McKinsey on Finance

Restructuring alliances in China 1

Perspectives on Twenty-five years after alliances first paved the way into the world’s
Corporate Finance most dynamic emerging market, knowing how to structure them is more
and Strategy important than ever.

Number 9, Autumn
The view from the corporate suite 6
2003
A survey of multinational corporations finds expectations for more—
and more profitable—alliances in China.

Smarter investing for insurers 8

Insurance companies need to get better at managing their investments.
Here’s how.

A closer look at the bear in Europe 13

The market slump in Europe was deeper and more widespread than its
cousin in the United States.

Alliances in consumer and packaged goods 16

The sector lags in collaboration, but some companies are beginning to
change that. It’s a good thing.
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Restructuring alliances in China
Twenty-five years after alliances first paved the way into the world’s most dynamic
emerging market, knowing how to structure them is more important than ever.
Jonathan R. Woetzel
n China, alliances have been the dominant
I form of foreign direct investment since
Beijing officially opened the country to the
outside world in 1978. Twenty-five years later,
however, maturing local companies, more
accessible markets, and progress toward a
more stable regulatory environment have
removed much of the initial rationale for
alliances. Indeed, more than 50 percent of
new foreign direct investment in China is
now in wholly owned and contractual joint
ventures.
At the same time, many existing alliances have
become unstable, as fundamental imbalances
in partner contributions have grown. Around
the world, the hallmarks of sustainable
alliances are partners’ complementary skills,
50-50 contributions, and the ability to evolve
beyond original expectations. In China, most
joint ventures are between potential
competitors, 50-50 deals are in the substantial
minority, and both Chinese and multinational
companies face cash constraints in the
enormous Chinese market. It’s no surprise,
then, that many of the joint ventures signed in
the early 1980s are now being restructured.
In view of these circumstances, executives of
even successful ventures should take a hard
look at their current and prospective China
alliances to assess their rationale and potential
for restructuring. Even successful ventures can
go wrong as markets, partners, and
competitors evolve.
Partner . . . or friend?
One of the most common pitfalls in striking
an alliance in China is blurring the distinction
between government friendships and business
partnerships. Each can be helpful, but it is
usually a mistake to expect their roles to
overlap, such as in anticipating that a
government approval authority will do a
venture’s marketing or that a business partner
will secure government licenses. Companies
must fully understand the need for and
interests of both government friends and day-
to-day partners.
Government entities can be enormously
helpful when they intervene directly in
resolving policy disputes, though some
functional bureaus such as Customs and
Finance will generally not make policy
exceptions for individual companies. Even
where government will get directly involved,
companies must first understand the direction
of reform. The government is unlikely to
aggressively promote a foreign business
agenda among the many industries nominally
controlled by central planning entities that
have been corporatized1 in the past few years.
These include steel, oil and gas, and
automotive, among others. Finally, in those
Restructuring alliances in China | 1

With day-to-day partners, it is
essential to understand not merely a
company’s technical capabilities but
also its business aspirations,
partnership track record, and
organizational depth.
sectors where government influence can
still be directly applied, such as health care,
companies must understand what makes an
offer interesting to the government—and
what the government is prepared and able to
give in return. For example, when Volkswagen
proposed to move production of its Santana
sedan to China in the 1980s, it did so in
exchange for guaranteed marketing and
support in component localization. The
automaker was the only global original-
equipment manufacturer willing to invest
in China, and it knew the government
desperately wanted a global OEM to kick-
start the domestic industry. In return, the
government virtually guaranteed profitability
by buying all the sedans produced at
preagreed prices and selling them to taxi
fleets and government bureaus. In today’s
much more competitive market, this deal
could not be repeated.
With day-to-day partners, it is essential to
understand not merely a company’s technical
capabilities but also its business aspirations,
partnership track record, and organizational
depth. This is typically not done, and this
oversight can be a costly mistake. Consider the
experience of one CEO from the United States
who on a onetime trip to China was
introduced to and quickly partnered with a
2 | McKinsey on Finance Autumn 2003
major Chinese supplier and distributor. But
the CEO neither thoroughly checked out the
business aspirations of his new partner nor
monitored him, and the Chinese partner soon
became a major competitor. In another case,
the head of a global business unit negotiated a
joint venture with the local market leader to
quickly secure market share. But conflicts with
the partner on product-line priorities and sales
force control soon emerged. This ultimately
led to an acrimonious divorce and a write-off
for both partners.
Best practice due diligence might have
prevented problems. This should include
site visits to check physical location;
interviews with key executives to assess their
management philosophy, business aspirations,
and execution skills; close analysis of financial
and accounting information to codify a
potential partner’s operational and financial
strength; and visits to retailers and distributors
to assess and evaluate the partner’s true
marketing skill.
Plan for the power balance
to shift
An alliance between partners whose skills are
truly complementary can last a long time.
However, shifts in power can occur over time
and destabilize a partnership. Global players
tend to have an advantage when global
brands, world-class technology, global scale,
or financial depth are key industry success
factors. Local players have more of an upper
hand when relationships with local suppliers,
customers, or regulators are essential and
when global competition is relatively weak. In
an emerging economy these factors can change
rapidly as markets evolve and skills are
transferred. In China the resulting power
shifts have been particularly dramatic.
Many early alliances in China were predicated
on a technology-for-market swap. Local
companies would bring marketing skills, and
foreigners would contribute world-class
equipment and cash. Unfortunately, some
foreign companies have found that their
Chinese partners lack any real marketing
capability, often because the state distributors
they used to sell to have gone under. As a
result, among the executives we interviewed at
14 leading multinationals, half indicated that
they had recently increased or were about to
increase their equity share in their joint
ventures. In the words of one: “If your
ultimate goal is 100 percent ownership, the
closer you start to that goal the less pain you
have to go through later.” For their part, local
companies have sometimes found their foreign
partners unwilling or unable to continually
inject cash and technology. Said the chairman
of a leading Chinese company: “Their initial
technology was not suited to the Chinese
market, and they have proved unwilling to
reinvest to rebuild share.”
For companies considering new ventures,
the implications of power shifts should be
considered in the negotiation. Because
bargaining power will increase over time,
likely buyers should choose smaller companies
as partners and avoid setting acquisition
prices. For example, one venture succeeded in
reducing the initial buyout price by 20 percent
by timing the offer to coincide with increases
in the partner’s cash needs in other businesses.
Buyers should also hold both management and
financial control. Experience suggests some
best-practice requirements: hold two-thirds
of the equity, keep proprietary generators of
value such as brands and core technologies out
of the alliance’s control, and ensure that key
elements of the alliance’s business system itself
can be absorbed, if necessary, at a later date.
Potential sellers . . . should seek to
capture the full value of their
participation in the alliance by
striking presale agreements that
include an exit option based on
market value at the time of exit.
For example, one logistics firm separates its
customer-relationship staff from the day-to-
day transportation service joint venture to
preserve its marketing capability outside the
venture but ensures common electronic data
interchange systems and standards.
Potential sellers, on the other hand,
should seek to capture the full value of
their participation in the alliance by striking
presale agreements that include an exit option
based on market value at the time of exit.
Many Chinese firms now routinely seek such
agreements by agreeing to base a buyout price
on a specific market multiple, such as P/E,
market-to-book, or other ratios, assuming that
the market will fully reflect the value of the
company at the time of buyout. Sellers should
also acquire skills from the joint venture.
Some do this, for example, by actively rotating
managers over two- to three-year periods.
These managers then return to the parent
company to start up new businesses, even
competing with the venture.
Fit the organization to the
power balance
Equity arrangements alone cannot ensure that
an alliance will go the way you wish. Equally
important is fitting the softer organizational
Restructuring alliances in China | 3
elements of structure, such as skill transfer
and human resources, to the alliance’s
evolution.
Stable alliances are characterized by
independent organizations with their own
board and direct control over their own
business activities. Often, they develop their
own unique business identity, complete with
separate names, logos, uniforms, and
personnel systems. Strong joint venture
boards can effectively block multinationals
that try to coordinate multiple joint ventures
to improve the effectiveness of multiple sales
forces. One consumer electronics company,
for example, has 15 joint venture sales forces
for the same customer base. Strong joint
venture boards can also block efforts to
reduce the overhead associated with having
literally dozens of joint venture general
managers. Some multinationals, after
exhausting negotiations with each venture
partner and its board, have achieved
centralized sales and marketing cost centers,
with joint ventures still acting as profit
centers. However, only those who started
with the end game in mind have achieved
centralized sales profit centers that allow
them to treat production joint ventures as
contract manufacturing cost centers.
Unstable alliances typically feature direct
intervention by partners into day-to-day
business activities, and boards that are unable
to set a clear direction for the company
because the partners disagree. Trying to build
a stable, independent joint venture on an
unstable foundation of radically imbalanced
partner contributions tempts trouble. As an
illustration, one of the earliest automotive
ventures was established as a 50-50 deal. The
Chinese partner provided a basic facility and a
ready market for the foreign OEM’s global
4 | McKinsey on Finance Autumn 2003
components exports. In return it expected the
foreign OEM to provide not only parts and
design but to build up the alliance’s own
manufacturing and design capability over
time. The foreign OEM chose not to do so,
instead sticking by the letter of the agreement,
which allowed it to not source locally if it
deemed quality insufficient. After eight years
of wrangling, the Chinese partner thought it
had been taken advantage of and forced the
foreign OEM to exit.
On the human resources front, one
important consideration is putting sufficient
people into the alliance to ensure the critical
mass necessary for alliance employees to learn
effectively, and to systematically transfer local
employees, particularly local executives, to
develop their knowledge and skills. Many
companies have learned the hard way that
underinvesting in expatriates and relying on
the local partner is counterproductive. In the
short term, skills do not improve, leading to
a weak organization and poor performance.
This in turn makes it difficult to hire top-
notch talent, perpetuating the skills gap.
The parent becomes reluctant to throw
good money after bad, making it ever more
difficult to summon up the courage to send
out yet another expensive expatriate. In our
experience, this situation more than any other
drives multinationals to leave China.
Negotiate from the top
Even with foresight and good planning there
may be no alternative to a tough restructuring
negotiation. In these situations, consider direct
action from the top.
The best restructuring negotiations are
prepared well in advance—even in the initial
deal structuring. Negotiations in China are
protracted events, often lasting several
years, not just to define the guidelines for
cooperation but also to allow the parties
to get to know one another. Given this
opportunity, farsighted multinational
companies clearly signal their intentions and
prepare for likely restructuring by including
equity put and call options in the joint venture
contract to ensure management control and
carefully define the joint venture’s scope.
To illustrate, provisions can also be inserted
into contracts that put pressure on a partner
to agree to restructuring—for example,
identifying early on events that require a
unanimous resolution approving joint venture
termination, if they occur.2 Experienced
negotiators insist that timeliness of
negotiations is not critical but that avoiding
major concessions is.
Planning ahead is particularly important
in China as joint venture restructuring or
divestiture is legally valid only with the
consent of both partners and the original
approval authority. The 1996 Foreign
Invested Enterprise Liquidation Measures
and other relevant regulations appear to
indicate five circumstances where early
joint venture termination is possible. They
are failure to subscribe capital, divestiture by
one party, bankruptcy, termination for cause,3
and liquidation by unanimous board consent.
In all cases, a unanimous board resolution is
required.
If your partner does not agree with your
restructuring proposal, reopening negotiations
usually is best done at the partner-to-partner
level. The same issues of partner selection and
long-term strategy tackled in the initial
negotiation need to be addressed. Venture
managers may have an understanding of the
issues, but they typically lack both internal
and external credibility to make the tough
decisions. Where the joint venture is clearly
being looted by one partner, the other partner
should not try to fight from inside but should
appeal directly to government officials—
typically the local mayor. If it’s a large deal,
appealing to the state council may be
necessary. A final cautionary tale: one
multinational relied on government goodwill
and installed the former general manager of
its Chinese partner as the joint venture CEO.
As it happened, the general manager
embezzled and transferred funds to the
Chinese partner. After two years of fruitless
discussions by local expatriate managers, the
CEO of the multinational corporation
appealed directly to the city government,
which ousted the general manager within a
month and agreed to the joint venture’s
restructuring.
Restructuring alliances in China is likely to be
a significant trend. With adequate preparation,
restructuring can be an effective tool for
developing a sound business platform. Without
it, the process is likely to be challenging and
expensive. MoF
Jonathan Woetzel (Jonathan_Woetzel@McKinsey.com)
is a director in McKinsey’s Shanghai office. Copyright ©
2003 McKinsey & Company. All rights reserved. Adapted
from Capitalist China: Strategies for a Revolutionized
Economy, New York: John Wiley & Sons, 2003.
1
That is, which have been set up as companies as opposed to
state-owned enterprises. This may or may not be coincident with
an IPO or share sale.
2
It must be noted, though, that the binding nature of these clauses
is yet to be tested.
3
That is, force majeure or breach of contract of a magnitude to
prevent continuation of the business.
Restructuring alliances in China | 5
 Sidebar

The view from the corporate suite

A survey of multinational corporations finds expectations for more—
and more profitable—alliances in China.

Peter A. Kenevan and Xi Pei

Foreign investment in China used to be success of an alliance by its current profitability

restricted largely to alliances with struggling state-
owned companies. The results were mixed, and
some high-profile failures gave alliances a bad
name. Recently, however, foreign companies have
been allowed to run their own enterprises in
certain sectors,1 and they will soon be able to do
so in several others as well. 2
For both foreign and Chinese investors, wholly
owned ventures are, on average, more profitable
than alliances (Exhibit 1). Yet last year, alliances
attracted roughly half of China’s record $55 billion
in new foreign direct investment, and many
companies expect to pursue more of them, not
only because they remain the sole way to invest in
the life insurance, securities, and telecommuni-
cations sectors, but also because, in many cases,
they perform quite well. Indeed, if alliances are
carefully chosen and skillfully run, they can be just
as financially rewarding as wholly owned
businesses.
We surveyed 31 companies to learn about the
3 reserved.
goals, partnership structures, and past
performance of their 400 alliances in China. A
majority of the companies in our sample were
foreign-owned, the remainder Chinese. All expect
to enter into more alliances in China during the
next five years.
Upward of 90 percent of the multinationals
instead of by the longer-term strategic gains they
used to pursue, such as learning how to operate in
China, gaining access to its regulators, building
market share or brand awareness, and developing
an export-manufacturing base. By contrast, the
Chinese partners often place greater emphasis on
acquiring Western management skills and
production technologies and on the secure
employment that comes with foreign joint ventures
(Exhibit 2). However, among the companies we
surveyed, large differences separated the strong
and weak performers, both of which were identified
by the proportion of their alliances that met or
exceeded expectations, financial and strategic,
and the proportion that operated in the black
(Exhibit 3). MoF
Peter Kenevan (Peter_Kenevan@McKinsey.com) is a
principal in McKinsey’s Tokyo office, and Xi Pei
(Xi_Pei@McKinsey.com) is a consultant in the Shanghai
office. Copyright © 2003 McKinsey & Company. All rights
1
Prior to China’s entry into the World Trade Organization in 2001,
only the electronic-equipment, processed-food, consumer goods,
and pharmaceutical sectors were open to multinational
corporations.
2
The WTO agreement removed impediments to foreign investment
in accounting and legal services, banking and insurance,
chemicals, construction, distribution and retailing, and Internet
services.

surveyed believe that their alliances in China

3
perform at least as well as those in other emerging
markets. Most foreign investors now judge the
The survey took place between October 2002 and March this year
and included companies in five industry sectors: automotive,
basic materials, consumer goods and pharmaceuticals, energy,
and high-tech and telecommunications.

6 | McKinsey on Finance Autumn 2003

Exhibit 1. Wholly owned is more profitable

Economics of alliances vs. wholly owned businesses in China, percent

Alliances Wholly owned

Foreign-owned multinational companies Chinese-owned companies

(average of 25 companies) (average of 6 companies)

69
60 60 55 60 57 57 60
40 40 45 43 43
40 40
31

Share of Share of Share of Share of Share of Share of Share of Share of

investment assets revenues profit investment assets revenues profit

Source: 2003 McKinsey Chinese alliances survey of 31 companies in automotive, basic materials, consumer goods/pharmaceuticals, energy, and high-tech/telecom sectors

Exhibit 2. Mixed expectations

Percentage of alliances
Foreign-owned multinational companies measure alliance . . . while their Chinese partners measure success in other ways
success in terms of profits . . .
(100% = 459 alliances)
(100% = 359 alliances)

Does alliance meet financial and Does alliance meet financial and
strategic expectations? Is alliance profitable? strategic expectations? Is alliance profitable?
Not
Not Unprofitable meeting
meeting Unprofitable
21
34 32 40
48 Meeting 44 Meeting 60
68
18 35

Exceeding Profitable Exceeding Profitable

Source: 2003 McKinsey Chinese alliances survey of 31 companies in automotive, basic materials, consumer goods/pharmaceuticals, energy, and high-tech/telecom sectors

Exhibit 3. Segmenting the sample

Average distribution of alliances in each company’s portfolio by performance category,1 percent

Does alliance meet financial and strategic expectations? Is alliance profitable?

Not
meeting Meeting Exceeding Unprofitable Profitable

Strong performers
12 61 27 23 77
(n = 9)

Average performers
35 38 27 33 67
(n = 13)

Weak performers 3
86 11 64 36
(n = 9)
100% 100%

1
Strong performers = ≥80% of alliance portfolios meet/exceed targets and ≥60% profitable; weak performers = <20% meet/exceed targets or <40% profitable; average performers =
all others.
Source: 2003 McKinsey Chinese alliances survey of 31 companies in automotive, basic materials, consumer goods/pharmaceuticals, energy, and high-tech/telecom sectors

The view from the corporate suite | 7

Smarter investing for insurers
Insurance companies need to get better at managing their investments. Here’s how.
Léo M. Grépin, Marcel Kessler, and Zane D. Williams
B y the staid standards of the insurance
industry, investment strategies in recent
years have been a walk on the wild side.
Drawn over the years to an increasingly
complex menu of investment options,
including mortgages, private equity, junk
bonds, and collateralized debt obligations,
insurers also inevitably increased their levels of
investment risk. North American life insurers,
for example, reduced the quality of their bond
portfolios. In 2001 holdings in bonds rated
BBB+ and lower made up 39 percent of their
$2 trillion under management, up from
23 percent in 1996. European insurers also
took more risks but because of regulatory
rules concentrated their exposure in equities
rather than corporate bonds.
As the stock market rose, the pursuit of ever-
higher yields seemed a surefire way to boost
company returns. With more than half their
risk capital supporting investment activities by
the time the bull market peaked in the late
1990s, many insurers resembled little more
than hedge funds with an insurance business
on the side—only without that industry’s
sophisticated systems and management
processes to oversee the potential downside of
added risk. The rising market also obscured
another fact: many insurers’ investments were
actually yielding only limited shareholder
value—and often destroying it.
When the market dove, many insurers were
left holding the bag. US insurers faced billions
of dollars in losses from defaults on
8 | McKinsey on Finance Autumn 2003
collateralized debt obligations and troubled
bond issuers. Rating agencies issued
downgrades on 151 and 148 US property
and casualty insurers in 2002 and 2001,
respectively compared with 77 and 59 in
2000 and 1999, respectively. A similar trend
affected life insurers.1
Addressing such losses is just the first step in
mounting a broad industry revival that will
require improving operations, distribution of
insurance products, and underwriting of
insurance risks. Yet investment strategy is also
a crucial component. Our research2 indicates
that it is critical for the industry to rethink its
exposure to investment risk if it is to avoid
further calamities. It isn’t simply that insurers
need to dial back their pursuit of higher yields
and the greater risks they entail. By crafting
an investment strategy that eschews chasing
higher yields, insurers can reduce exposure to
unnecessary risks and in the process free up
billions of dollars in capital. At many insurers,
such an approach may require reorganizing the
way underwriting and investment functions
interact and raising the level of investment
expertise.
A flawed investment strategy
The industry’s shift to riskier investments has
been gradual and perhaps unintentional in
some companies. Chasing ever-higher yields
seemed to provide easy money, and while the
economy boomed the markets rewarded
insurers who increased their risk levels. But in
the process these insurers tied up substantial
amounts of capital that could have been put to
use more productively for shareholders in the
underwriting of value-creating insurance risk.
Three approaches at the heart of many
insurers’ investment strategies illustrate the
problem.
• Increasing the risk profile of the investment
portfolio. Increasing the riskiness of assets
may return higher investment income over
the life of the security, but it rarely does
more than compensate shareholders for
bearing a higher level of risk and increased
price volatility. When credit defaults were
low and equity markets buoyant, insurers
generated attractive short-term returns from
riskier securities. Yet regulations require
insurers to hold more risk capital for riskier
investments, a cost that amounts to more
than $2 billion a year for the US life
insurance industry.
• Mismatching assets and liabilities. Insurers
also commonly purchase assets—typically
bonds—that mature over a longer period of
time, betting that they will capture some of
the higher yield of those securities. But the
chances of beating the market are slim and
depend on whether or not interest rates
behave as the market expects. Those who
bet on the direction of interest rates are
unlikely to be right consistently, especially
in the US Treasury market, the world’s most
liquid and efficient financial market.
• Trying to beat the market. Warren Buffett,
CEO of Berkshire Hathaway, is the rare
investor who can claim to have consistently
created value for shareholders by beating
the market through stock picking. Insurers
have assumed that by actively managing
their own investment portfolios they, too,
could identify assets that are mispriced and
offer higher returns without taking
additional risk. Yet the evidence belies that
Exhibit 1. Active managers are no better at beating
the market than random chance
Percentage of actively managed funds in top quartile,1 1995–2001
Actual distribution2
Random distribution2
31.0 31.0
33.0
30.0
13.0
17.0
20.0
14.0
1.0 6.0
0 0
0.3
0 0 3.0
7 6 5 4 3 2 1 0
Number of times in top quartile in 7 years
1
As measured by total returns to shareholders; distribution includes 679 open-end US
equity funds.
2
Figures do not sum to 100% because of rounding.
Source: Financial Research Corporation; McKinsey analysis
assumption (Exhibit 1). Insurers would need
to have research, analytical, and trading
capabilities equivalent to those of the best
hedge funds and asset managers to deliver
returns consistently in excess of the market
benchmark—and would still be constrained
by demanding regulatory requirements.
Active management also carries the costs of
frequent trading, fees paid to external
managers, and an additional tax burden
from the realization of capital gains. These
costs would chip away at whatever
outperformance the insurers achieved.
A different approach
To satisfy short-term expectations and
maximize long-term economic value to
shareholders, insurers should stop trying to
generate short-term yields and instead return
to a more disciplined approach—assessing
investments on a risk-adjusted basis and
Smarter investing for insurers | 9
paying more attention to account-investment
expenses and total capital costs. This would
allow insurers to fit the risk capital they
commit to their investment activities more
closely to the risk obligations of their
underwriting. Such an approach would require
both structural and policy changes to let
executives more clearly identify what really
drives performance: efficient use of capital
and effective product design and pricing.
Separate structurally to integrate
functionally
Structurally, product and investment groups
must have separate responsibility and
accountability for their costs, returns, and
risks. On the investment side, that includes
managing the optimal portfolio required to
support insurance products and bearing the
risks of any deviations from that optimal
portfolio. Yet today the investment and
underwriting sides of most insurers, especially
life insurance companies, bear collective
responsibility for the overall profitability and
risks of underwriting products. As a result,
the investment group is typically credited
with the overall performance of the portfolio
rather than the risk-adjusted performance in
excess of the optimal liability portfolio.
Precedent for a more transparent approach can
be found outside the insurance industry. In the
early 1990s banks divided accountability for
balance sheet performance between their asset-
and deposit-gathering functions. The industry
also broadly adopted more sophisticated
capital-management tools, such as risk-adjusted
return on capital (RAROC) and shareholder
value added (SVA), in large part because
massive bankruptcies of US banks in the late
1980s led to a radical rethinking of financial
risk management. Increasing transparency and
10 | McKinsey on Finance Autumn 2003
accountability notably improved the industry’s
performance. Many banks began pricing their
products more accurately and making better
decisions about their product lineups, and
many smaller and midsize banks left the
corporate-lending, mortgage, and consumer
credit card businesses as a result of chronic
underperformance. In the decade since, the
US banking industry has more than tripled its
return on assets, improving its return on equity
(ROE) by 50 percent and at the same time
strengthening its capitalization to reflect risks
more accurately.
But insurers have been slow to adopt such a
structure, in part because the complexity of
their products makes the development of
sophisticated performance-management tools,
such as SVA, more difficult. Moreover, until
recently the industry hadn’t faced a challenge
as dramatic as the one the banking industry
did in the late 1980s. Tardiness has hurt
insurers: the performance of banks exceeded
that of the S&P 500 over the past decade,
while the performance of insurers has lagged
behind the S&P 500.
Some insurers have succeeded by breaking
from the pack, dividing their balance sheets
for product groups and investments. Adopting
this approach made one large North American
insurer aware that even though its fixed-
annuity business accounted for a large share
of its risk capital, it was destroying value for
shareholders. Among companies that have
already divided their balance sheets, the
increased transparency and responsibility has
served to break down the functional silos of
product and investment groups common to
many insurance carriers and served to
promote a new constructive collaboration.
Typically interaction between these silos is
rare, information flows poorly, and teamwork
is often devoted to figuring out how to
extract concessions from other departments
on topics such as pricing and crediting rates.
Transparency also lets companies take
advantage of changing conditions when rising
prices make some insurance products more
competitive.
Match the risk levels of investments
and liabilities
In our experience an essential element in
improving an insurer’s investment approach is
setting down a clear policy that compels the
investment function to weigh risk against
value creation. This includes rigorously
identifying what types of risks an insurer is
willing to accept, how much exposure to each
risk type is acceptable, and what return is
expected. In practice, this policy can be
implemented through three different kinds of
programs. Strategic asset allocation (SAA)
defines what asset classes the insurer wants to
invest in and how to allocate the assets to
each class. General account portfolio
management (GAPM) specifies the investment
strategy (the asset classes, the mix, the
duration of securities, and their credit quality)
for a product. Finally, asset liability
management (ALM) defines the amount of
interest rate risk an insurer is willing to take
and continually ensures that this limit is
adhered to. Although many insurers have
similar programs in place, their form and
execution vary enormously. Asset allocation
may be based on experience and rudimentary
calculations at some insurers, for example,
whereas others use leading-edge software
designed to organize their portfolios.
Viewed from a long-term perspective, the
interdependence among risk, returns, and
capital requirements in this industry leads to a
counterintuitive conclusion: insurers looking
to maximize shareholder value should match
their risk exposure from investments to the
financial risk inherent in their liabilities rather
than aim to maximize yields. Insurers should,
for example, perfectly match the cash flows of
their assets and liabilities to reduce interest
rate risks.3 Ideally, insurers would deviate from
this strategy only in specific asset classes
where their expertise or experience made them
confident they could find underpriced
investment opportunities over the long term.
The optimal investment strategy would depend
on product design, but in most cases it would
require risk-free or high-grade corporate
bonds for products where insurers bear the
investment risk themselves. It can also require
investing in riskier asset classes, in particular
for certain European products where the
liabilities depend on market returns and some
of the investment risk is borne by the
policyholders.
One might argue that as investments are
moved to lower-risk assets, net income will
fall, reducing earnings per share (EPS) and
ROE. However, the reduced portfolio risk
frees up capital to be used by activities that
generate greater value, such as underwriting
insurance risk, and results in a fall in the cost
of equity (Exhibit 2). This in turn raises the
P/E ratio of the company and offsets the fall in
EPS. Moreover, since less risky securities
require less capital to support them, the
overall reduction in capital cost can boost the
company’s market capitalization.
Give the professionals
more expertise
In practice, executing the new investment
strategy requires insurers to strengthen the
actuarial, risk-management, and portfolio-
Smarter investing for insurers | 11
 liability risks. Others have rotated rising
Exhibit 2. Balancing risk and reward
stars from the actuarial function into the
investments group to ensure cross-fertilization
Company financial Investment strategy
parameters Current Potential2
of knowledge.
Return on equity 15% 10%
Forecast growth rate 4% 4% A few have built state-of-the-art systems that
Beta 1.0 0.2
Cost of equity1 10% 6.0%
enable them to monitor how well their assets
and liabilities are matched and to test the
value of their holdings against fluctuations in
Potential investment strategy2 the financial markets. This is also the case in
Use 100% of excess capital to . . .
Europe, where a less-rigid regulatory
Current or to buy or to
investment to pay back underwrite framework and greater degree of ownership of
strategy dividend . . . shares . . . insurance
insurers by banks has made it easier for some
Net income 150
100
insurers to join the avant-garde.
$ million 50 50

Price-to-
Insurance companies are at a critical juncture
21.6 21.6 21.6
earnings ratio in shaping their investment strategies. They
10.0
must scale back some of the excessive risk
they took on during a bull market, and also
Value of company review basic investment strategies. In the end,
$ billion 2.2
1.5 1.6 1.6 too, they must acknowledge that they can
deliver lasting shareholder value only by a
1
Assumes risk-free rate of 5% and market risk premium of 5%. better alignment of their product and
2
Reduced investment risk in line with optimal liability portfolio.
3
Includes value of dividends paid or share buybacks. investment goals. MoF
Source: McKinsey analysis

Léo Grépin (Leo_Grepin@McKinsey.com) is an

associate principal in McKinsey’s Boston office; Marcel
management expertise of their investment
Kessler (Marcel_Kessler@McKinsey.com) is a principal
organization, when traditionally their focus
in the Montreal office. Zane Williams is an alumnus of
has been security selection. They need a better
the Washington, D.C. office. Copyright © 2003 McKinsey
understanding of the structure and risks of
& Company. All rights reserved.
assets and liabilities in portfolio management
if they are to choose appropriate GAPM and 1
These figures are based on A.M. Best financial-strength ratings.
ALM objectives and processes and to 2
Interviews with insurance managers, actuaries, investment
implement strategies to hedge the many risks professionals, and academics; a review of the actuarial,
inherent in the liabilities. investment, and academic research; and a quantitative analysis
of industry performance.

Some leading North American insurers have

3
Of course, insurers cannot always perfectly execute the optimal
investment strategy. In certain geographies, such as Asia, the
responded by adding new teams to support dearth of securities limits the portfolio composition. Even in the
their portfolio managers. A few have formed United States, with the recent retirement of the 30-year bond and
portfolio-management teams and ALM teams the decrease in bond market liquidity, it is often challenging for
insurers to build the portfolios they need. However, any such
within the investments function or in deviation should be done out of necessity rather than as an
derivatives groups to find better ways to hedge objective.

12 | McKinsey on Finance Autumn 2003

A closer look at the bear in Europe
The market slump in Europe was deeper and more widespread than its
cousin in the United States.
André Annema, Marc H. Goedhart, and Timothy M. Koller
E arlier this year we examined the
contours of the recent stock market
decline in the United States, by most typical
measures the worst bear market since the Great
Depression.1 We found that much of the
market’s travails were concentrated among the
information technology and telecommunica-
tions sectors, and among the largest companies
in the Standard & Poor’s 500 index—those
megacapitalized companies whose market
capitalization surpassed $50 billion. An update
of this analysis in June confirmed our findings:
combined, the S&P 500 index’s 154 IT,
telecom, and megacap stocks were responsible
for the entire 33 percent decline from January
2000 to June 2003. The other 346 companies
in the index actually contributed a positive
5 percent, preventing the overall average from
sinking even further.
Such was the shape of the US bear market. To
explore what took place in equity markets in
the United Kingdom and continental Europe,
we conducted the same analysis there.
Anatomy of a European
bear market
Using the FTSE Euro 300 index as a proxy
for top-line returns, we discovered that the
European boom represented a more wide-
spread inflation of stock price levels than in
the United States. Similarly, the market’s
decline was harsher and affected more sectors
than in the United States. In local currency
terms, the European index increased even
more aggressively2 than the S&P 500
until the end of 1999, and then declined
to an index somewhat below the US market
by the end of June 2003. In both the United
States and Europe, the market bubble and
the subsequent decline were driven largely
by changes in overall price-to-earnings
ratios (P/E). The market, in short, responded
more to expectations than actual business
performance.
The contrast between how the US and EU
markets declined can be seen even more
clearly in the share price performance of the
500 largest European companies. Prior to
January 2000, the median increase of
European share prices stood at 21 percent per
year, noticeably higher than for the United
States, at 17 percent. In fact, on a sector-by-
sector basis, the European equity markets
significantly outperformed the US market for
each sector during the bull market, even in the
high-tech sectors (Exhibit 1). Unfortunately,
European share prices since December 1999
have seen a massive 12 percent annualized
median decline, compared to a positive
1 percent median return for the US market
over the same three-and-one-half year period.
This is largely because all European sectors
did much worse than their US counterparts,
thereby losing any ground they may have won
during the bull market (Exhibit 2). And while
A closer look at the bear in Europe | 13
Exhibit 1. European sectors outperformed US Exhibit 2. European sectors underperformed against
counterparts in bull market US counterparts in bear market

Median annualized TRS, percent; Dec 31, 1995–Dec 31, 1999 Median annualized TRS, percent; Dec 31, 1999–June 23, 2003

Sector S&P 500 Europe top 500 Sector S&P 500 Europe top 500

Basic materials 11 26 Basic materials –3 –8

Consumer, noncyclical 15 24 Consumer, noncyclical 6 –1

Consumer, cyclical 9 25 Consumer, cyclical 3 –5

Oil & gas 9 31 Oil & gas 5 –8

Financials 21 29 Financials 7 –8

Industrials 15 24 Industrials 4 –11

Information technology 49 81 Information technology –20 –44

Telecommunications 24 60 Telecommunications –14 –25

Utilities 4 20 Utilities 12 –4

Top 500: 17% Top 500: 21% Top 500: 1% Top 500: –12%
Source: McKinsey analysis Source: McKinsey analysis

the European high-tech sectors also performed same pattern as the UK and US markets.
worse than in the United States, their relative The conclusion we came to, when looking
weight in the market was also much smaller at the economic fundamentals of European
and hence they contributed much less to the countries, was that even during the bull
overall decline. market it was impossible to justify P/E ratios
of 20 or more (Exhibit 3).4 Over the past few
months, as with the US market, the P/Es of
Is the European market fairly
European markets have returned close to their
valued now?
fundamental range, indicating that after a
Using the same valuation model that we period of extreme volatility, current valuations
used to review the US market, we found are broadly in line with economic
that actual P/E ratios in the United Kingdom fundamentals over the past six months.
behaved much the same way as those in the
United States, deviating from a range We won’t forecast near-term market
predicted by market fundamentals only direction, but given that long-term economic
during the oil shocks of the 1970s and the fundamentals have been surprisingly stable
new-economy euphoria of the 1990s.3 Wildly over time, we can estimate that European
different interest rates and inflation levels markets will generate around 6.5 to
across European countries would make it 7.0 percent real returns over the next ten
difficult to assemble a truly European long- years. In Europe, returning to peak market
term perspective on P/E valuation levels, but levels is likely to take a bit longer than in the
at least for the period that we could United States largely because the bull market
reasonably construct a European market rise was stronger in Europe, and the decline
environment—since 1997—it followed the steeper.

14 | McKinsey on Finance Autumn 2003

Exhibit 3. Market fundamentals seldom justify P/E ratios as high as those during the bull market in the UK

25

Actual P/E

20

15

10
Fundamental P/E

5 Range of uncertainty around fundamental P/E

0
1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2002
Source: McKinsey analysis

Why might Europe’s markets have acted as

they did? Among the many possible reasons
for the differences in the European and US
bull and bear markets, a few seem most likely.
One could be a pervasive overoptimism among
Europeans in the late ’90s, looking forward to
the potential benefits of the European mone-
tary unification and the expected additional
growth and productivity from further market
integration. After the bubble burst, over-
optimism may actually have swung in the
other direction, resulting in an even deeper
downturn when compared to the US market.
One could also argue that investors expected
European corporate incumbents to capture
more new-economy benefits than US incum-
bents because venture capital for start-up
companies in Europe was not as available as it
was in the United States. Finally, European
investors may have used the P/E levels of the
tech driven US market as a reference for
European valuations without fully realizing
how much more modest the role of technology
and telecom was in Europe’s markets.
Europe’s bull market was more bullish and its
bear market more bearish, than those in the
United States. But the value of Europe’s stock
markets now appears to have returned to long-
term fundamental levels. MoF
Marc Goedhart (Marc_Goedhart @McKinsey.com) is an
associate principal in McKinsey’s Amsterdam office,
where André Annema (Andre_Annema @McKinsey.com)
is a consultant; Tim Koller (Tim_Koller @McKinsey.com)
is a principal in McKinsey’s New York office. Copyright
© 2003 McKinsey & Company. All rights reserved.
1
Timothy M. Koller and Zane D. Williams, “Anatomy of a bear
market,” McKinsey on Finance, Number 6, Winter 2003, pp. 6–9.
2
By 170% in Europe, compared to 140% for the US.
3
Marc H. Goedhart, Timothy M. Koller, and Zane D. Williams,
“Living with lower market expectations,” McKinsey on Finance,
Number 8, Summer 2003, pp. 7–11.
4
Note that these are all forward-looking P/E ratios and that the
typically reported ratios based on realized earnings were a lot
higher.

A closer look at the bear in Europe | 15

Alliances in consumer and packaged goods
The sector lags in collaboration, but some companies are beginning to change
that. It’s a good thing.
John D. Cook, Tammy Halevy, and C. Brent Hastie
H istorically, executives in the
consumer-packaged-goods (CPG) sector
have preferred mergers and acquisitions to
partnerships. In this intensely competitive
industry, such a strong bias in favor of control
frequently made sense. Yet faced with pressure
for earnings growth and a paucity of M&A
targets in most product categories, some
leading CPG players are beginning to rethink
this predilection. It’s a trend that augurs well
for the sector as a whole.
These days, global corporations routinely tie
up 20 percent or more of their assets in
alliances, yet as a group CPG companies lag
behind. Indeed, the ten largest pharmaceutical
companies entered five times the number of
alliances between 1998 and 2002 than did the
ten largest CPG companies. But by staying on
the sidelines, CPG companies have missed
some of the benefits that alliances offer as
alternatives to outright acquisition. They
typically avoid the acquisition premium paid
by buyers and the capital gains taxes for
sellers. They are a quicker, less risky way to
bring together complementary assets and skill
sets (geographies with products, new channels
with products, or different functional skills).
And they are also well suited for the kind of
top-line growth that so many companies
seek—particularly in industries where
consolidation has largely precluded the
opportunity for further mergers or
acquisitions.
16 | McKinsey on Finance Autumn 2003
That logic hasn’t been lost on those CPG
companies that are leading a wave of new
alliance activity. The quest for higher
earnings and the shortage of good M&A
targets has led companies such as Nestlé
and Procter & Gamble (P&G) to make
alliances an important part of their growth
strategy. These companies report good
returns on their alliance activity. Our
analysis of 77 leading consumer-packaged-
goods enterprises1 found that the most
alliance-intensive companies delivered
average total returns to shareholders nearly
five times higher than companies that did not
partner. What’s more, the highest-performing
companies captured a disproportionate share
of the alliance opportunities and locked in the
best partners.
Where the opportunities are
From our perspective, alliances tend to fall
into four categories. Some aim to generate
innovation and spur commercialization.
Others are designed to extend products to
new channels, consumers, and occasions—
the time and place in which a consumer uses
a product or service. Still others focus on
international expansion or are designed to cut
costs or otherwise boost performance
(Exhibit 1). Most companies pull just one or
two of these levers, while the most successful
practitioners use alliances to pursue a full
range of strategic goals (Exhibit 2).
Innovation and commercialization
In the competition among CPG companies
to win customers, innovative products and
packaging and development of new categories
are essential. Yet most CPG companies are
sensitive to the fact that the risks (and costs)
of new product R&D are higher than business
as usual. Moreover, successful innovation
often requires pooling capabilities and/or
assets from previously unrelated product or
functional areas. Many CPG companies can
benefit from employing alliances across the
entire innovation life cycle to tap into basic
research from partners or conducting it jointly
to improve returns on product development
and reduce the risks and costs associated with
taking products to market.
A joint venture that P&G and Clorox unveiled
last year demonstrates how such collaboration
can work. P&G had developed and performed
test marketing on a plastic food wrap product
but opted not to commercialize the product in
part because of the high costs of competing
in the category. At the same time, Clorox’s
Glad business was generating lower margins
than a typical Clorox unit, in spite of its
strong consumer brand and leading market
position, and the company was facing long,
capital-intensive lead times for innovation.
Instead of going it alone, these erstwhile
competitors joined forces to commercialize
new plastics technology. Rather than simply
licensing the technology in exchange for a
royalty stream, P&G contributed its patent
portfolio applicable to bags and wraps from
its baby, feminine care, and tissues businesses,
along with research and development team
resources, in exchange for a minority stake in
the Glad business. In exchange, Clorox gains
access to all of P&G’s current and future
Exhibit 1. CPG companies have used alliances
to pursue four types of strategic goals
Four types of alliances Percentage of alliances1
New product development,
and commercialization
8
New channels/consumers, 51
and occasions
International expansion 23
Cost reduction and 18
performance improvement
1
Percent of 622 announced deals, identified by category.
Source: McKinsey CPG database
technology related to plastic food and trash
bags, wraps, and disposable containers. This
structure permits P&G to reap the equity
upside without having to invest huge sums to
compete against an entrenched brand and
market category leader.
CPG companies can also use alliances to
collaborate to develop new categories of
products when their skills and capabilities
aren’t likely to produce successes on a go-it-
alone basis. Consider the experience of Pepsi
in entering the ready-to-drink-coffee category.
Instead of going it alone, Pepsi entered into a
joint venture with Starbucks in 1994. At the
outset, each partner contributed a cash
investment, in addition to know-how and
capabilities in their respective areas of
expertise. Nearly two years later the result
was Frappuccino,® a leading product in the
ready-to-drink-coffee market. By 2002, the
joint venture had grown into a $400 million
business with significant market share in
grocery, drug, and mass merchandise outlets.
The venture has also created value in more
subtle ways. For Pepsi, the venture locked up
Alliances in consumer and packaged goods | 17
Exhibit 2. Companies that pursue more different types of alliances have considerably higher TRS
Average TRS (1998–2002),
Number of types of alliances Number of companies
4 12
3 12
2 19
1 23
0 11
Total: 77
Source: McKinsey CPG database
a powerful partner in the coffee market. For
its part, Starbucks dramatically reduced its
risk exposure by relying on Pepsi’s beverage
know-how and its distribution muscle.
Starbucks also used the experience as a model
for subsequent partnerships, including a 50-
50 joint venture with Dreyer’s to develop a
new line of superpremium coffee ice creams.
Extending to new channels and
consumers
CPG companies have successfully used a
variety of alliance types to reach new
consumers, channels, and occasions, including
licensing brands to and from other companies
and partnering to reach new consumer
segments and channels. Licensing brands to
other companies has proved attractive for
many companies including M&M/Mars,
which licenses several of its candy brands in a
partnership with Dreyer’s Grand Ice Cream.
Another is Tropicana, which recently entered
18 | McKinsey on Finance Autumn 2003
Number of alliances announced,
percent 1998–2002
4 309
5 139
–8 96
–18 78
–20 0
Total: 622
into a 20-year licensing agreement with
Coolbrands International to open a chain of
“Tropicana Smoothies” stores.
Alliances can also be used to better penetrate
new consumer segments. In an effort to tap
the growing Hispanic population in the
United States, ConAgra entered into a 50-50
joint venture with Sigma Alimentos, a leading
Mexican frozen food company. The partners
manufacture, market, and distribute frozen
prepared food in the United States and
Canada, in addition to Mexico and Central
America. ConAgra brings product
development and manufacturing expertise as
well as its American and Canadian
distribution network to the joint venture.
Sigma brings expertise in formulating
Mexican food, its Mexican customer base,
and an established distribution network and
plants. Or consider the alliance between Kraft
and Starbucks to distribute Starbucks Coffee
in US groceries. For Kraft, the deal fills a gap
in its brand portfolio at the superpremium
price point and generates more than
$100 million in incremental annual revenues.
For Starbucks, the alliance has extended its
reach into more than 18,000 grocery stores
without any of the investment required to
establish and manage a distributor network.
Expanding internationally
Alliances are a natural way for CPG
companies to enter new markets and improve
performance in places where they may lack
scale. Hooking up with a partner with a
complementary brand can also allow a
company to make the most of distribution
and other in-country assets.
Using alliances to enter new geographies is not
a new game, yet some CPG companies have
been more successful than others. That makes
it important for CPG companies to consider
twists on their traditional approach to market
entry, particularly in emerging markets. One
company that has successfully pursued global
expansion is General Mills through its ongoing
participation in Cereal Partners Worldwide, a
profitable 50-50 joint venture with Nestlé to
manufacture and distribute breakfast cereal
outside of the United States. General Mills
could have entered Europe and other
geographic markets on its own. But the risks
and costs of establishing a distribution
network and manufacturing capabilities in
multiple markets, not to mention the costs of
learning to compete in each, would have been
much higher. Moreover, by cooperating with
Nestlé, General Mills co-opted a potential
competitor. For its part, Nestlé is able to
compete in the breakfast cereal market by
relying on General Mills’ cereal brands and its
global operating infrastructure. Annual sales
In some emerging markets with
strong potential, CPG companies
might even consider partnering with
local players to build local brands
into regional or global brands.
now exceed $1 billion and represent a
21 percent share of the combined worldwide
cereal market.2
In some emerging markets with strong
potential, CPG companies might even consider
partnering with local players to build local
brands into regional or global brands. Coty
has successfully pursued this strategy in China
through a 50-50 joint venture with Yue-Sai
Kan Cosmetics to build a global Chinese
brand of cosmetics. Revenues from the
venture exceeded 400 million yuan in 2001,
making it the third-largest skin care company
in China with a reported 95 percent brand
awareness. The partnership permits Yue-Sai
Kan to extend its product lines, increase
R&D, and enhance its manufacturing
capabilities. At the same time, the joint
venture gives Coty immediate access to the
Chinese consumer market and a launching
pad for the rest of Asia.
Reducing costs and improving
performance
In addition to offering top-line revenue growth,
alliances can also help to reduce costs and
improve operating efficiency. CPG companies
might use them to rethink ownership of
manufacturing assets, improve process
Alliances in consumer and packaged goods | 19
efficiencies through innovations or changes in
scale, re-design supplier relationships, or to go
beyond outsourcing in non-strategic business
processes. In many cases, these arrangements
go far beyond standard outsourcing
agreements, becoming instead long-term
strategic partnerships.
Many CPG companies today should be
asking whether they need to own their
manufacturing operations, or whether they
can increase efficiency, improve the balance
sheet, or focus on core activities through
cooperative agreements. These partnerships
would free up assets and unleash the creativity
of marketing people, who would be less
constrained by “what we know how to make.”
Several companies have recently pursued this
path with good results. Pillsbury’s Green
Giant unit, for example, sold six of its US-
based manufacturing plants to Seneca Foods
in exchange for a 20-year supply agreement
and partnership. Green Giant retains
responsibility for sales, marketing, and
customer service while Seneca assumes
responsibility for vegetable processing and
canning operations. As a result, Green Giant
reports having increased its operating margins
by 5 percent and reduced its cost of goods
sold from 75 percent to 66 percent in four
years. Moreover, it reduced corporate assets
by more than $700 million and improved time
to market of new products by 50 percent. In
turn, Seneca enjoys improved margins because
it can allocate overhead over its larger
guaranteed volume.
CPG companies that enjoy advantages of
scale might also consider combining their
industry expertise with a partner to develop a
technology or service solution for operations
in consumer product companies. For example,
Procter & Gamble recently teamed up with a
20 | McKinsey on Finance Autumn 2003
leading developer of supply chain solutions to
license its “Reliability Engineering” process,
now branded as “Power FactoRE,” to help
companies reduce costs by improving the
efficiency of their manufacturing.
With the global commoditization of back-office
functions, there is a significant opportunity to
cut costs and free up management time by
outsourcing to others. We have begun to see a
surge in outsourcing of noncore functions and
expect that these kinds of alliances are part of
a trend that is likely to continue.
Most consumer companies have yet to tap
the full potential of alliances in pursuit of
growth. But as the sector’s leaders take
greater and greater advantage of partnering,
those who cling to a control mind-set risk
getting edged out of the most attractive
opportunities. MoF
The authors wish to thank David Ernst and Mark
McGrath, whose insight and guidance contributed to the
development of this article.
John Cook (John_Cook@McKinsey.com) is a director in
McKinsey’s Chicago office, Tammy Halevy
(Tammy_Halevy @McKinsey.com) is a consultant in the
Washington, D.C.office, and Brent Hastie (Brent_Hastie
@McKinsey.com) is an associate principal in the Atlanta
office. Copyright © 2003 McKinsey & Company. All rights
reserved.
1
Our database of alliances included 622 partnerships announced
between 1998 and 2002. To ensure a broad sample of CPG
companies, we included the ten largest (based on 2001
revenues), ten highest performing, and ten lowest performing
companies (based on five-year average TRS) in each of the
beverage, food, and cosmetics industries according to the
Compustat database. Because of the overlap between
categories, that population included 71 companies, to which we
added the three largest general merchandise and three largest
household products companies, for a total of 77.
2
According to press reports in November, 2001.
 AMSTERDAM
ANTWERP
ATHENS
ATLANTA
AUCKLAND
AUSTIN
BANGKOK
BARCELONA
BEIJING
BERLIN
BOGOTA
BOSTON
BRUSSELS
BUDAPEST
BUENOS AIRES
CARACAS
CHARLOTTE
CHICAGO
CLEVELAND
COLOGNE
COPENHAGEN
DALLAS
DELHI
DETROIT
DUBAI
DUBLIN
DÜSSELDORF
FRANKFURT
GENEVA
GOTHENBURG
HAMBURG
HELSINKI
HONG KONG
HOUSTON
ISTANBUL
JAKARTA
JOHANNESBURG
KUALA LUMPUR
LISBON
LONDON
LOS ANGELES
MADRID
MANILA
MELBOURNE
MEXICO CITY
MIAMI
MILAN
MINNEAPOLIS
MONTERREY
MONTRÉAL
MOSCOW
MUMBAI
MUNICH
NEW JERSEY
NEW YORK
OSLO
PACIFIC NORTHWEST
PARIS
PITTSBURGH
PRAGUE
RIO DE JANEIRO
ROME
SAN FRANCISCO
SANTIAGO
SÃO PAULO
SEOUL
SHANGHAI
SILICON VALLEY
SINGAPORE
STAMFORD
STOCKHOLM
STUTTGART
SYDNEY
TAIPEI
TEL AVIV
TOKYO
TORONTO
VERONA
VIENNA
WARSAW
WASHINGTON, DC
ZAGREB
ZURICH
Copyright © 2003 McKinsey & Company