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The downside of lopping off expat employees in economic downturn
By Sean Maguire |
December 15, 2009, Tuesday
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WARREN Buffet was one of 27 business, government and academic leaders who recently put their names to a statement released by The Aspen Institute.
The statement argues that a "healthy society requires healthy and responsible companies" working to achieve long-term goals.
Instead, "boards, managers, share holders with varying agenda have allowed short-term considerations to overwhelm desirable long-term growth and sustainable profit objectives."
These are sentiments that would find particular resonance within the expat community in Shanghai today.
Barely a week passes without it reaching my ears that an acquaintance has been dropped by their home companies in favor of a local hire. And the reason? Well, it's the economy, stupid.
Local hires represent, in most cases, a significant cost reduction to head office. The argument proffered time and time again is that a mid- to senior-level expat executive represents many multiples of the salary cost of local expertise.
The typical scenario seems to be that the executing officer (sic) of the company mournfully identifies his dilemma to the anxious foreign employee: either it's you that has to go or 10 local staff, the respective salary costs - individual and cumulative - being essentially the same.
Notwithstanding the obvious platitudes about the quality of local staff, one decisive feature is often missing from their skill set: the experience of working through a crisis.
While most of the global economy rattles around in cages whose bars are only marginally widened by their national stimulus packages, China continues to post enviable growth figures.
And therein lies the rub: across the domestic economy as a whole, China has seen continuous, gargantuan growth and, as a result, executives are yet to feel the chill of an economic blaze diminished.
Astute market observers point to the possibility of a W-shaped recession.
China's export market has taken a battering over the past year and as the tide in the export market has receded, some of the glow has been washed off its former vigor.
It remains to be seen how the economy will fare once the more dramatic effects of the fiscal stimulus package have been exhausted.
Shanghai is replete with expats who have been there and done that. They have dealt with downturns, downslides, recessions, panics, you name it, and they have pulled through.
And in pulling through they have learned important lessons about keeping a cool head, staying focused and surviving.
It is quite right to say that the golden days of full expat packages are gone, but they were never going to last forever anyway; the economic horrors of the past year have merely hastened the inevitable.
Nonetheless, the knee-jerk response by foreign head offices does suggest the image of a baby flying through the air trailed by a slip-stream of bathwater.
In the aftermath of the dot.com bubble, layoffs were rampant and wholesale. Then the economy did what it was supposed to do: it improved.
The companies that had taken a scythe to its best and brightest then saw a market upturn but struggled to exploit this because their best men and women were working elsewhere.
There has been a similar panic reaction at play over the past year as foreign companies have thrown themselves into an orgy of cost-cutting which, more often than not, has failed to recognize the mid- to long-term effects of dispensing with key personnel.
In many respects, the China market is still developing and, as a result, Chinese corporate culture still has a long way to go before it reaches maturity.
The presence of experienced hands on the corporate deck serve to ensure that the ship sailed in the right direction.
Unfortunately, when the seas got a little rough, the vessel's owners decided to invite the captain and navigator to take a long walk off a short plank.
(The author is counsel of AllBright Law Offices in Shanghai. The views are his own. His e-mail: sbmaguire@allbrightlaw.com.)
The statement argues that a "healthy society requires healthy and responsible companies" working to achieve long-term goals.
Instead, "boards, managers, share holders with varying agenda have allowed short-term considerations to overwhelm desirable long-term growth and sustainable profit objectives."
These are sentiments that would find particular resonance within the expat community in Shanghai today.
Barely a week passes without it reaching my ears that an acquaintance has been dropped by their home companies in favor of a local hire. And the reason? Well, it's the economy, stupid.
Local hires represent, in most cases, a significant cost reduction to head office. The argument proffered time and time again is that a mid- to senior-level expat executive represents many multiples of the salary cost of local expertise.
The typical scenario seems to be that the executing officer (sic) of the company mournfully identifies his dilemma to the anxious foreign employee: either it's you that has to go or 10 local staff, the respective salary costs - individual and cumulative - being essentially the same.
Notwithstanding the obvious platitudes about the quality of local staff, one decisive feature is often missing from their skill set: the experience of working through a crisis.
While most of the global economy rattles around in cages whose bars are only marginally widened by their national stimulus packages, China continues to post enviable growth figures.
And therein lies the rub: across the domestic economy as a whole, China has seen continuous, gargantuan growth and, as a result, executives are yet to feel the chill of an economic blaze diminished.
Astute market observers point to the possibility of a W-shaped recession.
China's export market has taken a battering over the past year and as the tide in the export market has receded, some of the glow has been washed off its former vigor.
It remains to be seen how the economy will fare once the more dramatic effects of the fiscal stimulus package have been exhausted.
Shanghai is replete with expats who have been there and done that. They have dealt with downturns, downslides, recessions, panics, you name it, and they have pulled through.
And in pulling through they have learned important lessons about keeping a cool head, staying focused and surviving.
It is quite right to say that the golden days of full expat packages are gone, but they were never going to last forever anyway; the economic horrors of the past year have merely hastened the inevitable.
Nonetheless, the knee-jerk response by foreign head offices does suggest the image of a baby flying through the air trailed by a slip-stream of bathwater.
In the aftermath of the dot.com bubble, layoffs were rampant and wholesale. Then the economy did what it was supposed to do: it improved.
The companies that had taken a scythe to its best and brightest then saw a market upturn but struggled to exploit this because their best men and women were working elsewhere.
There has been a similar panic reaction at play over the past year as foreign companies have thrown themselves into an orgy of cost-cutting which, more often than not, has failed to recognize the mid- to long-term effects of dispensing with key personnel.
In many respects, the China market is still developing and, as a result, Chinese corporate culture still has a long way to go before it reaches maturity.
The presence of experienced hands on the corporate deck serve to ensure that the ship sailed in the right direction.
Unfortunately, when the seas got a little rough, the vessel's owners decided to invite the captain and navigator to take a long walk off a short plank.
(The author is counsel of AllBright Law Offices in Shanghai. The views are his own. His e-mail: sbmaguire@allbrightlaw.com.)
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