Is HR key to Chinese dominance?

The Royal Bank of Scotland (RBS) knows more than most about the benefits of getting involved in China’s burgeoning economy. The bank’s £900m stake in the Bank of China almost trebled in value when it floated on the Hong Kong Stock Exchange two weeks ago. In one day alone, RBS’s 5% stake in the bank grew to £2.6bn. Not bad for a day’s work.

Go East

It’s news like this that has every company in the UK with an eye on the future gazing eastwards. Present predictions show China’s economy will overtake Europe’s and will be a match for the US by 2015.

There are even rumours of enlightened US businesspeople taking on Chinese nannies so their children get a grounding in the language ahead of the seemingly inevitable economic onslaught.

But Neil Roden, RBS group HR director, knows a thing or two about China himself, and he warns companies that getting involved in the Far East is far from plain sailing.

Having an integral role in setting up the deal with the Bank of China, and having recently returned from the country, he believes China has a long way to go before its businesses are ready to challenge the dominance of the West.

“It is where we were in 1985 – about 20 years behind us,” he said. “You name it, China needs to do something about it. One of the paradoxes of China is that it has a population of 1.3bn, yet it is short of people. The country lacks any skill that you could probably name – it’s short of IT, finance and HR people, because it needs people with experience, and that’s a limited pool in China”.

A big part of the problem, Roden said, is that to get the skills they need, Chinese firms have to re-organise how HR functions are run. Autonomy and self-empowerment has never been a hallmark of Communist regimes.

“There is a link between the banks and the Communist party, and HR is – or was – the conduit,” he said. “HR was a centralised unit dictating how many people employers could and couldn’t have.

“In a rural branch [of the  Bank of China] in the back of beyond, my opposite number would have to authorise an increase in headcount. That’s where banks in the UK would have been in the 1980s. It’s like when the personnel department used to say: ‘Right,  you’ve been in central London for two years and Doncaster is your next move’, and off you went. It’s very command and control.”

Challenges ahead

This challenge will be all the greater for UK companies trying to get their own place in the Far East. The Bank of China suffers these problems despite being more outward looking than most other Chinese institutions – it was the bank the government used when doing its international business.

But companies who think the Chinese will shirk from the challenge ahead are sorely mistaken, according to Roden.

“Landing at Beijing airport, I just remember seeing crane after crane after crane – it must be one of the biggest collection of cranes anyone has ever seen. Hundreds if not thousands. When you get to Beijing, you notice a startling contrast between old and new. In the complex [where RBS is based], you could be in any city, in any country in the world.

“It’s only when you get to Tiananmen Square and see the red flags and the picture of Chairman Mao before you go into the Forbidden City that you remember you’re in China. You get the sense of change coming.”

Need for change

China is “desperate” to join the world economy, with individuals having familiar aims to their Western counterparts – they want money to get as wealthy as they can, and a nice house and a nice car, Roden said.

“People are very clear and all talk about the need for change – their issue is: what do we do next? What should the change be, how should it be organised and how should we do it? Watch them [the Chinese]; they are coming,” he concluded, ominously.

And it’s HR that could well be the catalyst that speeds China on its way, and in turn ushers in a new age of economic dominance.

“[Chinese businesses] see HR as central to helping other things change,” Roden said. “They are looking at how HR should organise and structure at a business level, then they are looking at roles and what people do – [the Bank of China] is very interested in our shared-services model and how that works. They know that if they don’t change HR stuff quickly enough, they are going to have a problem.”

Perhaps the much-maligned HR function could be the foundation of a new world order. Perhaps the meek will indeed inherit the earth.

RBS and the Bank of China: a short history

  • 18 August 2005 – RBS sells its stake in Spanish bank Banco Santander.
  • 18 August 2005 – RBS announces strategic partnership with Bank of China.
  • 30 December 2005 – £900m investment deal completed, with RBS taking a 5% stake in the Bank of China. RBS also leads a consortium that takes a total of 10% of shares in the Chinese bank.
  • 1 June 2006 – Bank of China floats on the Hong Kong Stock Exchange. RBS holding almost trebles in value.

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