Asia is going local: Foreigners need not apply

‘Forget expats’ and ‘Foreigners need not apply’ – these statements sound rather uncommon in today’s environment of multinational business. However, a recent Wall Street Journal article uses these statements to describe the shift in recruitment practices in Asia. Specifically, the WSJ article notes that western companies doing business in Asia now tend to prefer local employees, as opposed to expatriates, to fill important executive positions.

This trend is not completely new, as research by the Spencer Stuart Recruitment Company indicates that already between 2005 and 2010 three out of five executive positions were given to local employees. However, this tendency has probably become even more evident recently due to the fast development of the Asian market. With local Asian companies becoming more empowered, there is a growing need for multinational firms to further integrate into the local culture to be able to build more effective local partnerships, co-operate on a more equal basis, and continue attracting local clients. As the article states companies require employees ‘who understand that sitting through a three-hour dinner banquet is often a key part of the negotiating process in Asia’ – and hiring local executives may help secure deals with local companies without having to revert back to the often burdensome practice of using translators. Understanding customers’ preferences may also help sell a product – for example, KFC in China began serving rice porridge and soymilk for breakfast.

Apart from reasons of cultural integration and adaptation, in the current economic environment the high costs of expatriation become another source for ‘going local’. Phil Johnson, Managing Director of Spencer Stuart, proposes that a failed expatriate assignment can be quite costly and slow down business in the region. On a similar note, international recruiter Monster Worldwide reported that it has been hiring locally for several years now, mainly to avoid the high costs of expatriates. The firm also notes that expatriates face a considerable transition period before they can be effectively deployed in the new location, which can substantially decrease the benefits of a time-limited assignment. Similarly, more strategic tasks may not be tackled at all by expatriates who tend to focus only on their short-term assignment objectives.

As for employing local professionals, despite their general relevance the environment of multinational companies also results in some more specific requirements. Recruitment professionals note that when local expertise is required, Western companies mostly hunt for Asian natives steeped in local culture but educated in the US or Europe. Hence, multinationals try to combine requirements of the local environment and the company’s international profile by hiring employees with experience in both cultural settings. However, as much as such employees are demanded, they are also difficult to find and retain, as they possess the same value for Asian companies that spread into the western markets – and often are incentivized by relatively higher salaries in the West than in their home markets.

One way of managing this talent shortage is to create a talent pipeline within the company. In other words, companies try to develop their own executives for the Asian market by supporting employees’ promotions through the company ranks. One definite benefit of such an approach is that managers who are ‘brought up’ in Asian markets understand local customers’ needs better.

Echoing this notion, Mr. Bekins, Managing Director of Korn/Ferry’s Premier Client Partnership Program in Asia, argues that ‘building a pipeline of mature, agile, and ready local leaders is both strategic and cost-effective’ (Korn/Ferry Institute blog, 03.2012). On the other hand, he acknowledges that apprenticing local talent takes time, and coupled with the aforementioned talent shortage, it may explain why most multinationals still continue to use expatriates in Asia.

Yet, linked to localized recruitment, another interesting message of Bekin’s article is that apart from organizations, the localization trend has reached expatriates themselves as well. Specifically, Bekin emphasizes that ‘few self-respecting executives would describe themselves as expats today’, highlighting expatriates’ will of going local. In other words, expatriates understand that in order to be successful and meaningfully contribute abroad, one needs to blend into the local culture, environment, and lifestyle.

Summing up, it becomes apparent that demands for understanding the local culture, the way of life and the way of doing business are inevitably present when multinational companies expand abroad. These demands are especially strong when speaking about culturally diverse (and from a Western point of view also culturally more distant) areas such as Asia, where requirements for local adaptation lead recruitment and expatriation processes to ‘go local’.