Exodus to Private Sector

Managerial elites in foreign-funded companies are
leaving in droves for China’s private sector


By JIAN FA

FOREIGN TALENT: An Italian fashion designer tutors his Chinese colleagues in the Judger Group. Judger is a representative of Wenzhou’s private companies that are eager to employ world-class experts

Nearly 30 percent of the executives in foreign-funded enterprises in Guangdong’s Dongguan City are keen to work in private companies. That’s the finding of a recent survey that experts say serves as a microcosm of the broader Chinese employment market. The migration of top-flight personnel from foreign companies to private Chinese firms is now becoming commonplace, as exemplified by people like Li Hansheng. Li gave up his job as vice president of Hewlett-Packard China to take up a position with the Founder Group in 1999, while Tang Jun, former President of Microsoft China started a new career with the emerging Shanda Group, a Shanghai-based private IT company, last year.

Chen Xiaoling, head of a headhunting firm in Guangzhou, points out it is a noticeable trend in China that middle and senior managers in foreign enterprises are being attracted to the opportunities arising in private companies. According to Chen, such cases account for about 30 percent of her firm’s total business.

Professor Gu Qingliang of the Donghua University in Shanghai and Professor George B. Graen of the University of Louisiana carried out a joint research on the cultural conflicts and cross-cultural management trends in China over the past six years. Their recently released report reveals that the annual migration rate of Chinese employees from many large foreign companies in Shanghai is as high as 40 percent. The result is based on interviews and research conducted with more than 150 Chinese MBAs and professional managers from 33 foreign-funded enterprises in the metropolis.

The private sector’s quest for talent with international exposure culminated in the first Conference on International Exchange of Professionals for Privately Owned Enterprises held in Wenzhou last November. At this international talent fair, which attracted over 1,000 participants, headhunting firms enlisted 97 elites with an overseas education for private Chinese enterprises. Private companies based in Wenzhou, renowned for their manufacture of leather shoes and lighters, offered 34 positions with an annual salary of over 1 million yuan ($120,770), 62 positions with an annual salary of 500,000 yuan ($60,390) and 150 positions with an annual salary of 300,000 yuan ($36,230).

The fair concluded with a number of world-class experts employed by private enterprises in Wenzhou, Taizhou, Shaoxing and other cities. Garment producers like the Judger Group and the Baoxiniao Group in Wenzhou, for example, took on some prominent Italian clothes designers.

Real Reasons for Exodus

“Inviting home [talents] while expanding is the road to success for private enterprises,” said Qiu Jibao, President of the Feiyue Group at a forum on the cooperation between Zhejiang Province and other countries last October.

China’s private companies, which have gained strength in recent years, are eager to seek overseas expansion in an effort to compete internationally. Finding themselves not competent enough to shoulder the increasingly heavy responsibilities, the founders of these companies have to switch to the strategy of separating ownership from management so as to speed up the development of their ventures. This explains why there has been an ever-increasing demand for professional managers.

GOOD LESSON: Banworth Roff, Vice President of Baumann Unternehmensberatung, a German consulting firm, explains how to attract top-notch professionals

White collars in foreign companies have been much-coveted careers for Chinese youths. The China offices of the world’s leading companies such as IBM, Hewlett-Packard, Procter and Gamble and Microsoft are always favorite choices for well-educated Chinese job hunters. So, why then do so many senior employees choose to leave?

Zhou Liangwen, a well-known human resource expert who works as chief human resources officer of the Guangdong Nortel Telecommunications Equipment Co. Ltd., calls this trend “inevitable,” as the private companies are gathering momentum while their foreign-funded counterparts are declining in competitive advantage.

A striking fact is that many professional managers choose to quit their job with foreign companies at the height of their careers. Due to differences in language and culture, Chinese employees are often blocked by the so-called “glass ceiling” in their attempt to seek promotion in foreign-funded companies. They can hardly go any further than the president of a China office, which forces them to look at other career options.

Private companies in China tend to offer higher positions for qualified Chinese personnel than foreign companies do. While the former allows them to hold posts at the intermediate level or above, such as manager and chief officer, the latter only makes lower level vacancies available to Chinese applicants.

At the same time, the rise of the private companies is remarkable, despite their wide gap from the foreign rivals. They are preferred for their flexible operation mechanism, modern salary structure and the indigenous cultural atmosphere. The managers who have work experience in foreign enterprises boast expertise in the operational methods of an international company and a good knowledge of the local market and employees. Such capable personnel are badly needed in the ambitious private companies.

Policy Barriers

Chen Jinzhang, Chairman of the Changjiang Hospital Group in Nanjing, says the outsourcing of talented personnel, especially those with a global vision, is very difficult for technically demanding industries. Although a series of government policies concerning personnel flow have been enacted, the operational procedures are still wanting, he complains.

According to Su Guangming, an official with the State Administration of Foreign Experts Affairs, unfavorable policies constitute a stumbling block to the intellectual outsourcing of private Chinese companies. He cites the trouble for paying these high-level staff. Offering salary in foreign currency can be a nuisance, as many small and medium-sized Chinese enterprises do not earn foreign exchange, nor are they given a quota to purchase foreign exchange from banks.

Another widely noted problem is the individual income tax. The top marginal tax rate is so high that paying income tax becomes a severe burden on the companies, hindering their efforts to attract talents by high salary. According to some companies, trouble can also arise when applying for ID card or residence card for foreign employees.

All these problems have yet to be sorted out. In addition, Su says the private companies are lacking in information and channels to access the senior mangers with work experience in large multinational companies. He calls for the relevant government departments to assist them in this regard. Other common problems include cultural shock and the lack of competent interpreters.

As a result, foreign talents mostly work with the private companies on a short-term basis. Some, like migratory birds, stay in China for a short or fixed period to help solve practical problems or render technical support. Others come to work in China on a specific project. There are, nevertheless, those who choose to work in China for longer periods.

Cultural Conflict

While the private enterprises are going crazy for top-notch personnel, some incoming experts are at odds with their new found business environment and human resources policies. As a matter of fact, not all such marriages can produce success stories.

Zhou Liangwen points out that many private companies have not taken a stable approach to development. Their corporate strategies tend to be changeable. Compared with foreign companies, which have well-defined missions, the boss usually calls the shots in private companies. The absence of regulations and obscure division of responsibilities can also impede the efficiency of the managers’ work.

Besides, private companies impose exceedingly high expectations on these elites. Some count on them to bring about dramatic changes to the company in a short time, only to get disappointed. “A rational and prudent attitude and full trust are of great importance,” says Chen Xiaoling.

The implications of cultural conflict stemming from differences in managerial concepts and working styles can be illustrated by the case of professional manager He Jinghua’s parting with UFSoft.

He had been dedicated to the company ever since his sensational take-over as UFSoft’s president in April 2002, pocketing a staggering annual salary of 5 million yuan ($603,870). He doubled the company’s revenue in two years’ time. “I have been in the air for 75 percent of the time this year. On weekends I go home just to change clothes,” he said.

As the founder of UFSoft, Chairman Wang Wenjing is one of the most outstanding entrepreneurs among his contemporaries. A workaholic figure, Wang is preoccupied by his career and hardly has any spare time. Starting his business at 24, he turned UFSoft into a leading Chinese software brand within 15 years. After his company was listed, he frequently makes the top 10 Chinese rich list for a personal wealth of over 5 billion yuan ($604 million).

Wang’s hard work and He’s vast experience in operating an international business made a perfect combination. UFSoft forged ahead rapidly under their leadership. At one time, the alliance of Wang and He was compared with that of Bill Gates and Steve Ballmer.

However, the honeymoon lasted no more than two and a half years. By the end of last November, He, the Taiwanese who prefers speaking English, professed “not feeling right” at UFSoft and bade farewell to Wang, opting for a position at Siebel, a U.S. software company, as vice president and general manager of its greater China and East Asian branch.

Despite UFSoft’s reticence over this issue, the fundamental disagreement between Wang and He is pronounced, as they failed to reach consensus on two strategic points-whether the company should branch out into the international market and whether it should focus on the high-end market or the medium- and low-end segment.

“There are two misconceptions in your minds that you have never been able to remove,” He said to his colleagues before leaving. “One is that I am an outsider and will remain one no matter how long I work here. The other thing is that I am temporary and the feeling is that I may stay here for two and a half years or five years, but eventually I will leave.” These remarks reflect that He felt unsure about adapting himself to UFSoft from the very beginning.

However, a bigger problem is that Wang, like many Chinese industrialists, was reluctant to delegate management power, not allowing He the scope to fully utilize his capabilities.

Outwardly, there was a clear division of power between the two key figures: Wang took charge of the company’s strategies and products whereas He oversaw the implementation of the strategies, the company’s operation and public image. But the senior managers of UFSoft disclosed that the division of responsibility between the president and the chairman had never been clear ever since He’s arrival. There were no formal documents defining their respective responsibilities. In fact, this had confounded He, a professional accustomed to the standardized management of a multinational company.

A trivial matter highlighted the ambiguity of responsibility. The middle and senior managers used to email their work report to both Wang and He, as they had no idea who they should be reporting to. He frowned at this, not knowing whether he should reply, as he worried about a possible divergence of views with Wang if he did answer the emails. At first, he tried to tackle the problem by instructing them to send their emails to the proper person. Later, however, he chose to leave all his emails alone and had the senders wait for Wang’s reply.

Their incompatibility, so to speak, is largely resulted from cultural conflict. The breakup of the seemingly perfect partnership between He, a highly qualified professional manager, and Wang, a globally minded and even-tempered entrepreneur, speaks to the fact that corporate culture, as the soul of a company, is a vital factor that no one can afford to ignore.