The War for Talent in Emerging Markets

“When it comes to engaging and retaining top talent in emerging markets, multinational companies are often their own worst enemies.”

An executive running Asia for a major industrials company shared this comment during Frontier Strategy Group’s Shanghai Executive Round Table last week.  The event brought together more than 20 executives from a range of different companies that shared a common pain point: high attrition among key local talent is a major impediment to achieving the aggressive growth expectations that have been set for companies not just in Asia, but in high-growth emerging markets globally.

Demand for local talent is increasing as more companies expand their local teams, and supply remains limited.  This imbalance has created a seller’s market.  Those with the most highly sought after skills are aggressively recruited and offered 20, 30, even 40% of more increases in compensation to leave their current firm. To address this dynamic, most companies have attempted to fight fire with fire.  They offer big pay increases to their key talent in hopes of convincing them to stay with the firm for just a bit longer.  However, what our clients have observed is that this type of tactic is not only unsustainable, it is also not working.  Wage costs are skyrocketing, but attrition remains high.

A great deal of ink has been spilled on this topic (a Google search for “emerging markets war for talent” returns over 2.3 million hits), but I think we hit on a few breakthrough ideas during our discussion in Shanghai.  We surfaced dozens of different tactics that our clients have deployed to chip away at this stubborn challenge, but a common thread among the most successful companies was that they had taken steps to resolve a critical misalignment that continues to characterize most Western multinationals’ talent strategies.  The misalignment is a result of companies decentralizing their talent, yet centralizing their talent management and human resources (HR) organizations.  Put another way, most companies have recognized that moving decision-making further away from customers has a negative impact on growth, but many companies have failed to take a similar approach to managing their own talent.

Companies that have been most successful in combating attrition in emerging markets have resolved this misalignment by focusing on doing three things:

  1. Building local HR capacity and moving HR decision-making closer to the “customer” (i.e., talent)
  2. Reallocating resources from “one to one” wage increases for individuals to “one to many” investments in localized talent engagement initiatives
  3. Dedicating senior management time on an ongoing basis to drive continuous innovation and improvement in HR strategy and tactics; they recognize that today’s innovative engagement strategy will lose its differentiation and impact over time

Success in these three areas will yield significantly greater return on investment than outsized wage increases in the form of improved development programs (which, in turn, yield more effective and capable local talent), higher employee engagement (which results in more productive and motivated talent, with lower turnover of high performers), and a more stable and capable local team.  Put together, these benefits will allow executives to decentralize more decision-making and further empower their local teams, which FSG’s research has shown is highly correlated with accelerated growth.

We’ll unpack and explore some of these concepts and share a few examples of successful engagement strategies in future posts.

 

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