Chinese firms 'may trip up' in hiring spree

As they bulk up to expand their businesses, Chinese companies may find that the rush to snap up foreign talent doesn't always pay off

PUBLISHED : Monday, 24 September, 2012, 12:00am
UPDATED : Monday, 24 September, 2012, 8:57am

Earlier this year, the Hong Kong office of China Citic Securities, the mainland's top brokerage, snapped up nearly all the Hong Kong-based trading team of MF Global, at a time when the New York-based financial derivatives broker was in trouble in its home market.

Other big Chinese securities firms, such as Haitong Securities and BOC International, the investment banking arm of Bank of China, also have grabbed investment bankers, sales traders and research analysts from big Western names such as BNP Paribas and Bank of America-Merrill Lynch this year.

Headhunters say now is a prime time for cash-rich Chinese companies to acquire talent from Western firms that have been hit hard by a weaker global economy and are trimming staff. But privately, some recruiters say several Chinese companies have not hired smartly as they rush to bulk up to expand their businesses globally.

"People add headcount first because it's a talking point and a perceived measured success," said Brett McGonegal, the chief executive of Hong Kong-based Reorient Financial Markets.

"The next step is [that a company should] try to monetise and pay for the headcount by increasing business."

One example of a hiring misstep took place early this year when a major mainland securities firm hired an experienced account manager from a rival foreign bank in Asia.

The Chinese firm wanted to expand its customer base in the region, according to people familiar with the matter. Initially, the new hire called on his long-term relationship with a foreign sovereign wealth fund to get the fund to open a trading account at the Chinese firm.

However, about half a year later, the sovereign fund still had not had a single transaction through its new account. So the Chinese firm was not getting any trading fee income from the new client, said the people, who declined to be identified as the trading matters were internal and confidential.

Industry watchers point to such problems of new hires not being able to follow through and generate revenue as typical of the current hiring spree at Chinese firms. Consequently, they say that many Chinese firms venturing abroad do not have people on the ground that understand the needs of clients in countries where the firms are expanding.

Compensation is another problem. Chinese firms often hire staff from non-Chinese banks that are in danger of being laid off and do not have much bargaining power. As a result, the Chinese firms frequently just barely match or offer less than what the person was earning, reducing the incentive to stay once the market recovers and the job market bounces back.

Wang Yumin, an analyst with the Mergermarket Group who researches state-owned enterprises on the mainland, said many Chinese securities houses preferred to recruit senior people from top Western investment banks.

But the new top hires often regard their Chinese employers as temporary, intending to flee back to better-paying jobs - and higher year-end bonuses - in their cultural comfort zones of international banks when the market picks up.

"The key to scale [up] services is people, and it takes time to build up a good team. You need to have the right incentive systems, cultures and control in place," said Bao Fan, the chairman of China Renaissance Partners, the mainland's biggest privately held investment bank.

Parachuting in an external team to scale up the business could backfire at Chinese firms partly because of cultural differences, Bao said.

"Look no further than the Japanese and their failure to build global investment banking franchise," Bao said.

And the damage of bad hiring can be lasting, others warn.

"The thing that many banks often forget is that customers have memories. The bank can hire the wrong team that does a poor job, then it sends the wrong signals and eventually becomes the bank's reputation," McGonegal said.