By Stephen Shih
[Editor's note: Stephen Shih will be discussing these research results in greater detail at the 2017 AmCham China HR Conference – see his bio and the full list of speakers here.]
For most of the past two decades, the talent challenge in China was finding enough qualified managers and executives to keep up with growth. Across industries, companies were growing faster than the supply of talent. Multinational companies (MNCs) often snagged the best prospects, because young Chinese leaders saw more opportunity joining a foreign business.
Today, the dynamics of the talent war are changing. Local companies have become better at talent development and are now perceived to offer Chinese leaders a chance to have a greater impact and more opportunities than they could in an MNC. All this creates a fresh challenge for companies in China: rapid churn among top talent.
The China Leadership Report, published in January 2017 by Bain & Company in conjunction with LinkedIn, found that more than 40% of the sampled leaders changed companies in the past five years. Almost half of those executives went into new industries. The research, which analyzed 25,000 individuals in LinkedIn China’s proprietary member database, found that churn is even faster for local firms, where more than 51% of leaders changed companies in the past five years.
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Percentage of business leaders in China who changed companies in the last five years (Sample of 25,000 leaders in LinkedIn China’s database)
The data shows that talent is moving from MNCs to local firms: Only 10% of new leaders in MNCs came from local firms in the past five years, while 31% of leaders at local firms had been employed by an MNC. This is happening because many Chinese business leaders now believe their opportunities are better at local companies—and because local companies want leaders who have been trained at MNCs.
Actions to take
What can companies do to win the new war for talent in this seller’s market? HR leaders at both MNCs and local firms can do four things to retain talent:
1) Let leaders have visible impact
It can be difficult for any individual to make a mark at a large company, particularly at sprawling MNCs, where decisions require multiple levels of approval and coordination across functions, committees and time zones. Ambitious leaders may wind up looking elsewhere to make their mark, leaving companies with candidates who are okay with a bureaucratic status quo—not the best potential leaders. MNCs need to find ways to simplify decision making and other processes to liberate the energy of their leaders. This is great for aspiring leaders, as well as for the company.
Fast-growing local companies also need to be alert to the danger. A lack of formal systems, reliance on highly centralized decision making and constant reorganization all are turnoffs for motivated executives.
2) Focus on critical jobs
In an intensifying war for talent, it pays to pick the battles you need to win. As my colleagues at Bain & Company, Michael Mankins and Eric Garton, noted in their recent book Time, Talent, Energy: Overcome Organizational Drag and Unleash Your Team’s Productive Power (HBR Press, March 2017), the best companies identify critical roles, and ensure that they fill those roles with the right people. Having the best programmer might make little difference to a consumer packaged goods business, but it better have top brand managers. The best-performing companies put their talent where it matters.
3) Break glass ceilings for Chinese business leaders
Chinese executives still jump to local companies because they suspect that Chinese leaders can’t make it to the top positions at global MNCs. The China Leadership Report found that MNCs are filling almost six out of ten regional roles in China with Chinese leaders, but few Chinese leaders get top global roles. As China’s economy becomes even more important to MNCs, diversity in top management will be more critical, both to retain the best Chinese talent and gain a deeper understanding of the local market. Local companies can also manage succession and promotion to ensure that strong candidates know they have a shot at the top.
4) Innovate with next-generation talent management
The talent-management practices of the past 50 years will no longer suffice. Today’s talent-management systems must be able to accommodate high levels of employee churn, a growing reliance on external talent, and programs to attract leaders for critical roles. Companies need to both prepare for and take advantage of the ongoing digitalization of traditional industries. Even non-tech companies now need to learn how to manage the knowledge workers—such as data scientists, software programmers and digital marketers—who are at the forefront of the trend toward digitalization. The new digital technologies also create opportunities for companies to innovate in talent management. Identifying and recruiting “passive job seekers,” providing real-time performance feedback via apps, employing data analytics to identify retention risks, and harnessing the potential of massive open online courses to facilitate learning and development are just a few of the emerging strategies that HR teams can—and will need to—use to help their businesses stay competitive.
In the next decade, the challenges for HR leaders in China will be greater than ever. Nonetheless, HR leaders who develop winning strategies in the new war for talent can have extraordinary impact on the success of their companies.
Stephen Shih is a Partner at Bain & Company and is located in Beijing.