According to a report from The Wall Street Journal on Thursday, McKinsey, a consulting company in the United States, is undergoing a comprehensive reform of its business in China, eliminating around 500 positions, which accounts for approximately one-third of its total workforce in mainland China. Prior to this, the company had already reduced the number of clients related to the Chinese Communist Party.
Insiders revealed that McKinsey is separating its Chinese business from its global operations to mitigate security risks in operating in China. This practice is becoming more common among multinational corporations. Over the past two years, the company has laid off hundreds of employees in the Greater China region, including Hong Kong and Taiwan.
Joe Ngai, the head of McKinsey’s China business, stated that the company still has over 1,000 employees in the Greater China region.
Information from the website in June 2023 indicated that McKinsey mentioned having nearly 1,500 employees in that region.
Western businesses with decades of operating experience in China, including McKinsey and its consulting firms, are facing unprecedented challenges due to geopolitical tensions and the slowing Chinese economy. On one hand, McKinsey is facing scrutiny in the United States for its work related to the Chinese government, while on the other hand, some Chinese clients are turning to lower-priced local competitors.
The company has ceased cooperation with local Chinese government clients and reduced projects related to state-owned enterprises, which used to constitute a significant portion of its business. Ngai stated that McKinsey’s latest strategy is to assist multinational companies in adapting to changes in China, provide advice to Chinese companies looking to expand overseas, and collaborate with Chinese companies experiencing senior leadership changes.
In an interview, Ngai said, “Our clients are all facing challenges. We must help them face these challenges.” In a challenging and slow-growth market, “many of McKinsey’s core skills and capabilities are actually more important than ever before.”
McKinsey first established its presence in mainland China in 1993, with clients including major state-owned enterprises of the Chinese Communist Party and multinational companies such as China Construction Bank and China Telecom.
This has attracted criticism from U.S. lawmakers as McKinsey has provided advice to the U.S. government, including defense-related projects, while also offering consulting services to the Chinese government or related organizations.
After conducting conflict of interest reviews, McKinsey has begun revising its client list and reducing certain projects in China.
In China, McKinsey faces challenges such as economic weakness and Beijing’s crackdown on foreign consulting firms conducting due diligence and information gathering. Last year, police raided Bain’s office in Shanghai and conducted a surprise inspection of the office of consulting firm Capvision.
McKinsey also faces price competition. Some Chinese companies seeking advice are turning to obscure domestic alternatives rather than U.S. brands.
McKinsey has taken steps to separate its Chinese business from its global operations. Insiders familiar with the matter told The Wall Street Journal that its global computer systems are being segmented, and access by employees in mainland China to certain internal databases and files has been or will be severed.