In this issue, Grace Cheng and the Russell Reynolds Associates Greater China team outline the steps that executives must take to navigate successfully the transition from a multinational company to a Chinese company. A future report will provide insight into how Chinese companies can better integrate executives from international organizations and how they can incorporate and benefit from the skills these executives bring.
Leaders at Chinese companies have long looked to senior executive talent with international experience to help navigate the challenges of conducting business globally as they start to establish their presence overseas. And Chinese executives with experience in multinational organizations increasingly view domestic companies as promising avenues for career development and as safer havens in the midst of the current economic crisis (as of the third quarter of 2008, financial results indicate that a number of Chinese companies are outperforming their more multinational counterparts).
Yet despite what appears to be a perfect alignment of buyers and sellers in the talent market, our observation has been that less than 50 percent of executives recruited by Chinese companies from multinational companies make the transition successfully. A majority of these executives leave within a year of their arrival. This rapid turnover brings significant costs (both tangible and intangible), lowers company morale and damages the image of managers who had advocated the hire of these executives.
To determine why turnover rates are so high, we held round table discussions with a number of Chinese executives who have successfully navigated the transition from multinational corporations to their current posts in Chinese companies. We also held follow-up discussions with the chairmen of some of these Chinese companies to look at the strategies they have adopted to ensure that these executives have succeeded and to identify how company leadership can create the conditions required for successful transition.
The round table discussions included representatives from the high-tech, energy, industrial manufacturing and consumer goods sectors with annual sales ranging from US$500 million to US$15 billion. The group was composed of global presidents and executive vice presidents whose careers included considerable management experience in international companies. More than half the participants had studied, lived or worked outside China, and 25 percent had worked in more than one Chinese company.
Guidelines for Successful Transition
With only 30 years of experience in the global market system, most company management is still in the hands of the first generation of Chinese entrepreneurs. As a result, global operations continue to be run according to Chinese practices. Despite unprecedented business success in Chinese markets, these entrepreneurs sometimes lack the management savvy and experience to transform their ideas into reality on an international scale, compelling them to look for expertise from executives who cut their teeth on the global stage. Chinese business leaders began boasting of their operations' growing strength and global ambitions to inspire a sense of patriotism and lure back worldly Chinese executives. Thus began a backflow of Chinese talent from international companies to Chinese companies.
However, the results of these efforts, which began about a decade ago, have fallen short of expectations. The numerous high-profile examples of unsuccessful transitions have become a widespread source of dark humor and cynicism within companies.
The executives who participated in our discussion unanimously agreed that it takes nearly a year to successfully complete this type of transition, twice as long as would be expected with another country. That year-long period—the first six months of which is most critical—breaks down into three distinct phases: initial involvement, gaining acceptance and implementing changes. These are generally completed at three months, six months and one year, respectively.
1. Chinese office culture: It's different once you've been there. Prior experience working in a Chinese company is an important factor for determining whether an executive is likely to make a successful transition at a senior level. Those executives who have only worked for Western companies often fail because of their lack of familiarity with Chinese business operational culture and norms. Even when moving within the same industry, these executives' Western business habits create blind spots that hinder their ability to work effectively and make appropriate decisions.
2. Mental preparation: Forget what you think you know. Newly recruited executives often enter a Chinese company with an air of superiority. They have enjoyed rapid career development and the benefits of a world-class education and frequently begin their new position with ambitions of single-handedly transforming the organization. However, this attitude alienates potential allies and hastens a fall from grace.
Discussion participants highlighted that transitioning executives should be prepared to keep their ego in check, recognizing that they've been hired by the company leadership—not the other way around. While it is important to remain confident in one's value and potential contribution to the company, perspective and humility are essential.
3. Involvement: Ask to report to top management. All discussion participants agreed that it is important for the new executive to report to top-level management. Since newly recruited executives lack internal connections and credibility within the organization, they need strong initial support. Reporting to the company's high-level leaders allows the executive to leverage that authority while working to build his or her own reputation and network of relationships.
4. Navigation: Read the leader's style. Company leaders naturally have a wide range of leadership styles. Some leaders are known for fostering open dialogue. However, over management is a common phenomenon in Chinese organizations, leaving little opportunity for those below the top to drive change. Transitioning executives need to ensure that they create the opportunity for face-to-face engagement with the CEO and other senior executives in order to make their case behind the scenes.
A company's top leaders may be skilled in business but lack the polish and diplomatic skills common in their international counterparts, often causing them to undermine the growth potential they seek by hiring executives with international experience. This, undoubtedly, is frustrating, but it is a reality that the transitioning executive must accommodate to be successful.
5. Communication: Use the words of others. Learning and using institutional language can help avert an initial culture clash and aid in one's acceptance. One executive, a vice president of an Internet company listed in the United States, invoked the "Three Represents" of former Chinese President Jiang Zemin in creating his employees' development plan. The executive suggested:
" Representatives of advanced social productive forces in a business setting refer to those who give the best performance. The best performance requires continuous development. Thus, the company must constantly train and refine employees' skills. It is only in this way that employees can represent advanced social productive forces."
6. Execution: Simmer, don't boil. Executives with experience in multinational organizations are eager to close the management gap between Chinese and foreign global companies. However, without careful strategic planning and realistic expectations, they soon find themselves casualties of their own revolution. Executives who have undergone successful transformations offer the following suggestions:
- Start with small changes: One respondent wanted to implement changes in the company's annual performance reviews. Recognizing that this could cause widespread anxiety among employees, he first tested the plan within a single department. On the basis of that successful trial, it was expanded across the company and was met with a high level of acceptance.
- Establish the building blocks: Similarly, break long-term goals down into numerous short-term components and concentrate on the successful completion of each step. By moving a few rocks each time, sooner or later, the entire mountain will be moved.
- Trust your professionalism: Executives from foreign companies are sought for their professionalism and international best practices. Embody those standards. One vice president of Human Resources said he discovered after starting at a Chinese company that it had twice the necessary staff but paid only one-fourth the industry-standard wages. On the day before the proposal for a new compensation plan was due, he decided to take an extra week to ensure its quality would be impeccable. He suggested, "Don't overstretch yourself. Rather, set your sights on feasible goals that can be delivered with flying colors."
7. Office interaction: Know how to play politics but don't take sides. No organization—in China or elsewhere—is free of office politics. Transitioning executives must understand how small changes can greatly disturb the political equilibrium and seek to keep things in balance even while driving change. At the same time as avoiding choosing sides and adhering to the highest principles, leverage diplomatic skill to win the support of those who have the most to gain while working around the obstacles posed by those who stand to lose. Communicating ideas in a compelling way is essential. Stay above the fray of political competition to avoid becoming a casualty.
8. Philosophical struggles: Learn to endure the loneliness. Even with a career filled with accomplishments, making the transition and gaining the support of top management will require the strong sense of self necessary to endure a difficult process. For while executives with international experience are recruited for their global perspective, the very ideas for which they were hired can hinder their acceptance by the organization. Maintaining a consistent leadership style and steady demeanor in the face of these challenges will help earn the support of peers and subordinates alike. It is essential in the face of inevitable setbacks to take a long-term perspective. Realistic expectations are also critical. Sustained success will bring substantial acceptance and reward but not to the level of a founding member of the company.
Joining a Chinese company with global ambitions is a step that requires not just passion and determination but sound judgment and a strong internal compass. Those taking this step must remember that before their goals can be achieved, they themselves must survive in their new environment. This can be a difficult and trying process, but it can be successfully navigated by those willing to learn and adapt.
Grace Cheng is a Managing Director for Russell Reynolds Associates in Greater China. Working across Beijing, Shanghai and Hong Kong, Grace conducts high-level executive searches with an emphasis on general management and cross-border assignments for Western and Chinese companies at the market entry, fast growth and consolidated growth phases.
For further information on Russell Reynolds Associates' Leadership & Succession practice in Greater China, please contact:
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