Preventing a leadership crisis in Asia’s talent pipeline

By Rosemary Goater and Charles Moore

Scarce—and in some cases, unprepared—management talent hampers some multinational companies’ growth ambitions in Asia.  Therefore, it is vital for companies to develop a pipeline of prospective leaders. Failing to plan in advance could leave critical positions temporarily unfilled, something that causes uncertainty and could damage the company as a whole. As a result, simply turning to the  pre-existing talent pool to plug leadership gaps is not a sound strategy.  Worryingly, there are signs that the talent pipelines of some multinational companies in Asia are inadequate for the challenges ahead.

“Having a sufficiently deep bench is my biggest concern,” says Aidan O’Meara, president of the Asia Pacific region of VF Corporation. VF Corporation is one of the world’s biggest consumer brands—a $12 billion conglomerate that owns household names such as Vans, Nautica, The North Face, Lee, and Wrangler.

Atul Khosla, vice president of human resources for the Asia Pacific region at Mondelēz, a global snack food conglomerate, agrees with O’Meara. Khosla argues that a critical talent shortage is imminent. “If organizations do not invest in developing their teams now, there is a big risk of a leadership crisis within two years,” he says.

What factors are behind this pessimism? Why are multinational companies operating in Asia at risk and what can they do about it?

In Asia, there is an urgent need for talent.  In a recent survey by ManpowerGroup, 48 percent of Asia Pacific employers reported that they faced difficulty in filling positions—particularly in management and executive roles—compared to 38 percent globally. This is partly due to demographics: 19,000 people in the Asia Pacific region hit retirement age every day, and they are not being replaced by new entrants to the workforce. This has caused talent shortages in countries such as Japan, South Korea, and even China.

Moreover, existing talent in the workforce is not being trained to succeed: CEB found that just 26 percent of Asia’s rising leaders believe their successors are ready for executive roles, compared to 43 percent in the rest of the world who believe so. A study by Mercer, meanwhile, found that the majority of companies in Asia said their people managers have little or no accountability for developing leaders.

The Asian talent we need

As Asia’s economies mature, seizing growth opportunities in the region will require more adept, and locally informed, leadership. Companies can start by better understanding the landscape and unique attributes required of leaders in the region.

Evolving business demands

Asia is home to the fastest-growing economies in the world, but as growth in these markets slows, easy gains—or the “beta” achievable through riding a wave of double-digit growth—are evaporating. Companies increasingly need leaders skilled enough to wring “alpha” returns from bigger, more complex organizations in larger, slower-moving economies.

“China and India have gone from emerging-growth markets to large-growth businesses,” says Khosla. “These are full-blown, complex, large, multicategory businesses. We now need the kind of leaders who understand the complexity of this part of the world and can run these businesses.”

Mitch Williams, senior vice president in Asia Pacific for Rexel, an electrical equipment supplier, agrees. “When you grow over about $20 million or $30 million, it’s difficult to find people to run those businesses,” he says. “We need people who will step up and be proactive—broad thinkers who are able to take on senior general management or even operational roles.”

Jon Clark, Asia Pacific chief executive of the industrial conglomerate Danaher, also thinks that taking the next step will require a special cadre of leaders: “The group that got you the first $100 million may not necessarily be the group to take you to the next $100 million.”

Unique attributes required

What leadership attributes are needed in senior teams to help deliver growth in Asia? In addition to the usual qualities of tenacity, flexibility, and openness, experience suggests that the following attributes are needed to succeed in Asia’s diverse and rapidly changing markets:

• The ability to manage multiple reporting lines and operate in a matrix structure. Business leaders in Asia are required to work with both global business heads and partners in local offices, so they must be comfortable juggling overlapping reporting lines.
• The ability to operate in a “culturally neutral” fashion. Inmatrix reporting leaders must be able to deal with senior leaders of various nationalities and backgrounds, putting a premium on communication and stakeholder management skills. This requires the suspension of clashing cultural perceptions and the ability to transcend culturally ingrained mind-sets. A Chinese leader of a multinational business unit in Korea, for example, must approach issues from a Korean perspective regardless of his or her background.
• The ability to be strategic. In Asia’s maturing economic environment, and given the unique challenges of growing a business in today’s emerging markets, leaders in the region must be able to create and drive strategy.

Expats and returnees: An interim solution

Demand is outstripping supply for skilled leaders. Historically, global multinationals relied on two sources for leadership positions: expatriates and returnees. A recent study by Mercer, for instance, found that 29 percent of surveyed companies had expatriates in more than 30 percent of their top ten leadership roles. Only 20 percent reported that locals held all top leadership positions.

Regarding expats, there are fewer of the “fly-in, fly-out” variety: more and more roles are filled by those with long experience in the region and with a nuanced understanding of the markets they are responsible for. Expats often have families in Asia and speak a variety of languages. These “localized” expats are in the pipeline to become heads of Asian businesses, but their numbers are not being replenished at a sufficient rate.

Meanwhile, native Asian talent who have sought education and experience in Western markets and returned to apply this knowledge—sometimes referred to in China as “sea turtles”—have been another supply of leaders. Yet they too are ultimately an interim measure. Returnees with the right qualities are no less expensive than expats. And the supply of such talent is unlikely to be able to match growing demand, particularly as incentives to stay put in the West rise as demographic pressures in those markets also grow.

The combined effect is that, while there is an abundance of entry-level professionals in Asia, there is a dearth of mid-tier and top management experience. To succeed in the longer term, multinationals must develop local pipelines of talent with the capabilities to take senior leadership roles.

“For KPMG, from a professional service perspective, we are doing the right thing to localize the positions,” says Polly Yip, head of HR for KPMG China, “[but] definitely we need expert insight from other locations and member firms in other parts of the world, to supplement each other. It’s all about collaboration.”

The evolution of Asian leadership

Finding leaders in Asia poses unique challenges. To be sure, the overall quality of local executives has improved significantly over the past 30 years. But the evolution is not steady across different Asian markets; it depends to varying degrees on the development of the economies in question.

India, for example, has always had a dependable supply of leaders with international communication and management skills, thanks in part to its high level of technical education and, with regard to language, the legacy of its colonial history. But India’s markets have been opened carefully and and investment in certain sectors consequently uneven. This has lead to gaps in international experience and a patchy local leadership pipeline. Similar stories apply to many Southeast Asian markets, with available talent pools broadly reflecting their economic development and the historical level of overseas investment in given sectors.

Meanwhile, the rapid development of China led to the development of a cadre of local executives skilled at managing and growing local operations, but with limited experience overseeing more complex operations across borders. For multinational investors, outsourced operations frequently required an expat or returnee go-between to bridge cultural and linguistic barriers.

Now succeeding in China requires more multifaceted leadership skills. And with Chinese companies increasingly expanding abroad, the competition for talent is increasing. However, many multinationals haven’t scaled up their domestic talent pipelines commensurately. Indeed, many companies have found the country’s success to be problematic for developing local talent pipelines. In the retail sector, for example, the competition for skilled managers has provided little incentive for local executives to seek opportunities outside the region—and they consequently have little conception of how to run businesses across borders.

The CEO of a fashion brand observed that many of the younger, more inexperienced people holding manager titles do not know how to manage in a downturn. The challenge, he says, is to train them in the skills required for more complex roles by teaching them how to look at the business from different angles.

Inevitably, some industries are better placed than others to manage the talent pipeline challenge. One indicative factor is the degree of product localization required. Companies that can sell generic products globally with minimal differentiation have had little incentive to develop local talent with the cultural insights necessary to develop market-specific business lines.

The leadership challenge also correlates with profitability: low-margin businesses have been forced, for reasons of cost, to develop local talent more assiduously, rather than rely on expensive expat or returnee managers. For example, retail  banking, which has historically operated with stricter margins than that of corporate or investment banking, developed better leadership pipelines in Asian markets than high-margin financial services businesses. The latter—corporate and investment banking, asset management, and so on—still rely on expensive, and scarce, non-local or returnee leadership and will find themselves at a disadvantage as the war for leadership talent heats up.

Finding solutions

Multinational companies that recognize the increasing importance of Asia to their businesses are adopting the following strategies to ensure an adequate supply of future talent.

Put leadership on the management agenda

Solutions to the talent challenge come at the boardroom level. Multinationals must ensure that developing talent for future senior leadership roles is an agenda item for both the global CEO, who should determine overall strategy, and the regional chief executive, who should prioritize the development of an Asian talent pipeline.

One of the five imperatives for successful CEOs is to serve as a talent magnet, attracting top talent from various backgrounds and geographies and building a truly diverse senior team. Developing an Asian talent pipeline will be increasingly important in this regard. The following are some strategies to rejuvenate internal talent development programs.

Fast-track and enhance management training

Accelerated management training that includes geographical and operational mobility is vital to build a robust leadership pipeline. Hand in hand with the notion that Asian leaders will increasingly run global operations is the need to give them sufficient experience to do so. Mentoring high-performers within the firm is therefore crucial. Yip, from KPMG, says “[mentors] need to be able to listen to them, care about them, and understand their career aspirations.”

Professionalized management is also crucial to address experience gaps.  This is becoming increasingly important as the region’s key economies slow. Since many managers in China are new to a downward cycle, company leaders need to coach and mentor them, and help them understand what the new paradigm requires.

Develop leadership metrics

On an operational level, defining metrics to enable the identification of high-potential talent is crucial. Grace Wang, HR director in the Asia Pacific region for Carestream, a provider of medical imaging and  IT solutions, explains how a transformation in the business drove the company to develop a competence model that identified what skills and traits were required for sales leaders. The company then evaluated the talent status quo to identify gaps and provided leadership and sales skills training to help prospective leaders compensate for any deficiencies. This, among other measures, led the company to create a robust pipeline for sourcing leaders—some 70 percent of whom are in place through internal promotion.

Provide an inspiring career path

If CEOs need to be “talent magnets” and management training is necessary to coach and mentor talent, the key to retaining and developing high-potential employees in Asia is to ensure their “view to the top” is clear.

Consequently, some organizations are building stronger, clearer career paths and are focusing on developing high-potential people to address their lack of local leaders. “Coaching and mentoring,” notes a senior executive at a construction company, “are important throughout one’s career—at the graduate level, during key career change steps for postgraduates, as well as for very experienced people who are getting closer to senior roles.”

Build diversity in the workforce

Spotting the potential of high-achieving employees requires talent management executives to look broadly. Michael Marquardt, chief operating officer for the Asia Pacific region for investment management corporation BlackRock, argues that promoting gender diversity is a way of deepening the pipeline: “For top leadership roles and asset managers, the talent pool in Asia isn’t deep enough, and it is especially not deep enough for female leaders. We need strong local leaders with international skill sets. It’s about diversity of gender, diversity of ethnicity, and ultimately diversity of thinking.”

Revamp external talent programs

Ensuring that talent searches outside the company are sufficiently innovative is also crucial to addressing pipeline deficiencies in Asia. Naturally, this begins at graduate recruitment with those taking their first steps on the career ladder. But, while leading multinational companies are expanding their graduate programs in Asia (Citi, for example, aims to hire 750 people for internships and graduate jobs in the summer of 2016, up from last year), visionary companies are also adopting the following innovative strategies to ensure success.

Look beyond traditional markets

For markets where the potential talent shortage is most concerning, graduate recruitment could focus on overseas universities to develop potential returnee talent. For example, some 20,000 Malaysians go to Australia each year to study, suggesting targeted recruitment programs at Australian universities could benefit the Malaysian leadership pipeline in the future.

Identify strategic mid-career hires

Current economic conditions in Asia give companies an opportunity  to bolster their leadership pipelines with qualified mid-career talent—if they keep a close eye on their competitors. Barclays, for example, made the decision in early 2016 to scale back its operations in Asia, with as many as two-thirds of the resultant 1,200 job cuts coming in the region. This presents companies with an opportunity to acquire mid-career talent from a competitor. Similar opportunities are bound to increase as multinationals in various industries adjust to new economic realities.

Cultivate rehires

A dedicated “alumni program” could reap long-term leadership pipeline benefits. The largest companies in any sector are, in effect, leadership academies. Unless there is an institutional prohibition against rehires, it is beneficial to track employee alumni as they progress through their careers. Doing so would enable companies to approach former employees for senior leadership positions when they have obtained relevant experience elsewhere. These are still comparatively rare, though: the Citi Alumni Network, which includes more than 14,000 former employees, is one notable exception.

Investigate crossover hires

Given the common traits of successful corporate leaders, there is no reason why monitoring and mapping potential talent should be restricted to a company’s core industry sector. Indeed, sourcing “crossover talent” could be another solution to the leadership pipeline challenge.

Greater diversity of backgrounds among senior hires has been increasing for some time in some sectors. Between 2011 and 2014, 78 percent of big  pharmaceutical companies’ talent  came from within the sector. For biotech firms, though, the figure was just 37 percent, suggesting an openness in that sector to a more diverse and creative pool of potential leadership hires.

KPMG’s Yip recognizes the benefits of widening the talent pipeline by looking across disciplines and sectors, from graduate recruitment all the way to senior hires: “Apart from accounting, finance, and business [students], we will also look at people from all different disciplines, such as IT, engineering, and also life sciences, and provide conversion programs to widen the pool.” Meanwhile, for hires into the firm’s advisory services, the plan is to increase the number of candidates with experience in areas such as biotechnology, science, and engineering, in addition to those with the traditional finance and accounting backgrounds.

Averting the crisis

Asia is facing a leadership crisis and it’s time to act. There are concrete steps—internal and external—that companies can take to ensure their talent pipelines can withstand the emerging market pressures.

Corporations that recognize the increasing importance of Asia to their businesses have decided to relocate senior global roles to the region. Industrial firms that have invested heavily in Asia, including Caterpillar, GE, and Schneider Electric, are among those companies taking this step.

By having their global senior roles located in Asia, organizations will have a better local understanding, allowing them to make better global decisions. The presence of these global roles in APAC would also make them aware of the urgency of Asia’s talent pipeline issue and motivate them to align the company’s goals with those of its most talented employees in the region.

Companies must recognize talent management as a core corporate activity, on par with finance or strategic planning. Talent should be managed rigorously and success tracked through defined metrics.  In addition, this must be done through a long-term approach; that is the only way companies can hope to address Asia’s impending leadership crisis and ensure the continuation of their own global success.

About the authors:

Rosemary Goater ([email protected]) is a partner in the Heidrick & Struggles’ Hong Kong office, and a member of the Financial Services Practice. Charles Moore ([email protected]) is partner in charge of the Singapore office and is the Asia Pacific and Middle East sector leader for the firm’s Healthcare and Life Sciences Practice.