This potent mix can make building and managing a talent base in emerging markets a challenge. But with global businesses earning an ever-growing portion of the revenue from these emerging markets, addressing this challenge is more important than ever.
The largest global brands have a long history of operating in multiple countries. But as a recent survey by Ernst & Young (Growing pains: Companies in rapid growth markets face talent challenges as they expand) found, wide economic and talent imbalances have amplified their usual talent management issues.
The survey found that only one in five executives believe that their company manages talent effectively across all the markets in which they operate, while fewer than a quarter think their company is good at retaining key global talent.
Among the obstacles to building effective international management teams the survey identified were issues around cultural differences, difficulties in balancing local and global talent, retention problems and the lack of a leadership pipeline.
They also find it hard to provide appropriate incentives in different markets, with only 20% of respondents saying that their companies do an effective job of evaluating and rewarding high performance across different markets.
Add to this, the issue of how to structure international compensation packages across geographic locations which can include complicating local governance factors. As executive compensation has become a media hot button for listed companies, the spotlight has attracted regulatory as well as political interference, a potent mix for any board to manage.
Another theme that emerged from the Ernst & Young report is that cultural intelligence (CQ) is not yet a widely accepted concept. In fact, fewer than three out of 10 (28%) of those surveyed felt that their top management team has sufficient experience outside of their home country or a sufficiently international outlook on decision-making.
While recruiting locally would help to redress this balance, in many emerging markets the supply of talent lags behind demand. This situation is exacerbated by rapid salary inflation as companies vie with their competitors for suitable candidates. This is especially true the higher up you go - seasoned executives ready to take on critical roles are in short supply in many territories.
Competition for talent is most pronounced in the countries where business potential is highest. Thus executives in India and China often draw larger compensation packages than their peers in other emerging markets. And while an expat may cost the company more, when all the components of their package are factored in, the expat's salary may actually be lower than that paid to a local executive.
Thus in emerging economies the candidate holds the upper hand - and they know it. So not only are firms having difficulty meeting salary expectations, but they also face significant expectations in terms of rapid career advancement.
All of this makes developing any sort of talent pipeline a particular problem, forcing companies to recruit from rivals and so reinforcing the vicious circle of high turnover and salary inflation. And complicating matters, it is important to remember that identifying and pursuing resident talent in emerging markets is far from a simple task.
One answer is the development and training of internal talent, be it through formal programmes or development plans for high-potential employees, or through on-the-job learning. Some companies including Google, Siemens, L'Oreal, Schneider Electric and Lafarge, have designed internal leadership development programmes which often include an overseas assignment to cultivate promising leaders in emerging markets.
Certain countries have even initiated programmes at government level, sponsoring initiatives to develop local talent by sending top students to study business and management in the UK and elsewhere.
For global corporations, the goal is generally to ready native-language-speakers for a P&L role or a country head position within a few years. This tends to boost retention of valuable individuals and enhance the company's brand among future potential hires by demonstrating a commitment to developing regional leaders.
But it is vital, too, that companies acknowledge the challenges of operating across multiple geographies, cultures and economic climates. In emerging markets, leaders sometimes express a concern that the team at company HQ doesn't understand the issues they face.
Company-wide decisions such as blanket cost-cuts or a global hiring freeze may seem sensible in markets suffering from economic malaise, but they are inexplicable from the perspective of a market that is growing by 8% a year.
The canny global business realises that while strategic decision-making can take place centrally, workforce planning needs to be decentralised if it is to meet the challenges of local markets. Meanwhile, balancing the sensitivities of senior executives across geographies also demands a consistent global human resources platform that includes policies designed to address these sorts of issues.
In the end, multinationals must approach the talent markets of emerging economies by carefully conducting due diligence, remaining alert to shifting political sands and being flexible and proactive. While the challenges are real, so too are the potential rewards.
Deirdre Kenny (pictured) is managing partner, London, CT Partners
