In the early 1980s, China was a huge unexplored market for investment. Many well-known multinational technology companies such as HP, IBM, and Motorola entered as pioneers into the Chinese market to reap the benefits of China’s exponential growth. At the time, these large multinational companies hired experienced leaders from the four “Asian Tigers” (Taiwan, Hong Kong, Singapore, and South Korea).
Each of these countries had consecutive economic growth of approximately 10 percent each year from the 1970s to the 1990s. Many of these expats were provided generous packages, including a 30-50 percent salary increase, housing, education, family travel expenses, and company cars. As a result, middle management and less-senior executive positions were sourced with local talent. Many Chinese native technology graduates and managers had high motivations to work at large multinational companies because the salaries at these firms were roughly quadruple that of a domestic company.
As China’s economy grew stronger, more students traveled overseas for higher education. More Chinese names appeared on research papers, and there was an influx in participation at global technology conferences. Many candidates and overseas graduates who gained international experience at large multinational companies began to return to China for career development, family, or competitive compensation.
The Shift From Expat to Local Leadership
Trends in market demands led companies to tailor their core products to meet consumer needs. Local firms were able to successfully adapt to this trend, while multinational firms were not as flexible and were slower to fulfill consumer demands and comply with government regulations. As local and multinational companies competed for market share, a war for talent emerged.
In the last five years, leadership roles that were previously held by talent from the four “Asian Tigers” have gone to local talent. This is due to the Chinese market maturing and domestic candidates possessing more international experience and acumen. Paul Po-Ping Lien, senior partner at PCI Executive Search Consultants in Beijing, has tracked this transition and explains the scarcity of talent that China faces:
“We are seeing a complete shift in leadership in the technology sector. Local talent that historically aspired to work at large multinational companies now gravitates to positions at leaner local enterprises. These executives are at the forefront of an emerging industry experiencing exponential growth and a severe undersupply of talent. Local and global organizations must engage executive search firms to help fill strategic senior level positions and select the best talent available.”
Compensation for local talent in China is comparable to U.S. compensation packages at the senior management level and above. For example, a director position’s compensation package can range from ¥1 million-3 million, which is equivalent to $170,000-500,000 USD. At middle management levels, compensation for local talent in China is below the average compensation packages found in Silicon Valley.
But demand for executive leadership continues to exceed the supply of available talent, and technology companies in particular are facing significant difficulties in fulfilling their talent needs. This talent gap has proven beneficial to potential candidates in the negotiating process. Potential candidates can request a salary increase between 15 and 30 percent. Foreign multinational technology companies have a standard protocol when it comes to base salary, benefits, and negotiation.
Even though local companies have very similar standards, they are more flexible in their incentive programs. For example, candidates can demand a higher base salary and less stock as long as the total package amount remains the same. The flexibility in compensation packages offered by local companies has presented a huge challenge to multinational technology companies in maintaining and attracting talent. This trend will intensify over time as China continues to grow.
Is China the Next Silicon Valley?
The accelerated speed and scale at which China’s technology industry is growing will yield an unpredictable market for talent demands in the future. This is partially due to the country’s constantly changing government regulations, implemented to fit China’s economic needs.
Chinese Internet companies have moved to Silicon Valley to aggressively compete for elite talent from all over the world. For example, Andrew Ng, a former assistant professor at Stanford University, has joined Baidu’s research team to study artificial intelligence. Talent has begun to relocate to China for positions at emerging startups and local technology companies for career development and compensation incentives. This trend will only get stronger over the years as new developments are made and the Chinese technology market continues to expand. The question remains: will China be the next Silicon Valley and emerge as the next great technology leader of the future?
Only time will tell.