Multinational Companies Riding China’s Economic Wave Take a Hit in the Talent Market

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New research from DDI reveals that foreign companies in China are trailing competitors when it comes to talent management, leadership quality and leader retention

China’s rapid growth has attracted many global organizations to expand into that market to ride the wave of China’s economic success, Rich Wellins said.

Organizations from the US and around the world who expanded into China to leverage its powerful economy are lagging behind their local competitors when it comes to leadership talent, according to a trend research report from Development Dimensions International (DDI).

“The Talent Management Imperative: Fueling China’s Business Growth” was compiled by DDI from a survey of 542 organizations throughout China across industries and three categories of organizations: foreign-owned enterprises (multinational organizations), state-owned enterprises and privately-owned enterprises. The survey was conducted between December 2009 and June 2010, and interviews were conducted in addition to the survey.

“China’s rapid growth has attracted many global organizations to expand into that market to ride the wave of China’s economic success,” Rich Wellins, Senior Vice President, DDI. “But if these organizations want to reach their potential, they have to put more emphasis on talent management.”

There were several major findings that came out of the research:
Multinational companies traded innovation for reduced operational costs in their priorities
Foreign-owned companies were 13% behind state-owned enterprises when it came to fostering innovation as a top business priority (30%). Conversely, multinational respondents chose reducing operational costs as their top business priority for the upcoming year (35%). One answer for this choice in prioritization is that many of these organizations answer to corporate offices impacted by the global economy; the need to reduce costs is perhaps overshadowing the necessity for innovation.

Future leadership tops the list of challenges for companies in China—but multinationals worry more about retention
Across the board, organizations from state-owned to foreign-owned to private-owned said that developing leaders and employees for key future roles over the next three and half years was their greatest challenge—and their highest priority.

The #2 choice differed among the groups with developing leadership skills of existing managers coming up second for state-owned and private-owned enterprises, while foreign enterprises said that retaining top talent was second on their list—not surprising since this group is experiencing a turnover rate more than 25% above the global average. This high turnover is the result of the trend for leaders to leave multinational companies for state-owned and local private companies which are growing rapidly and being very competitive with compensation and talent retention. The prestige has shifted from working for a US name brand to working for a local company.

“Multinational companies have suffered from the global financial crisis and can’t afford to offer the same compensation packages that come from the fast growth that private-owned enterprises have experienced over the last few years,” Wellins said. “What foreign companies really can’t afford is this level of turnover and will suffer from the shortage of great leaders.”

Multinational companies rate their leadership poorer than their private company competitors
When asked to rate quality of leadership over the last three years compared to competitors, multinational companies trailed behind private-owned enterprises by 10%--only 38% of foreign-owned enterprises rated the quality of their leaders better than their competitors.

Leaders coming into multinational companies often have a shorter tenure, or are ‘outsiders’ who have been brought in from another company, division or geographic area of the organization, all contributing to these lower scores.

Companies with talent management maturity perform twice as well as their less mature counterparts
When examining talent management maturity, organizations with more integrated core HR systems, strategy, software support and management support are rate organizational performance in specific area two to four times better than their competitors.

What are the greatest areas of concern for low-maturity organization? Employee satisfaction is low—and so are profits. They perform poorly in innovation and market responsiveness, and are trailing competitors with high talent management maturity in key areas needed to make their businesses successful.

About DDI
Founded in 1970, Development Dimensions International, a global talent management expert, works with organizations worldwide to apply best practices to hiring/promotion, leadership development, performance management and succession management. With 1,000 associates in 42 offices in 26 countries, the firm advises half of the Fortune 500. For more information about DDI visit


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Jennifer Pesci-Kelly
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