Emerging market multinationals must grow leaders from within

Multinational companies based in emerging markets need to reconfigure their leadership teams to reflect an international footprint and strike an appropriate balance of global and local expertise, according to a new Ernst & Young report.

Leaders need to be groomed from within the company because multinationals based in rapid-growth markets are relying too much on recruiting talent from rivals, the report advises. This can lead to salary inflation and high turnover rates.

In addition, global experience should be mandatory in order for staff to be considered for future management positions at emerging market companies that operate internationally, the report says.

In Growing Pains: Companies in Rapid-Growth Markets Face Talent Challenges as They Expand, E&Y reveals sobering results of a recent survey of 810 business executives from major rapid-growth markets. Just 19% of respondents said they strongly agree that their company manages talent effectively across all markets.

Half of those surveyed said their organisation’s top management team needs a better understanding of global markets to be successful in the international marketplace.

“Rapid-growth market companies expanding into new markets are facing major challenges in building and executing effective talent management strategies,” E&Y Global Managing Partner Mike Cullen said in a statement. “The key challenge for these companies in the next decade will be to integrate talent strategies with global mobility strategies to form a top management team that has a mix of international expertise and local knowledge.”

Companies in established markets also face these challenges, the report says, but they are better equipped to handle them because, in many cases, they have been operating internationally for decades. But companies in rapid-growth markets often are new to internationalisation and do not possess the talent to easily manage operations that are broadening.

Two major hurdles exist for multinationals in rapid-growth markets. First, the skills needed to expand geographically are not always readily available. Second, 51% of respondents said their organisation’s top management team needs more knowledge and insight on local culture and ways of doing business in order to be successful.

But developing leaders with international experience is time-consuming, the report cautions. And it is difficult to strike the right balance between global and local expertise in a location. The report says it is important to place local employees in responsible positions in rapid-growth markets more quickly than in mature markets. But too much local autonomy can lead to individualised operations in separate locations that lose touch with one another and the organisation’s overall mission.

Metrics can help with the talent management process in a few ways. First, the report says, establishing uniform metrics for managerial performance can align employees’ individual goals with business objectives. This can make them feel they have a stake in the company’s future and help with retention.

Second, metrics can help organisations compare the performance of different leadership teams in different regions.

Finally, communication of a single mission statement with an organisational approach towards fulfilling the mission can hold together a multinational company.

—Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.