Should I Stay At A State Owned Enterprise?

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  • McKinsey China

Should I Stay At A State Owned Enterprise?

I was asked this question last week by someone I have got to know through my work with universities in China. This individual was in his mid-30s, a graduate in a technical subject from a leading Chinese university, and has some international exposure.

How did I respond?

First of all, with a review of the prospects for the state owned company (SOE) he worked for and its industry. I generally suggest that the talented and ambitious focus on growth companies in growth industries due to the number of leadership opportunities it creates. You don’t have to wait for senior executives to retire in order to move up.

Was this the case here? Clearly not. His industry has gone through its years of rapid growth, and they are gone and not coming back. The industry has a shocking amount of overcapacity today, many competitors are losing money (even though this specific company is not), and consolidation/shrinking is more on the minds of management.

More broadly, the prospects for SOEs overall seem less bright under China’s current leadership. The SOE-first industrial strategy of the prior leadership is being gradually set aside, with a more level playing field for private Chinese companies emerging. While salaries at leading SOEs remain very attractive, the anti-corruption campaign has reduced the level of associated benefits that a manager at an SOE can expect.

If the broader context is not bright, how did the specifics of this person’s role look? Did they give a promising foundation for at least the next few years of his personal career?

On the positive side, his current boss sounded like an inspirational person, with a broad range of experiences inside and outside state owned enterprises. However, beyond his boss, too many colleagues sounded as though they had joined the company because it appeared to offer a secure job for life, with a good salary and high prestige in the community. This translates day-to-day into a conservatism, a desire to maintain the status quo, and often really not being enormously committed to delivering their best on tasks. But as long as the current boss was there, interesting projects were likely to be available.

Current projects certainly sounded very interesting, with real growth potential. Management has clearly recognized that their current core industry has matured, and they are looking to diversify, committing very large amounts to making acquisitions. This creates great opportunities to learn about these industries and target companies through due diligence, and if an acquisition is made, to move into that new business.

However, this has led to the realization that the decision-making process at the SOE, driven by consensus building, is slow. While slow decision-making can be a strength in some situations, in deciding whether and how much to bid for a company, it is not. So far, all projects have led to offers not accepted. Clearly the frustration of not closing any deals is growing and ultimately was, I think, the driver of having this conversation.

If he were to move to another company, was he well prepared, and where would he go? Potentially, the companies that he is evaluating are an option – they are in fast-growing industries that make use of his technical skills. Maybe a startup, but he needs to be very clear on the personal cash flow implications of moving there from a well-paying SOE – do his life and family commitments permit it?

And multinationals? He had investigated this and found that he was likely to be hired only in an R&D role, which wasn’t really where he wanted to direct his career.

While my friend’s current projects were clearly broadening his skill set beyond technical areas and into broader business topics, I suggested that if he wished to accelerate this, and to have something to show possible future employers about his commitment to general management roles, that he consider some kind of part-time MBA – either online, or by taking classes in the evening.

In the end, I suggested that he set himself a deadline for deciding to stay or go. If by that point no acquisitions had been made, they are probably not going to happen (after the SOE is using up its financial resources to support its declining core business). In the meantime, work to get a qualification that demonstrates commitment to a broader management role, which will make him more attractive if he does decide to move, and also be relevant if he stays.

What would you have said?

You can read more of my views on China on my LinkedIn Influencer blog. And please follow me on Twitter @gordonorr

Image credit: Steve / Flickr

By |August 20, 2014|Categories: Gordon's View|3 Comments

3 Comments

  1. Damjan P. DeNoble August 29, 2014 at 01:50:30 - Reply

    It’s interesting. I had a conversation on a somewhat related topic with a pharmacist inside of private healthcare institution in Vietnam. I asked this person whether the hospital was recruiting staff from public hospitals (the SOEs of the healthcare world, whether you’re talking about Vietnam or China) because that seemed, superficially, like a natural recruitment channel. What this person said is that this sort of strategy would be a waste of time because people self-select into state-owned company cultures, but more importantly the habits they form in an SOE culture are just not compatible with dynamic enterprise. As you point out, there is a lifestyle associated with the choice to move into a private enterprise, or even into a dynamic, state-owned company like the one the individual in your piece is described as being interested in.

    The insight that I gained from my interaction with this Vietnam pharmacist is that while, when we put on our analyst hats, we may talk a lot about factors like prestige and competitiveness of compensation in thinking about how people move from SOEs to private enterprise in East Asian economies, we should also be giving more credence to what may in fact be a very solid wall dividing workers in the SOE economy from those in the private sphere. In perhaps the majority of cases, as opposed to just some cases, the transition from one sort of workplace culture to another may just be impossible. At the very least, for the type of person who doesn’t believe in the impossible, it would require a complete and irreversible change in the way that one lives her life, across the full gamut of life spheres.

  2. Miguel Roberg September 11, 2014 at 15:04:09 - Reply

    I find this topic interesting because I am currently work for a SOE. From reading this article, it sounds like your friend is Chinese. The question I have is for you: Is it a good idea for a foreigner to remain working at a SOE?

  3. Gary Rice September 22, 2014 at 11:51:15 - Reply

    At the moment government owned companies provide a relatively secure working environment with pensions and good prospects for promotion. Unlike the UK where either wait for a person to leave, retire or die.

    Even though the government in China is slowly reducing the perks which were exploited by many worker government positions are still good jobs.

    In time, however costs will have to be saved and unfortunately staff will be made redundant due to saturated staff levels.

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