HR STRATEGY / LEADERSHIP

RIGHT TIME, RIGHT PLACE: Selecting business leaders for Asia

Australian businesses are increasingly looking to Asia to expand operations. However, as Andreas Raharso reports, such expansion requires a dierent set of leadership styles in order to leverage the regions unique, increasingly well-developed and sophisticated workforce
The role of Asia in global business is increasingly taking centre stage, and the faster MNCs prepare for this shift, the better their chances of succeeding in the region. According to gures from the United Nations Conference on Trade and Development, East and Southeast Asian economies received a combined $336bn in foreign direct investment from offshore investors in 2011, a 14% increase over 2010. 1 Further, despite a 14.96% decline in the number of projects in the Asia-Pacic in 2012 in line with global trends, it was still the leading world region, attracting 3,740 projects with a 31.72% global market share.2 There is no denying that MNCs are expanding into Asia in greater numbers, and as the rapid pace of globalisation churns out greater numbers of cross-border business units, the role of corporate leadership in this region takes on a greater signicance for both senior HR executives and top management.

THE TROUBLE WITH MNC EXPANSION IN ASIA

Large corporations traditionally operate under a centralised structure controlling all foreign operations and ofces directly from corporate headquarters (HQ) to allow for better oversight of the entire organisation. However, its overseas subsidiaries often get mired in slow decision-making processes and a lack of local responsiveness due to geographical distance. As globalisation forces companies to be more agile in order to capitalise on growth opportunities in Asia, corporate HQs are increasingly decentralising control and transferring regional authority to regional headquarters (RHQs). In fact, a strategy to expand operations into Asia

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almost mandates that the growing MNC set up an RHQ to effectively oversee offshore operations of its business units and subsidiaries. Essentially, the RHQ acts in the stead of HQ and has the singular and delicate task of achieving global objectives through a local approach. Unfortunately, Hay Groups analysis of over 30 years of data regarding RHQ performance has shown that this decentralisation often fails. When HQ makes the decision to give more authority to its RHQ, the RHQ again faces the same tensions between centralisation and decentralisation when trying to manage its regional ofces. This then prompts HQ to intervene and institute a swift return to centralisation, which restarts the problems of slow decision-making and lethargic local responsiveness. Given that the RHQ operates with near autonomy when controlling its regional ofces in Asia, it functions in a similar manner to the corporate HQ. Yet, while MNCs are perennially concerned about the leaders who will form the top management team in corporate HQ, the emphasis on RHQ leadership is not given equal weight or as rigorously evaluated. Instead, MNCs tend to simply reassign leaders from its Western or European ofces to head RHQs, who may exacerbate the ineffectiveness of the RHQs as they lack the appropriate competencies to manage across cultures. MNCs need to accept that the current wave of Asian-led growth is not a result of managerial wizardry by Western and European leaders. With the global economic turmoil in Europe and the US, demand for goods and services from the West has plummeted, and it is Asian consumers themselves who are at the forefront, driving Asias growth engine with their unique and increasingly sophisticated demands, changing the way companies create, design, and market products. Today, ensuring the success of an RHQ to drive Asian growth requires Asian leadership.

FDI INFLOWS INTO ASIA*

600 550 FDI inows (US$ billions) 500 450 400 350 300 2009 2010 2011 2012 2013 2014 2015 Forecast

Asia refers to the following countries: West Asia (Saudi Arabia, Turkey), East Asia (China, Hong Kong, South Korea), South Asia (India) and Southeast Asia (Cambodia, Indonesia, Malaysia, Myanmar, the Philippines, SIngapore, Thailand, Vietnam)
Source: United Nations Conference on Trade and Development

Top 10 destination countries in Asia in 2012

COUNTRY
China India Singapore Australia Hong Kong Malaysia Indonesia Vietnam Japan Thailand Other Total
Source: fDi Intelligence

NUMBER OF PROJECTS
944 704 348 307 184 162 155 143 118 118 557 3,740

WHERE HAVE ALL THE ASIAN LEADERS GONE?

But accepting that we need to select a new generation of leaders from Asia is only a small part of the problem. According to leadership research by Korn/Ferry International in 2010, Asia has a scarcity of leaders with the right competencies required to support the growing number of businesses in Asia.3 In the study, the pool of executives from China and India were compared against the global best-in-class

executives (based on four leadership styles identied by Korn/Ferry Institute). It was found that only 1% of Chinese executives and 8% of Indian executives were ready to lead the next wave of growth in Asia. A further 10% and 13% of the managers from China and India, respectively, possessed the qualities that could be developed further into sound leadership for success. What do the two issues of Asias growth and the lack of Asian leadership capable of capitalising on this growth mean for Australia? Plenty. Like the US

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HR STRATEGY / LEADERSHIP

71%

OVER

% SHARE OF AUSTRALIAS TWO-WAY TRADING PARTNERS (2011)

71.0%

of Australias total trade in 2011 took place with member economies of the Asia-Pacic Economic Cooperation group, with seven out of the top 10 two-way trading partners being Asian countries
14.5% 13.4%

46.2%

RHQs leaders are able to utilise a different leadership style. In essence, the type of value to be created by the RHQ necessitates a corresponding mix of the right leadership styles. No matter how experienced or talented a manager is, if he or she exercises a form of leadership that is not conducive to the particular type of value creation activities mandated by HQ, the organisation as a whole will benet little from its regional operations.

PICKING THE RIGHT LEADER

By effectively taking on a particular leadership style and approach to a given situation or environment, a leader can meaningfully improve (or adversely worsen) employee morale and performance and thus directly inuence the value creation efforts of employees in foreign subsidiaries. Our research has identied that leaders today have to understand six leadership styles, and are required to effectively switch between them in order to be more versatile and engage a broader spectrum of employees. Further analysis also shows that certain leadership styles are best suited to certain types of value creation activities. While it is also useful to note that leadership styles are situation-specic and need to be regulated according to the personality of employees and the organisational culture of the regional ofce, it has been consistently proven that certain leadership styles work best for a specic form of value that the RHQ wishes to realise. Resources: For RHQs whose primary goal is resource control and allocation for its regional business units, a leader who displays a combination of directive and pace-setting leadership styles will allow the RHQ to achieve results more efciently. In this type of RHQ, absolute obedience is required from foreign ofces, and resource allocation decisions are not generally up for debate. Examples of such RHQs include nancial or HR head ofces that oversee support functions across the region.
Resources
Leverage/ allocate organisational resources

APEC

ASEAN10

EU27

OECD

Source: Department of Foreign Aairs and Trade, Australia

and Europe, Australias growth is greatly tied to the growth model of Asia because of its strong trading dependencies with Asian countries. According to a 2012 report by the Australian governments Department of Foreign Affairs and Trade, over 71% of Australias total trade in 2011 took place with member economies of the Asia-Pacic Economic Cooperation (APEC) group, with seven out of the top 10 two-way trading partners being Asian countries.4 If Asia lacks the leaders to champion global economic growth, Australias economy will take a hit as well.

UNDERSTANDING THE ASIAN RHQS ROLE IN VALUE CREATION

At the heart of the struggle to exercise effective leadership in RHQs the constant vacillation between centralisation and decentralisation is a failure to understand for what purpose an RHQ is set up. Understanding this purpose from the outset by dening the type of value that the RHQ is meant to deliver can greatly inform the type of Asian leader an MNC needs to select to head its regional operations. When a compatible match between value and leadership is established, effective RHQ control over regional business units will ow naturally. What do we mean by value? At the most fundamental level, RHQs are meant to deliver value in three ways: resources, synergy and learning. Given the different types of value an RHQ can be tasked to create, whether explicitly or implicitly communicated by HQ, there are vast differences in the approaches required to control its regional business units. Each approach requires that the

Synergy: While an RHQ is not usually set up with the sole purpose of identifying intra-organisational synergies, this is still an important function for businesses looking to expand and innovate in new markets. RHQs that hope to identify opportunities for creating economies of scale or for parallel implementation of innovation across products or departments must have leaders who are visionary, participative, and
Synergy
Creation of organisational synergy

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DIRECTIVE Mandating immediate compliance from employees This style relies on directives rather than direction, and uses very little dialogue. Close monitoring is supported by negative, corrective feedback with an implied, if not explicit, threat. Eorts to motivate are focused mainly on the consequences of noncompliance.

VISIONARY Providing long-term direction and vision for employees This style relies on dialogue with others as well as the managers unique perspective on the business to establish a vision. The manager keeps others engaged by assuring them that the direction is in the long-term best interests of the group and the organisation, and by monitoring performance toward established goals. + When used eectively, the visionary style motivates employees, particularly new ones, by focusing their attention on the long-term goals of the work unit and the way in which day-to-day eorts support these goals.

AFFILIATIVE Creating harmony among employees and between manager and employees This style is used to create harmony and avoid conict. A manager utilising the aliative style spends a lot of time cultivating relationships. This style tends to reward personal characteristics and avoid performancerelated confrontations.

PARTICIPATIVE Building concensus among employees and generating new ideas This style relies on the ability of employees to establish their own direction and to resolve their conicts constructively. It is typically characterised by a lot of meeting, a lot of adequate performance, and little criticism of low performance.

PACE SETTING Accomplishing tasks to high standards of excellence Managers utilising the pace-setting style tend to lead by modelling. They establish themselves as the standard/benchmark and are apprehensive about delegating. Their concern with the immediate task accomplishment makes them disinclined to collaborate with their peers, except when they need to obtain or exchange resources. + When used eectively, the pace-setting style works for employees who are completely self-motivated and understand their objectives. It is also important for demonstrating that a manager can pitch in with the troops when necessary. This style is less eective in times of organisational change when an explicit discussion of the mission and employees roles is warranted. Also, it can produce extreme stress as the manager takes on more of the work of his or her subordinates.

COACHING Focusing on long-term professional development of employees A manager using the coaching style helps individuals identify their unique strengths and weaknesses. This typically involves sitting down with the employee and conducting a candid, mutual assessment of the employees strengths and weaknesses, as well as providing ongoing support and feedback. + When used eectively, the coaching style motivates employees by linking their daily work to personal long-term objectives. It helps employees develop sound thinking strategies that build their condence in functioning more autonomously. When not used eectively, the coaching style leaves employees unsure about what they should be doing next and can result in diminished standards and procrastination in regard to solving problems.

+ When used eectively, the directive style draws immediate, and for the most part willing, response from employees. In cases when employees resist directions, despite the eective use of the directive style, employee termination is the next logical step. When not used eectively, over the long term, the directive style draws passive resistance, rebellion, resignation, and in the worst instances physical damage to an organisation or strategic damage to major objectives.

+ When used eectively, the aliative style motivates employees by supporting them during either highly routine or stressful times. By strategically and explicitly focusing on the human element of a situation, this style succeeds in getting the job done. When not used eectively, the aliative style leads to low standards, a sense of favouritism, lack of clarity, and frustration for many employees.

+ When used eectively, the participative style motivates employees by empowering them to make decisions about their own work processes and goals. It is designed to create teamwork and team commitment to achieve those goals. When used ineectively, the participative style produces confusion, delays, and conict among employees and the manager due to a lack of focus and direction.

When not used eectively, this style fails to take full advantage of the natural talents and ideas of knowledgeable employees.

Source: Inventory of Leadership Styles (ILS), Hay Group

afliative. This combination of leadership styles is found in leaders with a macro-level overview of the organisation, its business units and global markets. Learning: RHQs that have the role of creating centers for excellence or a repository of best practices benet greatly from coaching, participative, and afliative leadership styles. To enable innovative cultures in such RHQs, these softer approaches to leadership ensure that employees have the freedom to collaborate and experiment with new ideas and concepts. Examples of such RHQs include R&D units or corporate think tanks. Although there are differing views on how to best classify leadership styles, many such studies conclusively show that Asia requires a different set
Learning
Formation of new organisational knowledge

of leadership styles in order to leverage its unique, increasingly well-developed and sophisticated workforce. This alone should be a wake-up call for rms that are currently located or are planning to locate business units in the region, and is a timely reminder that such rms must begin preparing their existing human capital by leveraging two crucial levers, Asian leadership and the right set of leadership styles, in order to effectively ride out the current wave of Asian-led growth.
References: 1. World Investment Report 2012, United Nations Conference on Trade and Development: unctad-docs.org/les/UNCTAD-WIR2012-Full-en.pdf 2. Global greeneld investment trends, The fDi report 2013: investtoronto.ca/InvestAssets/PDF/Reports/The_fDi_Report_2013.pdf 3. Asia 2.0 Leading the Next Wave of Growth in Asia, 2010, Korn/Ferry International: kornferryasia.com/leadership/Asia2.0.pdf 4. Trade at a Glance 2012, Department of Foreign Aairs and Trade, Australian Government: dfat.gov.au/publications/trade/trade-at-a-glance-2012.pdf

About the authors Contributing author Senthil Sukumar is a research and content strategist, and Shakifur Chowdhury is an applied research analyst at Hay Group.

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