Strategies for Chinese Enterprises to Meet Talent Challenges Amidst Huge Market Changes

Jul 25, 2014 |

By Kenneth Xu

For most of the enterprises in China, a game-changing market is looming. The business challenges accompanying this transformation will also be unprecedented. The last-standing enterprises will be those that have pre-emptive preparations to meet all sorts of new challenges. Not only will these outstanding and fortunate Chinese enterprises survive, but they would also be able to expand further. Some particularly exceptional enterprises could even become what General Electric in the U.S. is like – a world-class enterprise with good governance, sustainable growth potential, and global influence.

Most of China’s enterprises are beneficiaries of the reform and open policy which started 35 years ago. The year of 1978 saw the beginning of this policy which has since produced a dazzling list of milestones: establishing four special economic zones in 1980, building the new Pudong district in Shanghai in 1990, joining the WTO in 2001, and creating a free trade zone in Shanghai in 2013. Meanwhile, after the return of Hong Kong in 1997, and of Macau in 1999, China’s GDP two years ago overtook Japan’s to become the world’s second largest. In many important economic indexes, China has also reached the top globally – the amount of FDI, export and import, and foreign reserve. Along with this exhilarating development, the shortcomings and consequences of China’s rough and tough growth are also surfacing: serious energy over-capacity, inadequate domestic consumption, declining investment return rate, pollution, mismatch of resources, and social conflicts. Moreover, trade protectionism is increasingly prevalent in the international market while geopolitical conflicts also seem to be getting worse.

The elements which have contributed to the rapid success of many Chinese enterprises are fast disappearing, including cheap labor, inexpensive land, and loose environmental regulations. The era of expanding market share through low costs has ended. A big feast has indeed come to an end for China’s enterprises! Many enterprises realize that to transform themselves and head towards innovation is the only way to survive. This will however be a painful process. Before it can even consider any medium-term transformation and a long-term vision, each enterprise, in the short term, has to struggle to try to survive in the current difficult environment. During this process, some will inevitably fail and disappear while many will certainly make it and come out stronger. What is the crucial factor that China’s enterprises need to consider in order to enjoy a successful and strategic transformation and become innovative The answer is “Talents”.

The crux of the matter lies in whether the entrepreneur possesses any ideal and vision that are deep in his heart or not. If one cares only about how to make a quick buck and how to have a good time but does not focus on how to create more sustainable social and economic values, it would be impossible to develop a long-lasting excellent enterprise. A real entrepreneur has to be someone who is willing to dedicate oneself wholly to one’s inner ideals. In 1987, Ren Zhengfei, at 43, founded Huawei with only RMB 20,000. In 2013, Huawei’s revenue was nearly RMB 240 billion. Over the last 27 years, as the company was growing and accumulating wealth, Ren has stuck to Huawei’s goal – focusing on becoming the world’s top telecommunications supplier – and resisted temptations such as taking the company public. If he didn’t have these determined ideals, we would not see today’s Huawei. In China, there are quite a few entrepreneurs like Ren, including Liu Chuanzhi of Lenovo, Jack Ma of Alibaba, Wang Wenjing of Yonyou Software, Lu Guanqiu of Wanxiang Group, Li Shufu of Geely Automobile, and others. Therefore, for any enterprise to have a successful transformation and to enjoy sustainable development, the first key is the entrepreneur himself.

Merely having a good entrepreneur, however, offers no guarantee for the successful transformation of an enterprise. One important factor is that a “one-voice” boss culture remains common among many enterprises in China. The boss calls the shots and senior executives are willing to follow. In the past when the business environment was relatively simpler, such a corporate culture might have enhanced the efficiency of decision-making. However, some entrepreneurs are too indulgent with their previous successes. They overlook the fundamental changes in the marketplace and keep relying on their “successful experience” at their own peril, which brings huge risks to their companies. Therefore, the second key for any enterprise to achieve transformation is to reform its original management decision-making mechanism. This would help enterprises to combine brainpower from both inside and outside in order to form its own sustainable corporate thinking.

After taking care of the first and second key issues, the next question would be how to formulate a team strategy for inside and outside talents, and how to execute it. If most of the in-house talents groomed by China’s enterprises in the past have tended to be based on following instructions from the top, how different would those other talents trained by many foreign enterprises over the last 35 years (since the launch of the reform and open policy in China) be? In terms of the corporate structure and the positioning of their China business, most multi-national companies require their China executives to report to their CEO in Asia. No matter how well seasoned these executives may be with the China market, they are not authorized to develop their own strategies for China. Due to barriers in language and culture, only a tiny minority of Chinese staff in multi-national companies can climb the corporate ladder to reach the top and become CEO, based at headquarters, or as vice-president for global operations. This means that they have no chance of getting involved in the formulation of the company’s global strategy.

Even though many Chinese enterprises are now very keen on hiring talents from foreign companies, many of the candidates do not have much successful experience in formulating strategy independently, let alone possess rich experience in handling new challenges from a globalized cyber market. Despite that, there is no doubt that these candidates are very talented and diligent. Since well-rounded qualified candidates are in short supply, a crucial make-or-break test for Chinese enterprises over the medium and long term would be the need to adopt a scientific and accurate method for selecting the right candidates and making full use of it. Without a scientific method for screening and selection, enterprises would almost have to rely on their luck in hiring.

In terms of talent selection, Ping An Insurance Group’s approach – encouraging mutual cooperation and competition between inside and outside talents – can perhaps serve as a good example for other enterprises. Some property developers have recently offered annual packages ranging from RMB 5 to 10 million to lure talents from other enterprises, but that may not have a happy ending. Sustainable corporate ability cannot be built up by random grouping.

The third key is to make sure both the in-house talents and the recruited talents can form a team to work together – and to have the ability and the will to formulate and execute policies.
For China’s enterprises to achieve successful transformations amid tremendous economic changes, they must abandon the traditional model and address the above three key issues. Otherwise, they would only end up struggling for short-term survival and have no room for medium-term transformation and long-term vision building.

What should the players in the Chinese economy do to help enterprises become outstanding global companies?

First of all, while society should learn to appreciate and respect honest entrepreneurs, entrepreneurs themselves should always re-examine their values in life and ask this question: what is the ultimate aim for an enterprise to be making money? Such re-examination of values can support those real entrepreneurs with ideals, to maintain a steady course and not be discouraged by whatever difficulties they face. However, this won’t help those without ideals to become real entrepreneurs. After all, the looming economic challenges will result in a process that equates to ‘survival of the best’.

Moreover, various mature consultancies and consultants – be it management, talent strategy, executive search, or training – are poised to play a significant role in this big change. For those consultants to perform well, the Chinese enterprises they serve usually need to have two elements in place: the potential and determination to take on the transforming task, and an entrepreneur with ideals and ambition. However, some entrepreneurs with ideals could find it difficult to have the right senior executives to execute the strategic plan set out by the company. Some outside talents may also face a clash of corporate cultures and fail.

All in all, the underlying reason is the lack of a systematic talent strategy. Recruitment without any talent strategy can only solve partial problems -- it never tackles core issues faced by the enterprises. For example, when a manufacturer has finalized a strategic blueprint for transformation, it then has to review the current corporate structure and human resource situation. A talent strategy should be formulated. If a senior executive has to be recruited from outside, the core abilities of the candidate must be spelled out very clearly. This is to make sure that the candidate will be a good fit for the enterprise’s medium and long-term development strategy, such as research and development of products, and exploring overseas markets. The same goes with other managerial positions in different departments. A detailed job portfolio tailored for each department head could then be formulated accordingly.

Having established a talent strategy, executive search consultants will then have a much firmer grip on the necessary candidate-abilities for the enterprise. Based on the strategy, consultants can utilize different evaluation tools to test the candidates and to understand their previous successes better. In the process, consultants have to judge a candidate’s abilities as well as the candidate’s future potential, especially with regard to whether the candidate would complement the enterprise’s strategy and culture. This is the only way to find the best qualified candidate for the enterprise. Under certain circumstances, a candidate’s ability is more important than his experience in the relevant industry. In addition, enterprises can also employ internal training programs to beef up their human resource standards.

China’s enterprises are facing a game-changing economic environment. Meeting the challenges properly could turn this into a golden opportunity for China’s enterprises to be transformed into global multi-national giants. At the same time, if the Chinese government, while fine-tuning the economy, could also make more use of the “invisible hand” of the market, promote the establishment of the rule of law, and work with the enterprises and the consultants, there would be a real chance for us to see, in the near future, more and more Chinese enterprises marching towards success and becoming real global companies.

* Kenneth Xu is executive vice president at DHR International and is based in the firm’s Shanghai office.

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