An increasing amount of international enterprises are coming to China to expand their business operations, compounding the pressure of talent shortages for all organizations. Given this imbalance between supply and demand, organizations face a difficult choice: to bring experienced expatriates into key roles, even though they don’t understand the Chinese market, or to hire local executives who might not be used to work in multinational organizations and who often have less significant leadership track records. Historically, expatriates were the more expensive option, but the compensation gap between the two quickly is narrowing.
What is the best solution to address this dilemma? Is it better to appoint expatriate talent or to hire local executives to develop your business in China?
Local executives with ideal profiles are rare and, as a consequence, tend to go to the highest bidders. Some organizations select local talent with good potential and appoint them into more senior roles than appropriate in the hope that they will be successful. Other companies identify junior local managers in the hope that they can step up later and, in the meantime, fly in expatriates to fill the management gap, hoping they will quickly learn the nuances of China.
Each option requires careful consideration. Organizations must conduct early and in-depth assessments of step-up local hires, focusing on cultural fit and potential. Companies should develop targeted on-boarding plans for these local executives over a six- to 18-month period; often these plans require individuals to lead or participate in special projects designed to develop necessary competencies and test them in real-life situations, thereby reducing the risks when these local managers take on leadership roles. At the end of the on-boarding process, individuals need to be given enough trust and autonomy to operate independently or they will look for other opportunities.
Too often, we have seen expats “not work out” in China for a variety of reasons. Experienced organizations now are making very careful choices about who they move, evaluating candidates beforehand and supporting them in a more structured way as they enter Chinese business.
Establishing cultural fit is essential, but organizations must ensure that expatriates have local confidants, advisors and go-to people to help open doors and navigate relationships. Organizations also must make sure that expatriates are clear on the success criteria in terms of developing the China team around them, identifying successors early and having plans in place for them. There must be regular checkpoints to ensure that expatriate managers are getting the feedback they need to make course corrections along the way.
In the coming years, we will see ever more local candidates stepping into senior management roles in multinational companies in China. This is a necessary development and one that organizations need to work strategically to support. Trust and greater autonomy also are key if multinationals are to give local executives the authority and decision-making power they desire in order to have a larger impact.
For many companies, however, greater localized authority is not an easy move to make. The pace of change is fast in China and the talent supply will remain constrained for many years to come—particularly given that Chinese privately owned companies are growing and developing at a rapid pace and already are luring talented local managers away from their multinational competitors.