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Winning the war for talent in China’s “new normal”The growth of digital business and shifting demographics are reshaping
the competition for top leaders in China.
HUMAN RESOU RCES OFFICERS P RAC TICEASIA PACIFIC AND MIDDLE EAST REGION
2 Winning the war for talent in China's “new normal”
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 e-commerce.
As a result, companies operating there
are finding it ever more challenging to
attract the leaders they need. Thriving in
this environment will require executives
to recalibrate not only their business
strategy but also their 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. Yet leaders of multinational
corporations (MNCs) in China still consistently cite talent
among their top concerns due to a shortage of skilled
workers and high attrition rates.
China’s demographic trends explain some of this challenge.
Workforce numbers are declining as the one-child
generation starts to enter 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
people, its biggest decline ever.1 In addition, the continued
exodus of educated professionals seeking opportunities
outside of China in search of better air quality and lifestyles
drains the talent pool further. In 2014, for example, more
than 76,000 Chinese were awarded permanent residency
status in the United States, up by more than 4,200 from the
previous year.2 While this number is small when viewed
against the nearly 800 million–strong Chinese workforce,
it is a telling indicator nonetheless. Collectively, these
trends provide some insight into the growing gap between
demand and supply of experienced executives.
1 Laurie Burkitt, “China’s working-age population sees biggest-ever decline,” Wall Street Journal, January 22, 2016, blogs.wsj.com.
2 Murong Xuecun, “China’s middle-class anxieties,” New York Times, May 10, 2016, nytimes.com.
3 “China’s most attractive employers—Trends and rankings,” universumglobal.com/rankings/china/.
The local labor pool is improving, but competition is intensifyingThe quality of local executives has risen rapidly in recent
years, with candidates touting improved educational
qualifications, language ability, and management skills.
In our experience, MNCs in some sectors are accelerating
their efforts to localize the leadership of China operations.
We find that more than 50% of the 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,
notes that local leadership is essential for understanding
the Chinese business environment and regulatory
requirements. Accordingly, 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 says.
The entry of many Chinese companies, both state-owned
and private, into the global arena has intensified the
competition for top leaders with the right skill set. For
many 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 employment option. As recently as
2012, Apple, a Western company, topped the list of most
attractive employers for students in several disciplines. By
2015, however, Chinese brands had taken the top position
in all areas except health and medicine.3 In recent months,
Alibaba, Baidu, Huawei, and Xiaomi have all made headlines
by poaching leaders from global competitors. With this
heightened demand, the need for qualified executives will
continue to rise as competition for talent shifts into high
gear in the coming years.
This transformation is under way partly because forward-
looking Chinese companies have recognized the value
of talent management (for more about how Chinese
Heidrick & Struggles 3
4 Trefis, ”Why is Alibaba strengthening its O2O (online to offline) presence?,” Forbes, December 31, 2015, forbes.com.
5 Daniel Zipser, Yougang Chen, and Fang Gong, ”Here comes the modern Chinese consumer,” McKinsey & Company, March 2016, mckinsey.com.
companies approach HR, see “Prioritizing HR to succeed in
China,” on heidrick.com). Many leaders seem to have gotten
the message and 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.
In addition to these value-adding offerings, local
companies that reach global scale can offer access to senior
management roles overseas that might not be available to
Chinese executives working for an MNC.
New skills neededThe most sought-after skills in China’s new normal economy
are evolving rapidly. A successful China 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
seasoned managers who can adapt as business models in
multiple sectors are disrupted by fast-moving technologies,
from e-commerce and the Internet of Things to artificial
intelligence. In our experience, these skills often don’t go
hand in hand.
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% penetration.4
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 zero to 25% of the population from 2011 to 2015.5
With innovation and digital transformation on practically
every company’s agenda, managers must also be sensitive
to the shifting perceptions and loyalties of China’s
new breed of digital consumer (see sidebar, “Reaching
consumers in China’s new normal”). 1 Gordon Orr, “Preparing for China’s middle-class challenge (Part 1),” McKinsey & Company, March 31, 2014, mckinseychina.com; Dominic Barton, Yougang Chen, and Amy Jin, “Mapping China’s middle class,” McKinsey Quarterly, June 2013, mckinsey.com.
Reaching consumers in China’s new normalOver the past decade, China’s growth has
been based primarily on a robust platform
of low-cost export manufacturing and massive
investments in infrastructure. As costs have risen and
China’s economy has diversified, the country’s leaders have
set out to rebalance the economy by shifting toward growth
that is fueled more by domestic consumption.
China’s consumers have long been a subject of intense
interest due to the sheer size of the population. McKinsey
projects that China’s middle class will expand dramatically,
to 630 million people by 2022, with the urban middle class
consuming goods and services valued at $2.8 trillion.1
Young consumers will account for much of this activity as
major purchasers of home and lifestyle products, leisure
and travel, and personal services.
The role of e-commerce is also an essential element of
reaching the new middle class. Smartphones are ubiquitous
and the reach of platforms such as Alibaba and Taobao is
unrivaled. On November 11, 2015 (Singles’ Day in China),
for example, Alibaba sold $5 billion worth of goods in 90
minutes and a record $14.3 billion throughout the day.
4 Winning the war for talent in China's “new normal”
Brands that were popular a few years ago are rapidly
becoming unfashionable. Managers must think quickly
and creatively in order to transform traditional brands to
meet the needs of today’s consumers. In a recent roundup
of the most laudable traits of China’s business leaders, the
Harvard Business Review highlighted a willingness to “jump
into white spaces, undeterred by lack of experience.”6 B2B
leaders, then, should look beyond their boundaries and
adopt a B2C perspective to anticipate and keep abreast of
evolving trends and changing customer behavior.
The dynamic market means more and more executives
are studying trends in other sectors. Consequently, the
movement of talent in China across sectors is increasingly
common. As Chinese companies grow in size and
sophistication, they are also becoming more successful
at bolstering their recruiting efforts with mid-career
professionals; these people have been trained by MNCs
and are now competing for the same pool of talent
across disciplines. Recent cases of executives moving
from traditional fast-market consumer goods companies
to online platform businesses demonstrate how local
enterprises can win over seasoned MNC managers.
Manage up, manage down Finally, the new normal dictates that the leaders of an MNC’s
China businesses must be skilled at managing up as well as
down. When China contributed only a small, albeit faster-
growing, proportion of global sales, the general managers
of an MNC’s China operations could run things more or less
as they saw fit without drawing too much attention from
headquarters. Now, with China contributing a much larger
proportion to the bottom line of many MNCs—our survey
of senior executives in the Asia Pacific region found nearly
40% reported that “China revenues represent 10% to 30%
of their company’s total global earnings”—headquarters is
likely to take a much more active role. China managers must
now justify their actions and hew closer to global practices
and standards while simultaneously keeping the
local team motivated.
With this shift, China managers must be sensitive to
employee job satisfaction and ensure the local team stays
competitive. In the current volatile, uncertain, complex, and
ambiguous (VUCA) business environment, global strategies
may not be easily transferrable to local situations. Leaders,
then, 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 reenergize people, strategies, and systems. KPMG
understands the value in looking outside traditional
channels for this sort of experience. “In the past 10 years,
we primarily sought people with backgrounds in financial
services for our advisory service,” says Yip. “Now that we’re
extending service lines and sectors, we will look to hire
more and more candidates with experience in areas such as
biotechnology, science, and engineering.”
Especially with the increasing importance of e-commerce,
bringing in essential knowledge or skills from outside the
industry is one way to build the required talent portfolio. In
addition, allowing people to work outside their traditional
roles can not only bring more diverse perspectives to a
team but also enhance a position’s appeal.
Focus on corporate culture
In a new survey by Heidrick & Struggles of more than 150
senior executives in China,7 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—above “a competitive employment offer.”
6 Thomas Hout and David Michael, “A Chinese approach to management,” Harvard Business Review, September 2014, hbr.org.
7 Heidrick & Struggles, ”Employer branding in China,” 2016 (forthcoming).
Heidrick & Struggles 5
Indeed, monetary compensation consistently ranked below
opportunities to enhance skills and advance careers.
But what exactly constitutes an attractive culture?
According to the survey, 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.
Building an attractive culture has practical implications
for the management of a company’s China operations.
Global headquarters must work to understand the dynamic
requirements of China’s new normal and, consequently, the
kinds of pressures facing their managers on the ground.
Rather than making decisions from afar, headquarters must
give high-potential talent the latitude to move quickly.
Show a clear route to the top
Our survey data also indicate that to attract senior
Chinese leaders, MNCs need to emphasize to potential
hires that they will be able to reach the highest levels of
the organization. Other research—including interviews
conducted by Heidrick & Struggles for this article—suggests
that many MNCs struggle to provide local candidates with
a clear path up the ladder. Some executives cite a glass
ceiling that causes local staff to build up experience at an
MNC before leaving to join local organizations for more
opportunity. MNCs, therefore, need to build stronger career
paths for local staff to encourage them to stay at
the company.
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. “Especially
for high-performing talent, you need to show them you
listen, care, and understand their career aspirations,” notes
Yip. “They need to know precisely what it takes to be a
partner or director.”
To address concerns of talent and enhance loyalty,
global leaders should put mechanisms in place to
avoid unconscious bias in hiring decisions. For instance,
companies could require local candidates in China to be
included on the list for top jobs. Giving these employees
their due takes commitment as well as a focus on local
performance. By understanding cultural differences, leaders
can better grasp the challenges of local managers and learn
how to communicate more effectively, 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
likely to be the ticket to success.
***
China’s economy is changing rapidly thanks to the growing
purchasing power of the expanding middle class and the
digital disruption of multiple sectors. It is little wonder
that competition for top Chinese talent—especially in
fast-growing China-based companies—is becoming ever
more intense. MNCs that can build strong leadership
teams and an attractive culture—while demonstrating
the opportunities for advancement to high-caliber local
talent—will be more likely to attract the leaders they
need to compete in the next phase of China’s
economic transformation.
About the author
Linda Zhang (lzhang@heidrick.com) is partner-in-charge
of Heidrick & Struggles’ Shanghai office and leads the firm’s
Human Resources Officers Practice in China.
Recommended reading on heidrick.com:
• Prioritizing HR to succeed in China
• What are your employees really saying about you?
• Who do China CEOs report to?
6 Winning the war for talent in China's “new normal”
Chris Bates Taipei cbates@heidrick.com
Arun Das Mahapatra Mumbai adasmahapatra@heidrick.com
Guy Farrow Sydney gfarrow@heidrick.com
George Huang Beijing ghuang@heidrick.com
Bill Kett Melbourne bkett@heidrick.com
Mark Sungrae Kim Seoul mkim@heidrick.com
Stephen McAlinden Hong Kong smcalinden@heidrick.com
Charles Moore Singapore cmoore@heidrick.com
Venkat Shastry Bangalore vshastry@heidrick.com
Puneet Pratap Singh New Delhi ppsingh@heidrick.com
Bangkok jstryker@heidrick.com
Linda Zhang Shanghai lzhang@heidrick.com
Heidrick & Struggles’and the Middle EastSteve Mullinjer Regional Leader smullinjer@heidrick.com
Aya Iinuma Tokyo aiinuma@heidrick.com
Michael Morcos Dubai mimorcos@heidrick.com
Heidrick & Struggles is a premier provider of senior-level executive search,
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we have focused on quality service and built strong relationships with
clients and individuals worldwide. Today, Heidrick & Struggles’ leadership
experts operate from principal business centers globally.
www.heidrick.com
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