Competition sparks CEO shortage
By Zhao Renfeng (China Business Weekly)
Updated: 2004-08-27 14:30

Inadequate human resources and intense competition among Chinese and international companies seeking to hire senior staff have caused a shortage of CEOs.

While experts agree hiring seasoned managers with a deep understanding of both domestic and foreign markets will largely lift the calibre of a company's management, they said a good corporate climate has to be nurtured in tandem to make executives fully flex their muscles.

"Executives cannot work well in an incongruous environment. We have noticed some failures with Chinese companies," said David Guo, senior expert with Heidrick & Struggles, an international executive search company.

He said many Chinese companies, particularly large State-owned concerns, are just starting to transform their operating mechanism.

Even though they are heeding the urgent call to recruit internationally experienced executives and professionals, the process may not live up to their expectations due to imperfect corporate governance and poor internal operation system.

Executives may feel it very hard to integrate with local corporate culture and thus hardly gain full support of local employees.

Steve Mullinjer, general manager in China with Heidrick & Struggles, said China has gone through three phases of industrialization.

The first phase was welcoming large US and European multinationals to pass on technology and management skills, and aggressively courting joint-venture investments in agriculture, industry, technology and infrastructure sectors in order to transfer in foreign technology and knowhow to kickstart China's development.

Secondly, a lot of Chinese businesses in sectors ranging from technology and natural resources to consumer goods, have now started to look at expanding internationally.

"We have witnessed an acquisition of Group Schneider by the Chinese TV manufacturer TCL Group as a means of penetrating the European market. Corporate giants have listed or are in the process of listing on the Hong Kong or New York stock exchanges, and are now competing in international markets," he said.

The third phase is the emergence of Chinese conglomerates that will evolve into household names on a parallel with the IBMs, General Electric, Toyotas and Boeings of the West.

"A number of companies have the potential for this --electronics giant Hai'er and Lenovo Computers. And there are some others, particularly in the petroleum and natural resources sector," he said.

So where does China stand in this three-phase process?

"It's right at the formative phase of moving into the international arena," Mullingjer said.

This has large implications for those seeking executive.

"Traditionally, we have been finding expatriate management talent to fill key executive positions in joint-venture organizations in China," he said.

"We are now entering a stage in which there will be a distinct overlap between foreign investment in China and large Chinese companies expanding into the international arena."

This overlap, he said, is heavily dependent on a special type of management personnel referred to as the internationally seasoned "PRC returnee."

This candidate pool is the product of the first wave of Chinese nationals who left China in the late 1980s and early 1990s, earned their MBA degrees overseas and then worked in either the European or the US marketplace for seven to 10 years.

They have developed their management skills in sophisticated markets and have been promoted on a meritocratic basis to senior management or executive positions in free-market economies.

He said there is a significant difference between these individuals and the second wave -- those who left, received their MBAs and returned straight home to China without acquiring foreign management experience.

"These people (the second wave) have not competed in an international market and don't garner the same respect as the first group," he said.

The PRC returnees who have advanced through the corporate ranks in the United States or Europe are generally the best-equipped executives to lead Chinese businesses that are expanding into international markets, says Mullinjer.

They have the cultural, linguistic and core commercial skills required to operate effectively in an international marketplace, and are highly sought-after in the Chinese market short of experienced staff.

However, "the supply-and-demand equation is really out of synch in China. The pool of top talent is small and mobile," Mullinjer said.

He said many people tend to overvalue their capabilities and their expectations are often much beyond what companies are ready to offer due to the limited number.

This situation, according to him, is also exacerbated by mismanagement of Chinese companies' human resources.

For example, many companies have multiple classes of employees -- the full expatriates, the semi-expats, and the locals. To retain competent expatriate talent, they need to provide fringe benefits such as housing allowances, cost-living adjustments, education, home leave and transportation. In a company where there are three grades of employees in terms of compensation and benefits -- people who in effect all do the same job -- it is no wonder that many of the local or semi-localized executives change companies the moment they are offered more money.

"They feel that, to a certain extent, they're being treated as second-class citizens within their own organizations," he said.

"It creates a complex workforce psychology, and it needs to be managed proactively in order to retain key people."

International top business schools actually have heeded the increasing need in China for executives with wide international vision and also good understanding of local culture.

Chu Mengdan, a recruitment expert with Michigan Business School in the United States, said that her school has been operating a dual-degree programme, which offers degrees in both MBA and Chinese studies.

She said there is even an organizational behaviour lab, where professors and students study on how to transform China's State-owned enterprises.

As China has started to promote its go-global strategy campaign, Michigan Business School will pay more attention to new young students from China and explore more projects to meet the increasing demands , said Chu, who came to Beijing last week to introduce her school.

Mullinjer said the development of culturally attuned executive coaching, executive management and retention planning, as well as early-stage management development programmes, is far behind that of more mature markets.

He said the large demand for top executives was widespread.

Even those companies who want to stay put in domestic markets will have to change as foreign giants arrive and compete .

Mullinjer estimates "a long process" of at least 10 years for Chinese enterprises to meet the supply-and-demand for executives.

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