The Three Kingdoms period (between 220 AD and 280 AD) was one of China’s bloodiest in history. Following the disintegration of the Han Dynasty in 220 AD, Cao Cao of Cao Wei, Liu Bei of Shu Han and Sun Quan of Sun Wu were jostling to succeed as the new emperor of China. Just as the states of Cao Wei, Shu Han and Sun Wu were skirmishing for power in the Three Kingdoms era, the Elite Three of McKinsey & Company (McKinsey), Boston Consulting Group (BCG) and Bain & Company (Bain), collectively known as the MBB firms, are contending for clients and talent in the Asian Century.
We have witnessed the global narrative up to the 19th century written by the European powers, most notably as we entered Britain’s Imperial Century. The 20th century heralded an American Century in a post-World War II era as the $120 billion Marshall Plan rebuilt war ravaged economies in Europe. The Global Financial Crisis transitioned the world into the Asian Century as its constituents weathered the financial tsunami relatively better than any other parts of the world. The rise of Corporate Asia is most notable as the region now produces the greatest number of Fortune Global 500 companies (see chart below).
It is also important to note that the Asia-Pacific region is home to a heterogeneous group of countries and once fused by the Regional Comprehensive Economic Partnership (RCEP) would collectively be a $23.1 trillion economy as the chart above reveals. The pace of growth in the region continues to propel countries from developing to developed economies. This post analyses the MBB firms’ footprint and partnership sizes in Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.
Building the three kingdoms in the Asian Century
The MBB firms’ expansion in the region is written in the post-World War II era of economic expansion and liberalisation. A case in point was Japan’s rapid growth in the 1960s (Golden Sixties), as its economy swelled rapidly to become the world’s second largest economy after the USA. This economic miracle gave birth to Japanese conglomerates or Keiretsu; the most notable contribution in the corporate arena was the introduction of Kaizen in the automobile industry as ‘Made in USA’ gave way to ‘Made in Japan’. Japan’s Golden Sixties attracted BCG (1966), McKinsey (1971) and later Bain (1981).
Much like Japan, Australia’s economy experienced economic growth and prosperity in a post-World War II era and the liberalisation and deregulation of the 1980s and 1990s would attract Bain (1989) and BCG (1990). McKinsey was already in Australia in 1962 as its Australian consultant, Rod Carnegie moved home to Melbourne to establish the firm’s Australian operation. BCG would acquire an office in Auckland as a result of its acquisition of Pappas, Carter, Evans & Koop. Australia’s mining boom in the early 2010s, driven by strong Chinese demand would made a strong business case for BCG (2011), Bain (2011) and McKinsey (2012) to establish an operation in resource-rich Perth.
The rapid growth of Asia’s main trading ports and financial centres of Hong Kong and Singapore, and its main manufacturing hubs and technology centres of South Korea and Taiwan, between the 1960s and 1990s, would transform the developing countries into developed countries. The Four Asian Tigers of Hong Kong, Singapore, South Korea and Taiwan attracted Bain, BCG and McKinsey to the leading lights of Asia in the late 1980s and 1990s. The strategic importance of Hong Kong to the Chinese market and Singapore to the Southeast Asian markets have propelled these city states into global trading and financial centres of the world, rivalling New York and London.
China’s economic reforms between 1980s to 2000s combined with the lifting of the Bamboo Curtain would open the market to Bain (1993), BCG (1993) and a year later, McKinsey (1994). Large scale privatisation of state owned-enterprises in specific sectors of the economy in the late 1990s would create work for the strategy houses. The Chinese economy would balloon at double digit growth rates during its boom years as it became the global hub for manufacturing. Its neighbouring India was not far behind, the country’s economic liberalisation of the 1990s and 2000s would attract McKinsey (1993), BCG (1996) and later Bain (2006). A combination of India’s demographic changes, language and favourable exchange rates made India the business process outsourcing (BPO) centre of the world as the strategy firms advised multinationals on their BPO centres.
The growth of the Southeast Asian markets would give birth to Tiger Cub Economies of Indonesia, Malaysia, Philippines and Thailand. Interestingly, these countries and Singapore were the original founders of Association of Southeast Asian Nations (ASEAN) in 1967 with a shared vision to combat communism and promote economic development. Throughout the 1990s and 2000s, BCG, McKinsey and later Bain would enter the Tiger Cub Economies to serve multinational clients and later local clients. Vietnam’s strategic importance in the Mekong region that ties the other Indochina countries of Cambodia, Laos, Myanmar and Thailand, combined with its growth as a result of Doi Moi (from 1986 to 2006), thus attracting McKinsey (2008) and BCG (2013).
The infographic reveals each of the MBB firms’ journey and footprint combined with the economic times of the countries in the region. This analysis reveals:
- McKinsey and BCG have the most offices in the region, with 20 each, while Bain, the youngest of the MBB firms has 15 offices.
- McKinsey and BCG are in 13 countries in the region compared to Bain’s footprint in 10 countries.
- McKinsey’s operations started in the region 54 years ago in Melbourne, followed by BCG’s acquisition of Tokyo’s TFM Adams & Co 50 years ago and Bain’s entry into Japan 35 years ago.
Building the three kingdoms’ battalions in the Asian Century
To understand the competitive dynamics in each of the major markets in the Asian Century, the size of the MBB firms’ partnerships were analysed. Due to the opaque nature of private partnerships of the strategy houses, publicly reported data on these firms’ partnerships by country is hard to come by. For consistency, I have relied on LinkedIn rather than trade journals or company websites that were less consistent in the way the research was conducted or where the validity of data had expired over time. In a knowledge intensive and people oriented business, the partners at these firms are the best indicator of their revenue generating and profit making potential. The way in which each firm mobilises its battalion of partners in the major markets in the region reveals the importance of each market to the firms. The following infographic (click to enlarge) summarises this research by country.
This analysis of the firms’ partnerships (based on those on LinkedIn) reveals:
- McKinsey has the largest partnership in the region, with 189 partners and is followed by BCG’s 185 partners. While Bain has 117 partners in 10 countries.
- McKinsey’s partnership is the largest in China (32), Hong Kong (18), India (42), Malaysia (6), Philippines (2), Singapore (26) and Taiwan (2) due to a combination of time in the market and size of operation in those countries.
- BCG’s partnership is the biggest in Australia (38), Indonesia (5), Japan (31), New Zealand (1), Thailand (5) and Vietnam (2) due to a combination of entry strategy (acquisitions Japan and Australia), time in the market and size of operation in those countries.
- Bain’s partnership in South Korea (13) is the largest as it was the first to the market in 1991.
The MBB firms followed the same pattern of expansion that their accounting and legalcounterparts have embarked on earlier. A fly-in fly-out (FIFO) model was first used to service multinational clients with an operation in the Asian markets. Using these clients as anchors and gauging the markets for revenue and profit making potential, the MBB firms then sent its partners to establish a local operation or in the case of BCG, merged with local firms in Japan (TFM Adams & Co) and Australia (Pappas, Carter, Evans & Koop). Once the firms have built sufficient repeat revenue in the multinational sector, they would target the domestic market and start to indigenise the operation by hiring and developing local talent. In boardroom barracks and cubicle trenches the war for talent is being fought by the MBB firms to find and groom talent to serve clients in the Asian Century.
The three kingdoms in the Asian Century
The $23.1 trillion Asian Century battlelines are now drawn for the strategy consulting kingdoms of McKinsey, BCG and Bain. Much like their top tier counterparts in the accounting industry, the MBB firms’ brand standing transcended geographic boundaries and industries as demand for consulting in the Asian Century will increase. The heterogeneous nature of the Asia-Pacific market and diverse composition of competitive pressures from the Big Four accounting firms’ consulting arms and Asian strategy consulting empires of Arthur D. Little, A.T. Kearney, L.E.K. Consulting and Roland Berger Strategy Consultants (for more on how these firms compare read my previous analysis) will impact the MBB firms’ level of success in each country. The following infographic (click to enlarge) summarises each of McKinsey, BCG and Bain’s partnership composition and time in each country.
The analysis reveals:
- Size of the firms’ partnerships in each country does no correlate with the size of the economy.
- Time in the market (measured in years) does not correlate with the size of the economy.
- There is some correlation between time in the market and size of the firms’ partnerships in each country.
Local market conditions will dictate each firm’s practice configuration and partnership composition. More importantly, the firms have a longer presence in mature markets like Japan and Australia while the importance of Hong Kong and Singapore as gateway economies have made the city states strategic markets where the firms have substantial battalions of partners relative to the size of these economies. The BPO centre of the world is also the BPO centre for the MBB firms as all have established a BPO arm to service its Asia-Pacific offices.
As Winston Churchill eloquently put it in his commencement speech at Harvard in 1943, ‘empires of the future are empires of the mind’. The MBB firms are investing in building an intellectual arsenal to position them as thought leaders in the Asian Century. In 2012, McKinsey launched the McKinsey Innovation Campus in Singapore which includes the Asia hub of the McKinsey Center for Government, Asia Consumer Insights Center and ASEAN Insights, all geared towards Asian government, multinationals and Asian multinationals. Similarly, in 2012 BCG launched Asia Center for Business Excellence in Singapore and is a key collaborator of Asialink Business, Australia’s National Centre for Asia Capability. Through Bain Insights, thought leadership papers on Asia are published by the firm.
In the Art of War, Sun Tzu advised ‘we shall be unable to turn natural advantages to account unless we make use of local guides’. The most important investment the firms have made is the grooming of local talent in the markets in which they operate. It is important to note that Corporate Asia is dominated by state-run and family-controlled businesses and business relationships often transcend the four walls of a boardroom. This is most evident when gauging the cross border deals that are often facilitated through the impenetrable and elusive bamboo network. The firms’ ability to mobilise its battalion of partners to build key relationships will be key to winning this lucrative segment of the market.
Poetically, Bruce Henderson, the founder of BCG, foresaw the rise of the three kingdoms in 1976 in his seminal paper, ‘Rule of Three and Four’ when he wrote ‘a stable competitive market never has more than three significant competitors’. While the main players from the states of Cao Wei, Shu Han and Sun Wu from the Three Kingdoms era would not live to see the outcome of the ongoing battles, the Jin Dynasty (out of state of Cao Wei) would successfully conquer and unite China. Armed with breadth and depth of expertise, far-reaching footprints, and battalions of partners, the competition for the strategy consulting throne in the Asian Century will make for an interesting scrimmage for industry observers. As the industry continues its evolution in the Digital Era, we are also seeing competition shifting from a traditional expertise-based to a solution-driven battlefield (read my analysis of this paradigm shift here).
Written by: Eric Chin
Eric is a Strategy Consultant working on corporate strategy and M&A. He has experience working with C-suite of professional service firms in the Asia-Pacific region and also had the opportunity of working with a Big Four accounting firm, one of world’s largest law firms and an ASX-listed consulting engineering firm on their Asia strategy. Feel free to connect with him through LinkedIn or Twitter. This post was first published in LinkedIn on November 3 2016.