Leadership constraint has been constantly identified as a top business challenge multinationals face in China. Rapid growth over the last twenty years has created a huge imbalance in demand and supply of experienced managers and leaders. Shortage of managerial talent has fueled wage inflation in China, and compensation for senior executives has skyrocketed as many companies compete for a small pool of managerial talent (see charts below).
To make it worse, multinationals are facing increasing competition from local Chinese companies, which offer attractive financial packages and perceived better career development opportunities to attract seasoned Chinese executives working for multinationals. However, many Chinese executives who have built their careers working for multinationals often found it was difficult to adjust to a local company’s culture and experienced “reverse culture shock.”
*Source: Frontier Strategy Group analysis, 中华英才网 (ChinaHR.com)
Most leadership challenges in China can be attributed to either a capability gap or talent shortage, or sometimes a combination of both. FSG recently created a comprehensive framework to identify key leadership challenges and develop best practices to strengthen the leadership bench through retaining key individuals, leveraging global scales, strengthening the fundamentals, and adjusting to a new reality.
Senior Chinese managers are motivated more by symbolic recognition such as enhanced decision making power, rather than material recognition such as financial compensation. So it is important for multinationals to realize that seasoned Chinese leaders want to achieve “self-actualization” by creating a vision for the business and having an impact on other people.
Local Chinese managers are already commanding an equal if not higher compensation than their peers in developed markets, and yet they are subject to higher attrition risk due to strong demand. One solution is to tap into experienced managers in talent surplus areas, such as Western Europe, who are more willing to relocate to high growth regions like China for an “expat light” package.