As multinational corporations compete for a share of China’s burgeoning economy, they face various human resource issues, including how to recruit, develop and retain local staff. Paula Santonocito reports on these challenges.
When Google recently hired Kai-Fu Lee from Microsoft to head up its China operations, the story of a giant corporation vying for rights to an employee based on a non-compete agreement made headlines. Corporations will no doubt focus on the outcome of the legal wrangling, but the story raises another issue as well.
“When a company hires a new president, China and its bigger rival launches a US lawsuit citing ‘predatory hiring,’ then you know that China is hot,” says Mike Goldstone, founder and managing partner of Goldstone & Co., a Hong Kong-based firm specialising in executive search, board advisory, and human resource advisory.
In sharing his perceptions with Expatica, Goldstone points to what may be lesser known facts: Lee is not even a Mainland Chinese (he is Taiwanese), he is US-educated, and he has spent most of his career in the United States.
According to Goldstone, who has 12 years’ experience hiring heads of China for Western multinationals, Lee’s background illustrates that the profile of a high-level executive, even one in demand, isn’t necessarily obvious.
The competition for Lee also raises the question: Why is hiring senior executives in China so difficult?
Skills gap
With a population of 1.3 billion, it seems China would have an abundance of in-country talent. But Goldstone indicates this isn’t the case.
“China suffers from a ‘demographic Black Hole’,” he tells Expatica. “Because of the closure of the Chinese universities during the Cultural Revolution, China did not produce any academically trained graduates between 1982 and 1996, and then only in small numbers for several years. So even today, statistically speaking, there are very few Mainland Chinese university graduates with more than 15 years work experience and almost none with more than 20.”
Goldstone cites how 20 years from now this shouldn’t be as problematic because Chinese universities have been pumping out large numbers of talented, self-motivated people.
But there is another factor, one that may not be so easily resolved.
“The Chinese economy is growing at such a rate that Mainland Chinese executives need to be able to manage an operation somewhere between 10 to 30 percent bigger and more complex every year just to stay on top of their existing jobs,” Goldstone says.
These demands take a toll. “There is a lot of road-kill caused by this steamroller economy: executives, both local and foreign, who just can’t raise their game quickly enough,” Goldstone explains.
Communication and culture
Growth has also created another area of concern for executives struggling to keep up in China: demands of the corporation’s home country.
Goldstone points out that the China operations of many foreign companies have become large enough and strategic enough so that they now report directly to corporate headquarters, or at least have more direct communication with headquarters.
“This puts an added strain on Mainland Chinese executives to bridge the communication and culture gap, most of whom have no overseas experience and who lack the cultural understanding to manage, say, a boss in Seattle effectively,” Goldstone says.
Choosing leaders
It’s Goldstone’s observation that in lieu of hiring local Mainland Chinese executives to oversee operations in China, a lot of US companies are hiring Mainland Chinese returnees. “The benefits are that many returnees have been in the U.S. long enough to understand the workings of typical US corporate culture and how to work it. The downsides are that many have been out of China too long to have effective informal networks or to understand modern day buying behaviours, employee motivators, etc.,” he says.
Local staff are often sceptical about returnee leaders, Goldstone tells Expatica, noting there can also be resentment for the higher compensation returnees typically receive.
When seeking leadership, companies sometimes look within the organisation, turning to emerging market expatriates. The can-do attitude of trusted, results-oriented executives made them leaders of choice in the early to mid 1990s, Goldstone explains, indicating there is still a place for these individuals. However, attitude isn’t everything. “In my view, an executive running China can’t really be more than 30 percent effective unless they can at least speak Mandarin, and preferably read and write it as well,” he says.
The fourth, and perhaps most desirable option, is hiring ethnic Chinese executives who originate from Hong Kong, Taiwan or Southeast Asia. Goldstone tells Expatica it’s an approach that foreign companies have taken for the last 10 to 15 years. In general, these leaders have necessary advantages—including local language capability, familiarity with both local and Western cultures, an understanding of how to get the job done, and a global view. However, there simply aren’t enough leaders to meet demand. In fact, Goldstone indicates that informed observers generally cite the finite supply of these executives as the key constraint on China’s ability to continue to increase manufacturing market share.
Managerial challenges
Going forward, Goldstone says there will be challenges for executives overseeing operations in China, regardless of their country of origin. “Without doubt, the biggest challenges are faced by those companies which are trying to build a large market within China rather than just to use a China as low-cost production base,” he tells Expatica.
This is due in part to managerial challenges related to culture. Goldstone gives the area of sales as an example.
“Basically, Mainland Chinese like to buy on their own terms from their own country people. Companies that I have worked with find out very fast that the only effective sales force in China is a 100 percent local sales force—but the problem then becomes how to manage that sales force to corporate headquarters standards. That’s where the talent is required,” he explains.
The situation is further compounded by the fact that sales people are in demand, and they’re aware of their market value. Retention, therefore, becomes a key issue.
Coaching and developing local staff
One tool for retention is staff development. Kevin Ng, a partner with Deloitte in Tianjin, tells Expatica that even though executives overseeing operations in China may not have time, it’s important to coach the local staff.
Recruiting in China isn’t an issue for the global consulting and financial advisory firm, but retention is. After one or two years, employees in China tend to leave Deloitte for further study or to work for a competitor, Ng says.
The market keeps growing and there is a lot of temptation for employees, Ng explains, indicating that nowadays job hopping can lead to a paycheque increase of 50 percent.
“Companies need to know how to recruit and develop Chinese workers—and how to retain them,” he says. Ng recommends that companies provide training, show concern for employees, and arrange for overseas assignments to increase international exposure and perspective.
Goldstone concurs with Ng that retention tools are paramount. He says China really is the land of opportunity for the current generation of university graduates aged 21 to 45. However, Goldstone notes that people are willing to stay put if they feel their current employer is actively investing in developing their skills and offering them the opportunity to test their newly developed skills in positions of increased responsibility.
“From a headhunter’s point of view, the worst challenge in China is trying to hire talented mid-level general managers or functional people to new enterprises from well-respected multinationals which manage their HR well. In such cases, candidates tend to adopt a ‘three strikes and you’re out’ approach with their current employer before they will accept even a patently better career step with another employer. That’s retention in any country,” he says.
Going forward
As companies evaluate operations in China, human resource issues are getting closer scrutiny. Indeed, in the first of a series of webcasts focused on China, US-based manufacturing magazine IndustryWeek cites human capital as the single most important factor in achieving growth in China.
The web presentation, hosted by John Brandt, CEO of the Manufacturing Performance Institute and columnist for IndustryWeek, highlights the importance of hiring well, and then training and cross-training well. Skills to train for include technical, teaming, financial, and creativity, Brandt says.
Training and development is also the focus of a new initiative by Manpower, a world leader in the employment services industry. The firm recently launched the first in a series of international public-private partnerships in China. From its office in Shanghai, Manpower will develop human resource strategies and infrastructure to support China’s rapidly growing labour requirements. Projects include quantifying future vocational skills and training required in Shanghai, the installation of Internet-based assessment systems in local employment offices, and the design and provision of training and development programs, among other efforts.
Manpower’s initiative illustrates a growing awareness of the importance of managing human resources in China. But the firm’s latest move is also indicative of a larger trend: aggressive expansion in China. Although Manpower entered the Chinese market in 1964 with an office in Hong Kong, today the firm and its subsidiaries have a network of 38 offices in China, including 17 in Mainland China.
There is no question that China is the global hot spot. Nevertheless, experts caution that operational challenges in China are unlike those in other locations, and that expansion will not necessarily lead to greater market share, a fact some companies are already discovering.
The most successful organisations will be those that understand the challenges specific to China and adapt accordingly, experts tell Expatica. At the top of the list is how to effectively recruit, develop, and retain local employees in order to create a solid base from which to grow and prosper.
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