Over the past few years, China has emerged as a powerhouse in the increasingly digitized, e-commerce-driven world. Its digital economy accounted for 38.2% of its GDP growth in the first half of 2018,1 and it also happens to be home to 9 of the top 20 internet companies in the world, including the search engine Baidu, e-commerce behemoth Alibaba and internet services provider Tencent.2 China's success can serve as a lesson for companies and economies around the world that are pushing to remain relevant and keep a competitive edge. Policy Initiatives Help Drive Digitization One driver behind China's success is the government's focus on shifting to a digital economy. In 2015, China's State Council, the highest organ of state administration, issued a report called "Made in China 2025." The document outlines its strategy for transforming China's manufacturing base through digital innovation. Its strategic goals include greatly increasing manufacturing digitization and "informationization." For instance, within the category of integrating IT and industrialization, the report lists a goal of increasing broadband penetration from 37% in 2013 to 82% by 2025.4 That said, the initiatives outlined have also prompted concern among policymakers across the globe.5 Some fear that an industrial policy directed by the government will include financial assistance to Chinese companies, creating an uneven global playing field. Some also worry about China's investments in foreign technology firms. At the same time, the goals and strategies outlined in the report signal that China's leadership intends to focus on ensuring the country is prepared for an increasingly digital world. Investments Are Bringing the Digital Future Into Focus To that end, investments in research and development from Chinese companies, research institutes and the government have skyrocketed. Since 2000, it's gone from about $40 billion to $443 billion, just shy of the $484 billion invested within the U.S., according to data from the Organization for Economic Co-operation and Development.6 China is also working to minimize any digital divide between citizens in its major cities and more remote areas. Several provinces have developed plans to digitize their economies. For example, the province of Guizhou plans to grow its digital economy by 20% annually.7 The World Economic Forum also explains that, in what are known as Taobao villages, at least 10% of households run online stores for Taobao, which is the shopping site for e-commerce behemoth Alibaba. Across one such village, this generates e-commerce revenues of at least $1.6 million, and more than 1,000 of these villages dot the Chinese countryside.8 Along with financial investment, policies that enable technology companies to thrive are essential to an economy's digital transformation and success in an e-commerce world. This includes an educational model that helps students develop critical-thinking and problem-solving skills, as well as digital literacy. Moreover, education shouldn't stop once students graduate — instead, it needs to continue through training programs that help those employed stay abreast of advancing technology. Robust capital markets, solid protection for intellectual property and mechanisms to prevent and detect corruption are additional requirements for a strong, innovative technology sector. Collaboration between private and public sectors, such as programs that nurture new businesses, also contributes to a thriving digital environment. Start with Your Employees to Build a Digital Workforce Businesses, as well as governments, can prepare for a growing digital environment and remain relevant and competitive. Somewhat surprisingly, it makes sense to focus on the workforce first and then the technology. Employees can make or break even the most advanced technology solutions. Here are three requirements for an innovative work culture: 1. Means: This refers to the tools and authority employees need to conceive an idea, establish the right team, build the business case, and develop and test it. 2. Motive: Organizations provide motivation by encouraging employees to think beyond their immediate job function and even take risks within a predefined framework. They can also enable them to participate, perhaps through a bonus, in any financial upside resulting from their work. 3. Opportunity: Employees need time, tools and space for brainstorming and innovation. Agility is also key to an innovative digital workplace. Employees should feel confident collaborating with colleagues across functions and sharing ideas without encountering undue criticism. A solid budget for training will also ensure employees obtain the skills they need to contribute to their employers' success on an ongoing basis. Invest in Technology to Keep Pace with Innovation Of course, technology plays a vital role in digital success. Constraints, such as inadequate network capabilities and legacy applications that can't integrate with new systems, have impacted the digital transformation activities for three quarters of brands, according to a survey by manufacturing services company Jabil. Fortunately, 99% are investing in new technology to replace outdated platforms that hinder their operations.9 China's rise as a digital power is the result of planning, investment and work — and both companies and countries can learn from their digital efforts and e-commerce successes. Sources: 1 China Academy of Information and Communications Technology (CAICT) under the Ministry of Industry and Information Technology (MIIT), Xinhua News, December 23, 2018,http://www.xinhuanet.com/english/2018-12/23/c_137693489.htm. 2 Heimburg, Fabian von, "Here are 3 lessons Europe can learn from China's flourishing start-ups," World Economic Forum, September 15, 2018,https://www.weforum.org/agenda/2018/09/3-lessons-europe-can-learn-from-china-flourishing-start-up-ecosystem/. 3 World Payments Report 2018," Capgemini and BNP Paribas Services, https://worldpaymentsreport.com/non-cash-payments-volume/. 4 State Council of China, "Made in China 2025," IoT One, July 7, 2015,http://www.cittadellascienza.it/cina/wp-content/uploads/2017/02/IoT-ONE-Made-in-China-2025.pdf. 5 The Made in China 2025 Initiative: Economic Implications for the United States," Congressional Research Service, August 29, 2018,The Made in China 2025 Initiative: Economic Implications for the United States," Congressional Research Service, August 29, 2018,https://fas.org/sgp/crs/row/IF10964.pdf. 6Gross domestic spending on R&D," Organization for Economic Co-operation and Development (OCED), accessed on April 1, 2019,https://data.oecd.org/rd/gross-domestic-spending-on-r-d.htm.https://data.oecd.org/rd/gross-domestic-spending-on-r-d.htm. 7CAICT under MIIT, "China's digital economy surges 18.9%, drives growth," China Daily, July 20, 2017,http://www.chinadaily.com.cn/business/2017-07/20/content_30179729.htm. 8Wenway, Winston Ma, "China's mobile economy, explained," World Economic Forum, June 26, 2017,https://www.weforum.org/agenda/2017/06/china-mobile-economy-explained. 9Digital Transformation Strategies: How are They Changing?" Jabil,https://www.jabil.com/insights/blog-main/how-are-digital-transformation-strategies-changing.html.
Is the next global financial crisis just around the corner? If so, will it be markedly different from the last crisis? And is there a possibility the contagion will come from today's emerging markets, such as China, Turkey or Argentina? While the future is uncertain and uncontrollable, you can take calculated steps as a business leader to prepare now for what may come later. Emerging Market Economies Are on the Rise The strength of emerging market economies was one of several top concerns for leaders in 2018, according to the Mercer Global Talent Trends study, and it continues to be a concern today. While Asia, Latin America and Africa steadily replace the North-Atlantic-centric economies as the world's engines of growth, the global economy is experiencing increasing impacts due to their growing strength. Ardavan Mobasheri, managing director and chief investment officer at ACIMA Private Wealth, believes the global leadership baton will have been completely passed to the faster-growing economies by 2030. He states, "By the end of the third decade of the century, the transition will likely be complete, with the anchors of global economic growth cast across the Pacific and the Southern Hemisphere." But as the world adjusts to the growing strength of emerging market economies, it must also adapt to those economies' inevitable speed bumps. "Speed Bumps" Are Starting to Form Globally Emerging market assets are now retreating in the face of increasing headwinds across their geographies, including production slowdown, rising debt, higher inflation rates and slides in currencies.1 "The contagion in emerging markets happens through different channels, and it tends to be greater in periods of monetary tightening in developed markets," Pablo Goldberg, a senior fixed-income strategist with BlackRock, tells CNBC.2 "Liquidity is an issue. Investors will sell what they can sell." Desmond Lachman, a resident fellow at the American Enterprise Institute and former deputy director for the International Monetary Fund's Policy Development and Review Department, writes that U.S. economists and policymakers are ignoring risks posed by emerging economies at their own peril. "They fail to see that years of massive Fed balance sheet expansion and zero interest rates created the easiest of borrowing conditions for the emerging markets," Lachman writes. "By so doing, they removed economic policy discipline from those economies and allowed large economic imbalances in those economies to develop, especially in their public finances." Now that more capital is flowing back into U.S. assets deemed safer than emerging market assets, the acute economic vulnerabilities built up within the emerging market economies during the years of "easy" money are being revealed. These vulnerabilities, if left unchecked, will likely continue to grow and spread globally, extending their implications even further into the years to come. Business Leaders Can Adapt — Here's How To best prepare for an uncertain financial future and avoid those vast repercussions, you'll want to first take notes on the aftermath of the last financial crisis — it can teach some strong lessons on how the global economy and financial system work. For example, according to the Mercer report, "10 Years After the Global Financial Crisis: 10 Lessons to Learn," one of the most important lessons from 2009 shows that U.S. policymakers' policies, record low policy interest rates, vast liquidity injected into the banking system and quantitative easing produced unexpected outcomes across the globe. While the monetary policies haven't been inflationary in terms of consumer prices, they have been inflationary in terms of asset prices. Now, policy rates are increasing in some economies, but the full consequences of the last crisis' aftermath on all of the world's economies are still unknown, even today. Keeping that in mind, you can take these three steps as a business leader to prepare for the next crisis: 1. Don't abandon diversification, widely known as "the only free lunch in investment." 2. Be dynamic, and be prepared to rotate out of assets currently at close-to-record highs if they become unfavorable once investors realize their valuations may not be based on strong fundamentals, such as underlying growth in profits. 3. Don't abandon active management, as conditions will inevitably change. Taking these three simple steps will allow you to stay nimble and flexible enough to adapt to any situation — even a financial crisis. As markets endure various metamorphoses, remember these lessons and keep these tips in mind to ready your organization for any crises to come. Sources: 1. Teso, Yumi and Oyamada, Aline, "Emerging Markets Retreat Amid Global Growth Concerns: EM Review," Bloomberg, February 15, 2019, https://www.bloomberg.com/news/articles/2019-02-15/emerging-market-rally-abate-as-trade-concern-returns-em-review./ 2. Osterland, Andrew, "Emerging markets, despite strengths, still get no respect," CNBC, October 1, 2018, https://www.cnbc.com/2018/10/01/emerging-markets-despite-strengths-still-get-no-respect.html. 3. Lachman, Desmond, "We ignore risks posed by emerging economies at our own peril," American Enterprise Institute, September 17, 2018, http://www.aei.org/publication/we-ignore-risks-posed-by-emerging-economies-at-our-own-peril/.
It is human nature to disagree. From how to make the perfect soup dumpling to which system of government works best, people have always perceived the world (and dumplings) in different ways. Our propensity to disagree makes China’s Greater Bay Area (GBA) Initiative a marvel of human collaboration. The GBA Initiative is an ambitious plan to connect 11 municipalities spanning the Guangdong province, Hong Kong and Macau—and align their financial, cultural, geographic and governmental interests. A daunting, yet immensely exciting challenge, indeed. Background: From Grand Idea to Modern Reality In a 2017 government report released by Premier Li Keqiang, China officially announced its intentions to move forward with plans to develop the GBA—which, before that point, had only been theoretical. The idea was first introduced in the 2011 study, “The Action Plan for the Bay Area of the Pearl River Estuary.” This directive from Beijing thrust the plan into the international spotlight, outlining the “city cluster” strategy that leverages the distinct financial, cultural and economic assets of the 11 participating municipalities.1 However, though the region may be geographically close, the participating societies are remarkably different. For example, differences in regulatory instruments and policies, business practices and tax structures, and cultural perspectives and priorities present challenges to creating a seamless and streamlined alignment of resources and capabilities. The key to success for the GBA is the free flow of everything from talent and information to capital and resources. Significant progress has already been made. China has built the 55-kilometer Hong Kong-Zhuhai-Macau Bridge and expanded the high-speed rail network into Hong Kong. This infrastructure represents only part of a sweeping initiative to facilitate the free flow and exchange of ideas, capital and resources. (Source: Research Gate_W Martin de Jong) Aligning Cultural and Economic Differences Convincing each of the 11 municipalities in the GBA to pursue regional business objectives while prioritizing the well-being of the collective group will require some savvy and diplomatic governance. There will be hurdles to aligning the legal, economic, technical, workforce and geographic complexities of the initiative.2 Companies in the GBA region must be open to innovative thinking. Leaders and policymakers must explore a variety of strategies and business models, from joint ventures and strategic partnerships to mergers and acquisitions. Each region must embrace these issues with a focus on long-term success. The scope of cooperation and transparency required by the GBA is enormous. The comprehensive framework ensures there will be agreeable mechanisms in place to solve disputes on everything from workforce immigration legalities and environmental policies to project development benchmarks and operational standards. However, today, this complex relationship is largely theoretical as many companies from all over the GBA region continue to navigate cultural, regulatory and operational differences. It will take time to integrate the key processes that directly impact cross-border talent. For example, sometimes Mainland staff who work in Hong Kong are stuck in Shenzhen or Guangzhou for days or even weeks as they await visa extensions. Examples like these demonstrate the role human capital plays in the success of the GBA Initiative. Ultimately, figuring out how to manage human capital across borders and cultures will be critical. To address these realities, many multinational companies are increasingly hiring Mainland graduates who studied in Hong Kong universities. These graduates are familiar with cultures in both markets, making them suitable to work on GBA-related assignments. Additionally, many companies are actively working to manage the disruption caused by entrenched but disparate policies: differences in salaries, tax regimes, medical benefits and the quality of education available to employees and their families. A fair distribution of pay and opportunity is essential to ensuring the free movement of talent in the GBA region. Leveraging the Power of Compromise Perhaps the most impressive policy achievement that contributed to the development of the GBA was resolving the territorial disputes between Hong Kong and Shenzhen over the Lok Mau Chau Loop.3 This swath of territory, both geographically and symbolically, separated the people and ideals of western-influenced Hong Kong from the Beijing-centric interests and culture of Shenzhen. The most poignant aspect of this agreement is the display of a true willingness by both parties to compromise in order to advance their interests. The Chinese mainland, after all, offers Hong Kong access to one of the world’s most lucrative marketplaces. For Shenzhen, Hong Kong is the gateway to the global economy. This agreement serves as a proof of concept for the entire initiative – finding creative ways to work together to navigate cultural differences and seemingly divergent business priorities. Together, Mainland China, Hong Kong and Macau can create a revolutionary geographic center for technological innovation, financial influence and international trade. The stakes are high, and the whole world is watching. The GBA, after having surpassed the San Francisco Bay region, ranks second in terms of global GDP for bay-area regions, behind only Tokyo Bay. In fact, with a current GDP of US $13 trillion and a population of 70 million, the GBA region represents 12 percent of China’s entire economy.4 With vastly different political, financial and institutional systems in place, people infrastructure will be key to sustainable and equitable growth for the collective region. Effective cross-pollination requires cutting-edge insights from human capital management experts, thoughtful business leaders and government policymakers. For those of us with expertise in the region, this initiative offers groundbreaking opportunities to build partnerships and negotiate unparalleled collaborations in southern China. It’s all about compromise, except when it comes to soup dumplings; real soup dumplings have 18 pleats. Just ask your mom. For more information on human capital management in China visit: Mercer (Mercer China). 1News Analysis: New Opportunities For Hong Kong in Emerging ... www.xinhuanet.com/english/2017-03/11/c_136121179.htm 2China's Greater Bay Area Puts Hong Kong in the Lead As Super Connector To the World https://www.dorsey.com/newsresources/publications/client-alerts/2018/02/chinas-greater-bay-area-puts-hong-kong-in-the-lead 3Hong Kong’s Startup Scene: the Future Of Mainland–hong ... www.china-briefing.com/news/2017/08/08/hong-kongs-startup-scene... 4 China Is Building 19 'supercity Clusters' Andrew Sheng-Xiao Geng- Fung Global Institute- University of Hong Kong - https://www.weforum.org/agenda/2018/09/how-cities-are-saving-china
The evolution of performance management and the debate surrounding the efficacy of this traditional management tool continue globally. In the year since several bellwether employers such as General Electric announced that they were scrapping annual performance reviews, many companies have been reevaluating their current performance management philosophies. The myth that annual performance appraisals are synonymous with performance management is now closer to being busted than ever before. Here’s how these developments are playing out in Asia. At a time of increasing economic volatility in the wake of a slowdown in trade and certain political events, companies in the region and around the world are desperately looking for new avenues of growth. Being able to hire, motivate and retain high-performing talent to fuel this growth is therefore crucial. The question for human resources leaders has shifted from “To rate or not?” or “Should we link performance rating with rewards?” to “What do we hope to accomplish with our performance management system?” A recent Mercer survey of more than 1,000 companies in 53 countries found that companies still share the practices of beginning-of-the-year goal-setting and year-end performance-rating, which in turn link to a rating-driven bonus. This seems to belie the rhetoric around the widespread changes underway to the performance management process. The survey also revealed that 95 percent of managers and employees are dissatisfied with the current state of performance management. That probably explains why the rhetoric around the subject continues unabated. In our work with clients in Asia, we find enough anecdotal evidence to suggest they are indeed closely observing the global trends and exploring how they could be making performance management more meaningful. We find that some progressive Asian companies are also placing greater importance on an ongoing feedback loop on the one hand and on evaluating potential in addition to performance on the other. Another interesting cultural nuance that HR leaders have to be cognizant of in Asia is that, unlike their counterparts in the West, a large segment of employees in this part of the world actually appreciate and expect performance ratings. Having often come out of highly competitive academic environments, employees expect to receive ratings for their performance at work. Although staying away from any radical steps, HR leaders in Asia are perhaps better positioned to seek user cases of demonstrated success elsewhere in the world, especially around “how the ratings are arrived at.” Establishing the purpose of performance management and what it is meant to deliver is a good starting point. And this needs to be informed by the strategic direction of the business and how that may be evolving in the current macroeconomic environment. For instance, if the organization is shifting focus from absolute growth to profitability, then individual sales targets in isolation of the cost of acquisition may not be a good reflection of the contribution of value to the business. These objectives are often in conflict, however. High-performers must be motivated and a limited rewards pool equitably distributed, whereas underperformers must be checked. The purpose in Asia is usually determined by the nature of ownership of the organization. It is subject to significant variation depending on whether an organization is a state-owned or public enterprise or part of a large, family-owned Asian conglomerate where long-term value often takes precedence over quarterly earnings growth. HR leaders need to work very closely with stakeholders at the executive level first to agree on what the underlying purpose of performance management ought to be. Once a long-term philosophy has been agreed upon, HR leaders can look at how performance is tracked, particularly whether the link between organizational and individual performance has been established for all levels and functions in the organization. The next stage of designing or repurposing the performance management system to deliver on the purpose is putting employees at the center. This may be the most difficult part of delivering on performance management in Asia. Employee focus groups can deliver mixed results at best, as a significant proportion of Asian employees aren’t as vocal or expressive as their Western counterparts. The underlying guide, therefore, should be how the design fosters collaboration and encourages feedback, particularly from peers and subordinates. Transparency and trust in the system can be built over time with a focus on establishing multiple channels of communication. The underlying technology needs to support such a design by being intuitive and nimble, focusing on delivering an excellent user experience to both employees and managers. As with the rest of the world, employers in Asia have yet to find any magical solutions for “fixing” performance management. Companies in Asia and other growth economies have been slow to undertake radical and far-reaching reform of their performance management systems — but this may be a positive thing. HR leaders in Asia can marry emerging best practices with the sociocultural context of their talent, keeping the employee at the heart of this evolution. Once the underlying philosophy is grounded in aligning the business purpose with individual motivations, robust performance management can become the “true north” of strategic HR management.
Businesses today need to recognize the prominence of emerging market economies and the opportunities that exist. Morgan Stanley Capital International (MSCI), an independent research provider, regularly updates an index on emerging markets. Out of 23 countries listed on the MSCI Emerging Market Index, seven are in Asia. They are: China, India, Indonesia, Malaysia, The Philippines, South Korea, and Thailand. Given this, two things should be top-of mind for leaders: developing business opportunities and localizing talent strategies in these markets. There’s a reason to prioritize being talent-focused: people create the value in today’s organizations. The Fourth Industrial Revolution is ideas-based and leverages technology to further automate processes. To be competitive in today’s market, it is no longer about mass production or harnessing power. Mercer’s recent study Thriving in the Age of Disruption found that thriving organizations reinvent themselves, are agile and resistant, and have a positive impact on society. They also treat talent as an asset to invest in, “not simply [as] a business cost.” A company’s ability to reinvent itself will be key to thriving in the future of work. In fact, according to Talent Trends 2017, organizational redesign is top of mind for executives. Ninety-six percent of executives are planning a redesign in the next two years. Another way to be a company that shows it values talent is by listening to what employees want. Employees today have more options than before, especially in emerging markets. Working in an emerging market often means uncertainty and rapid change. Whether it’s a disruption in the market, or an option to work remotely for a company or job hop for a better opportunity, one way to retain at-risk talent is to ask what they value. Then act on the feedback. For example, many of today’s employees seek flexibility. According to Talent Trends 2017, 56 percent of employees want their company to offer more flexible work options. If your employees give this feedback and you adjust the policy, then your employees will feel valued. If key decision-makers still question the importance, remind them that it matters what employees want. In the recent Mercer study Thriving in the Age of Disruption, the authors explain that “talented individuals are drawn to organizations that continually refresh their systems and processes as well as their strategic initiatives in order to delight customers and outwit competitors. Great companies know that by being agile they can stay in play for many years.” In addition to showing trust by incorporating employee feedback, Thriving in the Age of Disruption also shares that the four components of an effective people strategy are future-focused, data-driven, integrated, and people centric. How to Apply in Emerging Markets It is essential to address both the businesses strategy as well as the actual people in an emerging market. The people strategy can leverage findings from Mercer’s research which includes advice on how to incorporate the four components into an effective people strategy. They are: Future-focused. How can local employees value-add to today while planning for tomorrow? A focus on the future reflects the evolution of the business and work culture. Data-driven. After reflecting on your current talent pool, where are the skills gaps? What can you build and what do you need to buy or borrow? Incorporating data into making decisions on the strategy ensures that insights into the current needs of a company’s workforce are considered. Integrated. While being aware and sensitive to local customs, how can you also ensure that talent development is universal and comprehensive? Work towards having one plan which brings the company’s talent and HR programs together. Aim for removing all silos. People centric. What do you need to know about the local customs? How do you make sure that work is meaningful in the local context? Design work so that it’s more fulfilling and rewarding for individuals. The Thriving in the Age of Disruption report also notes that thriving organizations “systemically analyze and reflect on how they might be exposed to talent-related risks, not only to measure and address their bench, but also to understand what specific practices or interventions will encourage employees to bring their whole selves to work.” A future-focused people strategy will also need to include a contingency plan for emerging market(s). Turnover is likely to be higher, especially for talent with specialist skillsets. An example of a company with a future focused people strategy is DBS, which is well-known throughout the Asian region for its forward-thinking products and focus on human capital. In an effort to remain agile and data-driven, DBS refers to the company as a 22,000 start up where “DBS employees work with industry partners and startups to develop innovative mindsets.” DBS recognizes that talented individuals look for fast-paced organizations and opportunities for continuous learning. Especially as products are more and more idea-based rather than production-based, employers need to engage employees effectively. UOB is another organization that is future focused. By leveraging employee interest and creativity through the 2020 Ideas Contest, employees are encouraged to come up with innovative solutions for the banking industry. This contest also ensures that employees are digital-ready and will be competitive in the future of work. Some even enter The FinLab, an incubator which gives full-time support and funding to employees for three months. Incubators have become common in forward-thinking organizations. Tata Communications’ Shape the Future currently incubates three internal ideas, and just last year publicly debuted the latest internal incubation success. Each of these examples show the return of investing in talent. Initiatives that involve continuous learning and provide support for employees to daydream, brainstorm, and prototype are what the future of work is about. It is always challenging to build up a talent pipeline, and even more so in an emerging market. However, with a focus on creating a responsive and agile workforce, a company can thrive. Ensure that talent is continually upskilled, and determine the necessary skills to remain competitive. Perhaps it’s equipping teams with digital skills or incorporating hackathons regularly so that they become part of the company culture. What is essential is that employees feel valued and that they have trust with the organization. Give employees chances to experiment, and even to fail. As the world of work moves from ideation to automation, talent needs to move from surviving to thriving. 1 https://www.dbs.com/investorday/presentations/Executing_the_digital_strategy.pdf 2 https://www.tatacommunications.com/press-release/tata-communications-internal-incubator-debuts-netfoundry-reinventing-networking-hyper-connected-era/