Marc Dawson has been working on HR issues in China for over a decade. He shares his particular expertise in human capital management with clients of Talent Spheres Group, an organization development consulting firm where he serves as managing director. Dawson is also chair of the Shanghai British Chamber of Commerce’s HR focus group and an executive coach who speaks regularly on talent management. He sat down with CHINA ECONOMIC REVIEW to discuss the challenges of reorienting management teams in China to weather what is, for many of them, the first downturn of their professional careers.
Q: So what are you telling your clients these days?
A: Over the past 10 years, when we met with new customers, we always tried to talk about systemic solutions to their HR problems – instead of a reactive, firefighting, short-term approaches. But most people were in too much of a hurry to listen because of the nature of business growth in China. The focus was on market-share growth, and there were a lot of sales- and business development-focused CEOs running things out here. HR best practices didn’t matter much, even though we were in the middle of a talent war: "We’re investing in China and building market share and growing fast. It doesn’t matter if our imperfect processes are costing time, performance or money." Consequently, many never learned from their mistakes, focusing only on short-term transactional and administrative HR processes. Now the ballgame has changed. China is potentially the only area in which multinationals can grow, make profit and communicate good news to shareholders. This means huge pressure to produce profit in a local market that has actually slowed down considerably.
Q: Is this producing much senior executive turnover?
A: Yes. A lot of people are saying the expats are leaving, but the net balance is quite flat as far as far as I can tell. One thing we are seeing is a changing of the guard. A lot of the people I’ve known for years out here growing businesses in a very aggressive way are going home or being replaced. Foreign firms are getting rid of the sales people and bringing in people who can squeeze the lemon a little bit.
Q: Do you think the expat layoffs have been overly aggressive?
A: There are two reasons for the focus on cutting expat headcount. One is cost driven, but it’s clear today there are a lot of experienced people coming here who don’t demand the US$500,000 expat package. So a lot of companies are seeing a higher supply of qualified foreign experts ready to stay in China. But there are those companies that were and still are 100% focused on exports. Whether they have an expat here or not is not going to change the fact that there are no customers to buy products any more. They have no choice. Other businesses, however, maybe a third of businesses out there that are actually doing much better in China than they care to talk about, are nevertheless taking this opportunity to clamp down.
Q: Some of these expats had significant China experience. The new ones don’t. Isn’t this risky?
A: Of course, but it’s much more difficult to shut down factories or sell assets compared to cutting people-related costs, so HR expenses always end up being the fastest and easiest area to cut down on. Sadly that impacts expats and locals alike.
Q: And you see this as short-sighted?
A: When you consider how much money they spent recruiting and training these people over the last few years, I think it’s short-sighted. But to be fair, firms frequently don’t have much of a choice. Even though it would be better to have a specific strategy for China, many publicly listed companies have political problems making an exception for their China operations in terms of cost cutting. But here is the catch: Most companies think that staff retention is no longer an issue. Wrong. If not cared for, your high performers will leave because everyone is seeking to replace their average staff with star performers. There is a new talent war in the making.
Q: How do you minimize the effect of this change in direction and priorities on morale?
A: One of the biggest demoralizing forces is the lack of direction. It’s not the fault of the local CEOs – often corporate strategies at headquarters are up in the air, too. But people like to know where they’re going, that there’s a sense of direction. Chinese employees in particular need to know because they’ve never seen this situation before. A lot of people haven’t realized that today we have two to three generations of what were considered high-potential Chinese managers who have only experienced growth. A lot of these Chinese managers have been promoted well beyond their ceiling of capability. It’s not their fault. But they were promoted very early and very young to high levels of responsibility in an environment where the firm had nobody else to do it. And now they are overstretched, sometimes under-qualified, and they have never known a crisis. Companies now want more results, more profits, more sales, with less people, support or financial resources. Combined with the arrival of new cost-focused expats from headquarters, there is a big gap between their new corporate goals and what the senior and middle-level management is capable of executing.
Q: How do you reduce the cost impact of implementing new performance management processes?
A: We use new generation web-based tools with a much lower cost of ownership. They are designed to deliver value almost instantly, and they’re extremely customer-centric. Hotels have been taking this up, as have companies like Toyota, Kimberly Clarke, Textron, Bank of East Asia, and many small- and medium-sized enterprises. Using these systems has an immediate impact on strategy implementation, cascading goals through the whole organization, integrating performance management with compensation and talent management. I can see a point at which Chinese customers are going to be taking up these concepts and beating foreigners at the game. Look at telecom in China. They went from having a very low penetration of dial telephones to being the biggest cell phone market in the world. China doesn’t have all these legacy systems, so they’re going to go straight from Excel to the most modern management systems in the world.
