By Richard Brubaker 

In terms of human resources, the current debate is focused on the continued need for multinational corporations in China to increase hiring of local staff, particularly for operations management, while decreasing or completely removing expatriate staff. Reasons for this shift away from expatriate staff include the high cost of salary and benefit packages, questionable value (in terms of productivity and ability to drive the business), high failure rates and most recently, the large readily available talent pool of expatriates already based in China (“halfpats”).

Many within China agree that there is a shortage of local talent in the middle management sector. In the past, this was a significant issue as companies had only two options – to hire and relocate expensive expatriate staff from overseas, or inexpensive, inexperienced local staff. Previously, this H.R. decision was made all the more difficult by the fact that many companies had yet gain a solid foothold in China. Without a solid track record behind them, these companies had to make the crucial hiring decision of placing their future in China in the hands of one manager, who would be responsible for directing the market entry strategy.

In the last 5-10 years however, a new breed of manager has emerged – the “local hire expatriate”, or halfpat. Following the slowdown of the U.S. economy in 2000, western and Chinese professionals begun relocating overseas, to seek better employment and career opportunities. In China this resulted in a new wave of halfpats, typically fresh graduates or professionals with less than 5 years work experience. Many had already studied China’s language, culture and business environment for 1-3 years while in the U.S., and sought opportunities that leveraged these assets in China.

Expatriates

An expatriate (expat) is typically a Western-trained senior level manager who has accumulated 15-20+ years experience within a single industry. Usually recruited for their ability to oversee a particular division of a multinational company, outside China, their scope of work expands to include higher-level managerial duties, in China. Typically relocated with their family in tow, these managers don’t have any local language skills, aren’t particularly culturally aware or have any significant understanding of the local market. Their strength lies in their knowledge of the industry and they ability to manage business units back home. Recently though, we have seen the emergence of the “perpetual expat”, who moves from one foreign market to another.

Typically a China post (or any international posting for that matter), is granted towards the end of a career or as part of the final progression towards a Vice President or CEO level position back in the home office. With their years of management experience and long-term understanding of the corporate culture, expats are expected to: instill key qualities/values in local staff; increase market share in existing markets; identify new markets for business growth; and manage a reduction in manufacturing costs. Expats tend to see their China stint as a 2-3 year temporary assignment that will conclude with them and their family being repatriated to the home office.

The first 3-6 months of an expatriates stint in China are commonly perceived as a honeymoon period. Both business and private life offer new, exciting glimpses into another culture and another way of getting things done. A simple visit to a supplier can result in a dinner at a local restaurant and a relaxed, interesting conversation conveying a sense of adventure for all involved. However, the following 2 ½ years can rapidly descend into a series of difficult, frustrating experiences which are exacerbated by a lack language skills or clear understanding of social and cultural nuances, which affect all aspects of business and private life and often result in severe culture shock.

Halfpats

Whether lured by a sense of curiosity or a strong belief in China’s potential, in the last 5 years a significant wave of foreign halfpats (including overseas-born ethnic Chinese) began studying Chinese language and culture in Beijing and other key cities. The majority, recently graduated or young professionals, moved to China without a predetermined career path.

After the first 6-12 months of language training, most of these halfpats began their China careers in the fields of market research or business development. For the majority, who were rarely technically-trained, their value lay in their Western training/education and their ability to communicate in Chinese. They were capable of developing effective networks, communicating efficiently with foreign clients and managing lower-level execution by small local teams. Generally, these positions offered little more than a chance to learn how to conduct business in China, as salaries were often low, heavily commission-based and without benefits (e.g. accommodation, transportation or health insurance). The value of these jobs was the badge of honor afforded by on-the-job training after 1-2 years, when better salary packages were offered.

The Pros

There are more than simply financial benefits to hiring halfpat staff. Perhaps the greatest advantage is their cultural understanding and language skills – which simply cannot be underestimated in a market like China. These two characteristics allow halfpats to hit the ground running and give them a sustainable advantage over traditional expat managers.

The overall stability and long-term commitment of halfpat staff is also superior to that of the average expat. In fact, many remain in China for a 5-10 year period which makes them less of a risk in terms of failing to complete their assignment. Its estimated that 60% of expats are unable to complete the duration of their assignments. Considering the cost of relocating an expat and their family to an entirely new country, it is in a company’s best interests to reduce these high levels of staff turnover and failure rates.

Halfpats are also far more capable of moving throughout the country quickly, due to their considerable network of contacts after 3-5 years – which again, simply cannot be underestimated in China. This characteristic means halfpat staff can produce results at a faster rate than an expat, which saves the company considerable investment funds.

Finally, as students of the language and culture, halfpats are far more capable of identifying cultural trends that can be crucial to the company’s development, overall business strategy and ability to outperform competitors.

The Cons

The key concern in hiring halfpat staff is determining their ability to understand the industry, the company’s position in that industry and their potential to use this information to drive the company forward. The biggest tradeoff between halfpat and expat staff is the halfpat’s lack of familiarity with the company, its operations (locally and globally) and its overall strategy. The time required for them to learn this, and their in China, must be carefully assessed.

From a long term perspective, another concern is that halfpats may find it difficult to see their long-term career goals played out within the company itself. Unlike expats, who are sent to China, halfpats don’t necessarily have a job at the home office to return to. In fact, many halfpats may perceive a stint in the home office as their “expatriate assignment”. Therefore its important for multinational companies that hire halfpats to understand their potential career path within China – regardless of whether that path leads to senior positions in China or the home office.

Conclusions

The changing needs of multinational companies in China have led to a change in staff hiring practices and H.R. requirements - particularly the reliance on expat staff.

Where expats were once the only option companies had in terms of foreign staff hire, a new breed of professionally qualified, Western-trained, bilingual non-local staff has changed the H.R. landscape. These halfpats have provided companies with a financially viable alternative to expat staff, often accepting salaries that are less than half that of the average expat.

Halfpats, with prior work experience of 3-4 years, and prior in-country experience of 3+ years, have already proven their ability, desire and commitment to operate in China. By taking advantage of this experienced, readily available talent pool, multinational companies have the ability to locally recruit and train well-qualified managers and increase staff retention rates.

Richard Brubaker, All Roads Lead to China