Firms Still Fond of Foreigners in China

March 26, 2007
In China, expats are still in.

    "Localizing" the leadership of China operations with Chinese nationals long has been a goal for multinationals, both to save on compensation costs and develop a better understanding of the country. But given the tight market for managers, fast-growing multinationals continue to rely on expatriates.

    Consider sporting goods company Adidas, which is seeing revenue in China rise 30 percent to 60 percent annually. Sandrine Zerbib, president of Adidas for mainland China, Hong Kong and Taiwan, says about 30 of the 50 top leaders in China are expatriates. That ratio has been holding steady, she says.

    In her view, it is vital to add seasoned leaders in areas such as retail and supply-chain management to run an increasingly complex business, and China cannot generate enough management talent to keep up with companies’ surging demand.

    "When you face all this growth, obviously the market cannot follow," says Zerbib, herself an expatriate from France. "You cannot expect a market to produce all this expertise in three or four years."

    A study released in December by consulting firm Hewitt Associates and the American Chamber of Commerce in Shanghai revealed that the number of expatriates working in China is set to grow. The report said 53 percent of surveyed organizations plan to increase the number of expatriates they employ within the next 12 months.

    Expats started arriving in China in large numbers beginning in the early 1980s, after the Communist country launched capitalistic economic reforms. Foreign executives, traditionally coming from the United States or Europe, were imported to run the operations of multinationals or their joint ventures.

    In recent years, the pool of expats in China has widened to include managers from Hong Kong, Taiwan and other Asian locales that share aspects of China’s culture. It’s not clear exactly how many expatriates work in China today. There are an estimated 120,000 just in Shanghai and Beijing, and companies also are looking to place expatriates in so-called second-tier cities such as Chengdu and Dalian.

    Companies are bringing in foreigners to accommodate booming business in the country. China’s economy has grown by 10 percent or more each of the past four years. What’s more, companies are locating regional corporate headquarters in mainland China, increasing the demand for leadership talent. Meanwhile, the supply of seasoned, local Chinese managers has been limited, in part because of poor education during the country’s Cultural Revolution period from 1966 to 1976.

    To fill their senior roles, companies increasingly do not worry about whether they are hiring a local or an expat, says Helen Tantau, senior partner with executive search firm Korn/Ferry International in Shanghai.

    "In most cases now, we say to clients, ‘Don’t worry about nationality. Let us find the best candidate for the job,’ " she says.

    A study last year by Korn/Ferry found that China is among the easiest countries to attract expatriate executives to work. But the report, which surveyed international recruiters, said China is one of the hardest places for them to succeed. The most common reason for expatriate assignments to fail, according to the report, is a lack of cultural fit.

    Recruiting Westerners with an ethnic Chinese background won’t necessarily solve the cultural puzzle, says Avrom Goldberg, managing director for the Asia-Pacific and Middle East regions for relocation services provider Sirva. Goldberg says Chinese mainlanders are less forgiving of ethnic Chinese who commit cross-cultural blunders than they are of other Westerners.

    "That is not the magic elixir that people expect it to be," Goldberg says.

    To succeed in China, expatriates should be charismatic, good at networking, open-minded and realistic rather than idealistic, says Janet Carmosky, CEO of consulting firm China Prospects.

    "The wrong person is going to change the world, to overlook the fact that local practices may be highly effective and totally necessary, given that the business is in China," she says. "You definitely don’t want a ‘missionary.’ "

    Expats traditionally have been expensive. Their pay packages typically cost at least twice that of an executive in America, thanks to housing stipends, cash to cover school tuition for execs’ children and tax equalization payments to compensate for China’s income tax. "Hardship pay," designed to make up for living in a difficult place, also has been part of the mix.

    But those packages are coming under scrutiny, especially given the way China’s leading cities have become cosmopolitan in recent years. Air quality in Beijing and Shanghai remains poor, and public restrooms often are unpleasant. But quality restaurants abound, as do cultural events. Rocker Eric Clapton recently played a show in Shanghai.

    "Companies are becoming smarter about how they manage expats in China," says Eric Fiedler, regional director for the Asia-Pacific region at Hewitt. "Shanghai is really no longer a hardship posting."

    In fact, the country now attracts the ambitious, argues Fiedler, who also serves as chairman of the American Chamber of Commerce in Shanghai business group.

    "China, because of its prominence on the world stage, is actually a place where people want to go because it’s good for your career," he says. "Ten years ago it wasn’t necessarily so clear that it was good for your career."

    There’s also a pool of expatriates who have little desire to leave the country. The Hewitt expat study found that companies are increasingly recruiting "China-hired foreigners"—that is, expatriates who are already in China. Those foreigners represent 48 percent of all expatriates, the study found, up from 26 percent in 2005.

    Leaders in China typically get a kick out of having lots of autonomy as well as fixing problems in the country’s chaotic, dynamic economy, Tantau says.

    "You either love China or you hate China," she says. "It’s a very challenging work environment. Once you get used to that, it’s pretty hard to go back to corporate America."

    Mark Eichinger is enjoying his stint as an expatriate in Shanghai. A U.S. citizen, Eichinger came to the city two years ago to assume his role as vice president of human resources for the Asia-Pacific region at Eaton, which makes a variety of industrial products including aircraft hydraulic systems.

    Eaton’s Asia headquarters on the 11th floor of a Shanghai high-rise has a view of Eichinger’s neighborhood. He likes the way his modern apartment complex sits next to traditional, low-slung housing units.

    "It’s a nice combination," he says. Given the pressure to put up more skyscrapers in Shanghai, though, Eichinger’s not sure how long the older buildings will last.

    If more office space and luxury apartments take their place, it’s a good bet many of the new denizens will be more expats making their way in China.