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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

MAINLAND LESSONS

Interested in the world’s biggest market? Here is how big firms are tackling the problems

By Tim Healy / Shanghai


At first, the stories seem apocryphal. An executive search consultant mentions one Shanghai manager who has had 11 management jobs in three years. Another source says her friend’s brother had three jobs after graduating from Shanghai University -- in the first five months. Then you meet Zhang Guilin, who is almost embarrassed about having held four jobs since he returned to China from school in Canada in 1994. “Well, the first was for a state-owned company,” he says. “I wouldn’t even count that one.” Two foreign ventures did not deliver on their promises. Now, the 36-year-old engineer is general manager of German chemical company Wellgo in Shanghai.

A report by international management consulting firm AT Kearney suggests that the evidence for a manpower shortage is more than anecdotal. In Structuring for Success in China, which was made available to Asiaweek before publication, researchers Ng Sek Hong and Connie Pang studied 24 major multinationals and 15 state-owned enterprises. A key finding: despite years of effort, none of the foreign companies have fully localized their management teams. In 14 firms, all key positions are still held by expatriates. Asiaweek did its own interviews, both with the study’s authors and with key people inside and outside the survey. “Absolutely, human resources is the biggest job,” says Majdi Abulaban, managing director of car-parts maker Delphi Packard Electric Shanghai, which was not a participant in the study. “It’s probably the most critical factor to the ultimate success of a venture.”

This is the irony: in the world’s most populous nation, where an abundance of inexpensive labor is one of the real competitive advantages, the one human resource in greatest demand is also in least supply. There simply are not enough qualified managers, sales people, marketers, quality control personnel, and to a lesser degree, engineers and technicians. The shortage is getting worse as China’s economy gallops ahead -- an average growth rate of more than 10% for the last four years. No prizes for guessing the results: poaching, job-hopping and a steady spiraling of pay packages. State-owned behemoths, feisty rural collectives and entrepreneurial start-ups are all affected. But the problem may be most acute among the burgeoning number of foreign-invested joint ventures and representative offices.

Take the experience of Abulaban, an ebullient 33-year-old native of Jordan who is a naturalized U.S. citizen. After interviewing 250 Chinese candidates for 16 management openings last year, he hired four people. “I conducted those interviews personally,” he says. “Do you know how long that takes? But it was a real education. It was critical for me to listen to these people and hear what the situation is.” The Delphi manager felt he had no choice but to poach from more established companies. “Gillette, Xerox, Norton Abrasives -- I was not a popular person in Shanghai among the foreign business community,” he says. “I had to do it. We were a start-up. What else was I going to do?”

A joint venture between state-owned Sanlian Automobile Wiring Harness Factory and a division of General Motors, Delphi now has a management team of 17 people and a workforce that has grown by nearly two-thirds to 1,800 -- mostly in the last eight months. These days, Abulaban is speaking out against poaching. “Except for start-ups, it’s a real mistake,” he says. The manager is also making sure none of his people are lured away. “We plan to establish a training center right on site,” he says. “There is no better investment a venture in China can make than training.”

Also important: generous pay packages, culturally savvy management, and corporate structures suited to the type of business and market conditions in China. Some novel anti-poaching measures too. The Kearney study cites the experience of U.S. food company Nabisco. It stopped issuing training certificates at the completion of its courses -- employees were using them to shop for other jobs. A multinational consumer products company, which does not want to be identified, stopped sending people overseas to do college degree courses considered stepping stones to other jobs. One manager had used his new diploma to snag a plum post at another firm.

Why not continue relying on expatriates? For one, the government is pushing localization. In part to discourage the import of foreign workers, it taxes pay and perks like housing, transportation, children’s education and other perks. Cost is another reason. Local pay may be on the rise, but multinationals spend on mainlanders about one-tenth as much as on imported foreign talent, taking into account the benefits usually bestowed on expatriates. Above all, foreign firms have realized that experienced Chinese managers simply can be more effective than expats -- better able to motivate workers and navigate the shoals of China’s complex economy.

The mainland produces at most a few hundred MBA graduates a year from internationally accredited programs -- the bulk out of the China Europe International Business School in Shanghai. But universities and colleges have been turning out business graduates, engineers and other technicians, except during the turbulent Cultural Revolution of the 1960s and 70s. Where are these people? “You’d like to find experienced managers in their 40s or early 50s with the maturity to manage effectively,” says Ye Xinghu, assistant general manager of the Shanghai Foreign Service Co., which helps foreign representative offices find Chinese staff. “But this group generally isn’t interested in working for foreign companies.”

The reluctance could be a legacy from the days when free enterprise was a dirty word and being labeled a “capitalist roader” was a quick ticket to the countryside -- or worse. Ng, the co-author of the Kearney survey and a professor at the University of Hong Kong’s School of Business, has been studying China’s economic development since 1981. “There has been an ambivalence towards capitalism virtually since the reforms began,” he says. “The leadership has always had the problem of sorting out a fundamental contradiction: liberal economic capitalism with socialism. I know ‘One Country, Two Systems’ is meant to apply to Hong Kong. But I think it really describes China.”

So how are foreign enterprises coping? They are focusing on paychecks. “Compensation is very much at the center of what it takes to attract and retain talent in China,” says David Seabrook, managing director of the Hong Kong office of management firm Ray & Berndtson. “There’s such a boom going on. Salaries are going higher and higher.” Debbie Lieu, who conducts executive searches as a consultant for Maston Development in Shanghai, says executive pay there is growing at 20% annually -- compared with 7% in Hong Kong.

Abulaban says Delphi plans to offer a housing scheme for some managers. He isn’t sure yet exactly what the program will look like, but in other ventures it works like this: managers, usually only the top ones, receive a loan of, say, $60,000 to buy a home. If they remain with the company for a prearranged amount of time -- five years, for instance -- the loan is forgiven. But if they leave earlier they must repay. Abulaban also expects to see many more ventures offering automobiles to managers as enticements. He says Delphi is offering free driving lessons to its employees.

Corinne Labonté, who manages Ray & Berndtson’s Shanghai office, says she has noticed a tremendous attitude change among Chinese managers in the last year. “Especially in Shanghai, people seem very aware of their worth. One guy said to me recently: ‘I will not take peanuts, that’s for sure.’ They have a light in their eyes, and they know they’re good.” Zhang, the Wellgo manager in Shanghai, says his peers are simply tired of being short-changed. “Pay should be based on experience, capability, contribution to the company -- not on whether you’re an expat,” he argues. “It’s a matter of dignity. Everyone wants to feel like he’s being treated fairly.”

Zhang says a career path is also becoming increasingly important. The Kearney report finds that more and more companies are taking notice. It singles out Shanghai Bell, a venture majority owned by the Ministry of Post and Telecommunications with the Belgian unit of Alcatel and the Belgian government as partners, for being especially attentive to the career needs of its people. In the late 1980s, the company found itself with a large, relatively young managerial staff but not enough opportunities for advancement. Shanghai Bell, says the report, was “a key target of poaching, and increasing turnover was observed within the joint venture.”

One solution: offering Shanghai Bell employees positions in the company’s subsidiaries and joint ventures. To date, company alumni work in a dozen associate companies. “The job opportunities created were not the purpose of the ventures,” says Yin Linggu of Shanghai Bell. “We wanted to expand our business scope.” But in giving priority to its employees, the mother firm raised morale. Says the Kearney report: “Shanghai Bell has successfully created more career promotion and advancement opportunities and should be able to retain quality staff more effectively.”

Thai conglomerate Charoen Pokphand also participated in the study. An early entrant in China in 1979, it admits to making plenty of missteps in the past 18 years. “We’ve gone through several stages in terms of management, but we’re gradually reaching the point where we can fill a lot of jobs internally,” says Chen Ting-ko, a Taiwan national who is in charge of the group’s 100,000-plus workforce. In the beginning, Charoen Pokphand brought in Thai managers. But they didn’t know the language or mix well culturally. An experiment with Chinese managers from other Asian nations, not including Taiwan or Hong Kong, also failed. When Chen arrived in 1986, after four years as dean of National Taiwan University’s business school, he urged the company to hire managers from Taiwan.

Chen says the strategy worked because the Mandarin-speaking executives understood Chinese culture. But hiring outsiders, even ethnic Chinese, may not be the perfect solution. A Western management consultant says Chinese workers can be critical of managers from Taiwan and Hong Kong. “They don’t like their morals,” he says bluntly. Whether true or not, many are seen as philanderers who set up second households in China. Japanese tend to be seen as too rigid. Shanghai manager Zhang says he once worked with a very difficult American boss: “Sometimes, he would bring gifts and praise people. At other times he would get angry and yell at them. Everyone wondered: can I work for this man?”

The shortage of business skills has other implications. Pang, who is an AT Kearney management consultant, says foreign enterprises in China frequently have to establish new structures to husband scarce human resources. One leading American company -- it too does not want to be identified -- initially duplicated the organizational set-up it has in other markets. Autonomous units were formed for the company’s consumer health-care, pharmaceutical and medical-equipment lines. In 1995, the company decided to restructure. “The different units just weren’t learning from each other,” says Pang. “It was like reinventing the wheel every time.”

The company created the position of national executive. Functional councils comprising representatives from the product groups and joint ventures were formed to share experiences and provide support across all operations. The firm also established a task force on information technology to work on a computer infrastructure to be shared by all units, and another on human resources charged with developing a consistent compensation and training policy for the whole group. This “shared competency approach,” as the study calls it, “has the potential benefits of providing a coordinated corporate face to the government and customers, and utilizing scarce resources more efficiently.”

Increasingly, the market is also demanding organizational changes. Telecommunications company Ericsson has been profitable since it entered China in 1991. But last year, it modified its product-driven structure (public switching, mobile radio, private exchange systems and cellular phones) to one that focuses on the customer. Competition with rivals like Siemens, AT& T and Shanghai Bell was just getting too heated. By creating four regional offices that serve the client directly, Ericsson hopes to stay among the leaders. Under the new set-up, the products groups and other offices extend technical and other support.

What lessons can existing China operations and those planning to enter the world’s biggest market draw from all these? “There is no hard and fast formula or single answer to the issue of successful business development in China,” says the Kearney study. But it stresses the importance of patience and constant reality checks to help develop the “best fit” arrangement for organizations. After all, China is a society in flux. “While there is not a great deal of political freedom, there is a tremendous increase in the amount of economic freedom,” says Ng. “People have many more choices than in the past.”

That includes which companies to work for. “Ten years from now, it may be a completely different situation,” says Seabrook of the executive shortage. “Who knows? Maybe China will be exporting managerial talent.” Until then, the three key things to remember in doing business in the mainland are people, people and people.


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