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April 30, 2008

Quality, not quantity, is the key to KPMG China

By Nicholas Moody

Quality, not quantity, is the key to KPMG China

KPMG China has opened its 11th office in Shenyang, but expansion in China is not just about putting dots on the map, according to a senior figure. KPMG China head of transaction services Honson To told IAB that pursuing the biggest state-owned companies as clients, expanding offices organically and placing senior staff in new offices are all part of the firm’s strategy in China.

“The strategy we pursued, going back 20 years, was that we wanted the biggest state- owned companies as our clients. We now have companies like China Mobile, China Telecom, Sinopec and more recently China Construction Bank – to the extent that now we have more than our fair share of the market, if you look at market capitalisation in Hong Kong where many of the larger enterprises are listed,” To said.

The market capitalisation of KPMG’s clients listed on the Hong Kong stock exchange is HK$10.26 trillion ($1.32 trillion), which represents 38 percent of the market share. To said the best way to compare the success of different firms in China, where disclosure of fee income is not a legal requirement, is through the client base – where a portfolio of big clients is a mark of success.

“You will see ourselves and Pricewaterhouse-Coopers way ahead. We don’t pride ourselves on the number of clients but on the value of clients. Market cap isn’t necessarily in direct proportion to audit fees, but that is what we strive for; we want blue chip clients,” To said.

The Shenyang office will be the firm’s third in northern China, as it has existing offices in Beijing and Qingdao. It will be the firm’s fifth new office in two years and another is to open in Nanjing in 2008.

To said the firm has the goal of opening two offices a year for the next ten years. It also plans to increase staff numbers to 9,000 in the next two years. The Shanghai-based head said KPMG has specifically adopted a strategy to place senior staff in new offices and provide a full range of services in each of those offices.

To added it was easy to shy away from moving senior people into the newer offices, putting a dot on the map and saying the firm had an outpost there. “[But that approach] doesn’t make sense for our people; it doesn’t make sense in terms of the market. We want to have partners going into these offices to explore the local clientele,” he said.

The new Shenyang office has opened with approximately 50 professionals to provide tax, financial advisory and business advisory services.   Growing the firm organically, rather than through mergers and acquisitions, is another factor that differentiates KPMG from its competitors, according to To. “Deloitte and Ernst & Young both acquired local accounting firms in China. It’s a route that we decided that we wouldn’t go for because we didn’t think the cultures would be compatible – it wasn’t something we wanted to pursue,” he said. Local recruitment was another aspect of the firm’s expansion strategy.

This year, KPMG employed 1,700 university students across China, bringing its number of nationwide staff to more than 7,000.

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Nicholas Moody

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