As China’s economy continues to bounce along, human resource experts predict that an increasing number of non-Chinese executives and senior managers will be bailing out of their overseas assignments at multinationals in the country to join local employers. It’s easy to see why. While business remains sluggish for many companies from developed countries, Corporate China’s prospects are enticing. In last year’s annual Fortune 500 list of the world’s largest companies was published, there were a record 37 Chinese companies, with nine new entries and the rest climbing in the rankings. Along with Sinopec, China National Petroleum, State Grid and all the other state-owned giants in the ranking, there are plenty of private-own companies in China with growing international clout as well, including the likes of Chery Automobile, Huawei Technologies and Lenovo.
Meanwhile, Chinese companies with global ambitions are welcoming these job-seekers with open arms. With many Chinese companies developing more culturally diverse management teams, the resumes of foreign candidates are looking highly attractive. That’s particularly true for globe-trotting foreigners with stints at Western multinationals in China, who they hope have leading-edge management know-how to share.
However, the transition from multinationals to Chinese firms is not always easy. HR managers and recruiters report that turnover of foreign expats at Chinese companies is high, and it’s increasingly common to hear about expat resignations being handed in less than a year after arriving at their new employers, to the detriment of all involved.
Cheng Yuan, country manager, greater China of Russell Reynolds Associates, an executive search company, notes that of the dozen Western executives who work for Chinese companies she has interviewed recently, many have hit the rocks with their employers. “Most of them choose to leave within six months or even sooner, making a negative impact on not only their own morale, but also on Chinese bosses’ willingness to recruit from Western companies in the future,” she says.
The key, of course, is not to let the relationship reach that point. That requires an induction process that “work two ways,” says Karine Schomer, president of California-based Change Management Consulting & Training (CMCT), a provider of cross-cultural coaching. And more often that not it also requires large doses of soul-searching. “The whole purpose of this is to surface what different assumptions are about what is considered normal,” she says.
The trouble is China is changing rapidly, both economically and socially, so getting a grip on what “normal” isn’t straightforward, even for locals. “It brings huge challenges not only for Chinese business leaders, but also for anyone working in China,” says Lan Kang, a partner at Korn/Ferry International, an executive search company.
Even foreigners who have worked for multinationals in China and reckon they have learned the ropes are often in for a jolt when they join a local firm. “For Chinese companies, the headquarters is here,” says Lan. “If they hire a CEO, this person needs to manage everything from sales, production and R&D and make every decision. So the demand on that talent is very comprehensive. In comparison, the scope of a country General Manager/CEO’s role at a multinational’s Chinese operation is relatively narrow.”
It’s a difference that Tony Yuan knows all too well. He was an HR manager of a well-known American company in China for three years before leaving for the biggest real estate company in the country. According to him, multinationals in China tend to be relatively mature from an organizational standpoint and their country managers are expected to run the business unit with a set of clear processes and procedures. In contrast, most Chinese companies are young organizations that are still under development, so they need managers who are flexible and open to working amid more ambiguity and less transparency than they’ve been used to.
Yet even amid ambiguity, one thing is clear at Chinese firms: There’s no question in anyone’s mind who the boss is. HR experts agree that non-Chinese executives are often flummoxed by the rigid hierarchical structure of Chinese companies, in which what the CEO says, goes, with no questions asked. “With all the talk about [Chinese organizations] flattening, there is still not a lot of pushing back against authority,” says CMCT’s Schomer. “People on the inside [of Chinese firms] often don’t see that, and might be surprised if, say, the American middle manager, without even thinking, pushes back.”
Having studied the leadership styles of CEOs around the world, Wayne Chen, managing director of northeast Asia for Hay Group, a global management consultancy company, says there are a number of differences between China and the West. For example, Chinese executives are more inclined to give orders, which the rank and file is expected to follow. They also have a more “affiliative” management style, putting people first, tasks second. For their part, Western leaders lean more toward a coaching style of management with an aim to inspire, guide and engage staff around a shared vision.
“The kind of affiliative and coercive style works in China because leaders are like parents. They love you and want you disciplined and working hard,” says Mary Fontaine, global managing director, leadership and talent practice of Hay Group. “In the U.S., coercion can’t work as people don’t feel like they can think for themselves; all the innovative ideas and the freedom to create will be lost.” And unlike in China, she says, Western corporate leaders “are taught to delegate and use their staff well,” with other executives such as the chief financial officer being more a CEO’s peer, rather than subordinate.
Understanding such power structures is one of the most important “hidden rules” of Corporate China, says Tang Jun, a former China CEO for Microsoft who is now president of Fuzhou-based New Huadu Industrial Group in an interview to a local media last year. “Chinese companies are authoritarian, a bit like the traditional political system in China,” he says. “One person has centralized power, no one else does. Multinationals are different, the power is more decentralized.”
However, that could be changing, in a way that could benefit expats’ skills and experience. “Several [Chinese] CEOs admit publicly or privately that they do not always have the answer to problems,” says Wayne Chen of Hay Group. “There is an increasing need for them to get everybody to understand that collective wisdom has now become more important. As a result, visionary and coach-based leadership is getting more important in China. For those who are used to telling people what to do, it’s a challenge to say, ‘Let’s brainstorm, let’s think together and let’s be open for new ideas from each other.’”
As for expats, there’s also a growing need for change, says Schomer. Despite multinationals having a presence in China for 20 yeasr now, one of the pitfalls they continue to encounter is “their general ignorance about how the Chinese system works, which can lead to wrong assumptions about how a company is structured, its relationship with the government, and what happens above and below the table.” American and other Western expats also still often haven’t grasped importance of personal relationships and informal networks in Corporate China. “Americans tend to be very task oriented and not so good at all the banquets and the socializing,” which Chinese consider a vital part of their work, she says. Such gaps can catch Chinese employers by surprise.
Pay on Display
Another consideration is pay. Generally, compensation packages at Chinese companies are less generous than at multinationals. Part of the reason is that multinational executives are paid more to compensate for their mobility, says Kevin Tam, a senior consultant in China for HR consultancy Mercer. Other pay experts note that foreign expat packages often include bountiful overseas allowances and benefits, even though the economic downturn has changed that at many multinationals.
Extensive executive pay data aren’t widely available to the public, but Shao Ning, deputy head of State-owned Assets Supervision and Administration Commission, noted at a Boao Forum for Asia conference in April that the average annual salary for a CEO at the big state-owned companies that SASAC manages — including ICBC, one of the world’s largest banks by market value — is around RMB 580,000 ($85,300). At Shenzhen Development Bank, which counts an American company as one of its major investors, compensation for board chairman Frank Newman is RMB 17.41 million for 2009. For other A-share listed banks in China, salaries vary greatly, from RMB 1 million to RMB 15 million annually.
Meanwhile, according to a new joint study of CEO compensation at 200 large firms in the U.S. by Hay Group and The Wall Street Journal, the median value of salaries, bonuses, long-term incentives, and grants of stock and stock options was $6.95 million, with overall cash compensation at $2.6 million.
Mercer’s Tam also cites a survey of executive compensation of both Western multinational and local firms in China, which also found a big difference in the proportion of cash and bonuses that make up the pay packages at foreign multinational firms in China and home-grown companies. According to the survey results, the breakdown for the packages of senior executives at multinationals is nearly 60% fixed, compared with 40% fixed of their Chinese counterparts. Multinational executives’ short- and long-term incentives is 21% and 22%, respectively, compared with 26% and 34% at Chinese firms.
What’s most striking at Chinese companies, however, is the enormous inconsistency of pay packages, not just from one company to another but also even within one company. In some cases, pay and bonus packages are designed on a case-by-case basis, leaving companies open to staff grumblings about favoritism. “This conflict is not easily resolved,” says Lan. “Some companies have started paying for performance or pay the whole team on performance rather than one person, which might be the solution.”
Follow the leader
HR experts have a host of advice for both Chinese employers and their new foreign employees. Some stress, for example, the importance of newcomers before reporting to work on their first day making sure that reporting lines well-defined and made clear to other staff. Beyond that, it’s important to report to the most-senior person possible. “You will need strong support from top leaders as outside executives ‘parachuted’ in usually do not have much of an inner circle and recognition,” says Cheng of Russell Reynolds.
HR experts also say a large dose of flexibility is important. As Jonathan Yan, a former Procter & Gamble manager in Beijing who then worked as sales and marketing director of Four Dimension-Johnson Industry, a Beijing-based auto-security company, puts it, “I have worked in different positions in the current company — including in the supply chain, sales and overseas acquisition departments — and it’s flexibility makes me fit well to the current work environment.” He says because Chinese companies are changing rapidly, foreign executives shouldn’t be surprised if they have to revise corporate strategies on a daily basis, rather than on a quarterly or annually as they might be accustomed to.
Lan adds, “An ability to learn is very important. Some people do well with Chinese employers because … they are creative in figuring out the difference in the Chinese market and thus develop their work accordingly.” A case in point is former McKinsey colleague of hers, who now manages supply chain for a private Wuhan-based medicine distribution company with annual sales of around RMB 20 billion, and “is finding his way quickly.” His secret? He has strong functional expertise in IT and supply chain management, and helped his business unit turning from a cost center to a profit center, which increased his credibility among colleagues. Kang reckons others should follow his example. “You have to create and achieve some milestones in short term, before you plan for longer term achievement,” she says. “You have to be able to identify some low-hanging fruit, otherwise it will be hard to stand out.”
To make a good impression, CMCT’s Schomer says expats should focus on “the first 100 days, which is when you learn the most. It’s really important to do a lot of relationship building in those first 100 days. Be a listener, be a learner, have all your antennae out. It’s when your role as a learner is most effective. If you come in and say, ‘I’m an American, I’ll show you how things are done,’ that won’t go over very well.” She also adds that it’s a good idea “to build in time for reflection at the end of each day,” to think about what is going well and not so well and “immediately get some kind of support if something rubs them wrong the way rather than letting it slip and become a bigger issue.”
In return, expats also might be pleasantly surprised to find that Chinese companies are open to change. “If China is going to move up the value chain to develop its domestic market, executives here have to think differently because [traditional] coercive leadership styles shut down innovation,” comments Wayne Chen of Hay Group. “We need more local leaders, who can motivate, engage and inspire their employees.”