BHP Billiton

Beijing's outside hires must relish a challenge

PUBLISHED : Sunday, 05 September, 2010, 12:00am
UPDATED : Sunday, 05 September, 2010, 12:00am

Bosses brought in from outside a company are generally regarded as having a poor record for making a good business great or turning a troubled one around. It is therefore interesting to see Beijing headhunting abroad, as well as at home, for senior positions in state-owned firms.

Management gurus agree you should hire executives from inside your company if you can. They cite high-profile examples of failed outsiders like John Sculley at Apple or Carly Fiorina at Hewlett-Packard. They say successes like Lou Gerstner at IBM are exceptions that prove the rule.

Another exception was arguably American hotel manager Chris Bachran. The former chief executive of the mainland's biggest hotel chain, Jinjiang International Hotel Management, saw an eight-fold increase in profits from 2004 to 2006 - and then quit in frustration. Mainland media said he could not find common ground with local hotel managers on such key corporate issues as strategic planning and human resources - surely two strengths on which he was hired.

In case this rings a bell, Beijing hired about 20 senior executives with international experience for state-owned firms in 2004, only to see many of them leave before long because of differences in culture and management style; and back in the 1990s Acer (China) hired more than 200 mid-level and senior executives from IBM, but 95 per cent of them left within two years for the same reasons.

Now, Beijing is looking abroad again when seeking to fill senior positions including general managers and deputy general managers at 12 top state-owned enterprises.

The goal is to help these companies catch up with foreign rivals by making their managements more internationally focused. China has grown some of the biggest firms in their industries by protecting them from competition in the country's huge market. But this advantage does not promote the structural efficiency, flexibility and innovation needed to build mainland products into global brands.

The likes of Bachran are therefore an exception to the management gurus' rule about outsider-bosses for another reason - China needs them. Mainland corporate management experts agree that Beijing is taking a step in the right direction, so long as foreign professionals are properly used and supported.

The new recruits will immediately encounter obstacles within the existing administrative and political power structure - indeed, the party will have the final say on their appointments. The state-owned sector is derided as inefficient and unresponsive partly because of its structure. Anyone would find it difficult to reform a company that is massively overstaffed and run inefficiently to serve state or national interests rather than commercial objectives. The new outside hires must therefore relish a challenge.

It is interesting to reflect that Anglo-American resources giants BHP-Billiton and Rio Tinto, who help fuel China's economic development, are now run by foreigners who joined as outsiders in the 1990s but became insiders. BHP's Marius Kloppers worked for South African resources companies and a management consultancy before joining Billiton. American Tom Albanese found himself working for Rio Tinto as a result of a merger.

The test is whether these new outside hires will still be there in 10 years. China needs to boost its corporate gene pool and liberate entrepreneurial spirits if it is to achieve the goal of breeding 30 to 50 state firms as national champions identified with global brands.