People & Change: Aligning your talent strategy to China business strategy

By Alan Chu and Lawrena Colombo

Does your talent strategy reflect the ever-changing realities of China? How can you implement rigorous recruiting and retention processes as well as develop future leaders to grow and sustain your business?

Many companies are familiar with China’s current labor market trends, such as demands for pay hikes and better working conditions, high turnover rates due to a shortage of the commercial skills necessary for a global enterprise, and evolving labor laws like the one introduced in January 2008 to grant greater contractual rights to workers. On a daily basis, these companies are competing for talent in a market that is seeing a roughly 10 percent increase in salary every year and whose workers in the 25- to 30-yearold age-group stay in their jobs for a year or two on average.

But a few companies are also paying close attention to the unique characteristics of China’s labor market that cannot be managed by simply tweaking human resources (HR) policies that originated or worked elsewhere, including other high-growth countries. Take agricultural and construction equipment manufacturer John Deere, for example. Dave Whan, the company’s director of talent management strategy and policy design, says, “In developing the employee value proposition in China—whether it’s compensation, recognition, or the intrinsic value of the work itself—where we place emphasis can vary region by region. To become an employer of choice in every region, our approach will be similar, but we’ll have to customize it based on feedback we receive from both current employees and the market.”

John Deere is responding to a phenomenon some observers have described as China’s increasingly “segmented” labor market, wherein vast pools of labor in the countryside coexist with shortages in coastal cities.1 Addressing such evolving trends reflects the growing desire among leading companies to develop a talent strategy for China that is more assimilated to the local environment, believing it would be an important source of competitive advantage.

In the critical area of leadership and talent development, for example, a few companies are recognizing that building up skills locally—rather than depending exclusively on expatriate talent—is necessary in an environment where complex social dynamics underlie all business interactions. SC Lee, Newegg’s executive vice president, who leads a strong Chinese American management team, feels strongly about this: “We employ several Americans who speak Chinese, and we send them to China both as expats and for short-term projects,” he says. “But we are very clear that we are sending expertise to China because we believe that general management responsibility resides locally.” At Newegg, the American employees focus on transferring skills and knowledge to the local Chinese, who in turn have the opportunity to work in the US headquarters on specific projects.

Companies that are taking the lead in implementing such measures are among those whose business leaders demand more value from HR, such as to help grow the bottom line, quantify talent needs, recruit the best candidates, and develop and retain the highest performers.2 John Deere’s Whan says, “Management expects the HR community to be a proactive business partner. That requires us to have the business acumen to contribute to strategic conversations and respond with speed and agility to changing circumstances, such as when we are entering a new market.”

In China, that can be particularly challenging not only because of profound cultural differences but also because of the rapid socioeconomic shifts occurring there. But with China becoming increasingly influential as both a market and a competitor, some companies are gradually adapting to specific Chinese practices. These companies are positioning themselves for long-term success by aligning their human capital strategy to China’s changing realties as well as the country’s cultural norms. When it comes to shaping and executing talent strategies for China, companies are at different stages of maturity. To create a roadmap for action, it may be useful to chart practices along this growth trajectory: becoming more efficient (optimizing), becoming more effective (growing), and innovating (leading).3

  Optimize Grow Lead
  • Rely on expatriates for key managerial roles. Recruit local talent by targeting top-tier universities and experienced candidates in coastal cities.
  • Emphasize English-language skills and familiarity with Western practices as prerequisites for recruitment.
  • Be alert and responsive to regulatory changes, and act in accordance with Chinese labor laws.
  • Target talent based on a thorough understanding of China’s diverse labor market, taking into account regional variations in wage inflation, labor laws, turnover rates, and skill sets.
  • Where local talent is not readily available, use expats as bridges to support and develop local management talent for the future.
  • Align recruiting strategies with long-term strategic priorities. Recruit with openness to Chinese managerial practices that are adapted to the domestic business environment. For example, Chinese-style communication skills and ability to understand and navigate relationships in regions where the company plans to expand may be important drivers of organizational success.
  • Design monetary and other shortterm motivators as tools of retention. Incorporate benchmarking data on compensation to design salary ranges for target positions.
  • Create working conditions that comply with regulatory considerations such as labor and tax laws. This includes upholding health and safety standards, overtime compensation, nondiscrimination, etc.
  • Target the benefits to different segments of China’s diverse workforce. For example, offer higher compensation in coastal cities but more training and development in inland areas.
  • Offer a work environment aligned to stakeholder expectations. For example, recognize that younger, more-individualistic Chinese (typically products of one-child families) are demanding a higher quality of life, measured not necessarily by wages.
  • Foster development of firm-specific skills, and use long-term motivators and hard-to-replicate benefits customized to different demographic groups.
  • Connect employer brand with consumer brand, recognizing the importance of employees as current and future consumers in a rapidly expanding market. Engage employees with the same ideas and concepts used for engaging consumers through unifying brand values—be it integrity, innovation, fun, teamwork, or other defining attributes.
  • Start with job descriptions and organizational structures proven to have worked in the US, and gradually adjust them to accommodate local expectations around roles and responsibilities.
  • Design HR operations to mostly mirror those in the US headquarters, with some adjustments to reflect cultural factors such as language barriers, communication styles, and attitudes toward hierarchy and authority.
  • Create work processes that are assimilated to local issues such as an education system that is trying to keep up with rapid growth and global economic integration. For example, support growth and development in standardized roles and responsibilities; and as people excel, provide them with the developmental platform to move on to more-specialized functions.
  • Provide guidelines and techniques for understanding and addressing underlying cultural biases and for establishing processes for conflict resolution and best practices that will address future issues.
  • Proactively address the risk of high turnover by developing dynamic and detailed standard operating procedures that account for China-specific differences and challenges.
  • Offer incentives to employees to own the working processes, and continuously monitor the evolving environment to update and refine procedures as needed.
  • Create institutional processes to rally people around cross-border and cross-cultural initiatives. For example, engage Chinese Americans around Chinese business development efforts, and increase the exposure of talented Chinese nationals to other growing markets such as India and Indonesia to build future regional leaders.
Leadership development
  • Focus on the development of Western leadership skills with less consideration of skills that may be relevant in the Chinese context.
  • Provide cross-cultural training to build knowledge and awareness regarding differences in norms, practices, and behaviors.
  • Integrate China business strategy into the formal succession-planning methodology and leadership development plans.
  • Invest in long-lead development items such as language skills and expatriate experience.
  • Tap into personal and cultural differentiators of future leaders as a business-needs-driven rather than a diversity-focused strategy.
  • Recognize the competitive advantage offered by foreign-born executives in leadership positions in corporate America, and address the unique set of challenges involved in developing leadership talent from China as a matter of necessity for future success.
  • Conduct succession planning for key positions that need to be replaced by Chinese local managers.

1 “The next China,” The Economist, July 29, 2010.

2 PwC, 10Minutes on Transforming HR, March 2010.

3 This illustration makes use of PwC’s Competitive Leadership ModelSM, which helps map a company’s focus and vision, its position relative to industry peers, and an actionable plan for achieving market leadership.