American-Style Loyalty Spreads to Asia

American-Style Loyalty Spreads to Asia
Retention has eroded sharply as Asian-based companies have pursued shareholder value and responded to competitive challenges at the expense of employees. But while similar factors may have spurred this development, the solutions being embraced by the different countries vary.

By Peter Cappelli


I've just spent a couple of weeks working with executives in Malaysia and South Korea on human resource topics. In both countries, recruiting and retention were mentioned as one of the five most pressing business challenges.

Describing the change over time, the executives -- about 75 human resource leaders in Kuala Lumpur and about 40 senior executives in Seoul -- repeatedly talked about the decline of loyalty, how the previous generation used to feel a sense of obligation to their employer while the current generation does not.

In Malaysia, a focus-group discussion addressed the following question: Is there room for loyalty in the modern employment relationship?

Their answer? No.

Interestingly -- and appropriately -- their explanation was that employers were only committed to employees' interests when there was demand for their labor.

American readers will clearly recognize the phenomenon described by these managers in Asia.

Countries such as Malaysia and South Korea have seen the decline of corporate loyalty relatively recently, whereas countries such as China have experienced it longer. In China, there was no history of "corporate" loyalty in that Communist country, no notion that employees owed individual employers anything or that a private employer (in contrast to the government) had responsibilities to its employees.

In Malaysia, the economy is booming, in part because it is one of the few stable countries in the Islamic world and is a haven for money from less-stable but oil-rich countries. Malaysia has also become attractive to businesses because English is widely used and required in schools. Labor is being brought into Malaysia from other, lower-wage countries from Southeast Asia, but the real shortages are in the more skilled areas, especially managerial jobs.

South Korea's economy is much more developed and, by U.S. standards, is booming as well with growth rates about 5 percent. That is well below historic growth rates over 10 percent, though, so there is no sense of euphoria among the economic players.

It is still recovering from a recession and restructuring that followed a currency crisis in 2000. Before that, it was typical for large companies to hire recent college graduates from all fields and invest in them; after the crisis, companies stopped their long-term investment in employees and only wanted to hire those who already had the skills to do the jobs required.

Despite a sharply declining population, companies in South Korea still prefer to dump their older employees and hire younger ones as they are cheaper. When I asked executives there when retirement takes place, their answer was, "When we lose our jobs."

Despite concerns about retention, employers are more than willing to risk losing talent in order to find it at a cheaper price.

Singapore has had a similar retention challenge for more than a decade, with turnover rates in management at or near 30 percent. Its historically tight labor market creates outside hiring and retention problems, in particular pulling talent out of the larger, multinational companies.

And in India, a country we think of as having an endless supply of labor, there are talent challenges in all of its growth industries. Employees readily hop from employer to employer in response to even modest wage improvements.

What is interesting about these developments is that they suggest something pretty big is afoot as a cause. Anything that can lead to similar problems in countries as diverse as the United States, China, Korea, India, and Malaysia must be quite fundamental.

The causes can all be traced to changes in the business environment, including the need to respond more quickly to competitive challenges by acquiring new skills in a timely manner and by cutting excess labor to eliminate skills no longer needed in downturns.

The reason these developments took somewhat longer to play out in Asian countries than in the United States is because of the deeper traditions of paternalism and responsibility that Asian employers felt toward their employees. These have eroded sharply in part as the companies have pursued shareholder value at the expense of other stakeholder issues, like paternalism.

While the causes and the effects are similar, the solutions being considered across countries to the recruiting and retention challenge differ quite a bit.

Singapore has responded as it often does with an aggressive competitive approach, trying to lock up talent in its regional market through a "scholars" program, which identifies promising high school students in Singapore but also in neighboring countries like Malaysia and India. The program offers to send those students to college at the best universities abroad. In return, the students have to come to Singapore to work for the employer for a fixed period, paying off the investment in talent.

Malaysia is opening itself up to immigrants who have the right skills for the economy.

South Korea put in place a subsidy program to help companies pay for school internships inside companies.

China is building universities like mad -- 3,000 new ones are in the works -- to pump up the level of talent in the economy. It is not clear that this will do much to address the retention problem, which is fundamentally based on a shortfall of employer-based skills and development.

But at least these countries are thinking about the problem. Is there an equivalent response in the United States?




April 30, 2007

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