A Blog by Jonathan Low


Oct 12, 2016

Why US Tech Firms Are Losing the Fight For Chinese Talent

Culture, opportunity, pride - and a sense that China will make it difficult for foreign companies to succeed there. JL

Li Yuan reports in the Wall Street Journal:

Foreign companies are drawing from a smaller pool because of the need for English skills. And even among that group, many feel a Chinese company will put them closer to the decision making. Foreign companies complicated reporting lines and unfamiliar culture inhibit that. Prospects avoid them because of the sense foreign companies can’t succeed—and the dearth of top talent makes it harder. China is always the second-most-important market for multinational companies.
On the China front in the technology industry’s talent wars, foreign internet companies are losing.
Once upon a time, working for a big-name U.S. internet company held an allure for some in China. But these days, even prominent names are struggling to attract top talent.
Airbnb, among the highest-valued startups in the world, said over a year ago that it had brought on new investors in China in part to help it recruit a chief executive for its local operations. But the room-sharing company is still searching, according to people familiar with the situation.
Similarly Uber Technologies searched fruitlessly for over two years to find someone to head its China operation. Two months ago, the ride-hailing company effectively threw in the towel in China, agreeing to sell its operations there to Chinese rival Didi Chuxing Technologies, gaining a 20% stake in Didi in a deal that will value Didi at roughly $36 billion.
The difficulty in luring strong leaders is both a symptom and a cause of the broader trouble foreign internet companies have in China. Prospective executives avoid them because of the sense that foreign companies can’t succeed there—and the dearth of top talent makes it harder to successfully navigate China’s complicated market.
“The odds that a multinational internet company succeeds in China are close to zero,” says Kai-Fu Lee, chairman of Sinovation Ventures, who led Google’s China business from 2005 to 2009. “Why would a talented person with a successful track record take the risk of accepting a job that has zero chance of winning? It’s not worth it.”
Google’s example is one that discourages potential recruits to other companies today: It ceased most operations in mainland China in 2010 after cyberattacks against Gmail users and disagreements with the government over censorship. Other companies including Yahoo, eBay and Amazon.com AMZN -1.27 % all have tried to tap into China’s huge and fast-growing online population—the world’s largest, at 710 million—but struggled to adapt to the country’s distinct consumer culture, competitive landscape and vexing regulatory environment.
“I often encourage top candidates that perhaps they could be the first to truly carve out success and leave a legacy,” says Bill King, who was until a few months ago a partner at executive-search firm Egon Zehnder’s Shanghai office and led the firm’s technology practice in China. “There are strong leaders, but many ultimately walk away,” he adds.
There are exceptions. LinkedIn has operated successfully in China since setting up its operation there in 2014. Observers credit that partly to LinkedIn hiring as its China head a former Google China executive named Derek Shen, who has said he sought, and was given, more autonomy than most multinationals grant.
Hopes were high when Uber entered China in 2014. The ride-hailing market was new and up for grabs, and Uber founder Travis Kalanick displayed a drive and determination to succeed in China that some industry observers thought could give the company an edge.
Mr. Kalanick spent over one-fifth of his time in 2015 in China, touting it as the most important market in the world, and pouring over $1 billion into the country to compete with Didi. Yet, despite all that, Uber China wasn’t able to land a CEO prior to the Didi transaction.
Airbnb says China is the company’s fastest-growing market for outbound travelers, with over 3.5 million arrivals from China at Airbnb listings world-wide since 2008. That’s a tiny fraction of the total opportunity, though; government data show Chinese made over 120 million trips abroad in 2015.
Airbnb needs to compete against online travel company Ctrip.com International, which processes 70% of China’s online travel transactions, and against copycats such as Tujia.com, which has a business model that’s more tailored to Chinese consumers.
Those challenges make strong leadership all the more imperative. According to people familiar with the matter, Uber and Airbnb called around for recommendations and approached candidates. Most weren’t interested. A few who were didn’t meet the companies’ requirements, especially for English skills, the people familiar with the matter say.
Airbnb says it doesn’t comment about personnel matters. An Uber spokesman declined to comment.
Foreign companies are drawing from a smaller pool because of the need for English-language skills. And even among that group, many feel that working for a Chinese company will put them closer to the center of decision making. “Top [Chinese] talent far prefer driving or building their own business than being part of global hierarchy,” says Mr. King, the former executive recruiter. “They want to make decisions rather than seek approval.”
One candidate both Uber and Airbnb approached is Shen Haoyu, according to people familiar with the situation. He worked for American Express for six years before joining Baidu as chief operating officer in 2007 and later jumping to JD.com, where he led its core JD Mall business until August.
Mr. Shen declined to discuss whether Uber and Airbnb approached him. But he says he enjoyed working at the Chinese companies in part because of their streamlined decision-making. “I can just walk across the hall and have a quick conversation with the founder and execute the decision in five minutes,” Mr. Shen wrote in response to questions. While foreign internet companies want to grant local teams autonomy, he wrote, their complicated reporting lines and communications and unfamiliar culture inhibit that, he said.
“At the end of the day,” he said, “China is always the second-most-important market” for multinational companies.


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