Western executives looking to head up companies in the Asia-Pacific region might find a lack of opportunities, a new study suggests. According to a survey from The Conference Board, companies in the Asia-Pacific region are ramping up efforts to hire home-grown leaders. These companies are intensifying their search for executives who live in the area, rather than relying on expatriate executives who are brought in from other areas of the world, the survey found.
Leadership development is on the rise throughout the Asia-Pacific region, which will account for 45 percent of the world’s gross domestic product in 2015, compared with 20 percent for the U.S. and 17 percent for Western Europe, according to the International Monetary Fund.
Of the 55 Asia-Pacific organizations surveyed for The Conference Board report, 79 percent seek to accelerate talent development in the region. During a period when many indirect/non-operational budgets are being reduced, organizations are maintaining (47 percent) or increasing (47 percent) financial resources for leadership development initiatives.
Many international companies are trying to reduce the number of expatriates and international assignees who are occupying longer-term (as opposed to developmental) leadership roles.
The report finds that firms in the Asia-Pacific region believe that home-grown executives can have a greater impact on company performance than expatriates and do not cost the company nearly as much.
“One reason for reducing expatriates and international assignees is based on the premise that in the lifecycle of most businesses, the localization of leadership has a positive impact on performance,” said Andrew N. Bell, program director for the Asia-Pacific HR Council and author of the report. “This positive impact results from a range of factors in which local leadership is more likely to have a deeper understanding and familiarity with the needs and expectations of local consumers and clients, local business infrastructure such as distribution channels and external relations, including with the government and media. Also, language may be a critical factor. An inability to work in the local language can be a serious impediment in some aspects of business operations.”
Another factor spurring the reduction of expatriate numbers is the cost attributed to their assignment, the report states. Expatriates receiving salary supplements and additional benefits, such as home leave, school tuition and a housing subsidy, can cost the business at least double what a local executive would cost.
According to the study, both multinational corporations and fast-growing local businesses have a mutual interest in developing talent and ensuring the supply of quality leaders available across the region, but they face two related challenges: local supply limitation and expatriate proliferation.
According to the report, the supply of local leaders is seriously limited, creating severe competition for talent. Shanghai and Bangalore have turnover rates in some sectors that reach greater than 40 percent per year. Salary inflation is also significant, and absolute salary levels for some talented executives in Shanghai are equal to or greater than their counterparts in Singapore or London.
According to the report, expatriate proliferation is also a major challenge. During initial investments in a new market or a significant expansion and large-scale capital investments, it is essential for many organizations to import leadership competence and technical expertise into the Asia-Pacific region, the report states. The first wave of imported leadership capability normally is followed by a phased reduction, as locals are trained and developed as successors. This process often takes longer than planned. A majority of survey participants believe the Asia-Pacific region is different from other regions in terms of leadership development.
Barriers to developing leaders in Asia-Pacific mentioned by companies include the capabilities of HR professionals in some locations, mismatches between location of talent and business opportunities, preservation of established company cultures, networks and behaviors, low mobility within region for some, and competition for talent leading to high turnover and escalating salaries.