Competition for Asia s Talent: The Risks that Lie Ahead. By Richard Payne, Principal Consultant, Aon Consulting Asia Pacific

Transcription

1 Asia Connect Volume 2, Issue 9 November 2009 Competition for Asia s Talent: The Risks that Lie Ahead By Richard Payne, Principal Consultant, Aon Consulting Asia Pacific Asia emerges first While the recovery is still tenuous, when the global recovery takes hold, Asia will be the first cab out of the rank. Two leading indicators for an economic recovery - stock market performance and exchange rates - point toward rapidly increasing economic expansion in Asia Pacific. In the past six months, Asia s stock markets have climbed sharply and Asian currencies have appreciated as investors anticipate a rebound across most of the region. According to the IMF s latest World Economic Outlook 1, The global economy appears to be expanding again, pulled up by the strong performance of Asian economies and stabilization or modest recovery elsewhere. Emerging and developing economies are generally further ahead on the road to recovery, led by a resurgence in Asia. The prospect of a renewed period of rapid economic growth is not all-positive news for companies operating in the region. The new environment will bring increased competition for talent and new sources of risk for companies competing for executive talent. The fall out from the recession and newly energized, aggressive competition from Asia s emerging multinational companies creates new risks for companies that thought they were through the worst of it. Fall out from the recession Many companies across Asia Pacific responded quickly to the economic downturn. The speed and depth of the financial crisis forced many firms to take severe cost savings measures in the face of a collapse in customer demand. In a recent Aon Consulting / Radford survey of High-Tech firms in Asia Pacific 2, 62% of companies reported that they had experienced retrenchments in the past 12 months. Over half of these layoffs amounted to staff reductions of more than 5% of total headcount. A majority of respondents also reported that cost controls, redundancies and employee productivity have been the focus of HR activities during the past year. The emphasis on reining in costs though has not occurred without side effects. The Aon Consulting / Radford survey found that two-thirds of those experiencing layoffs reported, not surprisingly, that they have had a decline in employee morale accompanied by increased concern for job security. As a result, the respondents report that employee morale and productivity is a critical concern as they look toward 2010.Insecurity and uncertainty can lead to passivity and reduced commitment. These dangers are likely to be revealed as the economy pulls out of the recession. Those companies that made cutbacks in 2008 and 2009 may find that pressure on staff turnover has built up during the downturn. When more job opportunities become available as the economy improves, those who have delayed their departure or are disillusioned by cost cutting may seize the chance to move elsewhere. Thus, there is a real risk that that staff turnover will sharply increase. At the same time, prospective recruits are likely to be wary of companies that have had recent layoffs. After all, what prevents these companies from making cutbacks again should their fortunes decline? Increased investment in Asia also may inadvertently contribute to higher staff turnover and more difficulty recruiting talented executives. As one regional director of a pharmaceutical company put it, 1 International Monetary Fund. World Economic Outlook: a survey by the staff of the International Monetary Fund October 2009 < 2 page 1

2 My view is that Asia Pacific will bounce back faster [than other regions]. When we see the global economy pick up, I anticipate that our company, like most others, will increase their expansion plans into Asia. Since everyone will be rushing in, this will increase pressure on talent retention. Asian MNCs are also investing aggressively It is not just Western multinationals that may rush to invest in Asia. In the past several years, many companies from emerging Asia have moved aggressively to become global players with well-known and reputable brand names. Here are just a few examples: > Huawei Technologies of China aspires to be number one in telecommunication solutions and has made significant strides in expanding its global reach. Started less than 20 years ago, Huawei now has 83,000 employees; 43% of them engaged in R&D. It has a major presence in Africa and has made inroads against Western competitors in many emerging markets around the world. > Haier of China has transformed itself from a bankrupt government-owned company into one of the world s leading manufacturers of white goods with a well-established presence in the US. > Acquisitions by Tata of India (Tata Steel acquired Corus, formerly British Steel while Tata Motors acquired Jaguar and Land Rover) have positioned the group at the forefront of several industries globally. > Mahindra & Mahindra of India has become a global competitor in tractors and is now even going after the US motor vehicle market with a new SUV model. These examples are just the very tip of the iceberg. Asian-based companies have been growing faster for a longer period than their counterparts in any other region. According to the 2009 edition of Forbes Global 2000, Asia Pacific accounted for more companies (679) than any other region in a list of the top 2,000 companies globally. 3 Furthermore, a comparison of the 1999 and 2009 Fortune Global 500 shows a dramatic shift toward companies in Asia s emerging markets (see chart below). Greater China (i.e. China, Hong Kong and Taiwan) increased the number of companies in the Fortune Global 500 from eight to 43 between 1999 and 2009 while India s share rose from one to seven and Southeast Asia increased from one to four. 3 DeCarlo, Scott. ed. The World s Biggest Companies. 8 Apr Forbes. n.d. < Competition for Asia s Talent: The Risks that Lie Ahead page 2

3 As Asian MNCs grow in size, their need for executive talent, and their ability to pay for that talent, will rise proportionately, if not faster than their Western counterparts. Yet, Asia s emerging MNCs often can be at a disadvantage when recruiting top talent, despite their increasing need for such talent. Select Western MNCs for training Western MNCs frequently can offer higher compensation, provide significant opportunities for training and development, and guarantee that advancement is primarily based on merit alone. A long history in building a global organization helps create an environment of professionalism that stimulates strategic analysis and systematic decision-making. In a recent survey conducted jointly by Aon Consulting and JobStreet.com, potential new recruits still showed a clear preference for American and European firms (see bar chart). Competition for Asia s Talent: The Risks that Lie Ahead page 3

4 As this survey reveals, new recruits in Southeast Asia and India often select Western or Japanese MNCs as their first choice. As they progress in their careers, however, the situation often reverses. But move to Asia s emerging MNCs after gaining experience Many of Asia s MNCs, especially those launched by new entrepreneurs, are using creative and sometimes aggressive methods to attract highly talented executives, especially at the mid-career level. These companies often have tools at hand that are not available to more well-established MNCs. Compensation. Asian companies searching for a change agent or executives to be part of a new management team often pay market rate salary and retention bonus that can be very attractive. Sometimes the retention bonus can amount to three years salary for three years' service without any risk involved. Leveraged pay based on company performance also is common. Salary may account for only 40% of the total package with the remainder divided between bonus and long-term incentives. Share ownership. The possibility of getting in on the ground floor of public offerings also holds great attractions for talented and ambitious executives. Privately held family-owned companies often spinoff subsidiaries to create market value and allow senior executives to share in the growth of the company. Often the possibility of wealth creation is a strong stimulus for accepting an offer or staying with a firm for the long-term. Corporate culture. Many Asian MNCs have a strong sense of family that extends to all employees. A legendary leader can serve as a draw and the emphasis on belonging to the firm creates an environment that is attractive to many executives. Stan Shih of Acer, Liu Chuanzhi of Legend and Li Ning, Olympic gymnast and founder of Li Ning (a major Chinese supplier of shoes and sports goods) all serve as role models for their companies. The corporate culture extends often to the politics that govern an organization, which are often clearer than is common in large Western multinationals. As Simon Wan, President of China Team International, puts it, Politics is everywhere but Western MNCs have different politics on different floors or divisions; in Chinese company there is only one politics - the boss s. It s more predictable. Entrepreneurialism. The opportunity to have the freedom to run one s own business is also a powerful draw, particularly for those in mid career who wish to use the experience they have gained at professionally run global companies. Western MNCs frequently are criticized as being soulless and without interests beyond short-term results. A long-term focus and strong commitment to the region reinforces the attraction of Asian-based multinationals. Career opportunities. The target of many Asian MNC recruiters are mid-career executives with extensive experience at Western MNCs. These executives may have spent 15 to 20 years climbing the corporate ladder within Western MNCs in pursuit of career advancement. By their early 40s, they frequently have come up against a ceiling. They are close to the top of the hierarchy within their own country organization and are now looking to use their in-depth experience in a new environment. For an Asian MNC, these executives can be ideal candidates to run a division, unit or function of a much larger organization. Their experience is invaluable in reshaping an organization and Competition for Asia s Talent: The Risks that Lie Ahead page 4

5 professionalizing management in a family-run company. Asian MNCs can lure them away with promises of managing their own business and sharing in the wealth created. Responding to the challenge As Asia pulls itself out of the global financial crisis companies are faced with a new set of challenges arising from the recession s fall out and a new and powerful set of competitors. A complacent approach based on more of the same simply will not be enough. Those who will succeed in the new environment are those who build on their strengths, act decisively and look beyond the next quarter s results when investing for the future. Build on your strengths. It often is fruitless to challenge a competitor s strengths directly. It can be far more effective to build upon one s own competitive advantage. Global MNCs should not try to create a corporate culture especially for their Asian operations; rather, they will benefit more from maintaining an inclusive global corporate culture that emphasizes the best attributes of the company regardless of the region. Similarly, Asian MNCs should accentuate their own best attributes rather than pursuing a Western organizational model. Regardless of the culture, maintaining open communication, understanding employee concerns, demonstrating empathy and building confidence will continue to be cornerstones of all styles of successful management. Act decisively. Opportunities do not last in a quickly changing environment and decisive action during a period of change is particularly important. The talent market is likely to be highly volatile during the next year and job opportunities for the best talent will increase significantly. Recruiting and retaining top talent will require quick, and sometimes, pre-emptive action. Invest for the future. Firms stuck in a slowdown in the US or Europe may adopt a wait and see attitude in Asia despite the signs of a recovery. Such an attitude offers fresh opportunities for competitors seeking top talent. Now during this time of transition may be when companies should search for their next generation of leaders to drive the organization forward. Ambitious and talented executives may entertain new opportunities, especially if their current employer is hesitating to act. Contact Richard Payne is a Principal Consultant for Aon Consulting Asia Pacific. Rick specializes in HR Strategy and Talent Management for Aon Consulting across Asia. He can be reached at Rick_Payne@aon-asia.com. Competition for Asia s Talent: The Risks that Lie Ahead page 5