For many U.S. pharmaceutical and biotech companies, the globalization of their business is closely linked to growth in investment, R&D, and manufacturing in Asia. For larger U.S. firms, and multinational companies (MNC) in particular, this has meant the establishment of wholly owned subsidiaries and/or joint ventures. The success of such operations is dependent in large part on the quality of its top management.
Starting in the late 1950s, MNCs began putting into place a management and training system that provided Western managers for their Asian operations. The expense and effort of maintaining such a system is significant. It can cost as much as five times more to have an expatriate manager than a local Asian one. Aside from the higher salaries, the expatriates typically receive valuable perquisites such as housing, cars, and health and education allowances. Unfortunately, expatriates have a high rate of attrition— 15%–25% on average and as high as 70% in certain developing countries.
Initially Western multinational corporations (WMNC) were dominant and made extensive use of expatriate managers sent from their home offices. That business universe has been transformed with WMNCs integrating their Asian operations into their global strategy, the addition of powerful Asian MNCs and the emergence of new Asian high-tech companies. The objectives vary in that Asian MNCs are moving from dominance in domestic/regional markets to the global marketplace while the new high-tech companies are using novel technology to position themselves in their home markets.
Typically, WMNC managers go through training programs run by their corporations. More innovative approaches include short-term assignments and the use of information technology for distance management. However, such strategies were inadequate in dealing with the principal challenges of operating in an Asian environment: lack of knowledge of the local language, cultural insensitivity, and the absence of a network of local contacts.
While growth in biotech jobs in South Korea has been slow, demand for key staff in China and India is increasing dramatically. In India, the MNC’s priority has been on the domestic market and manufacturing operations. China’s situation is more complex as it encompasses the creation of global firms, the need to satisfy its growing domestic market, and making use of the overseas Chinese community. These trends promote the replacement of Western expatriates by either local hires or expatriates of Asian origin. This process has two principal components: recruitment and retention.
Certain factors hinder local Asian recruitment. For example, Time magazine’s list of the world’s top 100 universities includes only eight in Asia. A McKinsey report showed that only 10% of Chinese job applicants were suitable for work at an MNC. A Chinese study indicated that only 15% of expatriate staff are technical, which means that the vast majority are in management.
All this suggests that while the need for scientific staff can be filled locally, the same is not true in management. Key managers require experience in technology, familiarity with the high-tech business environment in the West, skills for integrating the Asian business into the company’s global strategy, and a global network of contacts.
The most qualified talent pool is to be found among those Asians who have been educated in the West and worked there. This pool is comprised of two major ethnic groups: Chinese and Indians. Japan is a developed country and is endowed with a cadre of experienced managers. As a result, Japan and South Korea have had less of a need for expatriate managers, however, the number of Japanese students in the U.S. has dropped by half to 24,000 over the past decade. Japanese leaders now believe that a decrease in internationally competent managers will require the recruitment of expatriate managers.