Chief executive Li Hsu had a problem. The head of Fiberxon, a California manufacturer of components for communications networks, spent three months searching for a vice president of his main operations, which are in China. He finally landed one--who left three months later for a better offer. For another top job, Hsu poached a candidate from one of his vendors in Taiwan. In China, he says, it's easy to find weak recruits, but topnotch talent? That's tough--very tough.
China faces a critical shortage: experienced, highly skilled managers. The numbers are astounding. The country has some 25,000 state companies, 4.3 million private firms and massive industrial overcapacity. But it has too few experienced managers for even the elite firms. The consulting firm McKinsey & Co. estimates that the relatively small number of Chinese companies trying to expand abroad will need as many as 75,000 internationally experienced leaders if they want to continue to grow during the next 10 to 15 years. Currently, McKinsey estimates, there are only 3,000 to 5,000 such men and women in China. The leadership gap could become a serious bottleneck for China's raging economy, as foreign companies pour into the market and compete for world-savvy talent with Chinese firms seeking to expand abroad.
Though the private sector now accounts for a third of China's GDP, many managers continue to follow the rules of the planned economy, in which firms produced to meet a quota, not consumer demand, and ignored profits. The talent pool was also severely depleted during Mao Zedong's Cultural Revolution, which interrupted the education of a generation. In a government survey of 5,000 CEOs and chairmen, only 40 percent said they had attended college. Of those, only 20 percent received management degrees. "In China, we are far behind the world in science and technology, but even farther behind in terms of management," says Zhao Chunjun, dean of the Tsinghua School of Economics and Management in Beijing.
Many Chinese executives have come to rely on instinct and gossip to make decisions, rather than formal data-gathering and analysis. When Chinese executives travel abroad on business, they are suddenly forced to work with people they don't know, using unfamiliar methods in a language they don't understand, says Georges Desvaux, a Beijing-based McKinsey consultant. Sometimes, they send minions with foreign-language skills but no better handle on foreign-business practices. And that creates tension when Chinese companies acquire overseas firms. Li Dongsheng, chairman of TCL Electronics, which has purchased companies in the United States and Europe, says he's had odd experiences trying to understand foreign managers with their love of charts and penchant for volunteering solutions, unbidden. "When we have meetings with executives from China, they say something is good or bad and I know what's going on," says Li. "But with the foreign managers, they say, 'We're facing a loss of $10 million and here's the answer,' and I can't tell if they're right."
The shortage of good managers means that poaching is rife. To promote loyalty, L'Oreal cosmetics has given almost all of its 7,000 jobs in China to local Chinese. It has moved its Asian training center from Singapore to Shanghai and started a mentoring program to drive home the message that Chinese managers have a bright future with the company. "These people are very requested in the market, so we have to pay attention, we have to develop their careers," says L'Oreal China president Paolo Gasparrini. "There is no other country in the world where so many companies are entering the market every year."
Many managers are trying to adapt by going back to school. In 1991, when the Chinese government began licensing M.B.A. programs, there were nine. Today there are 95, and they are scrambling to modernize. Many team up with Western universities, flying in professors--or sending their own abroad. Harvard Business School recently hosted 70 Chinese B-school professors, teaching them how to write better case studies, develop more interactive class materials and stimulate class discussion. This is a sea change for universities that for years demanded that students memorize the mantras of Soviet state planning. "Everything is right in the process of changing, and these schools feel very much like the American schools were in 1975," says F. Warren McFarlan, a Harvard professor who's worked extensively with professors from China's top schools.
While he describes the progress as "extraordinary," many Chinese executives say the domestic schools are still sorely lacking. So companies recruit any way they can. This May, Lenovo bought IBM's nearly defunct PC business, saying quite candidly that much of the attraction was not in the business itself but in access to managerial know-how. Since China can't possibly train enough managers fast enough to close its gap, it's smart to acquire them.