Infrastructure Sector - Heidrick & Struggles/media/Publications and Reports/The_Ch… · executive can be high in terms of salary, and relocation costs, and, more importantly, in

Heidrick & Struggles CEO Roundtable:Infrastructure Sector

The Challenge of Expatriate Talent in Emerging Markets

2090202 - The Challenge of Expatriate Talent in Emerging Markets_JAK V3 no tracked changes_v5.indd 1 08/10/2012 05:08

2 The Challenge of Expatriate Talent in Emerging Markets

Heidrick & Struggles CEO Roundtable: Infrastructure Sector

Over the next 25 years, the world is expected to invest as much as US$40 trillion in infrastructure including roads, railways, airports, water treatment and electric power. In this environment of global growth in the sector, the engineering, infrastructure, and construction companies that serve it – both multinationals operating globally and the domestic companies that compete with them – will find themselves facing significant challenges, especially in emerging markets.

To explore those challenges, Heidrick & Struggles convened two CEO roundtables in India, one in New Delhi and one in Mumbai. The purpose of the two events was to bring together some 40 leading company CEOs and top executives, both Indian and foreign, to gain an insight into two principal emerging market challenges;

• How do foreign businesses successfully expand into emerging markets and joint ventures (JV) with partners?, and

• What are the attractions of emerging markets to high potential talent?

How do foreign businesses successfully expand into emerging markets and joint ventures with partners?As established markets continue to diminish in terms of growth, our clients increasingly look to make the transition from national to international and international to global. There is no lack of opportunity! In India today, the infrastructure sector accounts for nearly 27 percent of the country’s industrial output. Over the next five years, it is expected that the country will require more than US$1 trillion in infrastructure investment. Meanwhile, much of the rest of the developing world will also be investing heavily in infrastructure. Like China, many countries in emerging markets will make such investment the centerpiece of their economic growth strategies.

When we put this question to our panel of CEOs, there were a number of interesting conclusions.

First, be careful which markets you label ‘emerging.’ Ninety percent of the CEOs involved in our discussion perceived their markets as ‘established.’ This, because of recent shifts in the established markets due to recession, means that the more established emerging markets now regard the growth opportunities in their markets as outweighing the risks. This notion also impacts their view of a JV partner. They look to their partner to

be culturally sensitive and open to adapting the way they do business. Foreign businesses that arrive and attempt to impose their systems and processes on a local partner will find the market extremely challenging.

In India, they recognize the need for talent to help take steps towards change in terms of infrastructure development. This need is in both a technical capacity in terms of project management methodologies — albeit Indian engineering is now a world-leading talent pool in this area — and more importantly, in operational excellence and business leadership skills. It is important for local businesses to understand the key differentiators that foreign JV partners bring to a joint venture. Simply engaging a partner from an established market does not guarantee success.

Second, give thought to expectations relating to return on investment. In general, the mindset ‘This is India,’ (a phrase used regularly by some of our Indian CEOs) indicates a belief that growth and profitability are short-term outcomes and therefore not typically measured. Instead, real success in an emerging market requires a medium- to long-term approach. The need to build trust and partnership is essential and takes a substantial amount of time in many regions. In India, a willingness to shoulder risk and act as a true partner is essential to success. Those businesses prepared to invest time in building that trust see the greatest success in building robust, long-lasting partnerships.

Third, go in with your eyes open. Many of our Indian CEOs recognized the difficulty of doing business in their country. Regulation and bureaucracy have as much impact on their businesses as foreign talent. It is essential that there is an understanding of the complexity and challenge associated with a move into an emerging market. These risks can be commercial, logistical and cultural, and all of them can be mitigated through the right leadership and JV partner.

What are the attractions to high potential talent?The war for talent is intense. Let us not forget that while the emerging markets are increasing their demand for talent, some more advanced economies need to refurbish their aging infrastructures. The European Commission estimates that in order to stay competitive, the European Union will need to invest as much as US$2.8 trillion in infrastructure over the next decade. This means that the fierce competition for infrastructure talent around the world will only intensify.


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Further, the skills required of that talent have become increasingly more complex as governments have transferred investment and operational risk from the public to the private sector. While there is often an abundance of technical talent, there is a far more limited pool of leadership and organizational talent required to build a long-term enterprise – to lead projects of staggering complexity, to introduce operational excellence and good governance and, in some instances, to grow a business from $100 million to $1 billion virtually overnight.

So what are the benefits to high-potential candidates of making a move into an emerging market, and what will it take to attract them to a specific locale? When we looked into Heidrick & Struggles’ successful placements in these markets, we came across a number of common themes.

First, not all emerging markets have the same drivers, so positioning them all the same would be a mistake. Talent that is adept at rapid growth and business building may not be as suitable for a role that requires medium- to long-term growth through exceptional stakeholder skills.

Most importantly, there is recognition that in the current global economy, in order for talent to reach the top, they will need to have spent some part of their career in an emerging market. While transferring within an organisation can afford the comfort of a degree of familiarity in relation to systems and procedure, there can still be profound implications around adapting to cultural nuances both personally and professionally.

The assumption that because a business leader has performed well in other markets they will be able to adapt to the highly entrepreneurial, fluid dynamic of an emerging market does not always ring true. Our panel of CEOs, both foreign and Indian, outlined instances where senior-level leaders with a history of overseas experience found it quite hard to integrate, and consequently failed in the Indian market. In each case, the consensus was that the failure was due primarily to a lack of proper attention given to the cultural nuances of the country or the softer side of onboarding. In most cases, their onboarding focused exclusively on business matters, with little or no attention given to the integration of the family unit and building a proper support network around them.

To ensure success, onboarding should include a candid discussion about expectations, and the company should provide a balanced view of their culture in the country, including its reporting structure, style of decision-making, communication and social dynamics. Well before the start date, the new team member should have informal conversations with colleagues-to-be,

connect with a mentor, and receive a map of key players. They should have early exposure to people who best embody the culture of the organization; people who can give advice about how best to communicate and get things done. They should quickly become familiar with not only management team peers and reports, but also with key influencers and decision-makers in and outside the company such as key customers, regulators, government officials, and the like. Onboarding should also include assistance with personal concerns like housing, banking, social clubs and schools.

In our experience providing leadership consulting services in the sector, we have found that it is far less risky to establish formal and consistent induction processes across the organization, and to comprehensively onboard these expatriates, than to leave their success to chance. The costs associated with a floundering or failed expatriate executive can be high in terms of salary, and relocation costs, and, more importantly, in terms of the success of a project or business.

Heidrick & Struggles has created an assessment tool which can help ascertain the risk of failure. It has been built on data mined from information regarding senior level placements across multiple industries and regions, and identifies eight key factors.

Company Geographic Culture Executive Level Scope of the Role Company Type Company Culture Category – Industry Function

If three of these factors are different in the newly-appointed role, the likelihood of the executive leaving within 18-24 months is fifty percent. If the number of differences increases to five factors, then the chance of failure increases to eighty percent. Hidden costs can be high as well; damage to the company’s brand, missed market opportunities, loss of investor or government confidence and the reservations planted in the minds of future candidates for the position. Over the last five years, many Heidrick & Struggles’ clients have been able to bring this number down to fifteen percent by implementing our detailed onboarding program.

Successful induction is however, a two-way street. Not only must the companies take care to acculturate expatriates, the executives themselves must make every effort to do so as well. As the roundtable participants agreed, one of the surest ways for expatriates to derail is by attempting to impose the norms of their previous locale or their own cultural assumptions on the business or country.


4 The Challenge of Expatriate Talent in Emerging Markets

Heidrick & Struggles CEO Roundtable: Infrastructure Sector

Reducing human capital risk and increasing opportunity Getting the human capital equation right in India and other emerging markets offers significant business advantages. As with other kinds of capital, the challenge is to balance risk and opportunity. As one CEO of a multinational remarked, his company would like consistently to minimize the risks associated with moving people across borders and into emerging markets, just as domestic companies in those markets wish to minimize the risks associated with taking on expatriates. The ability to minimize those risks through comprehensive onboarding, acculturation and leadership coaching provide both Indian and non-Indian companies with a significant strategic opportunity: the building of a standalone enterprise designed not just to chase capital flows around the globe, but also to capitalize on the long-term promise of India.

Historically, many non-Indian companies have approached the market and cultural challenges of India by either making a strategic acquisition or entering into a joint venture with a local entity. The foreign company received the benefits of local executives or partners, and the Indian company got access to world-class capabilities or, in the case of acquisitions, was simply absorbed into a global organization. However, study after study of mergers & acquisitions (M&A) puts the failure rate of international M&A at fifty percent or more, usually because of poor integration of the two companies. International joint ventures in emerging markets fail at similarly high rates, often because of such issues as poor communication, lack of local legal knowledge, intellectual property disputes and divergent objectives. Moreover, it is often hard for either party to find the right partner in the first place.

Given those unpromising prospects for success, companies that can attract world-class talent and integrate it thoroughly into their business and culture will enjoy a distinct advantage over their more shortsighted competitors in India and other emerging markets. This success requires only the fortitude to resist the exclusive focus on short-term results, the willingness to devote the same attention to human capital as to other forms of investment, and the talent management skills to make it work. n

CEO Roundtable Participants The Heidrick & Struggles CEO Roundtable events in New Delhi and Mumbai were facilitated by Engineering, Construction & Infrastructure Practice leaders Charles Commander (Atlanta), Stafford Bagot (Singapore), Jamie Page (London), and Ashwin Saboo (New Delhi), as well as alumnus Gareth McIlroy (Singapore). Companies represented at the roundtables included:

• Afcons Infrastructure Ltd• Akzo Nobel Coatings India Pvt Ltd• ALSTOM India & South Asia/Alstom T&D India Ltd• Amplus Infrastructure Developers • CLP Power India Pvt Ltd• Era Landmarks (India) Ltd • Gammon India Ltd• Global Wind Power Ltd • Grocon Pty Ltd• Halcrow India (a CH2M Hill Company)• Hindustan Construction Co Ltd• ICICI Venture Funds Management Company Ltd• IL&FS Maritime Infrastructure Company Ltd (IMICL)• Inorbit Malls (India) Pvt Ltd (subsidiary of K Raheja Corp)• Interarch Building Products Pvt Ltd• IRB Infrastructure Developers Ltd• Isolux Corsan India Engineering & Construction Pvt Ltd• Jaypee Infratech• JINDAL Water Infrastructure Ltd and JINDAL Urban

Infrastructure Ltd• JSW Severfield Structures Ltd (JSSL)• Kalpataru Power Transmissions Ltd• KazStroyService Group/ KazStroy Service Infrastructure

Knight Frank India Pvt Ltd• Lanco Infratech Ltd• Leighton Contractors (India) Pvt Ltd• Macquarie Capital (India) Pvt Ltd• Punj Lloyd Ltd• Reliance Infrastructure Ltd• Saint- Gobain Gyproc India Ltd• Sanzoi Group/Sanzoi Consulting Pvt Ltd• Shapoorji Pallonji Infrastructure Capital Company Ltd• Synefra Engineering & Construction Ltd (fka Suzlon

Infrastructure Ltd)

Heidrick & Struggles is the leadership advisory firm providing senior-level executive search and leadership consulting services. For almost 60 years we have been building deep relationships with the world’s most talented individuals on behalf of the world’s most successful companies. Through the strategic acquisition, development, and retention of talent we help our clients – from the most established market giants to the newest market disruptors – build winning leadership teams.

www.heidrick.com

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