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Finding a window of opportunity in a slow economy

Warren Buffet believes that, through careful investment, he can profit in the current financial crisis. In the same way, employers in Asia-Pacific can capitalize on today’s tough times by acquiring and motivating top talent.

Asia-Pacific has seen a booming market for talent in recent years. A slower economy presents a “buying opportunity” for companies that have the resources and foresight to take a long-term view of where their business is headed and the kind of people they need to get there.

Slowdown, not meltdown, in Asia-Pacific

Asia-Pacific’s stock markets have been badly hit, and growth will slow temporarily as demand for Asia’s exports in Europe and the United States tapers off. However, in spite of this, we believe that Asia-Pacific will remain the growth driver for the world economy over the next two years.

According to the Economist Intelligence Unit’s November forecast, Asia’s GDP, ex Japan, will grow by 6.5 percent in 2008 and 5.0 percent in 2009. In contrast, the U.S. economy will grow by just 1.6 percent in 2008 and shrink by 0.2 percent in 2009.

The current slowdown will not be a repeat of the 1997 Asian financial crisis. Banks in the region are generally strong. Most Asia-Pacific governments have high levels of foreign exchange reserves. In several countries, notably China, there is scope for tax cuts if consumers or companies need to be encouraged to keep spending.

Most employers in Asia expect their businesses to keep growing. In fact, some multinationals now place an even higher priority on Asia-Pacific expansion plans as business opportunities wane elsewhere. Asia will get another boost as multinationals step up plans to offshore work to lower-cost locations.

Even in the midst of the financial crisis, a pulse survey of Asia-Pacific HR directors conducted by Watson Wyatt in September 2008 shows that nearly half of employers expect to keep hiring over the next three years.

Watson Wyatt believes that a slowdown will not reverse the long-term imbalance between the supply of and demand for talented employees in Asia-Pacific’s growth markets. Our research data shows the average annual employee turnover rate was above 15 percent in Australia, China, India, the Philippines and Singapore in 2008. Skilled employees will continue to have many career options. Employers cannot afford to relax their focus on attracting and retaining key employees.

Our September 2008 pulse survey shows that 77 percent of employers believe a shortage of talent will remain an impediment to their growth plans in Asia-Pacific. China is the most bullish market in the region: 88 percent of multinationals operating in China still believe this to be their most challenging business issue.

 

Balancing cost control versus long-term opportunity

It would be naïve to think that business can blithely ignore short-term realities. The 1997 Asian financial crisis is still fresh in the minds of many managers in Asia-Pacific, and they are more prepared for a slowdown than many of their global counterparts. Watson Wyatt’s Global Total Rewards Study 2008/09 shows that 84 percent of employers in Asia-Pacific have established contingency plans for an economic downturn, compared to just 67 percent in the United States.

Contingency plans in Asia-Pacific need to be highly targeted as the impact of the slowdown will vary markedly between different countries in the region. Our study shows that the top three potential actions being considered by Asia-Pacific managers are organizational restructuring, hiring freezes and lower salary increase budgets in 2009.

Contingency plans in Asia-Pacific are generally less severe than those of U.S. employers. In the same global study, U.S. employers most frequently mentioned layoffs, followed by organizational restructuring and a hiring freeze when outlining their contingency plans.

Managing people in a slowdown

Leaving staff in the dark as uncertainty mounts will undermine morale and motivation. It’s also crucial to communicate regularly within the senior management team so that regional and head offices understand the real-time extent of exposure for different countries and business lines. This will avoid one-size-fits-all solutions, such as a blanket global hiring freeze, which could damage parts of the business that are still doing well.

In a period of high uncertainty, HR managers need to review where key talent would be most productively employed around the Asia-Pacific region. Now is the time to reassign employees to locations and business lines where there is the greatest need. This can be a real opportunity to expand the roles of high-potential employees.

Bonuses should go to employees who really drive the business. Some employers will achieve this by increasing performance-based bonuses whilst freezing base salaries. Sales targets may need to be recalibrated so that frontline sales staff are motivated by achievable targets in more difficult market conditions.

Falling stock prices have devalued stock options and other stock-based incentives, but repricing these would raise highly sensitive governance issues. Mindful of the downfall of some major financial institutions, boards of directors will now be cautious about incentives that might encourage executives to take excessive risks. This is an appropriate response to recent events, but should not be taken to extremes: business will never be a risk-free activity. Executives should be rewarded for financial performance, provided that both the risks and rewards of the decisions that generate that performance are fully understood and well managed.

“Engageable moments”

While an engaged workforce is a highly valuable asset, it is also one that is easily undermined by economic uncertainty. Watson Wyatt’s WorkAsia report, which studies employee engagement levels in 12 countries in Asia-Pacific, has already measured a decline in engagement over the last year. In Hong Kong, for example, only 11 percent of employees said they would consider a new job that offered a 10 percent raise in 2007. However, by 2008, as signs of an impending economic slowdown appeared, 37 percent of Hong Kong employees said they would consider it.

Companies that have invested heavily and publicly in talent management in recent years need to be especially careful about communicating the impact of a slowdown. The value created by years of investment may be undone very quickly if employees sense that their bosses’ “commitment to people” evaporates at the first sign of trouble. Employees have long memories.

If a restructuring, merger or round of layoffs becomes a necessity, the manner in which such major changes are managed will define how employees view their company for many years to come. Paradoxically, difficult times can provide what Watson Wyatt calls “engageable moments,” when organizations form a stronger shared culture as employees band together to address a crisis.

Emerging stronger from a slowdown

HR directors in Asia-Pacific find themselves caught in a tug-of-war. As business slows down, there’s heavy pressure from global HQ to cut costs. However, this is also a window of opportunity to acquire businesses, hire people and build long-term loyalty among existing employees. Every employer in the region needs to find its own balance between short-term imperatives and longer-term opportunities.

Watson Wyatt believes that companies that can adapt to the economic slowdown, whilst remaining visibly committed to the future of their key people, will be the long-term winners in the region.

Bob Charles, Managing Director, Asia-Pacific
Russell Huntington, Director of Human Capital Consulting, Asia-Pacific