Missing Management
In fast growing Asia the biggest shortage are on the executive floor.
By Jane Singer and Diane Harris of Inside Fashion (January 2012 issue)

IT'S PARADOXICAL that the world's most populous nation has a labor shortage. Even more problematic than the shortage of workers, China lacks sufficient people at a management level to support its growth.

Shortages of raw materials and labor in Asian markets this past year have played a significant role in business woes; however these are likely to be short term problems. An equally pressing, longer term challenge is the region's scarcity of executive talent. As industries in these countries move up the value chain executives are needed who can manage more complex operations, often across multiple regions or nations.

Many companies told Inside Fashion that the biggest problem they face in the long term is a lack of middle to senior managers. According to the American Chamber of Commerce in Shanghai's 2010-11 China Business Report, U.S. companies identified Human Resources constraints as the top operational challenge they faced. Hiring and retaining top quality talent for managers, executives and technical staff is becoming increasingly difficult in this fast growing economy, reported survey participants. In a survey by The McKinsey Quarterly 44 percent of the executives at Chinese companies reported that insufficient talent was the biggest barrier to their global ambitions.

According to China's Ministry of Human Resources and Social Security, about 6.6 million people graduated college in 2011. Although highly educated, many graduates lack the skills needed to manage fast growing increasingly sophisticated businesses. Only about 10 percent have the skill sets that are needed by multinational companies. Specifically, the skills that are lacking are the "soft skills." In addition, with no prior exposure to international level business practices, these young people are missing the practical skills as well. At an executive level, the problems are even more acute. According to Paul Gibbons, a consultant with Canada's Western Management Consultants, an increasing demand for products from China coupled with less management availability has created an extreme problem. "About 20 percent of the CEOs at multinationals in China are mainland Chinese. The other 80 percent are expatriates," said Mr. Gibbons. "About two in every five companies would claim 'extreme difficulty' in filling senior management positions, which has in turn driven up executive compensation," he said.

Missing Skills

"Local managers need to learn how to think on their own. We challenge our team to debate with us and to share their ideas. We want them to participate in the process, not be by standers," said Thomas Nelson, managing director or VFAsia.

"I spend about 70 percent of my rime on 'people development'. We need to develop enough leadership to move our organization to the next level. Training plays a vital role in this." He told Inside Fashion.

"for managerial staff key requirements are experience of doing business with international companies, ability to make presentations, communicate clearly in both spoken and written English, don't sweep things under the carpet, identify solutions not just problems and take responsibility for the decisions they make," said Mark Geary, managing director of Asianet Consultants, based in Hong Kong.

"Local managers are more tactical. They are not good at multi-tasking," he added.

Becoming a second tier manager usually means managing through others, or managing a team of manager. "In Asia people are used to managing products. Now they have to manage people. Simply telling staff what's right and what's wrong isn't enough. These managers need to be taught how to manage people. They need to learn how to coach," said Mr. Geary.

Supply and Demand

Rapid expansion in industrial growth and development across Asia has driven up the demand for middle to senior level managers who need an in depth knowledge of their industry, as well as having sophisticated management skills. In newly developing nations the lack of a legacy management "pipeline" has created a void that could seriously hinder future growth.

"Executives in their forties grew up in the era of State Enterprises with a command and control structure where staff followed instructions. The demand now is for managers who can work independently, multi task and communicate fluently with an over-seas head office in English," said Mr. Geary.

"Most companies lack a successful model for developing and building executives. They are forced to hire expats and this has driven up the cost of expat compensation," said Mr. Gibbons. "Most expats stay on the job for about 18 months often leaving as a result of job dissatisfaction or cultural problems. That pushes up the cost of that person even higher.

"It is a supply and demand market. China has a high growth rate but only about a quarter of the number of executives as the U.S.," he added.

The problem is even more difficult when the job is located outside of one of the major cities. For some companies the solution has been to hire executives from some of the developed Asian countries such as Korea, Singapore or Taiwan where the culture gap might not be as large.

Human Asset Accounting

A company will do product lifecycle planning for a product. They need to do the same for people. People don't appear on the balance sheet however "human assets" are just as important to the success of a business as physical capital assets.

"You can't have a business that is only based on product. The product has to have people behind it," said Mr. Geary

He believes that too many companies are failing to undertake human asset accounting and provide proper budgets for the attraction and retention of staff. "When a piece of machinery costing US$250,000 is going to be purchased it is subject to a considerable amount of evaluation and testing before a purchase decision is made. Following the purchase the Finance Director will ensure that it is depreciated over say 5 years and that each year there is an appropriate maintenance budget. Now let us consider the engineer who is going to look after the machine. He is going to be paid U5$50,000 per annum. Ideally you would like him to stay with you for at least 5 years, also without him the machine is not going to work. So the decision to purchase the engineer is 5 x U5$50,000 = U5$250,000. However has the Finance Director provided for depreciation and maintenance of the Engineer? No. Until companies start to provide proper budgets for the maintenance and development of their human assets then they will continue to experience high turnover and disruption to their business," he said.

Problem with Education

Most countries in Asia and the subcontinent are only starting to see the emergence of multinational or sophisticated nation companies through which managers might have been developed.

According to Mr. Gibbons, the problem begins in the schools where students are not taught "social" or "soft" skills.

However Mr. Geary believes that this is beginning to change. "The universities are responding to this need and turning out high quality graduates who can be nurtured by companies. More and more locals are prepared to go overseas for education and on international assignments. The China Government no longer puts obstacles in the way of this. In the medium term good quality middle and senior managers with international experience are harder to find. They do exist but they have to be sought out.

"There is a truism that 'It takes five years to get five years' experience," he said. "This is certainly the case at the senior management level."

(Source: Inside Fashion, Vol. 22 Issue 1, January 2012)

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