As more multinational corporations look to promote local hires to top posts in China, companies will have to step up their employee leadership development programs.

From the world’s manufacturer to the world’s market, China has transformed itself in the last 30 years to become a key strategic location for multinational corporations (MNCs) around the world. Even as the Chinese economy has slowed down in the last two years, foreign direct investment into China remains strong. Along with it, the demands for talented professionals in sales and marketing, human resources, research and development, and many others have increased as well.

To better balance cost, experience, and local market knowledge, MNCs are making strides to identify, train, and promote local talent to serve the China market. To achieve this goal, companies have become more deliberate in their planning and more sophisticated and systematic in their approach to create learning and leadership development programs. Companies that successfully combine leadership development programs with the delivery of professional progressions for top talent lift the performance of their employees, but also prevent top talent from going to work for the competition. For MNCs to succeed in the competitive China market, learning and leadership development must be their top human resources priority.

LOCAL ADVANTAGE

Economic growth in China has created high demand for employees of diversified functions, industries, and experiences. All types of employees—expatriates from western countries and of Chinese ethnic origin, Chinese who return to China after getting an education and some experience abroad, and local Chinese and foreign hires—are in demand due to China’s booming economy. At the same time, the pendulum has swung towards local Chinese hires and away from western expats. According to the Aon Hewitt 2010 expatriate compensation and benefits survey conducted in 2007, roughly 26 percent of MNCs in China replaced expats with local candidates. In 2010, the number nearly doubled to roughly 46 percent, and another 14 percent of respondents had plans to replace expat employees with locals. Compared to the other candidates, expat hires still have advantages. In general, expats tend to have more experience and they are more familiar with corporate cultures and practices. They can be especially effective in knowledge transfer and establishing and training new teams. But in addition to costing the company more due to relocation costs and richer benefit packages, expat employees are often perceived as lacking the in-depth understanding of Chinese market conditions, practices, and culture that can prohibit them from achieving desired results.

While the most senior-level positions at MNCs in China today are still predominantly expat assignees, mid-level management positions and below are primarily filled with local hires or ethnic Chinese returnees. At minimum, companies look for a proficient command of the Mandarin Chinese language and basic understanding of Chinese culture. Ethnic Chinese professionals who have grown up or spent many years living in the west have their own particular challenges as well. Perceived as the perfect candidates who possess both western know-how and the Chinese cultural touch, expectations for this group of candidates are very high. In reality, most ethnic Chinese employees have challenges immersing or re-immersing themselves into the Chinese market after long periods living overseas. They often feel like they are “caught between a rock and a hard place”—simultaneously managing on-the-ground realities and dealing with high expectations from their superiors, Chinese team, and customers.

Facing these challenges, and in an effort to balance cost, performance, and local know-how, MNCs are making it a priority to find, develop, retain, and promote local Chinese talent.

PRIORITIZE LEADERSHIP DEVELOPMENT

According to the American Chamber of Commerce in Shanghai’s 2010 survey, foreign enterprises list “developing a leadership pipeline” as the number one strategic business challenge in the next three to five years. This was followed by challenges such as increasing market share and product and service innovations.

“When it comes to middle management, we have a huge talent gap that needs to be addressed,” says Paula Green, vice president of human resources services at Qiagen, a leading biotechnology company headquartered in Germany with offices around the world. “Succession planning is our main concern. We want to have a strong local candidate pool that can fulfill senior-level positions.”

Increasing competition in the China market from other MNCs, as well as from domestic companies, has also added urgency for companies to step up their leadership development programs. “Until a year ago, we did not have to worry much about competition in China,” Green says. “Now we do. We need to establish our HR brand, including top notch training and leadership development programs, to attract and retain the talent we want.”

What are some of the gaps that companies find in local Chinese talent? In general, the gaps in talent exist as a biproduct of the frenzied speed at which China has been growing its economy and the short history of westernized business practices in the country. These gaps become more visible and concerning as the candidates move from lower level positions to mid- to senior-level positions. Some of the current talent gaps that exist include:

  • Proficient mastery of English as a business language  Although all Chinese hires to MNCs possess basic English language skills to conduct daily business, many local hires are not proficient enough to effectively discuss complicated issues with native English speakers.
  • Understanding company culture  The majority of local hires have never been to the western offices of MNCs. They are unfamiliar with the corporate cultures and western business practices that are essential for them to be effective leaders in a global company.
  • Effective communication skills  Besides language proficiency, business conduct norms and cultural differences can prohibit Chinese managers from effectively communicating, persuading, effecting change, and working with their international colleagues and clients.
  • Strategic thinking and planning skills  Local Chinese managers tend to be younger and have less managerial experience than expat employees. They also have a reputation for weaker critical thinking and strategic thinking skills. This has much to do with the education system in China where respect for authority and rote learning is emphasized.

DEVELOPING DIVERSIFIED PROGRAMS

Leadership development needs have not changed much in China in the past 10 years. “What have changed are the methods, tools, and how companies plan and execute these leadership development programs,” says Jennifer Fan, general manager of Global Leadership Development for Nokia-Siemens in China, who previously worked for a number of multinationals, such as the Coca-Cola Co. and Maersk (China) Shipping Co. Ltd. In general, leadership programs in China have become more systematic, sophisticated, and results-oriented than they were a decade ago. Three major changes to leadership programs in China are:

  • In-sourcing  In the past, companies typically outsourced the entire design and delivery of training and leadership development programs to outside consulting firms. This was mainly due to lack of in-house know-how and resources. Now, companies are more proactive and engaged in the entire process. Many MNCs have hired designated personnel to design training programs with outside consulting firms. They are also more sophisticated and aim to ensure that the programs align with their corporate strategies and objectives.
  • Tiered programs  Programs are now deliberately tiered to meet the needs of professionals of different levels. Entry-level professionals, for example, need more technical skills required for their job functions and basic skills, such as time management and self-management. Qiagen, for example, once identified a need for local sales people to improve the way they dress to properly represent their corporate image. They conducted a training program that taught sales executives how to “dress for success.” The program was met with enthusiastic and positive reception from the employees, and it helped boost their confidence in facing customers. Mid- level professionals usually need to learn people management skills, such as communication, team development, and coaching skills. Senior-level employees need strategic planning, cross-functional collaboration, self-awareness, and leadership skills.
  • Diverse program design and delivery  In the past, even companies that had leadership development programs tended to use lectures as the primary teaching tool. That has changed greatly in the last several years. Leadership development programs now consist of a combination of traditional classroom-based lectures with more dynamic approaches, such as real project involvement, simulations, and overseas office rotations. Getting participants to work on a real business problem makes them apply theoretical learning in the classroom. It also gives them an opportunity to demonstrate their abilities and potential to lead. An overseas rotation familiarizes participants with the corporate culture at headquarters, and allows participants to establish relationships with key internal stakeholders so they can work together more effectively when they return to China.

RETENTION

One of the key objectives of learning and leadership development programs at MNCs in China is to retain top employees that are hard to find and even harder to keep. The Chinese workforce is extremely mobile as a result of the highly competitive job market and fast-moving market growth. A recent survey by employee engagement and leadership research and development firm, BlessingWhite, reported that among firms in China and Hong Kong, 30 percent reported turnover rates of 11-40 percent. The turnover rate for MNCs in China is 25 percent above the global average.

Companies have seen a little less turnover in the past two years as economic growth in China has contracted. But at the mid- to senior-level positions, it remains a highly competitive job market. Companies that achieved retention success by utilizing learning and leadership development programs did so by doing two things right.

  • Retention as a performance indicator  Effectiveness of learning and leadership development programs can be measured using key performance indicators to measure how it affects retention improvements. According to Fan, Maersk China once launched a leadership program aimed at developing future director-level leaders. One of the performance indicators was to have zero turnover for high-potential employees. The program lasted four years and had a different development focus for each year. Participants with different functional backgrounds and nationalities were selected through a nomination process and approved by a steering committee. The program had high commitment from top leadership, a clear focus, and well-designed activities. In the end, the company achieved the zero turnover rate goal at the end of the four year program.
  • Deliver on commitments  Having a high quality leadership development program alone is not enough to retain top talent in China. For a long time, there has been a “glass ceiling” for Chinese local hires. Top leadership positions tended to be held by expats and, in some instances, ethnic Chinese born overseas or returnees. Companies have learned that professional development programs alone are not enough. They must also promise and deliver professional rewards to prevent top talent from going to the competition. “There is little leeway to delay the delivery of such commitments,” Green says. “You also have to make it visible and transparent so people know there is no favoritism that played a part in it.” The Maersk China program also followed up with actual promotions for high achievers before the program ended.

A STRONG LOCAL WORKFORCE AND LEADERSHIP WILL BE CRUCIAL

Many changes have taken place for MNCs in China in the area of learning and leadership development. As companies look ahead to the next five years, the labor shortage, leadership gap, and salary hike trends will likely continue. To compete in China, MNCs will need to have a strong, committed local workforce, and companies will push to invest more resources in this area. They are also expected to become even more systematic and practical in their approach to align programs with clear corporate strategies and to deliver measurable results.

As China rises in sales, market share, and strategic importance for MNCs, companies are also realizing that local leaders in China may one day not only manage the China market, but also take on more global leadership roles. Significant gaps exist today to achieve this vision, but the increasingly sophisticated talent pool inside China, coupled with companies’ strategic and systematic approach to leadership development programs, promises that this vision will be realized in the future.

[author] Joy Huang is a management consultant and the president of Connect East, a company that helps global organizations in the west and China improve productivity and business relationships through consulting, coaching, and training. [/author]

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