Multinational groups that own a manufacturing facility in China tend to have great difficulties finding, recruiting, and retaining a strong and competent general manager.
There is an alternative to hiring a general manager, though: hiring a company that can manage a factory under contract.
How does it generally work?
The management company places a part-time or full-time acting general manager on site, and brings in specialists in areas such as production planning, maintenance, HR management, quality engineering, etc. as needed.
Let's look at the advantages and drawbacks of such an arrangement.
Speed and flexibility
Starting this arrangement on a short-term contract can happen in a matter of days or weeks, in order to fill a void at the head of the structure. Then, when both parties have a clearer view of the situation and the potential for improvement, a longer-term contract can be signed.
In comparison, finding and hiring a great GM takes easily 6-12 months.
If the facility to manage is in crisis and needs to be turned around, the ability to bring in specialists to work on certain parts of the business can "stop the bleeding" and get the company on the right path. Meanwhile, the acting GM coaches the executive team to ensure they understand and support the changes in the long term.
Impact on the factory under management
This aspect arguably depends directly on the personality, attitude, and competencies of the general manager. And some of these criteria are difficult to assess before the candidate is actually on the job.
Here again, flexibility matters. A management company can replace a 'GM under contract' that is actually a misfit on short notice, while an employed GM is more difficult to 'replace'.
Cost
Many general managers need to be brought in China under an expat package that costs 200,000 USD a year. That amount is mostly fixed.
Conversely, a management company is typically happy with getting paid 50% or more against results. In addition to a fixed retainer, a large part of the compensation can be tied to some measurement indicators -- for example savings in labor costs, improvements in quality as measured by a key customer.
The management company should actually be able to make a diagnosis of the factory's situation, suggest an action plan, and commit to improving some meaningful indicators.
Transparency
Some GMs get entangled in politics and don't disclose the full information to head office staff. This gets worse as they see themselves "irreplaceable". A management company will tend to be more transparent and will generally send regular reports about what they are doing.
Company culture
If your company has a strong culture and good management systems, you are probably better off preparing a smart and hard-working manager for the GM position. Unfortunately a minority of companies are in that case, from our observations.
Conclusion
To sum up, resorting to a management company can be cheap and short if they don't perform. If they do a good job and improve the situation, they will reap a small part of the value thus created.
This is a great solution for those companies that haven't groomed a futur general manager. It is also great when a GM who maintains the status quo is in place and an external force -- possibly with the title of vice-GM -- is needed to push for improvements.
