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International Business: People Problems

April 1, 2005
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One of the greatest challenges facing companies in China - how to hire and retain good people.

I hear it all the time from companies just getting started in China, usually said with a sense of enthusiasm and accomplishment: "We just hired a general manager for our China operation. We're ready to go." My response is always the same: "Congratulations. You just put that guy (or gal) in business in China. The question is, two or three years from now, will you still be their partner?" The alternative-becoming that person's competitor, stepping stone, training ground or slush fund-is a far too frequent occurrence.

It is probably the single greatest challenge facing companies in China (or any developing country, for that matter) today and probably well into the future-how to hire and retain good people. Of course, many would say that this is true in any country at any time. But there are special challenges in developing countries like China, and finding the right people is particularly challenging to those who are most vulnerable-companies just starting out and small companies that won't be hiring a large staff. In this column, I will describe some risks and challenges, and offer several recommendations to give you a framework that will help you avoid the revolving door of disappointment that recruiting in China can be.

Possible Pitfalls

Let's start by considering the fact that no society can shake off hundreds of years of imperial decline-and one or two generations of the worst system of economic and political organization ever conceived (communism)-overnight. The effects linger like a protracted societal hangover.

One result is that you don't have a lot of people with experience leading, managing and working in efficient, effective organizations. China's new managers have been learning on the fly. They're learning quickly, but in some respects not as quickly as the economy is growing. In part, this is a result of the fact that many Chinese companies compete on low-cost labor alone, which tends to be a crutch that inhibits the development of business skills and genuine managerial effectiveness.

On top of that, add the cultural side effects of a system (communism again) that rewards political cunning and neglects (and even discourages) merit-based, performance-centered management. Corruption, heavy-handed leadership, reluctance to share authority, and bureaucratic lethargy are just a few examples of the bad habits that die hard in developing countries. Not that you can't find similar problems everywhere-you most certainly can. But with culture, as with horseshoes and hand grenades, degree counts; these problems are bigger in China. The gap will close over time as China progresses and its culture evolves, but for the time being this kind of behavior has to given greater consideration in China.

Have you read about the billions and billions of dollars of foreign investment pouring into China? Consider this-every one of those dollars is competing for the same managers you are recruiting and hiring. In China's major cities (Shanghai, Beijing and Shenzhen), and even in most of the second-tier cities (Suzhou, Wuxi and Guangzhou), the door revolves pretty quickly. Six months and out with a 30% raise seems to be the expectation of a fair number of China's young managers and professionals. And why not? If they can get it, the principles of market economics tell us they'll take it. Unless foreign companies investing in China have more success negotiating a salary cap than the NHL, this bidding war isn't going to cease any time soon.

Those who only speak English tend to give undue weight to language as a hiring factor. Think about it-among the good managers in your company, how much of their success is due to their mastery of a second language? Communication is obviously important, but you have to understand the extent to which giving weight to such factors limits the field of acceptable candidates for reasons that have little to do with managerial, business or occupational ability.

What Can You Do?

I wish I had a magic pill solution that could solve these problems for you. I don't. But I can make a few suggestions that can help you manage your risk and your operation in China.

Are you a good interviewer? A lot of us aren't, and interviewing in China is even more difficult. You have to dig deep. What did people really do in their previous jobs (as compared to what they claimed to do or observed others doing)? Can they discuss business issues intelligently? Can you think of a way to test their practical mastery of specific business/managerial skills? A few years ago, the University of Notre Dame fired a football coach who had lied on his resume. Notre Dame didn't ask the right questions. They didn't dig deep enough. They paid the price. Don't make the same mistake in China.

China is no place to employ a hands-off, management by objective philosophy. You are going to have to stay closely involved not only to ensure things are done right but to ensure that, if there is a bump in the road (including a key person leaving), you are in a position to move forward and stay the course.

The best way to ensure that your organization does not rely too heavily on one person is to get more people involved. Your entire organization should be learning about China and should understand your operation in China. Limiting such knowledge to your key Chinese manager and the one person to whom s/he reports is a recipe for disaster. At the very least, it means your organization will have to continually relearn lessons (often the hard way).

At the risk of beating a dead horse, let me go one step further. You need to integrate your China operation into your company. The same processes, procedures, metrics and reporting practices you employ at home ought to apply abroad. This sounds obvious, but you would be surprised at how many companies will let a foreign operation exist in its own little world. Don't make that mistake. It is one thing to encourage independent thinking and accountability. It is another thing to breed an autonomy that too easily leads to secession. Plus, the best way to teach skills that are lacking is to insist that policies and practices followed at home are transferred abroad.

One last thought: If you are just getting involved in China, you might want to consider a location that is one step removed from the hectic bidding wars of the major cities. Cities that are off the beaten path have the disadvantage of having less people with worthwhile experience. The advantage is that it is easier to keep the good people you do find. I can't do an exhaustive evaluation here, but places like Wuhan, Ningbo and Qingdao are very active economically and have improving infrastructures, yet don't have quite the revolving door problems of Shanghai, Suzhou, Wuxi, Beijing, etc.

Most importantly, take your time. Rushing into uncharted waters is never a good idea. Your success in China is a long-term undertaking, and you don't want to sabotage your chances by making a foolish first step. Devote the appropriate resources. Ask the right questions. Find the right people. Build an organization-not just a factory or an office.

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