China’s rapidly growing and maturing market has sparked the transformation of multinational corporations’ China recruiting strategies. These strategies have evolved from the former reliance on expatriates, to third-country nationals, then to local talent (meaning those professionals without overseas education and work experience). Currently, most director-level positions are staffed with local talent and a few have even broken into executive ranks such as Country Manager and/or business unit heads with P&L responsibilities.
Whilst there has been tremendous progress, experienced business leaders are sensing ‘trouble brewing’ in recruiting, developing and retaining top local talent in China. In addition, many of the indigenous, home-grown managers (those without overseas education and work experience) are also feeling frustrated about the future growth of their careers within multinational corporations (MNCs).
Talent Shortage in China
Many have discussed the current shortage of both the skilled and unskilled labor pools in China, especially managerial talent amongst the MNCs. Coastal economic and manufacturing centers such as Beijing, Shanghai and Shenzhen, where demand outstrips supply, are among the most challenged regions.
The combination of a booming economy and a ‘hot’ job market means that companies are struggling to keep their best employees engaged and onboard. The hiring challenge is only the beginning - the more difficult problems to address include understanding those professionals’ developing needs, refining their leadership skills and retaining them for a period of time.
To properly address the issue, we need to dig into the root of the problem emanating from both the supply and demand sides.
Challenges facing local talent
Compared with their colleagues who have overseas experience, local talent faces a unique set of challenges which are specific to the China market.
Due to the relatively short 'history' of corporate presence in China (the past 30 years), many of China's home grown professionals have not yet fully adopted the mindset of Western working culture and practices. China’s one child policy and the country’s educational system have fostered an individualistic and ultra-competitive environment. These two aspects of development have directly contributed in many cases to inhibiting team work and discouraging taking initiative. Many individuals in China, despite good paper qualifications and English-language skills, are often cautious about taking the initiative. At the same time, their individualism and competitive nature have made it harder for some to be natural team players.
Management Practice & Training
Those who have deep roots in China business understand the concept of ‘hands-on’ management. It differentiates from the same Western business terminology, with stronger emphasis placed on putting together a trusted team (‘eyes and ears’) at every level of the organisation, to ensure all directions are followed properly. Managers build trust and loyalty and govern through people within their team, as opposed to building an organisation based on what will be a balanced corporate structure. Locally-grown managers, especially senior level leaders, don’t really appreciate the importance of a balanced corporate structure, which plays a pivotal role in creating a check and balance system.
This approach is different from those who benefited from Western business training, who believe in governing by both people and an effective organisational structure. The local China approach can be construed by people at the corporate level (those without a deep understanding of the regional business environment) as lack of transparency.
Most of the home-grown managers tend to have strong tactical skills within the China market. However, any function within an organisation does not stand alone, nor is it limited only at the regional/country level. Using government relations management as an example, most of the regional/country government relations managers tend to focus their efforts on executing strategies such as developing relationships with government officials and monitoring reporting regulation changes. All these efforts are extremely important in supporting a company’s daily operations.
However, China’s government relations efforts, for the most part, call for the creation of opportunities in supporting an organisation’s growth in sales, channel management, PR and risk management. This challenges local managers’ creative skills when planning and developing (instead of merely executing) programs. It also calls for local managers to strategically participate and contribute to the corporation’s global government relations strategy planning process.
Communication Style and Cultural Fit
English is the language of choice among multinationals doing business in China. While most local Chinese managers are very fluent in the English language, many still have a fairly heavy accent as compared with their overseas colleagues. This is important and a major hurdle for local managers, as most of the key positions require the ability to influence decision makers at the higher corporate level. The Chinese tradition of communicating with superiors emphasises respect, not influence and/or challenge, which is in direct contravention of the Western expectation.
In addition, many home-grown managers are less effective within a corporate setting due to the lack of a ‘common bond’ resulting from differences in their cultural backgrounds. Developing bonds is not just about language, it’s about similar backgrounds. Having a cultural understanding and being able to relate on a personal level via shared experience is a huge advantage.
Many multinational companies view China as a strategic market, and therefore, a key training ground for the next generation of global leaders. Under these conditions, many China positions have attracted global talent which will add pressure to local talent. Much local Chinese talent are also feeling the pressure from third-country national executives who possess stronger industry and corporate backgrounds, but not necessarily market knowledge and local relationships.
Challenges Facing MNCs
Rise of the Domestic Economy
The market has changed in a way that means Western-based MNCs (US & EU) are no longer the sole employers of choice in China. As China’s domestic economy continues to grow, more and more top local talent are leaning towards choosing employment within State Owned Companies (SOEs) and established domestic Chinese corporations in preference to Western-based MNCs in China. Among many factors, stability, familiar environment and career growth potential have contributed to the major shift in their decisions.
Development and Retention Issues
Although some companies in China do currently train and promote managers from entry-level positions, the process is time-consuming. Moreover, most of the organisational development (OD) systems and processes are still in their infancy amongst MNCs’ regional operations and OD talent itself is scarce in China. The problem is all the worse because of fierce competition, and the limited supply of talent, which results in high turnover rates. In some cases, it has been estimated that MNCs operating in China are experiencing annual turnover rates of between 10% to 30%.
Cost of Recruiting and Retaining Top Talent
As companies compete for the best workers, pay and benefits are soaring. A Chinese director-level position commands the same, if not higher, annual cash compensation package compared to his or her counterpart overseas in the US. This is remarkable, considering the per-capita GDP differences between the two countries. On the development and retention side, compensation is only one of the motivating factors for both employees and candidates. Other key areas of consideration are:
- Job content and responsibilities
- Career path development and training opportunities
- Chemistry with his/her managers and team
- Company’s reputation, size and strength
- Work place conditions and environment
The key challenge in developing a company culture of motivating and retaining high performing employees resides not only on the knowledge and leadership from HR managers but also with the P&L leadership within the organisation.
Recommendations for MNCs
Attracting, developing and retaining top talent is not just an HR function. The P&L managers also have to have a deep understanding of what is required and be able to support the organisational development effort.
Suggested areas to focus on are:
- Identify high performing employees as well as their motivation factor priorities
- Provide a clear career path for local talents to allow ‘visibility’ of senior management positions
- Develop corporate pride by creating an emotional attachment for the work place
- Provide rotational programs for high performing employees
- Conduct frequent market/benchmarking surveys to ensure fair compensation for all levels of positions
- Develop and maintain a consistent and transparent performance evaluation and compensation structure
- Create a challenging work environment and unique project opportunities to provoke job excitement and satisfaction
- Ensure employees have compatibility or ‘chemistry’ with their line managers to motivate and retain high performers
China has become the strategic market for many multinational organisations. In order to succeed, organisations with a long-term vision for the China market should put recruitment, development and retention of top talent amongst their key strategic priorities.
When developing their talent strategy, organisations need to be mindful of China’s rich, traditional business culture, which is an important influence on China’s local talent. Organisations that can develop strategies to combine the benefits of that cultural influence, with the advantages of the Western business culture, will succeed in capturing and retaining top talent.
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