Chinese business has been integrating into the global economy at an extraordinary pace. Since the early 1990s, China has been the world’s largest recipient of foreign direct investment among developing countries. More than 90% of Fortune 500 companies have invested in China. At the same time, indigenous Chinese companies with a desire to grow have begun aggressively ’going global’ and have invested heavily abroad. China became the world’s fifth largest outbound investor in 2010.

This large scope of globalisation has created unprecedented HR challenges in China, chiefly the acute scarcity of Chinese leadership talent. Many factors education, language, communication style, social demographics have contributed to the current leadership skills gap. With less than two decades of globalisation experience, Chinese managers have had limited opportunities to develop the skills needed to run business at a global scale. Although the pool of local talent is growing and locals are learning fast, the demand is expanding faster as companies around the world enter into this booming market.

China is, in general, not short of skilled labour. In recent years, in fact, China produced more college graduates than the economy could absorb. What China really lacks is high-quality leadership talent. There is a talent surplus at low organisational levels, but a significant deficit at the upper organisational levels. Two situations illustrate the leadership skill shortage in China: (a) the glass-ceiling and (b) the high failure rate of Chinese investments overseas.

Leadership developmental efforts in China need to focus directly on helping managers make a successful transition from middle to top management

The glass-ceiling
Multinational companies typically fill their top executive positions in China with expatriates from headquarter offices overseas, leaving few opportunities to local managers. This creates a so-called ’glass-ceiling’ for Chinese managers. Ironically, multinationals opportunity to hold executive positions, but they frequently report experiencing difficulty finding suitable candidates. Consequently, these companies often end up selecting expats to fill these top positions. The exception occurs in sales and marketing functions because of the substantial local and cultural knowledge required to perform successfully in those roles.

Overseas failures
More Chinese companies are seeking to expand overseas to bolster their technological know-how, as well as to escape the fierce domestic competition gnawing at profit margins. Unfortunately, the lack of international management experience hampers this global ambition. Research has revealed that among Chinese overseas investment companies, 30% experience losses, 40% break even and only 30% make a profit.
Results from our leadership competency normative study at Korn/Ferry International reinforced the notion of a leadership skills gap in China. We collected competency rating data from managers and executives around the globe and compared 224 from China with a global sample of more than 5,000. All the Chinese managers and executives worked for multinational companies.

When respondents ranked competencies in terms of their importance to leadership effectiveness, the results were very similar between the Chinese and the global sample. So individuals in China perceive the important leadership characteristics for effective leadership in about the same way as those from other regions.

We then looked at the 20 most important competencies specifically for executive positions and examined the respondents’ perceived skill level on these competencies. Here, we found a significant difference: Chinese executives in our sample scored lower than the executives in the global sample on skill ratings. On a five-point scale, the average rating for the Chinese executives was 3.61, compared to an average rating of 3.74 for the global executive sample. Only about 30% of Chinese executives scored above the global average. In other words, less than one third of Chinese executives achieved the global average level of skill on competencies rated important for the executive role.

Among those top 20 competencies important for executives, five become much more important as one climbs the organisational ladder: ’Strategic agility’, ’Business acumen’, ’Managing vision and purpose’, ’Command skills’ and ’Comfort around higher management’. Moving up from the supervisory to the middle management level, managers gained skill on these five competencies in both the Chinese and the global sample. This improvement continued from middle to top management level for the global sample. However, the improvement stopped at the middle management level for the Chinese sample.

Overall, our study revealed that the leadership skill gap widens at the top. A shortage of executive leadership is the major challenge companies in China appear to be facing. Leadership developmental efforts in China need to focus directly on helping managers make a successful transition from middle management to top management. Unless these skills are developed in Chinese managers, multinational corporations will be forced to continue to fill the roles of executive ranks with expat leaders.