Who should head a multinational in China?

Many multinational companies operating in China are going through a tough time. The limited number of experienced foreign nationals willing to work in the country, combined with pressures to localise, is putting foreign firms at a disadvantage as they try to succeed in a much tougher economic climate. Gabor Holch asks what steps multinationals can take to find the right people.

Casual observers on their first post-pandemic visit to a major Chinese city might get the impression that things are back to normal. Locals avidly consume global car, electronic, fashion, cosmetics, food and beverage brands. The neon logos of multinationals still illuminate the buildings that host their China offices. Restaurants continue to offer international culinary choices. Chinese cities promote international trade and technology fairs.

But the business climate surrounding those reassuring urban hubs has changed dramatically and irreversibly in recent years. Starting with the big picture, the macroeconomic and political context of China-based multinationals is unrecognisable for anyone who remembers how things were a decade ago. The nation’s trade wars, economic struggles, and firmer commitment to ideology have put a question mark on the feasibility of the China strategies of foreign firms. China’s lengthy enforcement of its ‘zero-Covid’ policy undermined the country’s predictability — previously one of its most attractive features.

China’s post-pandemic recovery both fell behind expectations and coincided with economic uncertainty, growing political interference in business and surging opportunities elsewhere. Blinded to China’s potential by years of inaccessibility for business travellers and poor digital access from abroad, many European headquarters opted for a confusing dual strategy. On one hand, they followed demands by China-based executives to localise entities, business models and workforces. On the other, they quietly started ‘de-risking’, shifting resources away from China including investment, fixed assets, intellectual property and people.

These dramatic changes hit foreign business where it hurt the most. They uprooted two decades of efforts to smoothly integrate China into global networks of investment, know-how, production, distribution and services. Politics widened the gulf between China and its top trading partners in defining sectors such as green energy and artificial intelligence. Importantly, while European firms started the 2000s with ambitions to nurture a generation of globally interchangeable Chinese and international managers, two decades of management localisation efforts failed to deliver.

European Union (EU)-China commercial relations are admittedly at a low point, with delayed reforms causing ‘promise fatigue’ according to one recent publication.[1] But in the spirit of wei ji—the Mandarin for ‘crisis’, suggesting both danger and opportunity—European firms should ditch any hope for a return to normal and face new realities. While individual executives at EU firms can hardly influence global investment trends or foreign policy, they can play decisive roles in finding, hiring and developing future leaders who will represent European firms in China.

In other words, since most experienced foreign national managers left and new inflows have not resumed, now is the time for European firms to forge the leadership vision of their China branches for the next decade or two.

Why China?

Simon Sinek’s TED talk on starting with ‘why’ stated something obvious: meaningful action comes from internal motivation. [2]  If we ask why talented managers (foreign national or local) wanted to succeed at multinationals in China, all reliable sources point to the same primary reason: they wanted to boost their careers. Yes, some came out of curiosity about China’s technological development or culture, but most needed the ten-fold increase in responsibility, visibility and impact that only China could provide.

Yet as its economy cools and localisation prevails, China is no longer the same career booster. Ambitious candidates often prefer emerging markets with rising investment figures.[3] That also implies that previously secondary motivations will take the lead. Managers with backgrounds in sectors such as electric vehicles, 5G technology or mobile payments yearn to be close to the cutting edge of their fields. Those with Mandarin fluency or family ties in the country can find their purpose in China, while colleagues looking to continue building their careers move on to new markets.

Career goals

Career objectives are often confused with corporate goals, even by the newly appointed executives themselves. Transitional times like ours reveal the difference. The pressure on foreign firms in China has made some foreign nationals realise that beyond the long-gone double-digit growth, there is nothing keeping them in the country. Others are grateful for the opportunity to stay even if results are unimpressive.

It might seem obvious which type of candidate is more beneficial for a firm, but human resources (HR) professionals must be careful. Strongly rooted managers with limited interest in global outreach have inadvertently distanced many China branches from their European headquarters and worldwide offices. Now they struggle for data, resources and direction. Whether the chosen leaders are local or foreign, committed or casual about China, their role must be to bridge local operations with global goals, resources and markets.

Strategy

The changing balance between emerging Asian economies and a riskier China is confusing for rooted executives. ‘De-risking’ deprives them of prestige, connections, resources and opportunities. China is no longer the undisputed top market for most global firms, and strategies that ignore that fact backfire. ‘China for China’ was an understandable risk mitigation response to Beijing’s self-reliance policies, but it undermined the competitive advantage of multinationals over local firms. Many ‘old China hands’ seem out of ideas for this new era.

De-risking from China by European firms results in unproductive debates on which side needs the other most, and who owns the future. Whether local or foreign, leaders of China branches must align their corporate headquarters, local Chinese realities and global networks with diverse stakeholders in between. That is where multinationals enjoy an advantage over competitors from an increasingly self-reliant China: long-established supply networks of multilingual workers, innovative ideas, worldwide resources and diverse markets.

Finding the right candidates

Because China’s reality changes over time, the ideal candidates are often not the obvious ones. For decades, headquarters rewarded the top-down implementation of imported plans in special economic zones carved out of China’s mainstream economy by government bureaus. Today’s localised China branches are integrated into indigenous systems of compliance, resources, economic trends and even competition. Changes erode the experience of seasoned leaders, while flexible young managers still lack the required routine and insight.

This shrinks leadership succession talent pools, but European firms cannot appoint managers solely based on skills or experience. Instead, they need candidates (young or senior, foreign or local) with the necessary mix of personal characteristics: the ability to stay focussed on goals, learn fast and act flexibly, while delivering in a compliant manner and operating according to the requirements of headquarters. Importantly, leaders must be part networker and politician: rare for technically trained managers but essential in today’s China. HR teams must use interviews and assessment tools to identify suitable candidate traits, as even experienced professionals might prove temperamentally unfit for China after deployment — a costly mistake for firms.

Leaders need diverse teams

The list of necessary traits for leaders of China operations presents a challenge. While some recruiters may hit the jackpot with people who check all the boxes, most will have to make tough choices. Should they choose the candidate with the stellar financial record or the fluent Mandarin? The technology trends expert or the well-connected veteran? Local experience or a passport that allows global travel? When no single candidate fulfils seemingly essential criteria, teams provide the solution.

The alignment of headquarters’ expectations, local circumstances and worldwide resources calls for diverse teams with complementary capabilities. A China branch’s boss can be a local veteran or, like most foreign managers, on a two-to-three-year assignment, an industry expert or a rising star; their immediate team must balance their blind spots. Seasoned leaders must collaborate with young colleagues comfortable with new technology. Proven local executives need foreign nationals who can travel visa-free at short notice. Rooted China residents need insight from remote team members working in different countries.

In short, despite all the pressure to do the opposite, foreign firms in China need leaders who can help them stay truly multinational.

Gabor Holch coaches and advises multinational executives on upgrading their skills from competent managers to corporate leaders with global mindsets. China-based since 2002 and working globally, Holch is a Certified Management Consultant (CMC) in English and Mandarin and licensed in major assessment tools. His book, Dragon Suit: The golden age of expatriate executives in China, was published in 2023.

[1] European Business in China Position Paper 2024/2025, European Union Chamber of Commerce, 11^th September 2024, viewed 23^rd September 2024, p. 19, <https://www.europeanchamber.com.cn/en/publications-archive/1269/European_Business_in_China_Position_Paper_2024_2025>

[2] How Great Leaders Inspire Action, YouTube, uploaded by TED, 5^th May 2010, viewed 23^rd September 2024, <https://youtu.be/qp0HIF3SfI4?si=Z-aB09DJLkl_oFV7>

[3] See Figure One: European Business in China Position Paper 2024/2025, European Union Chamber of Commerce, 11^th September 2024, viewed 23^rd September 2024, p. 9, <https://www.europeanchamber.com.cn/en/publications-archive/1269/European_Business_in_China_Position_Paper_2024_2025>