Searching for Leaders: A Headhunter’s Perspective on Recruiting Senior Talent in China

Insight: The Journal of the American Chamber of Commerce in Shanghai, Ian Driscoll, Summer 2023

August, 2023

In the Media

INSIGHT: The Journal of the American Chamber of Commerce in Shanghai

David Nagy, a Managing Partner in DHR Global’s Shanghai office, was recently interviewed by The American Chamber of Commerce in Shanghai to discuss his perspectives on recruiting senior talent in China:

You’ve historically specialized in the industrial sector, but you have also worked in other sectors such as life sciences. How do you describe the current employment market for management candidates?

The current employment market at the executive level reflects overall market sentiment. After three years of zero-Covid, a lot of Western companies and especially MNCs were looking forward to a rebound that was as good as or better than what they saw in western Europe, which was pretty significant. It was a very good bump in the US, and that was reflected in executive search; 2021 and 2022 were record years. When the end of Q1 came, the common response from everybody that I’ve spoken to has been “We saw an increase in business, but nowhere near what we were hoping for.”

So how does that impact the market for talent? In the first quarter, there were quite a few discussions [on roles], but many companies adopted a wait and see approach. Companies were waiting to see if China was back on track, before fully committing to, for example, a new investment, a new venture, or a new company, all of which create executive talent needs.

As we approach the end of the second quarter, we’re seeing some momentum because companies have now adapted or turned to a modified or new strategy. We’re expecting that this momentum will accelerate, particularly as we go into the third quarter. The third quarter is typically when organizations develop strategic annual operating plans, plan development for the next 12 months and adjust long-term plans. Also, because some of these recruitment decisions have been delayed, now they want to get going. The decision-making time, or conversion from a discussion to launching a new search, is still slower than average, but it’s picking up. And I expect that to accelerate in the third quarter across all sectors.

As a leadership advisory firm, we know our clients have executive search and leadership consulting needs in both up markets and down markets. Yes, even compared to last year, the lockdowns notwithstanding, it’s been a slower year to start than we would like. But if a business is not growing or functioning the way headquarters wants, there may be an opportunity to identify a leader or executive team with different skillsets and competencies. We’ve seen this before. We’re coming into the end of the second quarter after a Q1 that wasn’t as good, so strategies have been modified and there’s pent up demand.

Can you give examples of sectors where management recruitment will be faster or slower?

In automotive, senior management had not been able to come to China to take a look for three years. The auto show earlier this year opened their eyes — the Chinese competition is moving much faster than them. That’s a catalyst for action. Recruitment in areas of new technologies, including new energy vehicles, batteries, autonomous driving, among others, will continue to increase.

Global macro trends will also continue to influence executive hiring needs. Think areas related to increased productivity (industrial technologies including automation and robotics, and AI) and sustainability (renewable energies, agricultural innovation, water management). Recruitment to anything in semiconductors or selling into the semiconductor industry has been muted. A lot of these companies are just not sure what their business will look like as a result of market regulatory factors and government policies.

What are the similarities or differences in the qualities that firms seek from senior management across different sectors?

I’ll start with some of the differences. Industries that would be different are ones that are highly regulated, for example anything related to pharmaceuticals or medical devices, agriculture, and power generation. What are the government’s policies and the five-year plan? You need someone who understands who’s making the decisions, who’s interpreting these decisions in what bureau. It also depends on who the key stakeholders are — who are the key customers and key suppliers? Selling into a government bureau, for example, means understanding local policies or local content requirements, how to set up an organization that would qualify or be exempted. If you are selling to major government bureaus or state-owned enterprises, then you clearly need someone who understands that environment.

Some of the things that come to mind would be oil and gas, media, certainly anything online. These areas require different skillsets, in addition to industry knowledge and a knowledge of the market in general in China.

From the perspective of foreign companies, for similarities, the phrase that comes out consistently is the ability to develop and execute a successful China strategy. Someone who knows how to put that vision together, how to articulate that, build the team and then execute it. Someone who’s a strategic thinker, who’s also an executor, who’s able to build the organization that will do that. The second piece is about leadership — the leadership competencies around talent management. Building and retaining high-performing and effective teams.

A competency that we see across both of those pieces is agility, being able to keep the finger on the pulse. This is performance management, understanding how to quickly identify what is working and what isn’t and what needs to be changed, and to do that in a way that is still aligned with the overall strategy. We’ve seen some organizations that are not adaptable or agile enough, particularly in a market like this, one of the fastest moving and fastest changing markets.

For senior country or functional leadership, the ability to develop trust and credibility with headquarters, and fairly quickly, has become even more critical. During the pandemic and with three years of China being walled off, with the CEOs and the board not being able to visit and doing everything virtually, that was extremely important. It’s not just communication, but being agile, representing the China market, to advocating for China strategies with people at headquarters.

When companies look for senior candidates, how much weight does previous China experience carry, or do technical or management skills trump China experience?

It depends. It’s usually a combination of both. China experience is valued, and recent China experience versus 10 years ago is very highly valued. This links to understanding the market, understanding the people here, understanding how to get things done. That could be at the business head level, country level, divisional level, or even someone who is a functional leader.

From the past three years of Covid, we saw examples of where the combination of China experience and the ability to interface effectively with headquarters trumped industry experience. Five years ago, the must-haves would have included industry experience and understanding the business model. But during Covid, some companies had to budge on that experience demand because a lot of the foreigners were leaving. And not many foreigners were interested in moving here.

In some cases, they were looking for someone who really understood how to work with headquarters and get things done in China. They were saying, you don’t come up from our world, but you’re in China, you have a track record of success there, so we’ll take what you have, and you can learn our business.

Chinese management style can be top-down compared to its Western counterpart. How does that work within a large multinational corporation?

The traditional management style in China is that you have one person in charge, and they can control all communications with headquarters. That has become increasingly difficult over the last 10+ years, particularly for the mid-size or larger companies, because many of them have moved to a matrix structure with functional, product group or business unit reporting lines. You have all of these different channels of communication. As a leader, to oversee and motivate people while that’s all happening, means you have you have to comfortable with this and confident in knowing how to engage.

When you’re interviewing Western and Chinese candidates, do you see differences in the packages or benefits they seek?

Between Chinese executives and non-Chinese executives that are in China, definitely not in terms of the general categories of compensation — a base salary, a short-term incentive or bonus, a long-term incentive or equity — and the target cash compensation. There are a lot of similarities, but the difference is when you have an expatriate contract — someone who’s being assigned from headquarters for a defined term. Then there will be certain elements that may not necessarily be applicable to people who are in this market, such as leasing of the house back home, maintenance of the house, etc. When I started recruitment in 1998, people would ask if it was a local role or expatriate role. That was code for, what is the compensation?

Within China, for the last 10-15 years, it has morphed. In general, companies are seeking to recruit executives who can do the job, and care less about the passport they carry. If you’re hired within this market, you could enjoy some benefits traditionally associated with “expatriate contracts” — housing, children’s education, tax assistance, home leave, commercial medical insurance — which may be part of compensation structures now referred to as “local plus,” “half-pat,” “semi-pat,” “locally engaged expatriates,” etc. For senior leadership roles, those major pieces are there. There is no significant difference between Chinese and non-Chinese. As for cash, it’s the market that dictates. Are the motivations to someone taking on a senior role any different? I don’t think so.

When Chinese companies are competing with Western companies for talent, what factors make the Chinese company more or less successful in winning over a candidate?

Part of the reason why Chinese firms can be successful when luring talent is playing up the opportunity to build a China-based brand/organization. There are executives who may have worked 25 years in MNCs and they’re very successful, and they see the opportunity to apply what they’ve learned to build a homegrown hero. The appeal can be exciting, to build something from the ground up, perceived relative autonomy in developing strategy and fast decision-making, which is not always what they feel in Western companies.

Another factor is being in the same time zone or even building as the key decision maker(s). In quite a few MNCs, China has been split out from the Asia Pacific organization into a standalone market, but where it hasn’t, a China decision has to go to Asia Pacific headquarters, then to headquarters, and then back again. This is a fast-moving market, so having fast decision-making and approvals processes can be refreshing and compelling.

Compensation is also a factor. Chinese firms can offer very compelling compensation structures with significant cash, which can offset some of the perceived career risks. In some cases, these positive features don’t necessarily materialize. For example, the autonomy to create a new business or division may not be that “autonomous” if you have to seek approvals for expenditures above ¥1,000. Or if the market turns, there may no longer be funding for a new venture and suddenly the business unit is no longer as big a priority for the owner.

The number of expatriates in China has declined, particularly in the past three years. Among the expats that will remain, are there any particular functional areas where they will have a bigger presence?

The numbers have definitely gone down. But I do not see a time where there will be no foreigners at MNCs. Since I moved to Shanghai 25 years ago, there has been an increase in the number of people that are staying longer term versus those who serve a two- or three-year expat contract.

It’s harder to say at the functional level because there are plenty of Chinese executives who have an advanced degree overseas or worked overseas and returned to China. Most of the functional leadership roles are already held by Chinese executives. When the scope of the role is beyond just China, e.g., Asia Pacific or North Asia, foreigners may have a competitive advantage if they have more experience across multiple markets. From a cultural perspective, in some cases a foreigner is viewed as more “neutral” within Asia. For the larger companies that have significant, large-scale investments there will still be foreigners because the China market/organization is a career development opportunity. The end goal for any organization is the localization of their executive team, but what it means to be “local” has evolved and is more focused on being able to live and work successfully in the market and achieving business targets that are in line with corporate objectives.

Does Mandarin matter?

Yes and no. If it’s a China-only or China-focused role where the major stakeholders, customers or suppliers are all Chinese organizations, then it’s very valuable. For business head roles where there’s a first level of management that mostly speaks English, it’s not required. If the scope is beyond just China, it’s always nice to have but not essential. For the functional leaders, it’s almost essential.

When you send someone to an interview, what advice do you give them?

We do give pre-interview advice. We don’t tell a candidate what questions will be asked and how to answer them. We don’t tell them what to say, because that’s not helpful for anybody. The client will have seen a lot of information about the candidate, so it’s only fair to give the candidate some information about who they’re meeting.

In the initial interviews, when asked a question, it’s okay to pause for a moment or two, think about the question and think about how you want to answer it. And when you answer, keep it to the point. Answer the question and give an example or two, then stop and then ask the interviewer: Is that enough detail? Would you like to give me another example? Some people are excited to share their experience and are proud of their achievements. But if it’s the first question at the gate, and you talk for 20 minutes when you only have an hour, you’re not going to get through much of anything else on the list.

Ask about the culture of the organization. In my experience, the culture fit or the people that someone is going to be working with is the most important. It trumps money and it trumps the role itself. It’s the people aspect of it. You could ask, how would you describe the culture of the organization? Can you give me an example of how that manifests itself? Other important questions to a potential leader could be: How would you describe your working style? How do you like to work with your team? What do you expect in terms of frequency/detail of communication? What do you expect from your team members? If I do well in this role, what could my future career path with the company look like?

Some executives like to visit headhunters once a year even though they are not seeking a new job. Is it a useful practice?

Absolutely. Up until the global financial crisis, there was a sense among some long-serving senior executives, especially in the industrial sector, that it was almost disloyal to talk to recruiters. There was a turning point following the global financial crisis in 2009 that led to waves of senior level lay-offs and when some organizations sought to bring people back from international assignment early without a clear role back at head office. Most executives realize the importance of networking, including with search consultants.

The thing is to identify people who work in your space, get a sense of what the market is saying, and understand how your experience and skill sets are viewed and valued by the market. You may not be actively looking to make a change at this moment, but it can be very helpful to keep in touch with a recruiter who works in your space, to build the relationship, confidentially discuss career objectives and exchange views on the market.

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