China firms eye top foreign hires

In a radical departure, Chinese state-owned firms are seeking to hire foreigners for top positions. Shanghai-based Integer Consulting founders Matthew Maslin and Dang Xinhua explain.

What's going on in recruitment in China?

Maslin: Growth opportunities are legion, both with multinational firms and domestic companies. What's really exciting is that recent developments in the state-owned sector mean that for the first time Chinese firms are looking to recruit capable Western executives to run state-owned firms. That's a huge change.

How are you positioned to profit from this?

We are based in Shanghai and focus specifically on the mainland market. That makes us pretty much unique amongst international search firms. We see ourselves as the CICC of executive search, in the sense that like the investment banking joint venture, we provide international standards in tandem with a very strong local partner - in our case the Shanghai municipal government. I worked in Hong Kong for a number of years with recruiting firm Russell Reynolds, as did Xinhua. We are the first company to specialize in mainland recruiting in this way.

Foreign executives being put in charge of SOEs sounds like a radical concept. What's the background to that?

Yes, it is radical and very much a new departure for the PRC. The driver is the government's increasing focus on letting SOEs sink or swim and the newly created state-owned Asset Supervision and Administration Commission (SASAC) that has been mandated to restructure the best 196 centrally-owned companies. Clearly, China is straining every sinew to build 'national champions' - companies that will be able to compete with the best that foreigners can offer as WTO liberalizes the markets.

What will be the role of the SASAC?

The SASAC is a government institution representing the majority shareholder - that is, the state. But it will not be involved in the day-to-day operations of the companies. It will keep an eye on them and will be responsible for appointing top staff. It's with their encouragement that we are conducting the search for foreign expertise.

So you actually have a mandate already?

Dang: Yes, we have a mandate to find the president of one of China's most progressive SOEs and the leading player in a highly product and service driven sector facing intense competition from foreign companies.

What sort of profile are you looking for?

Maslin: We are looking for somebody with 25 years related industry experience in a top foreign company who has already run a comparable organization in terms of size and complexity; in this case a congomerate with 10,000 plus employees. The concept is similar to Japan's Nissan group hiring an outsider - Carlos Ghosn - as President. Ghosn has turned Nissan around. Actually, we are not necessarily concerned with recruiting a grizzled Mandarin-speaking China hand. Rather, we are looking for someone with huge amounts of drive and enthusiasm with the strength to carry out major changes.

What major changes?

Dang: Essentially to bring the company, operationally, up to international standards, prepare it for an overseas IPO and ultimately to expand abroad. This company wants to become a world-class brand in the same way that companies like Haier and Legend are doing.

What kind of response have you been getting?

It's been amazing. There is a big attraction to working in China, especially as the package will be as attractive as anything they could get elsewhere. The successful candidate will be paid to the appropriate international standard and will immediately be able to select four senior executives who will report to him.

Who will the new President report to? How much real power will he have?

Maslin: He will have full operational and P&L responsibility and will appoint his own executive committee. He will be answerable to the board at the holding company level, especially the chairman. The chairman is already in place and comes from the old company.

So there will still be an incumbent from the old company supervising the new guy.

Yes. That is the key relationship, and the issue we are most asked about. These are still areas where the details have to be thrashed out. However, given the nature of the initiative we don't expect any problems.

What is the nature of the initiative?

Dang: This is a top-down initiative from the very highest level within the government. They want to make changes happen. Already China has lined up a further six major SOE's for similar global searches later this year.

What about recruitment for Western firms operating in China? What is the situation there?

Maslin: It's an interesting story. While domestic firms are often looking to hire overseas expertise, MNC's often want to find the best local talent. In financial services it is very sector specific, based largely on regulatory restrictions and the scope of foreign firms' leeway. High growth areas right now include insurance and asset management and consumer finance. Clearly, MNCs need people with local language and other skills. But in many cases the right skill set is difficult to find domestically because the industry simply didn't exist until now. For example, the credit card industry is expected to open up next year to foreign firms, and it's a completely new area for China. At that point, we need to look at combining the skill sets of people with experience from mature markets with people who have domestic market expertise in distribution, for instance.

What's the outlook for local employees, as in those who have never been abroad?

Dang: It's important not to generalize. There are many areas where local employees have a huge advantage over others; particularly in origination/sales roles where local relationships and connections are important. In our view the real wealth behind China and the engine behind its growth lies with the entrepreneurs whose market knowledge and flexibility relative to foreign competition is huge. Often, foreign firms fail to recognize this and their relative bureaucratic approach means they cannot be as responsive to market changes. They need to look more carefully at hiring and integrating people who might not have an MNC mindset but who can drive real market growth.

Given the rarity of the right combination of qualities there must be a huge salary explosion going on, not to mention lots of poaching.

Maslin: For sure, in many areas, where foreign firms are aggressively expanding demand outstrips supply. That means that the difference between Hong Kong salaries - in some sectors - is narrowing. We are also seeing a lot of poaching. Companies really need to look at the whole issue of retention. There tends to be less company loyalty in China, partly because good individuals have so many options. Foreign companies that ignore this find that their turnover rates for key managers are high and it is difficult to build a long-term culture.