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Efficiency to drive mainland growth in next decade: report

HONG KONG – China’s high performing companies will need to raise their productivity performance to the next level if they are to sustain economic growth on the mainland, according to the report from Big Four firm Ernst & Young.

The most striking finding of the report – entitled “Driving profitable growth: the productivity challenge in China” – was the extent of transformational approach to productivity improvement adopted by top performing companies.

For example, most of them have built expertise and capabilities across a wide range of competency areas, which typically go beyond incremental changes. They have adopted a clear transformation agenda covering the entire organisation to help sustain their business.

“The encouraging message from this analysis is that these improvements do not typically require significant financial investments and can be readily replicated between companies and sectors. They do, however, require strong and sustained leadership involvement and commitment to drive through change,” said Nigel Knight, Ernst and Young Greater China advisory leader.

It is widely accepted that raising productivity will be critical if China is to keep growing and avoid the so-called middle-income trap. Government policy is already pushing companies to improve their productivity, and the pressure will only increase in coming years.

Top-performing companies have developed particularly strong capability – or maturity – in five specific operational areas: long-range strategic planning, standardisation of operating processes, robust internal controls, effective workforce planning and strong technology infrastructure.

All five of these practices are strongly correlated with high profitability, so it appears to be an obvious area of focus for companies seeking to boost their productivity.

“Leaders at all levels need to consider how their organizations can immediately start to build and implement the capabilities that will be essential to meet the challenges of China’s productivity imperative,” Knight added.  

Performance gaps will likely continue to widen as competition intensifies in China. In a number of industries such as automotive and machinery manufacturing, consolidation is already well underway.

For companies, survival and success will depend on upgrading productivity through integrated, targeted operational initiatives that can drive year-on-year performance improvements.

“The challenges go beyond simple cost-cutting. If they are to continue to grow profitably, there is a compelling need to focus on changing the way business is done. These include deeper and longer-lasting improvements in their management and operational practices, creative use of technology and the application of innovation to their businesses,” Knight concludes.

“We have seen from our survey that top-performing companies are already adopting a broad, transformational approach to productivity improvement, with a strong emphasis on strategic alignment and on putting in place the critical foundations – standardised processes, robust internal controls, effective workforce planning and technology infrastructure – needed to support continued profitable growth,” said Xiaoping Zhang, partner at Ernst & Young.