HIP, HIP, HORRAY! The global financial crisis is over; well at least according to Australian Treasury Ken Henry. With unemployment in the US at an 11-month low, and GDP growth in Australia reaching 3.2 percent in April this year, he’s probably right. As long as he ignores Greece’s plight. This return to positive growth for Australia and a turn in fortune for America’s unemployed is good for business everywhere, nowhere less than China.
But now that it’s safe to come out, who will lead in China? The global financial crisis cut down ranks of senior managers in industries are varied as banking to semi-conductors, but now that times are beginning to improve, the question is clearly, “more of the same, or a new and improved version?” Will we see companies led by the same grey-haired laowais, or is the Chinese manager ready to move into the swanky corner office?
The Rebuilding Begins
“Due to over-firing and recruitment freezes, firms have been scrambling to hire back leaders,” says James Yuann, Managing Director of Boyden Executive Search. But Yuann doesn’t believe this is anything new. He believes that the shift from firing to hiring in China began as early as the second half of 2009, partly due to a realisation that China was defying the global financial trend and could help balance books back home, overseas.
“will the supply of talent meet the obvious demand?”
Alastair Watts, Managing Director, from Antal International agrees that the need for leaders has rebounded. In the Antal Global Snapshot report which surveyed 9,000 companies globally, 10 percent of which were in China, his firm confirmed that 72.7 percent of both multinational and Chinese firms will be hiring in the next three months. While not all hires will be senior management, it’s important to note the massive revival in recruitment, considering that in January 2009 only 20 percent were rehiring. “Recruitment is booming,” says Watts. “While there was a plateau from May to September 2009 of around 50 percent, the most recent figure of 72.7 percent clearly shows that businesses foresee a bright future in China.”
All this optimism is great news for recruitment firms, particularly those operating along the Eastern seaboard of China, however, the question still remains, “will the supply of talent meet the obvious demand?”
Localisation at what cost?
Increasing localisation has been an obvious choice in the past, and it does have its benefits. Expatriates are expensive and the ‘packages’ that complement the pay check have included, at least in the past, housing, car, children’s’ education, and living allowances. Some packages have also included ‘tax localisation’, a simple term to explain a complicated method of benchmarking taxes to one’s home country, and by doing so, reducing one’s personal income tax in China. But for many multinationals in China these big bucks spent on leadership haven’t resulted in big returns, and an absence in local expertise coupled with short deployment periods have been blamed. Consequently, the percentages of local hired senior managers have been on the increase. According to Yuann, local hires are now up to 50 percent, Singapore and Hong Kong hires are 40 percent, and foreign hires, the traditional expat, are only 10 percent, of senior manager postings.
Some packages have also included ‘tax localisation’, a simple term to explain a complicated method of benchmarking taxes to one’s home country…
George Wang, general manager of Randstad, agrees that the trend to hire Chinese for senior managers has been on the increase since the middle of 2009. Wang also believes that there is a big push to develop the middle management in China, and that these are not necessarily always Mandarin speaking. “Middle managers from abroad have more hands on experience working in their chosen field, than Chinese staff of the same age, and these younger expatriates are far less expensive than the traditional senior expatriate. This is probably due to China being an attractive place to work for younger managers,” says Wang.
Gin Chen is one such younger expatriate who has been posted to Shanghai by her American pharmaceutical company. But unlike her predecessors, she comes with a cultural advantage.
“My company asked itself how it could bring our leadership standard to the next level. Top level changes were the first step towards the company’s vision, and step two of the strategy was to bring in mixed culture staff at a middle management level,” says Chen. Chen, a Taiwan-born Australian, who is fluent in Mandarin, represents a hybrid, “mixed culture”; one born with a foot in China and the West. Chen says that it was her expertise in a foreign market, namely Australia and later Korea, that taught her ‘best practice’ for her industry and that her role in China is to act as a catalyst to facilitate these practices alongside global awareness.
Georgie Chong, general manager of Hudson, also agrees that global awareness is important for the development of Chinese leaders. She says that many of her clients are asking her to find leaders who can think strategically and she has seen programs that place high potential Chinese staff overseas for two to three year stretches. “The big multinationals, like your big auto companies and your GEs understand that this is the fastest way to add international exposure to Chinese staff,” says Chong.
And speed is what is needed, if China is to meet the predictions of a Manpower report, released in 2006. The report stated that “it will still take six to eight years before graduates gain sufficient work experience to ease the current competition for mid-level and senior managers”, meaning that as early as 2012 to 2014 Manpower believes China will see mass localisation. Wang of Randstad believes that the global financial crisis has even increased the speed at which this localisation is happening.
the transition shouldn’t happen for at least another decade, as this is as long as it will take for the mindset of the Chinese leaders to become in line with best practice.
The result, whether your predications are optimistic like Manpower, or cautious like Boyden, is that “the pool of people who are of high calibre”, as Chong of Hudson puts it, “is limited”. “Talent today is ready for director level”, says Chong, “but not C-level.”
Opportunity for abuse
This shortage doesn’t mean that positions remain empty. Under-qualified leadership aside, in the worst case scenarios academic experience has been built on lies. In early 2009 the deputy principal of Anhui Agricultural University was found to have committed plagiarism in as many as 20 papers and later in June, the principal of a traditional Chinese medicine university in the city of Guangzhou was accused of plagiarizing at least 40 percent of his doctoral thesis from another paper. The worst case occurred in March of this year when the state-run China Youth Daily reported that a 1997 medical paper had been plagiarized repeatedly over the past decade with at least 25 people from 16 organisations copying from the work. Fang Shimin, an independent investigator of fraud, said he and his volunteers expose about a hundred cases every year, publicising them on a website titled ‘New Threads’. “The most common ones are plagiarism and exaggerating academic achievement,” Fang said.
But while Fang reports hundreds of cases a year, surprisingly background screening as an industry has been slow to take off in China. Richard Bensberg, Managing Director of Red Flag Screening based in Beijing, says that background screening, or ‘pre-employment screening’ as he calls it, is popular in the West and also in India. In India the practice has been driven by the practice of outsourcing, particularly for the financial industries. “Vetting of individuals creates an atmosphere of honesty in the organisation,” says Bensberg. “Pre-employment screening is promoted on job advertisements, so applicants know that it is part of the process before they apply. Those candidates who pass preliminary interviews know that screening is conducted before on boarding.” According to Bensberg, pre-employment screening focuses on the data trail that we all produce. Bensberg’s team is able to use publicly accessible databases, which includes police and government maintained ID card records. His company also conducts human interface searches, via telephone conversations with previous colleagues and superiors. All, of course, is completely legal and a way of obtaining a complete 360 degree view of the applicant.
And it is this 360 degree review that is lacking in China and responsible for the slow evolution of leaders in China. Robert Parkinson, managing director of RMG Selection, says that “part of building to be a leader is undertaking a 360 degree review, as it shows to your subordinates that you accept feedback.” Parkinson believes that receiving feedback from subordinates is one of the biggest hurdles faced by Chinese leaders and he believes that it will take a long time before “this type of feedback will be accepted as the norm.” Parkinson says that in China, “leaders give directions. They don’t accept feedback well.”
This ‘command and control’ style, is hampering the development of tomorrow’s leaders, says Chong
This ‘command and control’ style, is hampering the development of tomorrow’s leaders, says Chong. Chong believes that leadership is harder to develop in-house in China, compared with the West, because of this style of leadership. “Staff don’t develop their experience and this is often because their superiors are afraid to assist their subordinates in fear of them being better than themselves,” says Chong. “The irony is that the fastest way to move up the chain is to have someone qualified to do what you are doing today!” Jim Collins, author of ‘Good to Great’ and ‘Built to Last’ would agree. His findings reported that it “is extraordinarily difficult to become and remain a highly visionary company by hiring top management from outside the organisation.”
Surprisingly, the drive to internally develop management may be driven by State-owned enterprises (SOEs) and Chinese private business, rather than the MNCs. “There are a lot of Chinese companies that are thirsty for investment, or who want to invest in Western companies,” says Parkinson. “But marching into Detroit, London, or Berlin is going to be very difficult with their current leadership teams. If they want to run these firms then they will have to understand international best practices.”
But the West may not be Chinese firms only target. Chinese car and battery manufacturer, BYD, in February bought Japanese diemaker, Ogihara. And the number of Chinese firms purchasing Japanese firms is on the increase. According to the Economist, last year it almost doubled!
The King is dead! Long live the King!
So with global domination imminent and with experts all agreeing that the days of the big expatriate package are over, surely the new kings must be Chinese. “People are trainable,” says Chong of Hudson. “The real issue here is not the ability of Chinese leaders, at least not theoretical ability, but developing leaders who can move away from short term gains. There is too much short term thinking in leadership today. Coaching can definitely assist to bump up middle managers in this area.”
It’s no coincidence that coaching has seen rapid popularity across China, most likely due to its association with high performance leaders in the West, including Jack Welch, who personally had many coaches during his tenure at General Electric. With this in mind, perhaps the leaders of post global financial crisis China won’t be ‘new and improved’, but rather the “best of the West, with a little bit of Chinese characteristics thrown in for good measure”.
And if George Wang of Randstad is right, being an unemployed expatriate in China could be a great asset in the next few years, as Chinese companies expand into the West, and start hunting for foreigners with Chinese experience. “Foreigners will eventually get their jobs back, only this time in their home country working for a Chinese-owned firm.”