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back to index backGLOBALtalk May,  2007


Year of the Carrot: Incentives in China

Before the end of the year, Allay Li will implement a 360-degree recognition program at the Shanghai office of Eaton, a Cleveland–based automotive parts manufacturer. The program will allow peers, subordinates and managers all to award each other points for things like excellent customer service and innovation. The Chinese version of E-Star is structured like its North American counterpart, but recognition criteria and rewards will be tailored for the Shanghai unit.

While such a program might sound comfortably familiar to an American manager, Li has some apprehension about E-Star. "In the beginning, I think a lot of Chinese employees will not find it suitable," he says. "We do ninety percent of recognition here the traditional way, and that means giving money. I don't know if they will see value in points."

Call it what you want—talent management, employee engagement, workforce motivation—as companies of all types try to ride the China boom to the top, the ability to make employees happier and harder working is proving an essential, if elusive, ingredient to success. And Li is part of a growing number of managers turning to incentives as a component of their strategy.

"China is a big and pleasant surprise," says Lex Granaada, president of the Society of Incentive & Travel Executives (SITE) and of Granaada & Partner, a Dutch incentive house. "There is a lot of interest in incentives from Chinese companies and also on the part of global corporations that have operations in China and are already familiar with the incentive market. It's rather recent, and it's exploding because it's been brewing there for several years."

Did You Hear That Boom

No country's business environment is changing faster than China's. It has experienced double-digit GDP growth for each of the last 10 years, and it is now the world's fourth-largest economy. A completely closed Communist state until 1979, it has gradually opened up to foreign investment, and foreign investment has gradually turned toward it—first as a source of cheap labor, and increasingly now as a viable market in its own right. The World Bank projects the country will receive $100 billion in annual foreign capital for the next four years.

"China is booming in every respect, and doing in three years what other economies have done in thirty years," Granaada says.

International business there no longer consists merely of big multinationals and cheap outsourcing. The American Chamber of Commerce (AmCham) China's annual reports show that, after an initial influx of Fortune 500s in the 1980s and 1990s, smaller U.S. companies have begun to set up shop. Forty-seven percent of respondents to their last major member survey had 50 or fewer employees in China.

How Do You Say "Turnover" in Mandarin?

A recent study by Development Dimensions International (DDI), asked business leaders in China to rank the most crucial leadership skills. Tied for first were motivating others and building an environment of trust, with 80 percent of respondents including these factors in their top 10. Rounding out the top four were retaining talent and leading high-performance teams.

The problem is a lack of qualified talent. "There's a whole generation that's pretty much not in the workforce in a meaningful way," says Laurie Underwood, author of China CEO: Voices of Experience from 20 International Business Leaders (Wiley, 2006). Chinese citizens weren't allowed to study abroad until the late 1980s. And between 1995 and 2005, China graduated just 20,000 MBAs, out of a workforce of nearly 800 million by some counts. "Multinationals are under a lot of pressure to grow in China quickly and there's an inadequate supply of professionals," Underwood says.

That dearth of talent, combined with unprecedented economic growth, has created fierce competition for workers. In a brief on talent issues facing multinationals in China, Brenda Wilson, senior director of human capital advisory services for Greater China at Mercer, the New York–based HR firm, notes that as companies increase and refine their China operations, and as new industries such as biotech and engineering consulting enter the market, leaders are scrambling to attract a small pool of professionals with the skills to operate in the global economy. These skills include "language capability, innovation and problem solving, risk-taking, strategic and systemic thinking, and dealing with conflict," Wilson says.

"The fight for market share [in China] is turning more and more into a fight for the available talent in the market," says Gabi Kool, managing director of Carlson Marketing's Shanghai office.

Ronnie Tan, Shanghai–based vice president of DDI, says talent management is the top concern for executives: "The number-one challenge for leaders in China is, how do they manage their people? There's increasing demand from headquarters to grow aggressively in China, creating a high level of pressure. And there is a constant addition of new competitors. How do you keep your people motivated when they are working in a pressure cooker?"

While Eaton's Li has had success in retention—just one of his 60 employees has left the Shanghai office voluntarily in two years—he, like many China–based managers, knows he has yet to find a silver bullet. "Today, a worker might have a passion for their job," he says. "But in a minute, they might get a call from a headhunter with an attractive offer somewhere else. You can't say what that person will do." Li estimates that he gets about one call per week from headhunters.

"Right after university, it's very common for people to jump around a lot until the five- to seven-year mark," says Jeff Hasenfratz, CEO of Mindsight Asia, an executive coaching firm with offices in Shanghai and Hong Kong, whose clients are U.S. multinationals. Hasenfratz adds that young professionals are rewarded with 15 to 25 percent salary increases for lateral moves into new companies. "There's not a whole lot companies can do to get people to stay."

One thing is for sure: Just as they can't compete for market share based on low prices alone, companies cannot continue to compete for Chinese employees based on pay alone. "It is well known that you will never be the company to give the most money," Tan says. "Companies that use money as a retention strategy will not win this race."

Beyond the Red Bag

The fierceness of the current war for talent has placed an emphasis on salary increases and sign-on bonuses, making it hard for some companies to introduce non-cash incentives. But Eugene Lee, founder of Singapore–based incentive provider SurfGold, which opened its first China office in 2003, says that is changing, as companies understand that incentives can help stem turnover. "There are many components to employee retention," he says. "Compensation is one. But also, having an incentive and motivation program is part and parcel of employee retention."

The concept of incentives isn't brand-new to China, but historically there has been an emphasis on cash; in the Communist era, bonuses were the only source of personal income. It is traditional to give workers money on the occasion of personal milestones—marriage, childbirth or the death of a close family member. The cash typically comes in a little red paper bag, the same way people give each other money at Chinese New Year.

When Lee started SurfGold seven years ago, he didn't think China was ready for incentive or loyalty programs. Four years later, he says, "We saw the market was mature enough, as many more multinationals set up operations here." Since then, SurfGold has grown at the rate of about 50 percent per year.

Eaton's Li has some experience with non-cash recognition, and understands the principles behind it. He encourages managers to give verbal or written praise along with the little red bags of cash. And he already uses an individual travel incentive, giving three top employees each year travel vouchers worth 5,000 RMB (about $630). In addition, Eaton gives years-of-service awards—crystal for the fifth anniversary, for example.

The fact that E-Star will enable more people to get involved in the recognition process is a plus, Li says. "We're very team-oriented here, and that's built into the recognition," he says.

Li says communication will be key to successful implementation of E-Star in the Shanghai office. "We need to advocate what recognition means. It's not for the money; it's to increase your personal feelings toward the company. There will be a lot of training and communication with the employees."

I Want My MBA

Multinationals in China employ a mix of leaders—Western managers who need to learn more about how best to work with Chinese employees and Chinese managers who still have learning to do about Western business practices. Both groups are exploring together what, besides better titles and more pay, motivates Chinese workers.

According to experts interviewed for this article, professional development opportunities are emerging as the most coveted reward or benefit in China. Bragging rights go to the professionals whose companies invest the most in their growth.

"Workers tend to be very proud about the type of exposure they are getting," DDI's Tan says. He gives examples: "Exposure to another city, opportunities to travel outside of China, moving to the corporate office to take up a global assignment—all these things show that their talent is being appreciated."

Indeed, Mercer's China Corporate Benchmark Monitor 2005 study found that higher training spend correlated with lower turnover. And another Mercer study released in September ranked career development opportunities as the second most important recruitment and retention tool, after good salary and benefits.

One Shanghai–based manager who knows the motivational value of training opportunities is Volkmar Reubel, general manager of the Hilton Shanghai.

The hallmark of his hotel's learning strategy leverages Hilton's U.S. connections. Each year since 1999, Reubel has sent two department heads to study abroad, most often at Cornell University's School of Hotel Administration. The winners are chosen based on their potential and spend six weeks taking courses, with transportation and housing covered by the Hilton.

The hotel offers countless other educational opportunities, including an extensive English program and classes ranging from wine appreciation to finance. Next year, the management is considering bonuses for Chinese workers who attain new levels of English proficiency. The hotel also has a spot recognition program. "We see our focus on development has real tangible and positive results to the business," Reubel says, adding that no one who completed the Cornell program has left the company, although they are not contractually bound to stay.

Carlson Marketing's Kool also observed the strong desire for Western business education while working with the company's first local client, China Southern Airlines, earlier this year. China Southern took senior and middle management to Europe to learn best practices from other airlines. "It was a great eye-opening experience, and they were very interested in learning best practices from these companies," Kool says. He adds that development will play a role in Carlson Marketing's own staffing and motivation strategy. "When the staff see these things really happening—people relocating, getting training, getting overseas experience—it makes a big impact."

Similar examples abound: When a major software company, and SurfGold client, sought to get its workers thinking creatively and sharing ideas, it offered prizes for those who submitted innovations that were successfully implemented. One of the coveted prizes was a trip to the company's U.S. headquarters.

For companies that can't afford to send an employee to business school or on an extended trip abroad, there are other ways to feed their hunger for learning. The desire for "internationalization," is so strong that less costly education awards are greatly appreciated. "It's getting more common for companies to offer English lessons at the office," Underwood says. She adds that more entertaining classes, such as how to prepare for travel in Europe, or how to order and eat at a Western restaurant, will also pique workers' interest.

Incentive Travel, Made in China

Training in China often involves contact with other cultures, Western culture in particular. So far, though, Laurie Underwood doesn't think that travel for its own sake is hugely popular. "Vacation is still quite a new idea here," she says. "It feels like blowing all your money on a week, especially for the older generation in the workforce."

But she adds that travel is gaining in popularity with young people. According to the Pacific Asia Travel Association, travel from China to other Asia-Pacific countries has increased by about 20 percent each year since 2001. After having their movement restricted for decades, says Jon Hutchison, head of the Sydney Convention and Visitors Bureau, the Chinese have a huge pent-up desire to see the world. In Sydney, that desire is helping to ease the impact of slow business out of other countries.

"We're not seeing as many American incentives as we'd like," Hutchison says. "But we're really excited about the potential of doing a lot of business with China."

Chinese consumers, and therefore Chinese employees, are hearing more messages about travel as destinations open marketing offices in China. Australia is the pioneer here: Tourism Australia has offices in Shanghai and Beijing; Melbourne opened offices this summer not in mainland China, but in Hong Kong and Singapore; Sydney also has a Hong Kong office.

For now, the Chinese government doesn't make it easy to open a tourism marketing office within its borders. Only nations with approved destination status can do so, with few exceptions. One such exception is the Nevada Tourism Commission, whose Beijing office is the only U.S. destination marketing operation in China. In early September, the Monaco Government Tourist and Convention Authority announced the opening of its office in Shanghai.

Sizing up China's outbound incentive travel market, Michel Bouquier, president of the Monaco tourist authority, says: "We have defined two major approaches for installing the Monaco brand in the Chinese market: to capture upmarket leisure tourism, and to introduce our destination as an essential in the Chinese incentives market, which has been in constant development for two years."

When it comes to presenting both travel and merchandise awards to a Chinese audience, simply duplicating methods used elsewhere is not advisable.

The Chinese desire learning experiences when they travel, says Sandra Chipchase, CEO of the Melbourne Convention and Visitors Bureau. Guided tours of cultural and historical landmarks should always be on the itinerary. And as a group they may be more receptive than Americans to job-related training while on the road. Hutchison adds: "If they can meet a state dignitary, say a governor or mayor, that's really appreciated. Not something you'd set up with an American group, but the Chinese appreciate it." But in other ways their interests more closely mirror those of stateside employees'—beaches, adventure and volunteer projects are popular activities.

Motivation in Translation

When it comes to merchandise, hot categories include American DVDs, electronics and such personal items as picture frames and high-end desktop items. Foreign-made products and brand names—Swarovski, Mont Blanc, Rolex—are also highly valued.

Whether using travel or merchandise as a reward, companies should present awards differently than they do in America.

"It's not common practice to be very vocal with programs, because as a culture we don't like to be singled out," Lee says. "We wouldn't hang a big balloon in a secretary's office for doing a good job. Recognition should not be as loud as you're used to in the United States—it's more subdued."

While it's clear that Chinese business leaders have a lot to learn about incentives, and the Western incentive industry has a lot to learn about how to serve this market, one thing is for sure: When incentives truly catch on in China—when everyone from small foreign enterprises to big local companies, in industries from manufacturing to insurance sales, decides to adopt formal rewards programs—it will significantly alter the global incentive community.

"China can move very fast, and is skipping steps all the time," says Max Brown, managing director of training for Salt Lake Citybased O.C. Tanner. "Look what happened with telecommunications. [The Chinese] started with no phones at all, and went straight to cell phones almost overnight. In my line of work, you might think you could take a product from ten years ago and apply it over there, but that doesn't work. They know they can get all the information. The Chinese are very smart, and when they get hold of a good idea they adopt it quickly."

"History repeats itself," Granaada says. "Financials, pharmaceuticals—the same industries that pull the wagon in Europe are doing so in China."
 
Source:    Sales & Marketing Management - GAI


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HR Challenges During M&A Transactions in Asia Pacific
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Year of the Carrot: Incentives in China
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