1 The Business Case for Human Capital

REDEFINING BUSINESS LEADERSHIP

CEO SuCCESSiOn in aSia:a KEY TO LOnG-TERM GROWTH49

iSSuE 01/2011 WWW.HCLi.ORG

08 | The Business Case for Human CapitalAsia's transformative economic growth is challenging companies and governments to find urgent solutions to skills shortages, education bottlenecks and building leader-ship pipelines.

REFLECTiOnS On LEadERSHipSunny Verghese, Group MD & CEO of Olam, shares insights.

82

india: SuSTaininG GROWTH THROuGH HuMan CapiTaL55

WHEN WE BUILD BUILDINGSWE BUILD PEOPLE TOO

Isn’t a good building like a good person?

With strength of character, it could weather hardships.

When sensible to what’s around, It’s in harmony with its environment.

And like a good building, a good person is sturdy. Dependable.

Someone who looks outside himself, to share your joys and hopes.

At CapitaLand, we see the two as one. Because you can’t build one without the other.

Issue 01/2011 www.HClI.org

IntroductIon From the Editor-in-Chief 4Foreword from the Executive Director 6Facts and Figures on Human Capital in Asia 7 The Business Case for Human Capital 8

LeadIng In gLobaL asIa Who is Taking Your Business Across Borders? 16Strategy to be the "Global Asia" Talent Hub 24How the World of Work is Changing 28

LeadIng In busIness Adapting Organisations for A Volatile World 34Corporate Leaders: More Different Than Similar 40Building the Corporate Mosaic 44 Building Effective CEO Succession in Asia 49

LeadIng PeoPLe Driving Sustainable Growth in India Through Human Capital 55 A Human Capital of Excellence 60 Cultivating Leaders in Asia: The GE Experience 66 Growing Chinese Managers for Global Leadership 71

LeadIng seLf Becoming a Global Leader: Melding the Best of East and West 77Reflections on Leadership 82Cultural Intelligence and Your Bottomline 84

research revIew Asian Expats in Asia: Neighbours and Strangers 88 Does Human Capital Really Matter? 91

contents

LeadershIP In actIon Seizing Opportunities in a Fluid World 95My Journey From Success to Significance 99

08

71

All Rights Reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording or any information storage and retrieval system, without written permission.

HCLI seeks to help organisations accelerate human capital and leadership development in Asia.

Roundtable on the key issues of human capital in Asia

Are Chinese managers ready for global corporate leadership?

88 Asian Expats in Asia

research revIew

The signing of the China-ASEAN Free Trade Agreement last year

created the third largest free-trade zone and the world’s biggest pool of consumers. By removing or harmonis-ing economic barriers such as tariffs, trade and investment is expected to grow. Anticipating the benefits, former Philippines President Gloria Macapa-gal-Arroyo hailed it as a “formidable regional grouping” to rival the Unit-ed States and the European Union.

Yet our research in China and In-donesia shows that trading with fel-low Asians is just as culturally chal-lenging as trading with the West. Based on 57 comprehensive inter-views with Chinese and Indonesian business leaders and their co-workers, we found striking differences in lead-ership and communication styles.

While both cultures are extremely hierarchical, in which employees are prepared to submit to powerful fig-

ures, there are major differences in work values and leadership expecta-tions. More significantly, we found that failure to understand such dif-ferences can result in damaged rela-tionships and impaired performance.

chInese vs IndonesIan LeadershIP

Based on our research, work is of central importance to the Chinese. Achieving goals or targets is critical to career advancement and financial reward. Chinese leaders typically set long-term goals and avoid uncertainty and risks. They tend to work hard, sacrificing short-term interests for fu-ture gains. They seldom celebrate small successes while routinely investigating failures, meting out tough sanctions against those deemed to be at fault,

01 | Asian expats in Asia: Neighbours and strangersIn pioneering research on the distinctly different experiences of leadership in China and Indonesia, Hori Tjitra, Hana Panggabean and Zheng Jiewei explain that it can be as challenging for an Asian to adapt to another Asian country as it is for an Asian to operate in another continent.

Dr Hora Tjitra is currently Associate Professor at Zhejiang University in applied psychologyDr Hana Panggabean is postgraduate studies Director at Atma Jaya Indonesia Catholic UniversityZheng Jiewei is Project Manager and Consultant at Tjitra & Associates, China.

89 Asian Expats in Asia

usually by cutting wages. Dissatisfac-tion with poor performance is often expressed directly through direct con-frontation. They are highly directive when dealing with staff whose opinions they rarely consult.

By contrast, our data suggest that Indonesians view work as but one as-pect of their life and are much less task-focused. They are more likely to cultivate a comfortable working atmos-phere. Rather than viewing failure as an egregious error, they tend to view it as a “lesson” to be evaluated. Their toler-ance of mistakes makes them reluctant to apply strong sanctions on others. Mild rebukes in the form of “jokes” are more likely to be used to convey dissat-isfaction. They often seek the opinions of their staff, although their questions tend to embody the answer they are seeking. Still, their staff perceive that they are appreciated and listened to.

chInese vs IndonesIan eMPLoyees

Chinese employees in our sample ex-pect their managers to be authoritarian and to possess deep technical mastery. Like their managers they are strongly output oriented. As long as they feel fairly compensated, they willingly work

extremely long hours. And when they fail to meet their targets, they expect to be punished. Indeed, the ideal Chinese leader is the polar opposite of the ideal Indonesian leader.

Indonesians expect their leaders to be “halus” or soft, rather like a domi-nant yet emotionally distant father. Those who behave like the archetypal “strong” Chinese leader are deemed “kasar” or rough and are perceived as weak, uncivilised and uneducated. In-donesian workers often characterise the ideal relationship with their managers as being like ‘kekeluargaan’, or fam-ily, in which there is unconditional ac-ceptance and trust. Highly controlling managerial behaviour is viewed as a sign of mistrust. The importance of good relations with immediate supervisors is typically emphasised by Indonesians.

chInese Leaders In IndonesIa, IndonesIan Leaders In chIna

In our study, Chinese managers in Indonesia struggle to motivate their staff and as a result are typically dissat-isfied. When they belatedly realise that emotional outbursts and controlling behaviour undermine their authority,

Chinese leaders tend to retreat, frus-trated at the supposed poor work ethic of the Indonesians. Rarely do they understand that their own “Chinese” leadership style has demotivated their staff.

While their Indonesian staff of-ten admire Chinese working values as “hardworking”, “disciplined” and “entrepreneurial”, recognising that such attitudes “get the job done” they object to their harsh managerial style. Indeed, Indonesian staff, un-like Chinese staff, are more likely to rebel against a manager who fails to meet cultural expectations.

If I don’t have a good job, I cannot be happy. I will not go out to meet my friends, as I will lose face.

a chinese respondent’s view on work

Work is work. Life is Life. It is ok if my salary is not high – I can still enjoy life with my family.an Indonesian respondent’s view on work

This research project adopts

the “grounded theory” approach. “Grounded

Theory” emphasises the generation of theory from data, and generally adopts a four-step approach involving 1) data collection, 2) data categorisation, 3) grouping of categories, and 4) theory creation. Increasingly, data analyses software like “ATLAS.ti” are used to help code and group data.

MethodoLogy

88 Asian Expats in Asia

research revIew

The signing of the China-ASEAN Free Trade Agreement last year

created the third largest free-trade zone and the world’s biggest pool of consumers. By removing or harmonis-ing economic barriers such as tariffs, trade and investment is expected to grow. Anticipating the benefits, former Philippines President Gloria Macapa-gal-Arroyo hailed it as a “formidable regional grouping” to rival the Unit-ed States and the European Union.

Yet our research in China and In-donesia shows that trading with fel-low Asians is just as culturally chal-lenging as trading with the West. Based on 57 comprehensive inter-views with Chinese and Indonesian business leaders and their co-workers, we found striking differences in lead-ership and communication styles.

While both cultures are extremely hierarchical, in which employees are prepared to submit to powerful fig-

ures, there are major differences in work values and leadership expecta-tions. More significantly, we found that failure to understand such dif-ferences can result in damaged rela-tionships and impaired performance.

chInese vs IndonesIan LeadershIP

Based on our research, work is of central importance to the Chinese. Achieving goals or targets is critical to career advancement and financial reward. Chinese leaders typically set long-term goals and avoid uncertainty and risks. They tend to work hard, sacrificing short-term interests for fu-ture gains. They seldom celebrate small successes while routinely investigating failures, meting out tough sanctions against those deemed to be at fault,

01 | Asian expats in Asia: Neighbours and strangersIn pioneering research on the distinctly different experiences of leadership in China and Indonesia, Hori Tjitra, Hana Panggabean and Zheng Jiewei explain that it can be as challenging for an Asian to adapt to another Asian country as it is for an Asian to operate in another continent.

Dr Hora Tjitra is currently Associate Professor at Zhejiang University in applied psychologyDr Hana Panggabean is postgraduate studies Director at Atma Jaya Indonesia Catholic UniversityZheng Jiewei is Project Manager and Consultant at Tjitra & Associates, China.

89 Asian Expats in Asia

usually by cutting wages. Dissatisfac-tion with poor performance is often expressed directly through direct con-frontation. They are highly directive when dealing with staff whose opinions they rarely consult.

By contrast, our data suggest that Indonesians view work as but one as-pect of their life and are much less task-focused. They are more likely to cultivate a comfortable working atmos-phere. Rather than viewing failure as an egregious error, they tend to view it as a “lesson” to be evaluated. Their toler-ance of mistakes makes them reluctant to apply strong sanctions on others. Mild rebukes in the form of “jokes” are more likely to be used to convey dissat-isfaction. They often seek the opinions of their staff, although their questions tend to embody the answer they are seeking. Still, their staff perceive that they are appreciated and listened to.

chInese vs IndonesIan eMPLoyees

Chinese employees in our sample ex-pect their managers to be authoritarian and to possess deep technical mastery. Like their managers they are strongly output oriented. As long as they feel fairly compensated, they willingly work

extremely long hours. And when they fail to meet their targets, they expect to be punished. Indeed, the ideal Chinese leader is the polar opposite of the ideal Indonesian leader.

Indonesians expect their leaders to be “halus” or soft, rather like a domi-nant yet emotionally distant father. Those who behave like the archetypal “strong” Chinese leader are deemed “kasar” or rough and are perceived as weak, uncivilised and uneducated. In-donesian workers often characterise the ideal relationship with their managers as being like ‘kekeluargaan’, or fam-ily, in which there is unconditional ac-ceptance and trust. Highly controlling managerial behaviour is viewed as a sign of mistrust. The importance of good relations with immediate supervisors is typically emphasised by Indonesians.

chInese Leaders In IndonesIa, IndonesIan Leaders In chIna

In our study, Chinese managers in Indonesia struggle to motivate their staff and as a result are typically dissat-isfied. When they belatedly realise that emotional outbursts and controlling behaviour undermine their authority,

Chinese leaders tend to retreat, frus-trated at the supposed poor work ethic of the Indonesians. Rarely do they understand that their own “Chinese” leadership style has demotivated their staff.

While their Indonesian staff of-ten admire Chinese working values as “hardworking”, “disciplined” and “entrepreneurial”, recognising that such attitudes “get the job done” they object to their harsh managerial style. Indeed, Indonesian staff, un-like Chinese staff, are more likely to rebel against a manager who fails to meet cultural expectations.

If I don’t have a good job, I cannot be happy. I will not go out to meet my friends, as I will lose face.

a chinese respondent’s view on work

Work is work. Life is Life. It is ok if my salary is not high – I can still enjoy life with my family.an Indonesian respondent’s view on work

This research project adopts

the “grounded theory” approach. “Grounded

Theory” emphasises the generation of theory from data, and generally adopts a four-step approach involving 1) data collection, 2) data categorisation, 3) grouping of categories, and 4) theory creation. Increasingly, data analyses software like “ATLAS.ti” are used to help code and group data.

MethodoLogy

Does Human Capital Really Matter? 91 90 Asian Expats in Asia

research revIew

They are more inclined to resign from a job, even if it means unemployment, if they dislike the manager. Even when Chinese companies pay higher salaries than Indonesian companies, Indo-nesian workers will prefer remaining with their In-donesian employers. As a result, in a nation where the employees are renowned for their loyalty, Chi-nese leaders often experience the unusual problem of high staff turnover.

Our interviews suggest that Indonesian managers in China tend to be facilitative, typi-cally coaching and mentoring their staff. Chinese workers typically appreciate this familial and car-ing managerial style. However, they are even more appreciative when Indonesian managers try to un-

derstand Chinese regulation and corporate prac-tices, particularly regarding remuneration.

Still, Indonesian managers struggle in China to win recognition as leaders. They are often per-ceived as ‘soft’ and ‘indecisive’ by Chinese workers, due to their facilitative approach, failing to earn Chinese workers’ respect and trust. Indonesian cautiousness and reluctance to intervene in busi-ness details is often perceived by Chinese workers as deficient technical expertise. Chinese workers also demand equal treatment, especially regarding pay, and are quick to express their dissatisfaction, especially if they perceive that Indonesian staff are paid more. Such dissatisfaction can undermine a manager’s credibility.

To bridge the cultural gap, Indonesian manag-ers learned Mandarin prior to arriving in China. However, many fail to master the language suf-ficiently for daily working situations. As a result, communication is difficult, instructions are not fully understood, messages are not conveyed, etc and processes break down. Targets are attained, but not done in the way Indonesian leaders have expected. For instance, an Indonesian vice president working in the chemical industry said he struggled to make his workers comply with health and safety procedures.

brIdgIng dIfferences

Do not underestimate the cultural challenges of Asians operating in other Asian countries. We may be neighbors, but we - all too often – are also strangers to each other. Leaders should invest in learning the

language of the country in which they are working.

It is important to strike the right bal-ance between authoritarian and par-ticipative leadership styles. Indonesian leaders might need to become more decisive and firm while Chinese lead-ers might focus on increasing the par-ticipative domain.

Both sets of leaders need to under-

stand the different values that each culture places on the nature of work. The two quotes below illustrate accu-rately the different views that Chinese and Indonesians have regarding work:

-Chinese participant: “If I don’t have a good job, I cannot be happy. I will not go out to meet my friends, as I will lose face.”

-Indonesian participant: “Work is work. Life is life. It is ok if my salary is not high – I can still enjoy life with my family.”

Chinese leaders operating in Indonesia need to understand the principle: “to move fast, you need to start slow”. It is critical for Chinese leaders to first build strong relationships with the Indone-sian employees as that will set the foundation for strong results subsequently. Indonesian leaders operating in China need to understand the principle: “to be kind, you must be tough”. It is essential for Indonesian leaders to be seen as strong and results-focused. This will help win the respect and good-will of their Chi-nese employees.

This research project is supported by HCLI. The full report and research findings are available at HCLI's website.

chinese leaders operating in Indonesia need to understand the principle: “to move fast, you need to start slow”

•

•

•It is an age-old question: how much does human capital – the knowledge and skills embodied in employees in an organisation – affect that organisation’s performance? The question is important because training and retaining employees can be expensive and results may not be apparent for years. Five experts analysed 66 previous studies to find a definitive answer.

02 | Does Human Capital really Matter?

In a recent paper published in the Journal of Applied Psychology (January, 2011), the au-

thors found that human capital is linked strongly to company performance, especially when meas-ured on the operational level and in cases where employees cannot move easily from company to company.

MIxed Messages

According to conventional wisdom, be-cause superior managers are often in short supply, and because it can be difficult for

competing firms to poach them without in-curring significant cost, the firms with su-perior managers should outperform others.

Over the last 15 years, researchers have empha-sised this human factor in developing a resource-based theory (RBT) of comparative advantage.

Yet empirical evidence so far has not always supported the theory.

This may be because most studies take data from one point in time when truly unique and valuable skills tend to develop over time.

Another reason may be that employees with general skills – stockbrokers, for ex-ample - can job-hop until their costs have