Drive to localise key positions

PUBLISHED : Saturday, 05 July, 2008, 12:00am
UPDATED : Saturday, 05 July, 2008, 12:00am

Multinationals are aiming to cut the number of expatriate executives

Fast-expanding multinational companies on the mainland are attempting to localise key senior positions instead of looking to expatriates. However, there are drawbacks as the pool of qualified professionals is not expanding as fast as the companies, according to Brian Sullivan, chairman and CEO of executive search firm CTPartners.

Mr Sullivan said that companies, especially multinationals with branches on the mainland, used to recruit expatriates to fill senior executive positions because of a shortage of qualified locals, and because they felt that it would be troublesome for senior mainlander managers to travel long hours on a plane for business meetings.

However, cultural differences and the language barrier often hinder expatriates successfully taking up executive positions on the mainland.

As a result, more Chinese professionals are taking up senior roles, such as chief executive and other positions on the executive boards of multinationals which have offices on the mainland.

Mr Sullivan said localisation was a top priority because 'there is no way that a CEO who comes to Asia for four weeks a year can absorb the sophistication and nuances of this market.

'This market changes so dramatically, and to such a different level in such a short period of time, that western companies need people on the ground to be able to advise them about this region'.

A survey by PricewaterhouseCoopers in 2004 showed that the majority of foreign companies on the mainland had no intention of increasing the percentage of expatriates in the coming five years and were planning to recruit more local professionals in the long run.

The survey also found that to achieve maximum return, multinationals were adopting programmes that would enable local professionals to assume key positions.

In terms of remuneration, the average Chinese manager is paid less than a western executive, so companies are able to save money and put it to better use elsewhere. Hiring home-grown professionals is also good for morale as enterprises on the mainland are likely to be more efficient with a localised team.

It's not just the multinationals, as companies of all sizes want to recruit more Chinese executives. Nevertheless, the shortage of experienced managers has become a serious issue as only a few of them have international experience.

There is also stiff competition to recruit senior managers, and companies are having to offer special pay packages to attract experienced locals. 'There used to be quite a wide discrepancy between Asian compensation and western compensation. That is less so now; everybody's much more similar,' Mr Sullivan said.

The 2007/2008 Annual Compensation Package Report in China, by the MRI China Group, shows that compensation packages for top-level executives at multinationals are growing, although the economy and appreciation of the yuan have slowed down.

The survey also showed a 34 per cent increase in total compensation for professionals of which 90 per cent were Chinese nationals. The banking industry saw the largest increase of 53 per cent last year and early this year.

Human resources and finance roles were the most sought after, according to the survey. Newly recruited senior executives are being offered pay increases of up to 30 per cent to join big companies.

With fierce competition, top professionals usually receive more than one attractive offer from different multinational companies, making the competition even tougher.

Mr Sullivan said these days multinationals were putting more locals on their executive boards. He cited PepsiCo as one example. The snack, food and beverage giant made Indian-born and educated Indra Nooyi CEO in 2006 and then chairman last year.

'Simultaneously, you're breaking into new business areas; into new regions where you're going to be concerned with how the name of the product is interpreted into a local language,' Mr Sullivan said.

'So ambidexterity is required in running the business, and who better to do this than Asians. They've seen more changes in a short period of time.'

As multinationals flock to emerging countries, such as China and India, to gain a foothold in these fast-growing economies more career opportunities are opening up for local professionals.

'Over the next five years, you are going to see many more sitting Asian CEOs or senior executives who are Asian working in Asia and living in Asia being invited onto western [executive] boards, and it's about time,' Mr Sullivan said.