Human resources (HR) consultancies predict that within the next two years, about a quarter of the managers working for multinationals in China will be Chinese returnees with experience in developed foreign markets.

This is making management job packages more attractive to local executives than ever before. This localization trend has been driven by an overall expansion of foreign operations and an ongoing shortage of local leadership and managerial talent, according to a report by global HR services firm Hewitt Association.

Heidrick & Struggles, another leading HR company, says that the greatest demand is for Chinese returnees who have worked internationally and can relate their experiences to the needs of the local market. Multinationals and Chinese companies are looking for the same people, which is why they are willing to pay more for proven talent than they would in more mature markets. In some cases titles are also inflated for added prestige.

"It's true, many of my overseas Chinese colleagues who have come back over the past several years were encouraging me to work here for more challenging jobs and promotion opportunities," says Eric Wang, who spent seven years working for companies such as P&G and GE in the United States before returning home to China last year. He is now a regional marketing manager with world automotive coatings giant PPG.

Wang says he makes much less than he did in the United States, but he is satisfied with his current position and standard of living.

Jean Lin, head of Hewitt's Compensation and Benefits Consulting Practice, says multinationals investing in China will continue to encounter leadership and management gaps in the local labour pool for at least the next decade. This is increasingly encouraging companies to keep costs down by reaching out to Chinese returnees.

Foreign companies have traditionally preferred to hire Western, Hong Kong, and Taiwanese executives for their mainland operations. Yet throughout the 1990s, Chinese mainlanders were up to 60 per cent cheaper than Western executives in foreign-funded firms.

"It also soon became clear that even experienced foreign executives couldn't overcome the different cultural environment and their poor knowledge of the local market," says Lin.

Chinese returnees know both the local and international markets, however. Steve Mullinjer, managing partner with Heidrick & Struggles China, says Chinese returnee executives need to "translate a global corporate agenda into an effective China strategy" if they hope to succeed.

They are in a position to educate and reshape the frequently inaccurate assumptions that many Western executives may have of China, and create a frame of reference through which Chinese Government officials can better understand the concerns of multinationals.

"The ability to effectively align different expectations in a commercially viable way is one of the most elusive leadership skills in the China market today," says Mullinjer.

Chinese natives simply possess greater local emotional intelligence (EQ), a behavioural quality that helps them to articulate, understand, and use informal networks to establish credibility with a diverse international peer group. This is useful for solving problems and gaining commitments on a range of business issues.

"This is a critical skill set for companies that have evolved into complex multi-entity businesses in China and have shifted to matrix management structures," says Mullinjer.

Salaries for Chinese executive continue to rise, with Hewitt's research showing returnees in director positions earning the highest average increases at 5.7 per cent year-on-year. Premiums such as recreational allowances, however, have dropped, constituting only 9.9 per cent of the total cash payout in 2005, compared to 11.5 per cent in 2004.

"First-tier cities such as Shanghai and Beijing are no longer considered hardship postings," comments Lin.

Base pay and bonus increases, however, are narrowing the income gap between Chinese returnees and other expatriates. But money is not the most important thing, because there will always be companies willing to pay more, says Thomas Wetherell, managing director for Henkel China Detergents & Cosmetics.

"The trick to retaining top talent is to create a family feeling and provide creative challenges and ongoing education," says Wetherell. Wang agrees, saying he wants to feel he is part of something important. "I want to be taken seriously and given a voice in company, even if it is very small. I feel confident I am moving forward," he says.

Mullinjer says compensation fluctuates in accordance with market supply and demand.

"Experienced Chinese returnees are hot, so companies have to pay more. When these local executives start to age, the trend might reverse," says the veteran consultant.

Local executive talent will eventually take the lead, however, providing that the Chinese market continues to integrate with the global economy.

(China Daily 03/13/2006 page4)