Hip Hip Hooray! The global financial crisis is over, at least according to Australian Secretary to the Treasury Ken Henry. With his country’s unemployment rate at an 11-month low and the USA’s GDP growth reaching 3.2 percent in April this year he’s probably right, as long as he ignores Greece’s plight. And this return to positive growth for the US is a great sign that business everywhere has turned around, nowhere more so than China. We have weathered the storm and the future is bright again.

But who will lead in China now that storm has passed? The global financial crisis damaged more than revenues and expansion plans, it also cut down the ranks of senior managers in industries as varied as banking, IT, agriculture, and mining. Now that times are beginning to improve and management begins to set a new course, the question they are asking is clearly, “more of the same, or a new and improved version?” Will we see companies led by the same grey-haired expatriate management team, or are the Chinese managers, long groomed for promotion, ready to move into the swanky corner office? Crisis is often the mother of opportunity.

“Due to over-firing and recruitment freezes, firms have been scrambling to hire back leaders,” says James Yuann, Managing Director of Boyden Executive Search. Still Yuann doesn’t believe this is a new trend in China. He believes that the shift from firing to hiring in China began as early as the second half of 2009, partly due to a realization that China was “defying the global financial trend” and its profitable position could help balance books back home. “Many redundant expatriate managers were even headhunted by other, more optimistic firms within China right after being fired,” says Yuann.

Yuann stands in good company with his estimation. Alastair Watts, Managing Director of Antal International, agrees that the need for leaders has rebounded. In the Antal Global Snapshot report which surveyed 9,000 companies globally, his firm confirmed that 72.7 percent of both multinational and Chinese firms will be hiring in the next three months. While not all hires will be senior management, it is important to note this is a massive revival in recruitment - considering that in January 2009 only 20 percent were rehiring. “Recruitment is booming,” says Watts. “While there was a plateau from May to September 2009 of around 50 percent, the most recent figure of 72.7 percent clearly shows that businesses foresee a bright future in China.” All this optimism is great news for recruitment firms, particularly those operating along the Eastern seaboard of China. However, the question still remains, “will the supply of talent meet the obvious demand?” HR need not look beyond their own back yards when seeking the next guard of leaders.

Localization at What Cost?

Increasing localization has been an obvious choice in the past and it does have its benefits. Expatriates are expensive and the ‘packages’ that complement their already lofty pay check have in the past included a litany of expensive perks like: housing (villa or better), car (with driver), children’s education (from preschool to university), specialized health care (at “international hospitals”), spouse employment (of similar salary), and ancillary living/travel allowances. Some packages have also included ‘tax localization’, a simple term to explain a complicated method of benchmarking taxes to one’s home country, which has the ultimate aim of reducing one’s personal income tax in China. Yet for all these big bucks spent on leadership many multinational firms haven’t yielded big returns in productivity. An absence in local expertise coupled with the expatriates’ short deployment periods are often blamed for this shortfall. Consequently, the percentages of local hired senior managers have been on the increase. According to Yuann, local hires are now up to 50 percent, with Singapore and Hong Kong hires representing 40 percent, and Western hires, the traditional expat, only account for 10 percent of senior manager postings. Change is indeed in the air.

George Wang, general manager of Randstad, agrees that the trend to hire Chinese for senior managers has increased since the middle of 2009. Wang also believes that there is a big push to develop middle management in China, and that these leaders are not necessarily always native Han Chinese. “Middle managers from abroad have more hands on experience working in their chosen field than Chinese staff of the same age, and these younger expatriates are far less expensive than the traditional senior expatriate. This is probably due to China being an attractive place to work for younger managers,” says Wang. Growth and opportunity are always attractive regardless of where one comes from.

Gin Chen is one such younger expatriate who has been posted to Shanghai by her American pharmaceutical company. But unlike her predecessors, she comes with a cultural advantage. “My company asked itself how it could evolve our leadership standard to the next level. Top level changes were the first step towards realizing the company’s vision, and step two of the strategy was to bring in mixed cultural staff at a middle management level,” says Chen. Chen, a Taiwan-born Australian who is fluent in Mandarin, represents a hybrid, “mixed culture” professional - one born with a foot in China and the other in the West. Chen says that it was her expertise in foreign markets, namely Australia and later Korea, that taught her ‘best practice’ for her industry and that her role in China is to act as a catalyst to facilitate these practices alongside global awareness. This awareness is in short supply and it often takes outside consultants to find the best fit for companies looking for that edge in their

Chinese operations.

Georgie Chong, general manager of Hudson, also agrees that global awareness is important for the development of Chinese leaders. She says that many of her clients are asking her to find leaders who can think strategically and she has seen strong returns from programs that place high potential Chinese staff overseas for two to three year stretches. “The big multinationals, like the big auto companies, GE and the like understand that this is the fastest way to add international exposure to Chinese staff,” says Chong. And speed is what is needed.

Getting up to speed will be crucial in the wake of this financial crisis. According to the predictions of a Manpower report, released in 2006, “it will still take six to eight years before graduates gain sufficient work experience to ease the current competition for mid-level and senior managers.” This means that as early as 2012 to 2014, Manpower believes China will see mass localization. Wang of Randstad believes that the global financial crisis has even increased the speed at which this localization is happening.

Still James Yuann of Boyden is worried. He states that the transition shouldn’t happen for at least another decade, as it will take at least this long for the mindset of the Chinese leaders to become in line with best-practice. This puts the ETA of full localization at around 2020! “Chinese leaders are trying to be textbook managers. They study their MBAs, but how can you learn about real life business today from academics? These managers can put two dots together, but not many more than that. They need to understand the importance of trade offs”, says Yuann. “Managing trade offs, and understanding that you can’t please everybody, is the key to strong leadership.” The result, whether your predications are optimistic like Manpower, or cautious like Boyden, is that “the pool of people who are of high calibre”, as Chong of Hudson puts it, “is limited”. “Talent today is ready for director level”, says Chong, “but not C-level.” Companies ought to heed this advice since providing them strong leadership is his industry’s stock and trade.

Opportunity for Abuse

This shortage doesn’t mean that positions remain empty. Under-qualified leadership aside, a number of “worst case scenarios” uncovered academic experience built on lies. In early 2009, the deputy principal of Anhui Agricultural University was discovered committing plagiarism in as many as 20 papers and later in June, the principal of a traditional Chinese medicine university in the city of Guangzhou was accused of plagiarizing at least 40 percent of his doctoral thesis from another paper. The worst case occurred in March of this year when the state-run China Youth Daily reported that a 1997 medical paper had been plagiarized repeatedly over the past decade with at least 25 people from 16 organizations copying from the work. Fang Shimin, an independent investigator of fraud, said he and his volunteers expose about a hundred cases every year, publicizing them on a website titled ‘New Threads’. “The most common ones are plagiarism and exaggerating academic achievement,” Fang said. Such are the dangers of hiring leaders without the aid of expert consultants.

These glaring examples have not affected change thus far. While Fang reports hundreds of cases a year, surprisingly background screening as an industry has been slow to take off in China. Richard Bensberg, Managing Director of Red Flag Screening based in Beijing, says that background screening, or ‘pre-employment screening’ as he calls it, is popular in the West and also in India. In India, the practice has been driven by the demands of outsourcing, particularly for the financial industries. “Vetting of individuals creates an atmosphere of honesty in the organization,” says Bensberg. “Pre-employment screening is promoted on job advertisements, so applicants know that it is part of the process before they apply. Those candidates who pass preliminary interviews know that screening is conducted before on boarding.”According to Bensberg, pre-employment screening focuses on the data trail that we all produce. Bensberg’s team is able to use publicly accessible databases, which includes police and government maintained ID card records. His company also conducts human interface searches, via telephone conversations with previous colleagues and superiors. Of course, this practice is completely legal and a comprehensive way of obtaining a complete 360 degree view of the applicant. All this makes the process of finding a strong leader transparent and efficient.

Humble Leaders

The lack of a 360 degree review is partly responsible for the slow evolution of leaders in China. Robert Parkinson, managing director of RMG Selection, says that “part of developing and becoming a leader is undertaking a 360 degree review, as it shows to your subordinates that you accept feedback.” Parkinson believes that receiving feedback from subordinates is one of the biggest hurdles faced by Chinese leaders and that it will take a long time before “this type of feedback will be accepted as the norm.” Parkinson says that in China, “leaders give directions. They don’t accept feedback well.” His impression is hardly unique amongst those who vet leaders in China.

This ‘command and control’ style is hampering the development of tomorrow’s leaders says Chong. Chong believes that leadership is harder to develop in-house in China, compared with the West, because this style of leadership remains the norm. “Staff cannot develop their own leadership experience, often because their superiors are afraid to assist their subordinates for fear of them becoming better than themselves,” says Chong. “The irony is that the fastest way to move up the chain is to have someone qualified to do what you are doing today!” Jim Collins, author of ‘Good to Great’ and ‘Built to Last’ would agree. His findings reported that it “is extraordinarily difficult to become and remain a highly visionary company by hiring top management from outside the organization.” Innovation comes from within.

One sector of China’s economy appears to heed this call. Surprisingly, the drive to internally develop management may be driven by State-owned enterprises (SOEs) and Chinese private business, rather than at the MNCs. “There are a lot of Chinese companies that are thirsty for investment, and who want to invest in Western companies,” says Parkinson. “But marching into Detroit, London, or Berlin is going to be very difficult with their current leadership teams. If they want to run these firms then they will have to understand international best-practice.” And the West may not be Chinese firms only target. Chinese car and battery manufacturer, BYD, in February bought Japanese diemaker, Ogihara. And the number of Chinese firms purchasing Japanese firms is on the increase. According to the Economist, last year it almost doubled! Crisis becoming opportunity indeed.

The King is Dead! Long Live the King!

So China’s global domination appears imminent. With experts all agreeing that the days of the big expatriate package are over, surely the new kings must be Chinese. “People are trainable,” says Chong of Hudson. “The real issue here is not the ability of Chinese leaders, at least not their theoretical ability, but developing leaders who can move away from short term gains. There is too much short term thinking in leadership today. Coaching can definitely assist to bump up middle managers in this area.” This holds true from Shanghai to Stockholm.

It is no coincidence that coaching has seen rapid popularity across China. This is most likely due to its association with high performance leaders in the West, including Jack Welch, who personally had many coaches during his tenure at General Electric. With this in mind, perhaps the leaders of post global financial crisis China won’t be ‘new and improved’, but rather the “best of the West, with a little bit of Chinese characteristics thrown in for good measure”. And if George Wang of Randstad is right, being an unemployed expatriate in China could be a great asset in the next few years. As Chinese companies continue to expand into the West, they will start hunting for foreigners with Chinese experience. “Foreigners will eventually get their jobs back, only this time in their home country working for a Chinese-owned firm.”