malays shall hold no less than 30% of the shares of the joint venture. With regard to the movement of natural persons, Malaysia made no other commitments than horizontal commitments.

Box 22.2

The breakdown of management consulting services made by CPC

865 Management consulting services	管理咨询服务
8650 Management consulting services	管理咨询服务
86501 General management consulting services	普通管理咨询服务
86502 Financial management consulting services (except business tax)	除企业纳税以外的财务管理咨询服务
86503 Marketing management consulting services	市场营销管理咨询服务
86504 Human resources management consulting services	人力资源管理咨询服务
86505 Production management consulting services	生产管理咨询服务
86506 Public relations services	公共关系服务
86509 Other management consulting services	其他管理咨询服务