WSJ's The Experts
This article originally appeared on WSJ’s The Experts.
As if multinational companies didn’t have enough to worry about with the U.S.-China trade battle and tensions in Hong Kong, there’s a longer-term trend to deal with: More foreign companies find themselves losing out in the war for talent in China. China’s millennials are turning their backs on careers with multinationals, which they increasingly see as bureaucratic and overly reliant on global models that simply do not work in China.
This should concern the multinationals because the outflow of young, highly skilled professionals threatens the firms’ futures. Without a healthy supply of homegrown leaders who know their markets intimately, foreign firms will struggle to expand or even keep pace in China.
A joint study by my colleagues at Bain in collaboration with LinkedIn analyzed 66,000 senior business executives in LinkedIn China’s member database, at 350 major corporations across industries. We found that over the past five years, business leaders in China have moved from multinational to local companies at more than five times the rate that they moved from local companies to multinationals. The typical multinational offers high salaries, with the possibility for global training and rotation. But Chinese companies are offering more attractive employment packages, with such lures as stock options, differentiated compensation and a greater ability to make an impact.
The rapid growth of local companies is upending traditional career trajectories. Many Chinese nationals are choosing faster and more rewarding career paths with local firms over formal talent development programs and overseas assignments in multinationals. These local organizations seem to be stripping away onerous reporting structures, giving young leaders more influence over the company’s decisions and the chance to leave a legacy.
As local companies have expanded, they have drawn talent away from multinational corporations at an accelerated pace. Roughly 40% of business leaders who changed companies transitioned from a multinational to a local firm, compared with less than a third of career moves in our 2016 analysis.
Why is this change occurring? Our interviews with senior executives and heads of human resources found that Chinese nationals want authority to make important decisions—quicker action and less-complicated decision-making processes—and more opportunities to explore international markets. By contrast, many multinationals keep Chinese executives further from the authority they crave, said the HR head of a global engineering firm, slotting them in operational roles rather than real leadership positions.
The talent flow is even more pronounced among people under 35 years old. Historically in China, recent graduates and young leaders valued opportunities at multinationals to gain cross-functional and international experiences. Today, they find better opportunities at local firms, such as the 20 rising technology companies included in our study. These “rising tech stars,” most of which deliver internet products and services, have seen explosive growth and more leadership changes compared with firms in other industries. Because they’re so attractive to highly skilled Chinese nationals, they can afford to recruit more heavily on C9 campuses, the Chinese equivalent of the Ivy League.
Local firms will continue to win talent from multinational companies in the near future. The rising tech stars will intensify the competition and keep the established players on their toes. It remains to be seen whether the Hong Kong situation and the trade battle will further accelerate the talent trend.
How can multinationals address the outflow head-on? They should recalibrate their talent proposition to reflect the career aspirations of Chinese nationals. That means being willing to redefine career development for young professionals.
Importantly, they must find ways to create ownership and purpose among Chinese leaders and professionals, actively addressing the valid desire to have more direct influence over key decisions. That desire should inform every recruitment and retention program for younger employees. As marketing executives have learned, tactics that work at home will need to be adapted for the Chinese market.
While Chinese firms appear to have an advantage for now, or at least momentum, they also have obstacles to overcome. Their leaders are young and untested, with a propensity to change companies. The exodus of leaders from multinationals to local firms is the latest chapter in the Chinese talent story—but certainly not the end.
James Allen is co-leader of the global strategy practice at Bain & Company and co-author of “The Founder’s Mentality.”