With many parts of the world still grasping for growth, and global unemployment rates at historic highs, major companies ought to have their pick of talent. So why are so many struggling to fill roles, particularly in emerging economies?
Even within the luxury sector, LVMH stands out as one of the most gold-plated companies going. Its brands, from the eponymous Louis Vuitton to Hennessy cognac and De Beers diamonds, epitomize ambition and affluence. In markets such as China and India, the company has admirable expansion plans as a growing middle class seeks its own little slice of luxury.
It may surprise some, then, to learn that while consumers in developing economies may be flocking to buy its products, the French multinational has considerable difficulty filling job vacancies in those markets. As LVMH’s General Manager for the Indian sub-continent, Manishi Sanwal, told India’s Economic Times: “The Indian luxury industry is still in its sunrise days.” Hiring, he says, is a problem. Too few candidates understand the industry, or have retail experience. When LVMH has hired successfully in India, it has recruited from the auto industry. When that fails, it focuses on younger recruits. “We train them and empower them to grow with the organization,” says Sanwal.
The company’s woes are not unique – either to its sector or the region. As businesses chase ambitious growth targets and introduce more complex operational requirements, the need for multi-skilled, highly motivated staff is huge. Manpower’s influential annual survey of employers found that, in 2010, 31% had been unable to fill key vacancies. With global unemployment around 6.5% and multinationals learning to do more with fewer staff, this shouldn’t pose a problem. Yet getting the right people in the right place at the right price is a headache.
If there is a “war for talent”, it could be said that talent has won. The factors behind this are numerous, but one of the most important is the growth rates large companies are experiencing in emerging economies. Food multinational Sodexo saw modest growth in its largest market, the US, in Q1 2011, but sales in emerging economies, principally Brazil and Chile, leaped 11%.Tesco has reportedly targeted Vietnam, Indonesia and the Philippines for expansion. Swatch announced last year that 28% of its sales now come from China.
An endless list of consumer companies have similar stories to tell. Their growth necessitates new armies of skilled employees, ideally located in expanding regions. These include general managers, financial executives and salespeople, as well as technical specialists in logistics and business intelligence. Education systems cannot keep pace: in India, despite hefty investment, there are far fewer business schools than in developed economies, and quality is an issue.
Wage disparities mean established Western-based executives are reluctant to relocate to emerging economies, except for inter-company transfers. Recruitment consultancy Korn/Ferry says the average CFO salary in India is US$73,000, and other emerging economies are no more generous, with China a notable exception. Any major rise in operating costs due to wage inflation could price multinationals out of local retail markets, and destroy the cost advantage in manufacturing there.
Jim Hinds, UK Country Manager for executive search firm Russell Reynolds Associates, says: “The demand for international candidates is as strong as it has ever been. There are many talented candidates in consumer products, but the pool of high quality retail executives is shallow. Where international experience has been gained is increasingly relevant, as the issues leaders face in mature markets are very different to those gained in emerging markets.”
China’s demographics are a particularly potent factor in its fast-shifting talent requirements, says Ellen Jin, Partner for Consumer Markets, KPMG in China: “China is now producing more than six million university graduates a year and people’s aspirations are high. There is a tightening labor supply in many areas as China is moving from a manufacturing economy to one based on services and innovation. It all makes for a competitive and pressured environment.” China’s relatively high salaries are a reflection of the lack of local management experience, says Jin, although she adds: “There are many people now coming through the ranks with five to ten years of working experience who are able to take more leadership roles.”
Ajay Bansal, Russell Reynolds Associates’ Executive Director in New Delhi, says companies operating in India have to invest in developing and retaining talent: “FMCG companies have traditionally been talent providers to the Indian consumer sector. Many consumer leaders in India have Unilever or P&G stints on their CVs.” But, says Bansal, major consumer companies face competition for executives from other sectors, notably telecoms.
Staff churn rates show why consumer companies are nervous about their ability to compete. HR consultancy AON Hewitt believes the 2010 staff turnover for foreign-owned companies in China was 15%. Multinationals’ wage inflation in the country was put at 7.2% in the same year. In the Indian outsourcing industry, anecdotal evidence suggests companies have to handle as much as 50% churn. The Center for Work-Life Policy has forecast that by 2012, companies in India may have five million fewer skilled employees than they need.
“Staff turnover is a big concern,” says E.Balaji, CEO of Indian operations for recruitment company Randstad. “It is 15%-20% or greater across all seniority levels, and that is a conservative estimate. Wage inflation is also a problem and the traditional companies, which have been operating here pre-[economic] independence, are the ones hit hardest.”
Emerging economies may be the pinch points for these issues, but they are not alone. Several countries, notably the UK, US and Australia, have tightened visa requirements for skilled workers, leading to complaints from multinationals unable to bring senior staff to the West. Japan, says Manpower, has the biggest skills deficit on earth.
Faced with these issues, businesses are beginning to react. Employee engagement (see box above) has risen up the agenda in many boardrooms. Recruitment strategies have moved beyond graduate fairs to include sponsoring studies, or forming lasting partnerships with universities. Henkel has organized “development round tables” to identify high-potential employees and ensure they are given extra support and encouragement.
“There is a strong trend for learning and development, sponsoring people to go on MBA programs and develop themselves and their career,” says Balaji. “Consumer companies are competing with other high-profile technology companies, investment banking and outsourcing for talent.”
Others are ensuring they have control of the entire talent value chain. Agri¬business Cargill has found recruitment a problem as it expands into new markets. Its solution? Hire 36 managers in China, train them in the US and send them back to their home country to lead Cargill’s operations there. Another major global retailer has asked new executive hires to commit to relocating wherever the company considers appropriate.
Governments understand these issues. China plans to create an “Ivy League” of leading universities. Indian policy-makers are investigating how to nurture creativity. Whether they will move fast enough to please anxious businesses is truly a billion-dollar question.
The concept of valuing staff and creating a pleasant work environment has come a long way since the 1940s, when a worker at Ford’s Michigan plant was sacked for being “caught in the act of smiling” and “laughing with the other fellows”. Today, Google is among a number of leading multinationals which allow staff to bring pets to work, while others have experimented with the ROWE (Results-Only Work Environment) system, which dispenses with traditional corporate structures to give employees autonomy over where, when and how they work.“
“Employee engagement” – ensuring staff are listened to and feel empowered to question business orthodoxy – has become a priority for companies desperate to reduce employee churn and attract the pick of job-seekers. Research by the UK government found that in businesses categorized as having low levels of engagement, staff turnover was 51% higher, with productivity, innovation and inventory shrinkage also suffering.
Separate studies of FTSE 100 companies found that 70% now conduct regular staff surveys. At leading retailer J Sainsbury, employees are encouraged to write to CEO Justin King with concerns or suggestions. King personally replies to each letter: he recently received his 30,000th missive.
Japan Tobacco International conducted a global survey of employee engagement and was able to make a number of correlations between satisfaction and business performance: in particular, it attributes its market leadership in Russia to the high levels of engagement among its 8,500 staff there. Caring, it seems, might just pay off.