Co. In the shipbuilding industry, bigger really might be better because of the potential to realize economies of scale and save on purchasing costs, among other benefits, he says. But China's track record is not good. Profit maximization might not be the most important goal. The political objective takes priority if there is conflict with the market objective. More mergers Still, merger activity is picking up in China.
Market competition is one factor behind the government's willingness to allow more mergers.
Competition is fierce in that industry, especially from South Korean and Japanese companies. The growing number of Chinese companies looking to list on overseas markets is also driving merger activity, said Woetzel. Before listing, companies need to restructure, including establishing corporate governance mechanisms like boards, and introducing management accountability measures such as performance pay. McKinsey helps companies do that. That caused the valuations placed on Chinese companies to be unrealistically high, discouraging any would-be buyers.