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Heidrick & Struggles Points to China's New Normal and Winning Top Talent

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.

The local labor pool is improving, but competition is intensifying

The 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 companies approach HR, see “Prioritizing HR to succeed in China”). 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.

To view the full article, visit www.heidrick.com/Knowledge-Center/Publication/Winning_the_War_for_Talent_in_Chinas_New_Normal

 

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