The Challenge of Executive Talent Turnover in China

HCLI Research
Published 24 April 2017

For most of the past two decades the talent challenge in China was finding enough qualified managers and executives to keep up with double-digit growth. Companies struggled with two issues: identifying the most promising talent from among the 7.5 million graduates coming out of Chinese universities every year and finding ways to hire and develop future leaders. Across industries, companies were growing faster than the supply of talent. To snag hard-to-get talent, multinationals emphasised their expertise in developing executives and attracted a generation of business leaders who saw that they could learn more working for a foreign business. Now, GDP growth has slowed and the dynamics of the talent war are changing.

Today the talent pool in China is much deeper. Thousands of Chinese nationals have spent years refining their management skills in local and multinational companies (MNCs). A younger, more tech-savvy generation has also entered the scene. At the same time, locally owned companies have upped their game in talent development and are perceived to offer compelling opportunities for ambitious Chinese talent to have greater impact and more career opportunities than they could in a multinational.

All this creates a fresh challenge for companies in China: rapid churn among top talent. In new research that Bain conducted with LinkedIn, we found that more than 40% of leaders have changed companies in the past five years (for details on the analysis, please see “China Leadership Report” below). Almost half of those job-hoppers went into completely new industries. Churn is even faster for local companies, where more than 51% of leaders changed companies in the past five years.

There is an important dimension to the churn that human resources (HR) professionals should note: a distinct pattern of migration from multinationals to local firms. In our analysis of 220 major companies, only 10% of leaders in multinational companies came from local firms in the past five years. But nearly one-third—31%—of leaders at local firms had been employed by a multinational within the past five years. The flow is driven both by the ambitions of Chinese talent and by the pull of Chinese companies. Many Chinese business leaders now believe that they have better opportunities at local companies that are still scaling up than at established multinational companies. Local firms, meanwhile, often seek out leaders with experience at multinational companies because multinationals have a reputation for developing strong technical and managerial capabilities.

What can companies do to win this new war for talent? We anticipate that forward-thinking local firms and MNCs alike will step up investments in talent management in what will be increasingly a seller’s market. This will raise the bar for all companies. We highlight four strategic actions that companies and HR leaders can take:

1. Develop operating models that enable leaders to have visible impact

As businesses grow large and complex, it is harder for any individual to make a mark. This is especially true in large multinationals, where decisions require multiple levels of approval and coordination across functions, committees and time zones. Frustration with the inability to react quickly to the marketplace can push ambitious leaders to look elsewhere to make their marks. In the worst cases, this leads to a situation where a company can only attract personalities that are willing to accept a bureaucratic status quo.

To overcome this recruiting hurdle, multinational companies need to take a hard look at operating models—organisation structure, accountabilities, governance and ways of working. By simplifying these elements, companies can liberate the energy of their leaders. This is great for the leader and great for the company, too.

Although many fast-growing Chinese companies have succeeded in attracting top leadership talent, they are not immune to the executive churn that comes from ineffective organisations. As the Chinese companies grow larger, a lack of formal systems, reliance on highly centralised decision making, and constant reorganisations all contribute to the willingness of executives to take calls from headhunters. So, Chinese companies also need to ensure they have well designed operating models.

2. Focus on critical jobs

In an intensifying war for talent, it pays to pick the battles you need to win. As our colleagues Michael Mankins and Eric Garton have noted in their recently released book Time, Talent and Energy, the best companies explicitly identify critical roles (and those that can be filled by “good enough” talent).[1] Having the best programmer in the world might make little difference to a consumer packaged goods business, but that same business better have top brand managers. The best-performing companies put their talent where the money is.

3. Break glass ceilings for Chinese business leaders

Chinese executives still jump to locally owned companies because there is a lingering suspicion that Chinese can’t make it to the top at global multinationals. Our research with LinkedIn found that multinationals are filling almost 6 out of 10 regional roles in China with Chinese leaders. However, few of the largest global companies have placed Chinese leaders in top global roles. As China’s economy becomes even more important to global players, these companies will need to increase diversity in their boards and in top management. In addition to helping win the talent war, having more Chinese at the top can provide a deeper understanding of the local market.

Chinese companies can also do a better job of signaling that there are opportunities to go all the way to the top. They need to make sure that they manage succession and promotion processes effectively and transparently. This can be complicated—especially in family-run businesses—but needs to be done to avoid losing key talent.

4. Innovate with next-generation talent management

The established talent management practices of the past 50 years—such as workforce planning, high potential leadership programs, performance appraisals, employer branding, and total rewards—will no longer suffice. Employers need a talent management system that can accommodate high levels of employee churn, a growing reliance on external talent, and distinct programmes that captivate leaders for their most critical roles.

For example, instead of relying on retention programmes that can prove costly and don’t always work, companies can establish “affiliation” programmes, which focus on inspiring employees with a company’s unique mission and values. These programmes will help retain top talent and may even persuade employees who have left to eventually return.

Also, instead of using standardised curricula organised by tenure in training programmes, firms can offer personalised learning and coaching programmes to rapidly increase the performance of new hires.

This all means that in the next decade, the challenges for HR leaders in China will be greater than ever. However, it also means that HR leaders who develop winning strategies in the new war for talent can have extraordinary impact on the success of their companies.​

[1] Michael C. Mankins and Eric Garton, Time, Talent, Energy: Overcome Organizational Drag and Unleash Your Team’s Productive Power, Harvard Business Review Press, January 2017.

China Leadership Report
We recently published The China Leadership Report with LinkedIn. This report analyzed 25,000 individuals in LinkedIn China’s proprietary member database. We sampled data on executives from 220 major corporations across 18 industries. The study provides powerful insight into the current generation of business leaders in China and is intended to help those who recruit and manage business leaders in China understand who Chinese leaders are, where they work, what kinds of roles they have held, and how the talent of the future is evolving.

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