Going native

Despite the politicized rhetoric concerning the exodus of white collar jobs to developing countries like India, the task of building a back office in these regions still requires diligent planning and no small amount of savvy.

As with recruiting and retaining talent on the deal side, recuiting in a new market involves a mix of personal networks and cultural intelligence, both of which are traditionally in short supply when expanding into new geographies. Hopefully, by the time the decision to expand into a given region is made, there are enough local relationships to tap for the search process.

Among those relationships are local law firms. They tend to have a robust network to explore for potential back-office hires, beyond, of course, the hiring of in-house counsel for the new office. Some firms continue to outsource legal counsel well into the life of the satellite office, sometimes contracting multiple firms depending on the nature of the transaction. The value of law firm referrals is that they tend to be made with the thought of solidifying a long term professional relationship so they have a unique stake in suggesting staff that fit properly beyond the immediate future.

Lori Sabet, a principal and senior vice president of HR with The Carlyle Group, has found some success in sourcing talent from investment banks. ?They tend to be rich sources who understand the pace and standards these positions require,? she says. Like the law firms, the banks have a rich Rolodex and a vested interest in suggesting a snug fit for the office. Within the banks themselves, there may be no shortage of talent that has the combination of Western training to mesh well with expatriates in the office, and global experience to navigate the unique demands of non-Western environments. ?We prefer local hires that have been educated in the West but have worked for global organizations,? says Ada Tse, the CEO of AIGGIG-Asia operations.

Local headhunters can provide a comprehensive scan of the market but it's important to be aware how long the given firm has been in the region. AIGGIG has an HR staff dedicated to the investment business, but most firms don't have that luxury. Executive search firms have been expanding in emerging markets as well, but the regional of-fice of a larger Western enterprise may not have the same quality of contacts yet that a smaller, more established local firm is likely to have. That's assuming that native talent is a priority, as some GPs we spoke with explained that given the nature of back office functions, with the exception of legal staff, there's less need for long-standing ties to a given region. Accounting doesn't require the relationships that deal sourcing does, so the key may be the right talent willing to relocate. If that's the direction, an executive search firm with global reach and an understanding of the demands of a private equity fund may be preferred. However, compensation requirements might be higher for executives from the US and Western Europe than for local talent, and there's the cultural transition necessary for any foreign executive to make.

Another issue to consider in building a back office is the pace of that growth. In most circumstances, the home office serves as an interim provider of the back office function, until deal flow demands additional capacity. While this often demands a taxing amount of travel, it builds a local expertise that can make the current staff a resource in selecting permanent staff abroad. A firm's general counsel can often find a viable candidate over the course of his or

her activities in the new territory, or at least better refine the core qualities required of the position. In the case of outsourcing the back office function entirely, a GP warned that the vendor should have some previous experience in the region as such expansion for a single client can be costly and prone to error. Several US firms use their experience expanding in Europe as a model for growth into emerging markets. ?We've got a blueprint now for our drill team,? says Sabet. One element of that drill team is an office manager with a working knowledge of a few different functions, from basic bookkeeping to some experience with HR. These individuals are a temporary solution, and often rely heavily on the home office, lacking the expertise to tackle any of the roles exclusively. Beyond dealflow, some funds have the resources to expand capacity quickly, as AIG does, quickly tailoring teams for current needs by operating as part of a vastly larger organization. Practice makes perfect in building these teams at an effective pace, but every region will have certain qualities that can make previous experiences irrelevant. As anyone who has expanded into multiple European countries can attest, resources can vary wildly country to country.

A number of expansive GPs interviewed agreed on the importance of building in close collaboration with the deal makers. These emerging market teams rarely have the bureaucracy of the home office and resemble a small start-up in style, regardless of the parent's long and luminous track record. Like any lean operation, each hire has the potential to make an enormous contribution, or throw off the equilibrium of the whole staff. Chemistry is all the more crucial in this setting. It's the difference between inviting someone to the family's mansion for the weekend, and inviting them to share a studio apartment. Proximity demands a genuine rapport, which makes the deal team's feedback on potential hires all the more vital. Finding this ideal fit in emerging markets also involves sensitivity of the local attitudes towards employment, foreign business, and private equity specifically.

In many emerging markets, the top tier talent in back office functions often lands in the more stable, homegrown businesses. Given the relative economic instability of emerging markets, leaving a relatively secure position for the promise of a greater payday elsewhere often involves an appetite for risk not common among say, local accountants. That said, private equity firms are often in a better position to present competitive compensation packages, so long as the headhunter or home office takes into account the allure of more steady positions at local companies, if the region indeed offers any such possibilities.

The other consideration must be the social bias towards working for foreign businesses or private equity firms. The value of relying on a network of local contacts is more than a list of potential candidates; it's the chance to survey the attitudes of local executives and gauge the prestige of a given firm or industry. Working for a Western business comes with considerable social cache in Central and Eastern Europe, while Asian countries hold a decidedly more complex view, with patriotism mingling a reverence for economic prosperity with pride in their unique culture above others. The reputation of a given firm has real influence as a respected brand often transcends any inkling towards a market or country in general. If a local dealmaker is already in-house, they bring their own reputation to the table, lending a far less foreign identity to the shop. Staying abreast of such bias is essentially a matter of shifting the perspective to the potential hire, and noting all the factors that go into a decision to join a firm. Some executives might be at a point in their career where there is a greater flexibility for nontraditional routes, whether that's the result of being relatively young and open to risk, or older and aiming to move beyond a career plateau.

Much like sourcing deals in these regions, recruiting talent for even the most straightforward positions depends on local expertise and sensitivity, coupled with the best practices of operating in any area. What's evident is that the opportunities of emerging markets take substantial commitments of time and money to make the transition a smooth one. Outsourcing the whole back office administration still involves deciding on the best provider, and the cost will reflect the convenience of keeping these duties off a GP's desk. Relying on the home office may be sufficient at the start of a fund, but deal activity worth breaking new ground for can rarely be administered from thousands of miles away indefinitely. The best approach appears to be moving in phases, with the home office staff building experience within the region, then selecting a viable liaison to tackle the more straightforward tasks, gauging deal flow for staffing needs, and moving to capitalize on local relationships to provide intelligence and referrals on likely candidates, and then selecting the proper blend of personality to complement the deal team. The process is a simple formula in the sense that golf is a simple game, taking an afternoon to learn the rules, and much, much longer to master.