The push to scale back the loss-making China operation is at odds with Global Managing Partner Bob Sternfels, who says the firm needs to maintain its international footprint, which includes offices in around 130 cities across 65 countries.
“Being global is a choice,” Sternfels told staff in a memo late last year that was seen by Bloomberg News. “Frankly, it is the more difficult choice to make. I know this is difficult and may become increasingly so.”
While the memo wasn’t in response to any internal concerns about China, the debate underscores the dilemma facing many high-profile multinational firms caught in the political crosshairs of the world’s two largest economies. Competition for supremacy in everything from computer chips to autos, along with fresh tariffs bring more headwinds for US firms with China operations.
Trump aggressively targeted China during his first term and increased tariffs another 10% this week, prompting retaliatory measures from Beijing. Trump’s Secretary of State, Marco Rubio, has made clear his distaste for the ruling Communist Party, calling for the US to get tougher on China economically and militarily.Reflecting these growing tensions, a record number of US companies in China — about 30% — are thinking of moving some operations out of the country or are already doing so, according to a survey published in January by the American Chamber of Commerce in China. A majority of firms expect relations to deteriorate this year, based on a survey of 368 members in October and November.Calvin Klein owner PVH Corp. and US gene sequencing company Illumina Inc. were the latest firms caught in the cross fire as China added them to a so-called blacklist of entities as part of its retaliatory moves.
McKinsey has drawn political ire for its China ties, including from Republican Senator Josh Hawley, who accused the company of aiding China’s industrial ambitions. Some US lawmakers have previously raised concerns that firms such as McKinsey may be advising governments in both countries at the same time.
“Recently, we have been characterized as both pulling back from our investment in China in the media and being too invested in China by several members of the US Congress,” Sternfels wrote in his late October memo, which also mentioned the firm’s testimony about its consulting work in Saudi Arabia. He said these critiques reflect “a world that is increasingly skeptical of business and of all things global.”
Sternfels told a Congressional committee last February that McKinsey has worked with some Chinese state-owned enterprises, but not with the Communist Party or the central government, to the best of his knowledge. He was re-elected to a second term that month by its almost 800 senior partners.
McKinsey follows “the most rigorous client selection policy in our profession, and our compliance and disclosure practices, including in the public sector, routinely go well beyond what is required by law,” McKinsey said in an emailed response to Bloomberg News. “Last year, we further strengthened our client service policies in China,” where it focuses on multinational and private-sector firms.
Some McKinsey partners are wondering if the China business is worth the geopolitical risk, especially if it jeopardizes US operations, the people said. About half of the American firm’s revenue comes from North American business, where it has worked closely with government and some of the biggest companies. McKinsey has raked in at least $480 million for consulting work involving the US military since 2008.
The firm, almost a century old, opened its first offices in mainland China in the mid-1990s. The greater China practice has around 1,000 employees, and the firm had more than 1,500 client engagements since 2019, according to its website. It has advised an array of mainland companies including Ping An Insurance (Group) Co.
The company reduced about 150 jobs in Greater China from the middle of last year as business slowed, people familiar with the matter have said. The firm still has a some senior partners in cities such as Shanghai, Beijing and the high-tech hub of Shenzhen. Bain & Co. and Boston Consulting Group Inc. also have offices in China.
National Security
China’s clampdown on consultancies stemming from 2023 ignited fears that President Xi Jinping’s focus on national security threatened to derail his push to attract foreign investors. The global expert network Capvision Pro Corp. found itself at the center of Beijing’s anti-espionage campaign that year when authorities accused it of encouraging its specialists to leak state secrets. Bain meanwhile had its Shanghai offices raided.
“International, specifically US, consulting firms face strong headwinds in China, with the possibility of employees detained or arrested on vague charges,” said Jay Ritter, professor of finance at the University of Florida. “Given that the profitability picture has deteriorated for consulting firms, I expect a major retrenchment.”
With assistance from Amy Bainbridge and Sridhar Natarajan
