By Linda Ye Zhang
After years of runaway economic expansion, China has settled into a “new normal” driven by lower economic growth, higher costs, stricter regulations, and the disruptive pressures of ecommerce. As a result, companies are finding it more challenging to attract the leaders they need. Thriving in this environment requires executives to recalibrate their business strategy and approach to talent recruitment and management.
In theory, additional talent should be available as growth slows in sunset industries such as heavy industry and low-value manufacturing for export. But leaders of multinational corporations (MNCs) in China consistently cite talent among their top concerns due to a shortage of skilled workers and high attrition rates.
China’s demographic trends contribute to this challenge. Workforce numbers are declining as the one-child generation enters the management pool. According to China’s National Bureau of Statistics, from 2014 to 2015 the number of workers aged 16 to 59 fell by nearly 5 million, the biggest decline ever. In addition, the continued exodus of educated professionals for better opportunities and air quality outside China further drains the talent pool. In 2014, for example, more than 76,000 Chinese were awarded permanent US residency, up more than 4,200 from the previous year. Collectively, these trends provide insight into the growing gap between demand for and supply of experienced executives.
Local labor pool improving; competition intensifying
The quality of local executives has risen rapidly, as candidates tout better education, linguistic ability, and management skills. MNCs in some sectors are accelerating efforts to localize the leadership of their China operations. More than 50 percent of lead positions with jurisdictional authority over China are now filled by Chinese citizens, many of whom also serve as executive officers within their global business.
Polly Yip, head of human resources for KPMG China, noted that local leadership is essential for understanding the Chinese business environment and regulatory requirements. Many global organizations have adjusted their executive teams over the past decade. “From a professional services perspective, KPMG is doing the right thing to localize most positions,” Yip said.
The entry of many private and state-owned Chinese companies into the global arena intensified competition for leaders. For years, western MNCs were the employer of choice for talented Chinese executives. Now many Chinese companies—in particular, privately owned ones—are the more sought-after option. As recently as 2012, Apple topped the list of most attractive employers for students in several disciplines. By 2015, Chinese companies took the top position in all areas except health and medicine. In recent months, Alibaba, Baidu, Huawei, and Xiaomi all made headlines by poaching leaders from global competitors. With heightened demand, the need for qualified executives will continue to rise as competition for talent shifts into high gear.
Recognizing the value of talent management, many leaders are beginning to reward employees based on their performance, provide long-term career opportunities, and offer a greater degree of autonomy and decision-making authority. As evidenced by the experience of privately owned enterprises, companies that embrace the importance of these factors will find it easier to attract and retain talent.
New skills needed
With innovation and digital transformation on practically every company’s agenda, managers must be sensitive to the shifting perceptions and loyalties of China’s new digital consumer .In China, a successful business leader needs to have the right mix of local and global experience, gravitas, and the ability to work well with a wide range of colleagues. However, companies are also seeking managers who can adapt as fast-moving technologies disrupt business models in multiple sectors, from ecommerce and the Internet of Things to artificial intelligence.
Finding executives who can navigate these trends is increasingly vital. HSBC projects that China’s online-to-offline market—for example, mobile apps that connect customers to local restaurants or process payments—is worth $150 billion and currently has just 4 percent penetration. Digital giants such as Alibaba and JD.com have been adding online-to-offline services to their portfolios by investing in online platforms and physical retailers. New online services are also thriving, with mobile payment penetration vaulting from 0to 25 percent of the population from 2011 to 2015.
The dynamic market means more executives are studying trends in other sectors. Consequently, the movement of talent across sectors is increasingly common in China. Recent cases of executives moving from traditional fast-market consumer goods companies to online platform businesses demonstrate this trend.
Manage up, manage down
The new normal dictates that leaders of an MNC’s China operations must be manage up as well as down. When China contributed only a small, albeit faster-growing, proportion of global sales, the general managers could run things without much input from headquarters. Now, with China contributing a much larger proportion to the bottom line of many MNCs, headquarters is likely to take a more active role. China managers must justify their actions and hew closer to global practices and standards while keeping the local team motivated.
China managers must be sensitive to job satisfaction and ensure the local team stays competitive. In the current volatile, uncertain, complex, and ambiguous business environment, global strategies may not be easily transferable to local situations. Leaders need to have the skills to influence, persuade, and lobby stakeholders as well as the knowledge of cultural nuances to ensure staff feel respected and fulfilled.
Talent strategies for China’s new normal
Many MNCs are realizing that they need to upgrade their approach to people management in China. Three strategies can position MNCs to succeed in China’s new normal.
- Broaden your search External talent can bring new ideas and aptitudes to re-energize people, strategies, and systems. KPMG understands the value in looking outside traditional channels for this sort of experience. Especially with the increasing importance of ecommerce, bringing in essential knowledge or skills from outside the industry can build the talent portfolio. In addition, allowing people to work outside their traditional roles diversifies perspectives on a team and enhances a position’s appeal.
- Focus on corporate culture In a new survey by Heidrick & Struggles of more than 150 senior executives in China, Chinese respondents picked “attractive culture” and “high quality of senior leadership” as the most important factors in making a company a good place to work.Monetary compensation consistently ranked below opportunities to enhance skills and advance careers. Chinese executives emphasized the importance of an employer that recognizes high achievers and encourages new ideas and diverse thinking. In defining high-quality leadership, respondents placed a premium on corporate leaders who are charismatic, inspiring, and credible spokespeople for their companies.
Show a clear route to the top To attract senior Chinese leaders, MNCs need to build clear career paths for local staff. . Research suggests that many MNCs struggle to provide local candidates with a clear path up the ladder. If they don’t, local talent may perceive a glass ceiling, causing them to build experience at an MNC and then join a local organization that presents better opportunities. A more targeted approach to nurturing senior leaders should include regular performance appraisals, clear pathways to promotion, and specific development targets such as skills building or overseas assignments. Leaders should also work to mitigate unconscious bias in hiring decisions. For instance, companies could require local candidates be included on the list of candidates for top jobs.
Giving local employees their due takes commitment. By understanding cultural differences, leaders can better grasp the challenges of local managers and more effectively communicate, which can empower staff to perform their best and outpace local competitors. Addressing cultural nuances, taking a personal interest in staff development, and adapting expectations and goals is the likely ticket to success.
About the author: Linda Zhang (lzha[email protected]) is partner-in-charge of Heidrick & Struggles’ Shanghai office and leads the firm’s Human Resources Officers Practice in China.