Flow of China's outward direct investment to the world (2007-2021)
Source: China National Bureau of Statistics
For most Chinese enterprises, overseas expansion is a relatively unfamiliar field and talent challenges are a crucial issue. To advise Chinese enterprises on their internationalization talent strategy, Russell Reynolds Associates conducted interviews with 12 leaders and experts from Chinese enterprises that succeeded in going global about their experiences and lessons learned.
The interview results showed that at different stages of internationalization, Chinese enterprises have different talent preferences. Based on the results, we created a general talent model for Chinese enterprises to help their internationalization.
Overall, we found that Chinese companies face contradictions in required skills and talent availability. On issues such as personnel dispatching, local talent hiring, and executive selecting, interviewees’ answers were highly dependent on where their companies were in their global development journey.
Talent categories available to Chinese enterprises in the internationalization process
When expanding globally, dispatching executives overseas from China may be the organization’s initial solution. This approach brings many advantages, including long-term experience within the parent company, familiarity with the company's culture, and proven business capabilities.
However, there are also serious challenges to consider when deploying expatriate talent—beyond the obvious language differences, cultural adaptability, and compensation settings.
“Currently, the most needed talent for Chinese companies is international talent. But how do we define international talent? Having a background of studying abroad, language proficiency, and cultural understanding are not enough. What truly matters is the ability to expand business overseas, which means having practical experience in marketing and operations abroad.”-Head of overseas business development of a communications company
“Leading a western team with western thinking and language to achieve the desired results for Chinese company is the biggest challenge for Chinese expatriates. This is a skill that is not commonly possessed by Chinese talent.”-Chief human resources officer of a consumer goods company |
Additionally, expats themselves have various concerns. On one hand, there are quality of life concerns, including prolonged separation from family, culture shock in leisure times, and assimilation to local food and lodging.
On the other hand, there are career development concerns. Working in China’s established business lines typically provides stable performance, leading to predictable returns and promotions. However, the performance prospects overseas are less certain.
Because expats face these challenges, Chinese companies should not ignore local talent when establishing overseas business. These local executives can effectively balance the issues expatriate leaders face, while also coaching said leaders as they transit into new roles.
Compared with expats from China, locally hired leaders—particularly those working at Chinese businesses that are highly integrated into the local market—bring many advantages, including:
Despite these benefits, some Chinese companies are hesitant to hire local talent, due to cultural, leadership, and lifestyle differences between Chinese leaders and local talent. Because of this, some Chinese companies and expatriate leaders believe that it is difficult for local leaders to stay strategically consistent with the dispatched team and Chinese headquarters.
However, refusing to engage with local talent is unsustainable. While deploying Chinese leaders might maintain short-term efficiencies, it sacrifices the company's development in the long run. When Chinese companies expand overseas, they should aim to improve their existing corporate culture, laying the foundation for successful transformation into an inclusive multinational company.
To better integrate their teams, Chinese companies should seek out “integration agents”—talent with multi-faceted backgrounds who can ease team blending and buffer any potential friction. But who are these “integration agents”?
One archetype includes people who understand both Chinese and foreign situations, including top Chinese talents living in a foreign market, or foreign senior professionals who have worked in China for a long time.
Another archetype encompasses global leaders who can be added to local teams to strengthen its diversity. This approach is more common once overseas teams have a certain degree of autonomy—that is, once they’ve integrated into the local market and achieved localized operation.
Leadership models for overseas branches
When expanding internationally, Chinese enterprises have different requirements at different phases. To help Chinese companies navigate these fluid talent needs, we created a talent model that highlights the level of investment needed across the overseas expansion phases, including: export trade, overseas direct investment, market integration, and multinational corporation.
Talent model for Chinese enterprises expanding abroad
In this figure, each line represents an agenda of local teams, addressing on talents and team building. The significance of each agenda fluctuates in different phases of global development.
The company begins to export products or services to foreign markets while it gradually establishes overseas sales channels and networks. This is the first step for business to go abroad, but not counted as a real overseas expansion.
As shown in the model, the factors in various dimensions are accumulating, but have not yet been put into action at this stage.
In order to effectively communicate and cooperate with overseas customers and partners, companies need talent who are proficient in foreign languages and have a certain understanding of the destination market.
This is the first and most difficult stage of the internationalization process. Companies establish overseas branches or offices through investments and/or mergers and acquisitions. Committing to enter the market, companies might focus on building stable supply chains and distribution channels locally.
As shown in the model, various factors have not yet fully converged, but will soon collide. At this stage, the parent company needs to invest a lot to support the overseas branch, which is not yet autonomous. In terms of the composition of personnel in overseas branches, Chinese expatriate executives and employees are dominant. The cost of team integration is higher than its benefits, but in order to develop steadily to the next phase, early design on team and culture integration should be made at this stage.
“Without communication, people's determination to do things will be completely different. If there is no communication between Chinese and foreign personnel within the team, there will be no output in overseas business. To achieve this, it is required that Chinese enterprises have confidence in team communication and not give up due to short-term discomfort.”-Chief human resources officer of a consumer goods company |
Chinese companies at this stage should pay attention to the following:
During market integration, the company has already established a foothold in the local market. Continued success no longer depends on investment from the parent company, but mainly on the local branch's ability to handle its own market, products, and brand image.
As shown in the model, factors in multiple dimensions are colliding. At this stage, the overseas branch has some autonomy, and is expected to customize products and services to local market preferences. Local talent and global leaders comprise the majority of the team, and there are higher employer branding requirements. In this phase, communication between the overseas team and headquarters are still undergoing adjustments and team integration costs are at their highest.
In addition to maintaining the good foundation laid in the previous phases, Chinese companies should also:
When the company has achieved integration in multiple markets, it is ready to become a multinational corporation. In this phase, the company implements a diversified strategy, satisfies preferences in different markets through diversified product lines, and explores global resource integration to optimize global business layout. Additionally, global business and functional processes should be standardized and integrated via the unification of financial, supply chain, and human resources processes. Once complete, the organization will become a mature global enterprise.
As shown in the model, various conflicts have been mostly resolved in this stage. Overseas branches have a high degree of autonomy and can independently explore diversified strategies, bringing benefits to the enterprise. At this point, the company is no longer divided into Chinese and foreign talent, but functions as one team. Global talent not only serves as regional leaders, but also have opportunities to join management or the board. The global team speaks the same language, shares common beliefs, and works toward the same goals. Team integration costs are greatly reduced. Due to the sustained focus on team and culture in previous phases, the entire organization begins to enjoy benefits at this stage.
This final phase will only be reached if the company sustains its attention on and investment in equitable and inclusive team building from the initial stages of global expansion.
Chinese companies expanding overseas are embarking on a long-term project that requires continuous investment in talents, teams, and culture to ensure sustainable, global business development. This is not only true for Chinese companies that are going global, but also for global companies investing in various parts of the world, including China.
In this uncertain era, maintaining an open-mind, embracing diversity, and accommodating different backgrounds, experiences, and ways of thinking will bring long-term benefits to companies. Attracting global talent to Chinese companies will undoubtedly provide long-term benefits on your globalization journey.
- Chief human resources officer of a consumer goods company
- Head of a luxury brand
- A European entrepreneur with deep experience in working with Chinese companies
- Human Resources leader of a real estate company
- A former official of the Ministry of Commerce in South America
Jeffrey Cheng leads Russell Reynolds Associates’ China Account Practice. He is based in Shanghai.
Chensong Li is a member of Russell Reynolds Associates’ China Accounts knowledge team. He is based in Shanghai.
Sharon Tan is a member of Russell Reynolds Associates’ Assessment, Culture, and Development knowledge team. She is based in Singapore.
Justine Qin is a member of Russell Reynolds Associates’ China Accounts knowledge team. She is based in Beijing.
Footnotes
1 Head of Cooperation Department of the Ministry of Commerce discusses China's foreign investment cooperation situation in 2022