Emboldened by their success at home, Chinese companies are now looking beyond their borders towards global markets, investing US$3.6 billion overseas in 2004. While this nowhere near matches the over US$50 billion of direct foreign investment flowing into China each year, it is still a 24 per cent jump from 2003.

Outbound investment should continue to grow rapidly in the coming years as China's national champions transform themselves into global champions. We estimate that over the next decade or so, at least 150 Chinese companies will be operating on a global scale.

Before they can fulfill their ambitions, however, China's global champions will have to overcome a number of challenges, chief of which is the acute scarcity of Chinese leadership talent. By our estimates, China's aspiring global champions will need as many as 75,000 globally-capable leaders to drive their international expansion over the next 10 to 15 years. Today they have only around 3,000 to 5,000 of these leaders.

In addition to globalizing its national champions, China has a pressing need to modernize the hundreds of State-owned enterprises that are not destined for global status. Together they control about 50 per cent of the nation's economic assets and employ around 225 million people. The size of the leadership pool required to transform these State-owned enterprises is even larger than it is for the global champions.

The leadership gap is not unique to Chinese companies. Attracted by China's rapid economic growth and low labor costs, foreign companies are ramping up their operations in China. However, foreign companies hoping to scale up their operations in China cannot afford to dispatch increasing numbers of expatriates. And relying on inexperienced local managers to grow their operations is not an option either.

The problem goes well beyond the received wisdom of senior management scarcity. In fact, the biggest shortage of leadership skills exists at middle management and supervisory levels. Training leaders at this level of the organization is critical because it is they who drive the day-to-day programs that transform an organization from a local to a global one.

We have found that Chinese managers at this level have little or no formal training. The same is true for those in pivotal jobs requiring strong cross-functional management skills, such as supply chain management and quality assurance.

Drawing from our experience serving some of China's leading companies, and by observing best practices of successful global companies, we have identified a number of initiatives that companies should consider if they hope to narrow this leadership gap:

First, aspiring talent builders need to acknowledge and tap into the tremendously valuable pool of raw talent that exists in China today. We have found that the "DNA" - the intrinsic capabilities - of Chinese talent is, in many respects, better than in the West. While aspiring Chinese managers need to improve their process management skills, for example, they often possess superb negotiation skills and sound business sense.

Many also excel at managing the interests of multiple stakeholders in the often complex Chinese business environment, such as the government, creditors, and employees. Armed with these skills, Chinese managers will be able to take-on responsibilities in more developed markets.

Second, since the programmes currently in place for molding this raw talent into future leaders are not yet comparable to the West, companies should build systematic career development paths.

Chinese companies, in particular, need to actively manage the talent pipeline through clear and transparent programmes for advancement instead of leaving things to chance. As a starting point, companies should help their employees to develop key cross-cultural skills such as the ability to communicate fluently in English - perhaps the biggest advantage that India holds over China today.

Some companies help future leaders gain international exposure by posting them on overseas assignments early on in their careers.Bank of China is now benefiting from a large pool of talent with experience working in international financial hubs like Hong Kong.

Back at headquarters in Beijing, they are now ready to help lead their organization in transformation programs aimed at improving credit-risk management and marketing skills, for instance.

Some companies might need to create new roles in the organization, such as talent coaches or mentors, a function introduced by cosmetics maker L'Oreal. But before they can go on to train others, the coaches first need to be trained themselves. Chinese companies may consider establishing management training centers, such as McDonald's Hamburger University, which teaches leadership skills in addition to traditional technical skills.

Third, a crucial part of systematic leadership development is to constantly monitor progress against a meaningful set of criteria. Senior managers should be evaluated largely on high-level financial indicators (such as sales growth, market share, and profits), lower-level employees on a handful of important operational measures(such as productivity, the quality of products, and service), which influence the high-level indicators.

Haier, an appliance manufacturer, uses key performance indicators to underscore the link between the behavior of individuals and the company's fortunes by making workers share in the successes - and failures - of their departments. Procurement employees, for example, receive bonuses for cost savings on materials such as steel.

In our work with large State-owned enterprises in China, we discovered that the introduction of key performance indicators for the assessment of leadership talent proved to be crucial to the success of their transformation efforts. Systematic monitoring of individual performance helps top management to identify leaders and risk-takers early on in their careers. Underperformers can also be discovered quickly and dealt with early on.

Fourth, Chinese and foreign companies need to re-orient their organizational structures and management mindsets towards the goal of developing leadership talent. Foreign companies in particular need to understand that developing local leaders in China is not a task to be left in the hands of their joint venture partner, but instead is a crucial competence needed to succeed not only in China, but in the rest of the world, too.

CEOs - both foreign and Chinese alike - will need to dedicate a great deal more of their own time and "mindshare" to overseeing the development of managerial leadership in their foreign operations. Hiring and coaching local leaders entirely by "remote control" will no longer work.

Finally, companies need to cultivate a performance-driven culture that welcomes fresh talent from outside the organization and provides incentives that will convince future movers and shakers to stay on as role models, rather than jump ship to a competitor (an increasingly common problem for companies in China today). In an unprecedented move for a Chinese company, a large insurer promoted several senior managers by two grades at once to recognize their success at leading initiatives such as designing new tools that dramatically boosted the effectiveness of the sales force. Companies should think creatively about ways to reward their top performers, such as presenting "black belts" to outstanding leaders as GE does, or sending them to motivational and training sessions.

For Chinese and foreign companies, the urgent need for capable local leaders with a global mindset cannot be underestimated. Developing these leaders will require heavier investments in training and a much bigger commitment of time and energy from the CEO and other top managers than ever before. Given what's at stake, there's no better time to start than now.

.Source: China Daily