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Feature Articles : May 1, 2011 (Vol. 31, No. 9)

Ex-Pats Key to Building a Strategy for Asia

How Companies Deal with Staff Recruitment and Retention Issues May Be Critical to Their Success
  • Robert Yuan, Ph.D.

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.

Job Recruitment

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.

Asian Diaspora

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.

Hiring Activity

The job-recruitment process varies somewhat depending on the company. Western MNCs tend to hire employees with international experience from other MNCs and established firms. They as well as Asian companies make use of headhunters, especially those that specialize in Asia. Asian MNCs and biotech companies frequently rely on their Asian network of contacts and on scientists at U.S. academic institutions.

The recruitment process is difficult and far from smooth. My interviews indicate that there is often a lack of due diligence. Western corporate executives often do not understand the differences between the business cultures of Asia and the West, nor are they able to evaluate the experience and relationships of Asian expatriates in their home countries. The expertise of an Asian in a Boston biotech company cannot be readily translated into the tasks of setting up a pharmaceutical joint venture in Chengdu, China, for instance. Individuals who can simultaneously function in two different cultures are rare and identifying and recruiting them is a major challenge.

Retention issues are, if anything, more daunting than those of recruitment. On the one hand, you have the growth of the life science industry and the resultant demand for experienced managers while, on the other hand, corporate structures do not encourage permanence or the creation of cohesive management teams in Asia. The result is rapid turnover. It’s estimated that at middle and upper management levels, average retention in Shanghai is only 1.8 years.

A number of factors play a key role in the retention/turnover issue:

1) Compensation packages. These have been rising rapidly. In India, for example, they could be up to 50%–70% compared to those in Western firms. However, Asian firms are less likely to provide such benefits as profit sharing, stock options, and perks like housing and educational allowances.

2) External income. Changes in compensation packages are an obvious way to promote retention. Close links to the local business community provide opportunities for additional income usually involving financial deals. Even when such situations might not involve a direct conflict of interest, they can detract from a focus on corporate objectives.

3) Promotion. Promotions represent one way to respond to competition, but they also carry the risk of raising individuals beyond their level of competence. Both Western and Asian MNCs have been active in participating in executive level training programs in collaboration with business schools.

4) Quality of life. This is a major issue for both Western and Asian expatriates. Most spouses/partners have careers that may be disrupted by a move to an Asian location. In many cases, the family may prefer the lifestyle of Western localities and wish the children to have the benefits of a U.S. education. It is not uncommon for one spouse to move to Asia while the family remains in the U.S. MNCs have had more experience with such situations and use flexibility in job assignments to resolve them. Turnover and rapid growth have made it much more difficult for Asian companies to deal with such issues.

Outcomes and Trends

In the future, we can expect to see an increase in the number of Asian expatriates in key management teams. The way in which companies deal with recruitment and retention of such expatriates is still very much a work in progress and one that may be critical to the success of these firms. While both Westerners and Asians place great importance on being culturally adept, they differ in that Asians (unlike most Westerners) put a high value on language. Also, for Asians, functioning in a foreign culture is seen as combining social sensitivity and close personal and family relationships (Quanxi).

My conversations with leading Asian business officials underlined the fact that ethnicity and culture are not one and the same. An examination of six Asian biotech projects revealed that five had failed. While in all cases the lead persons were of Chinese origin, most of them did not originate from the locality of the facility/operation. In four cases, the lead persons came from Singapore, Vietnam, and Taiwan and they were trying to establish ventures in different cities in China. In another instance, an individual from Shanghai was setting up a company in Southeast Asia. The sole successful case involved a CEO from Taiwan who returned there establish a pharmaceutical company.

In all cases, securing financing and having a defined exit strategy were the major challenges. In addition, having key relationships in the Asian business community was essential for success.

“Many of these tech managers returned to Asia out of patriotism or for other personal reasons. But, eventually, what matters is whether they can find the resources and make their businesses work in an Asian environment,” notes Michael Hsu, co-founder and co-CEO of EndPoint Late Stage Fund, which invests heavily in Asia.

Being Asian, in and of itself, is neither necessary nor sufficient for success as an expatriate manager but it is likely to indicate exposure to different cultures. It is perhaps important to define the issue in terms of the need for technical managers, experts, and senior executives who can operate comfortably in a global environment.

Is it possible to train young people to think and behave cross culturally much earlier in the educational process rather than in a crash course prior to a senior assignment? New training initiatives may provide an answer to this important question.