Multinational companies’ HR issues larger than ever

By Jonathan Zhu

Multinational companies (MNCs) should not rest on their laurels simply because Chinese privately owned enterprises (POEs) are struggling with HR. MNCs in China often face the same struggle; the quality of talent varies widely from company to company.

The stakes are rising. Not only are MNCs facing slower economic growth and tougher competition from POEs, many report government support for national companies is increasing, as well as government intervention against MNCs. And sophisticated consumers are no longer dazzled by global brands. These trends are eroding the long-standing advantages of MNCs in China — advantages that compensated for setbacks they experienced in the battle for local talent.

The battle for talent is where the larger war for market supremacy will be won. Many talented individuals in China are questioning whether Western-based MNCs are still the employer of choice. Chinese companies are offering competitive compensation packages, attractive career paths, and the opportunity to work at the center of the company, not the periphery. In addition, many more Chinese are opting to join POEs for their agility and culture of rapid decision making versus the  perceived “glass ceiling” at MNCs, where top positions often go to expats.

These shifts in attitude, coupled with the erosion of MNC market advantages, have given POEs a golden opportunity. If they can get HR right, their enhanced ability to attract, develop, and retain top local talent may prove to be the decisive advantage in their competition with MNCs. That is a big “if,” of course, but a distinct possibility.

To forestall that possibility, MNCs must ensure their HR functions are second to none. Despite being a part of companies that typically have exemplary HR operations in their home countries, the China subsidiaries often lag far behind in the function. In MNCs, as in POEs, the function is still evolving and the quality of the HR function varies widely among the regions in which they operate.

What can MNCs do? Improvement starts, of course, with hiring the right HR leader. In addition, they should work to:

• Identify the organization’s talent and capability gaps.
  • Develop a robust succession program and strong talent pipelines.
• Create a culture and value system that puts a premium on talent.
  • Get strong buy-in from internal stakeholders, especially business-line leaders.
  • Develop strong external partnerships that link recruiting to employer branding.
  • Provide rotational programs for high-potential employees to broaden their leadership skills and vision.
  • Conduct frequent market-benchmarking surveys to ensure competitive levels of compensation for all positions, and share the results globally across the organization.
  • Continuously train leaders in management skills, including tolerance and compassion.

Creating these conditions and strengthening the organization is challenging, and will require outstanding HR talent and business leaders who understand and support the mission. Talent in general is scarce in China. Now that competitive advantage hinges on the HR function, this talent, too, will be in more demand than ever.

These challenges come at a time of fundamental change for many MNCs, as they shift from being low-cost manufacturing hubs for the world to higher-value manufacturers and R&D centers that, in many cases, are attempting expansion into the China market. These business models may require new leadership models, placing new demands on HR and taking the battle for talent to a higher level of sophistication.

If MNCs want to beat the odds, they will have to work inside and outside their organizations simultaneously. Inside, they must rapidly develop their promising HR talent. Outside, they should map and track external HR talent, and benchmark their internal candidates. When it is necessary to attract external HR talent, MNCs can offer potential hires the opportunity to build a comprehensive, strategic HR function — an opportunity that will improve retention. If MNCs, like POEs, are to win the battle for talent, they will have to first secure the best candidates for the HR function.

About the author: Jonathan Zhu ([email protected]) is a partner in Heidrick & Struggles’ Shanghai office and a member of the Healthcare and Life Sciences Practice.