Multinational Companies in China : Facing New Competitive Challenges

    By Thomas D. Gorman

    In the early 1980s , in the initial stages of the Open Door policy , foreign invested 5-star hotels were one of the first categories of Sino-foreign joint venture projects to get up and running in China .

    So new and enticing were the prospects of working for one of these , that there was a scramble among the sons and daughters of well-connected families to land jobs there . Even a relatively low level staff earned in the range of RMB400 per month , which was a relative fortune then , compared to government organization or SOE wages at the time .

    Thus began a long-term trend of MNCs having a competitive advantage over Chinese companies in attracting key talent .

    However , times have changed .

    Multinational companies in China are facing serious challenges due to the very negative impact of the economic slump on their head office attitudes . For many of them , head office is far from China , doesn’t understand China , and is preoccupied by a severe crisis in core markets .

    Most MNC head offices have very few top managers with first-hand experience of living and working in China . They are “remote” with respect to geography , information , and culture .

    Even for MNCs whose market segments are still growing in China , many of their head offices overseas have imposed global budget cuts , hiring freezes , and downsizing requirements . The China market is no exception , despite the growth prospects here .

    The managers of many MNC China operations are frustrated by their inability to convince head office to give them some flexibility with regard to hiring freezes and budget cuts . Head office management still just doesn’t completely understand the China growth story or necessarily accept the probability of China’s early recovery from the current crisis . They are also very preoccupied with many other problems closer to home .

    There are also some MNC head offices which not only accept the China growth story , but are expecting short-term miracles from their China market team during these distressed times in other markets .

    Either way , it creates a big challenge to achieve realistic management of expectations between the China office and the head office of MNCs .

    Many MNCs in China have already gone virtually invisible on marketing and promotion and are unable to compete effectively in hiring key staff , due to cutbacks and freezes imposed from HQ .

    Most MNC China CEOs will tell you that management level human resources is their biggest challenge in China : recruiting , training , motivating and retaining key staff . In fact , it is every company’s biggest challenge .

    Gone are the days when working for an MNC in China was the dream of the best and the brightest employees in the market .

    Today , China’s top SOEs and entrepreneurial companies are increasingly becoming more attractive places to work .

    Many talented young people see the path to the top as being shorter and faster in a Chinese company . There are growing opportunities for on the job training and for gaining international experience . There is also a perception of less bureaucracy and fewer cultural clashes than often encountered in an MNC . Remuneration is increasingly competitive , depending on the industry segment and job level .

    For key talent , compensation and benefits are only one piece of the picture in any case .

    Top Chinese company managers may be relatively lacking in international living and working experience , but they excel in knowledge of , and confidence in , the Chinese market .

    Concensus is growing that China’s economy is well along the way towards a faster recovery than North America’s or Europe’s .

    As that recovery gains momentum , we can expect another round of upward spirals in staff turnover and wage inflation in China . Competitive advantage will go to companies which compete most effectively in hiring and retention of key staff .

    For the time being , Chinese companies have a competitive advantage versus MNCs . Smart companies will take advantage of the opportunity .

    (This article is condensed from the keynote speech delivered by Thomas D. Gorman to the 2009 Asia-Pacific Human Resources Week Conference in Hong Kong.)