At a recent Boyden Global Partners meeting in Zurich with leading CEOs, Boyden held a roundtable discussion with major Swiss and international media.
Topics included the challenges of talent acquisition in developing markets, local versus expatriate executives, the complexities of Greater China, the Indian opportunity, managing political risk in Sub-Saharan Africa, rising compensation packages, diversity, and how cultural fit is often the key component in a management placement.
Following are excerpts from the discussion
Hollett: Thank you all for coming and joining us. Today, we want to talk about talent issues and challenges being faced by companies in the developed economies as they grow their presence in the major developing markets. Armin Meier, Boyden’s Managing Partner here in Switzerland, will begin our dialogue today.
Meier: What we would like to show is a bit of insight into what’s going on in these markets. Also, there will be an opportunity for you to ask questions about talent n developing markets along with the connection to companies in mature markets such as in Switzerland and Europe. Rainer will begin with a view from Switzerland.
Faistauer: This is the underlying factor of many of the searches that we do and much of the consultancy work we do for our Swiss clients: The biggest demand from our clients is finding the right general management profiles in less developed countries. More easily found are specialists in markets with an excellent specific reputation. For example, in India there’s a good supply of IT specialists, but the general management profile remains most challenging. We are also confronted with the decision between locals and well assimilated Europeans for these central roles.
In addition, we have the big issue of ethical business conduct and compliance. If you are a Swiss company, you want to comply with all best-in-class rules and regulations. You then have to find the right calibre of candidates who have the proven experience and skills to carry them out.
We also look for multilingual and multicultural awareness. Like Europe, Asia/Pacific consists of different countries, different cultural perspectives and different levels of development. If a “real” multinational company wants to be serious about cultural diversity, it needs to give these regions a seat on its executive board.
And last but not least, there’s always a lot of discussion surrounding compensation. When we are confronted with a search outside Europe, a key question is how much is paid in a country like China or Korea or South Africa. Compensation is not fixed for us. In fact, it’s a moving target.
Bill, what are your thoughts from a Greater China perspective?
Farrell: China is still a high growth market, but some of the edge is coming off that growth. We won’t see double-digit growth like we saw before.
But what will change or what has already begun to change is the lack of foreign direct investment to enlarge China’s manufacturing capacity. There’s plenty of capacity there right now. So the growth model is shifting away from relying on foreign direct investment. This is part of an ongoing shift that the government and companies need to deal with and acknowledge – that this rapid economic growth in China is winding down. It’s been a big boom for many companies, but now the government needs to address a number of gaps.
There are income gaps between the elite class and the rest of the middle class, and the working class. And there’s also the issue of a geographic gap. The rapid economic and wealth development we’ve seen has been primarily in coastal regions that developed quite early, whereas in the interior, economic growth has been lagging.
There is a third gap. This is between the tier one and two cities across China where, again, there’s a lot of wealth, and the lower-tier cities, where development is less prevalent. The government will need to address that.
So, one of the key things that the government is doing is managing expectations in terms of lower growth.
There is an effort to boost growth in the interior. There are some tax incentives, for
example, to move manufacturing bases there. And there’s a movement to spur domestic consumption as opposed to relying on manufacturing development.
For international players, China still represents opportunity. What we’re seeing, for example, is demand for [executive] search that reflects the maturing of the middle class. There may be less investment in building new automobile factories, for example. But you see growth in after-market sales – the spare parts and such. Looking further, people have bought cars and now say they want an extended warranty. The food industry is also experiencing growth. This is all a reflection of the growth of the middle class.
While we expect to see fewer massive industrial investments, there remains a war for talent across China. There are some trends here. Number one is this idea of localisation versus expats. I’ve been working in the region for about 27 years and this is just a natural trend. Once an industry matures, companies tend to think they can save money by hiring local talent. In addition local candidates bring the local connections and local understanding.
For roles such as CEO, CFOs and other senior management roles in China, there will continue to be positions where expat talent will often be needed to meet business needs. Basically there are few locally born, raised and educated candidates that have everything that’s required to run a very large multinational business in China.
Media: Is there anything different in South Africa?
Voysey-Smit: One of the aspects which is a little different in Sub-Saharan Africa is that our market is probably a little less predictable – and that’s connected to the perception of political risk in the region. So, as soon as we see an election that’s tightly contested or where there’s perhaps some unrest following an election, some nervousness often results regarding investment in that particular country. Within the region there may be less investment, perhaps, at that time.
In terms of talent, absolutely it’s similar to what Rainer and Bill were saying. In our region, there’s strong demand for general management skills because they’re difficult to find. Individuals with very good technical competencies in various fields can be found, but they don’t always bring the leadership or strategic abilities. Location can also be challenging.
In terms of compensation, package levels are very fluid across the region and compensation is moving upwards very rapidly. This is impacted by various factors, but includes cost of living. For example, Nairobi right now is about 30% more expensive to live in than Johannesburg. Compensation is often set in US dollars. On top of that, it’s the norm to offer various benefits including housing, schooling and cars with drivers.
Like China, we have an aspirational middle class, and the consumer markets including retail and pharmaceutical are growing. Some pressure has come because of pressures in the resources sector, including changes in commodity prices. Despite this, growth is still very positive with double-digit growth predicted in some countries.
In terms of local versus expatriate or other talent, there’s real pressure there. Virtually every African country has some kind of plan or some kind of law around encouraging organisations to employ local talent or to develop local talent. That’s always quite challenging for organisations coming from other countries because there’s some perception that it may be better to bring in, at least initially, their own CEO or other executives to establish the business in a new region. Those are some of the challenges we have, but we can overcome most of them.
Faistauer: Dinesh, we’re seeing some big changes in India with the elections. How do you view that affecting the market?
Mirchandani: Yes, we’re witnessing the final act of the most fascinating and historic “Dance of Democracy”. That’s what they
call it in the local papers.
India is going through a very interesting transition. If I were to look back a few years, we built this great growth story post 9/11, around 2003, that transformed into a golden period from 2005-2009 for our economy when we grew our GDP between eight to nine percent, and sailed through the global financial meltdown. At one point, we had a rocket scientist as our president, a Cambridge economist as our prime minister, and a Harvard MBA as our finance minister – a perfect metaphor for India’s emergence as an economic superpower. Things really unravelled starting in 2010 on several fronts.
Then, in the recent elections, we had an unprecedented 82 to 85 percent voter turnout, some 550 million plus people voted, and we’re poised for a new cycle of growth. One of the most important drivers of the economy has to be manufacturing, and that hopefully will come back. There’s a huge growing middle class of 300-plus million, which makes consumption-led domestic demand an extremely powerful factor of future growth.
If you look at the talent market, more and more expats are coming to India. People prefer to work in India and they want an India stint on their CVs. Mumbai is a very expensive city to live in, even if you don’t get the right value for what you pay for in terms of housing, etc. So compensation levels in India are at market levels worldwide, sometimes higher. They will stay there. They have not gone down as a result of this lull in the economy.
Media: Are executive turnover levels still very high or do you see them flattening?
Mirchandani: They are still high compared to the rest of the world, but relative to India they’ve gone down. The other encouraging thing to notice is the number of global CEOs that have emerged from India. There’s Satya Nadella at Microsoft, but there are also many others. In fact, we filled one recently. It was a global search by a Finnish company, and they had a business that was global. We presented them candidates from all over the world, including an American from Singapore, a Swede, a French executive working in Germany, and an Indian. The Indian got the job on merit; in fact, he just walked away with it.
We expect there will be more and more global CEOs who were born in India, grew up in India, started their careers in India and then went abroad. That’s the phenomenon you will see happening often – that India will be an increasingly bigger producer of top global leadership talent.
Media: We don’t see that from China for example. Is there an explanation for it?
Farrell: Well, I think one reason is language. If you grow up in India you go through an education system where you speak English from day one. That’s a primary reason.
There is also the dynamic of China still being very much a top-down country and everybody follows instructions from the top. That’s the model that you see then in larger Chinese organisations. This doesn’t necessarily translate that well when leading large global companies. That doesn’t mean Chinese individuals can’t become global CEOs, but chances are they will not have grown their career in China. They probably left China at a relatively young age, attended university abroad, and have worked in multinationals elsewhere. That could change at some point.
Catlow: This is absolutely the experience from Australia. There is almost a third type of individual that’s developing, and we’ve got two global clients who have Chinese executives running these global businesses. Those are people who have grown up educated to their first degree and then they’ve been outside of China for 10 years. Some years ago, we appointed the Head of China for Fenner Dunlop. She’s been subsequently promoted and now heads up the North American and South American business outfits. So it’s starting to happen.
The trick we find is getting that person that’s local enough, but also global and really gets what western companies need in terms of management, and yet can speak the dialect and drive the business in China or India.
Voysey-Smit: It’s very similar in Sub-Sahara. More and more we need to find people that have had sound global experience and so they need to have worked somewhere outside of Sub-Saharan Africa. They have grown up in the region and understand it, but they have worked for part of their career in a multinational or global organisation. Tapping into the African diaspora is very important, and it is crucial to be able to do these big global searches and get to talent at the right level.
Media: What would be the most desirable country to work in? Is it China or is India kind of taking that over, or is it maybe Africa because that’s a new frontier?
Voysey-Smit: I think the answer to your question is quite company-specific because people gain specific skills working in specific cultures. You can talk about the fact that people need to be multicultural and able to work in different cultures and accommodate different cultures, managing large amounts of people, and this overall skill is important from a general management and leadership perspective. But when it comes to specific countries, it really depends on the organisation and the individual and what is needed. Experience in China, India, or Australia is quite different from having gained experience in Africa. It really depends on the context.
Faistauer: Frank, what’s your view from the client perspective?
Brinken: To begin, Starrag is a Swiss German company founded about 150 years ago. We make machine tools. A machine tool is also called the mother of all machines. Basically today we have about nine brands and each brand has more than 100 years in the market.
What is probably different at our company is that all our products are nearly 90% export-controlled. When we want to export a machine to China, India or Malaysia, we have to ask certain export control authorities.
Clearly, the US is declining in manufacturing, and Europe is at best sustaining its current capacity. That means all the market growth is in Asia.
In China, we also see that manufacturing is moving away from the coastal regions into cities in central China, which presents a challenge to us because of the English language skills needed for communication internally within the group.
Another issue in Asia is that HR talent is hard to find locally and it’s hard to find an international HR leader who has experience in Asia. So you cannot delegate it to a European HR head. You need a partner with a deep understanding of your business and the local culture to find the right talent.
Faistauer: Michael, what’s the talent acquisition environment in your market, especially given Australia and New Zealand rode out the downturn more comfortably?
Catlow: A lot of it was on the back of resources, mining, and oil and gas, and particularly with the new technologies in oil and gas. It takes us more into a global play for talent. We were talking earlier about large numbers of Australians who are from Asian backgrounds living in Australia. Perth positions itself nicely as a hub between Africa and Australia and a number of the large players. And interestingly, our colleagues in Chile see Australia as their neighbour. There’s quite a lot happening there. In fact, we’re involved in a global search at the moment where the client is asking us to look pretty deeply into South America for talent.
Media: For companies such as Rio Tinto, do they first look for talent in Australia or do they look abroad?
Catlow: It’s a mix. If the talent’s available a local person is easier. But in something like the new energy sources in gas or gas fracking, we don’t have many people with that technology experience. So often the play is to look at North America to attract people.
A willingness to look further afield opens up a lot more possibilities in general. Another big piece of that, and something that’s an important issue in our firm, is diversity. It would be remiss if we didn’t mention that women in leadership especially is something we take very seriously at Boyden. I would even say it unites us.
Farrell: Diversity is critical. It’s critical for us, and for our clients, whether they’re regulated or not.
Media: Where are you seeing the biggest shortages of talent?
Hollett: We are seeing significant shortages in some sectors and geographies in North America. There’s a huge squeeze for leadership right now that’s happening in pockets such as New York and Northern California. And Canada is very strong.
Faistauer: What is the explanation for that? Why is that?
Hollett: The demand for talent now is really a starvation story that started in 2008. Organisations were cutting and cutting so rapidly. The smart ones cut, but also kept key talent they needed. A lot of companies cut drastically though. We all know that financial services took a huge hit in Europe and in the US. I have a couple of friends in financial, one of whom ran a multi-billion dollar business at a major bank and had to cut his whole organisation. He left the company as well. Now he’s been brought back to the company because they couldn’t find anybody to replace him.
Lehmann: The key word is leadership. You can find the technical competencies, but leadership is where the gap widens. As workplaces become more complex you need those people who can lead the people below them.
Organisational cultures are also more complex. I mean, we’ve spoken a lot today about the importance of developing a global talent pool and how global businesses have become. That makes leading companies more difficult.
Catlow: But you can get someone with tremendous leadership capabilities and experience, and it won’t work if they’re in the wrong environment. It’s about fit and embracing the culture of the organisation.
Lehmann: Culture fit is often the missing piece. For example, in Australia we see a lot of companies from Switzerland, Germany or other European countries make that decision to move away from the expat solution. They draw on our expertise to understand how important that cultural fit is to find a good balance. They want someone with local expertise, but at the same time a leader who understands what it means to follow the compliance rules of a global organisation.
I have actually come from the opposite side, having run the country organisations of multinational companies in Australia. That’s a really difficult way to have to deal with those cultural demands and fit into the culture of the company, but at the same time also be a good leader in the country and make sure that you lead in the culturally right way. Because you cannot just come from Switzerland and say, “Okay, I work for a Swiss company and we manage things down here exactly the same way we did in Switzerland.” If that’s the case, the tenure will be short.
If that leader can come in, have an impact, drive the business, and there’s a cultural fit with a longer tenure, then that’s a great achievement.