Recruiting in China

As multinational companies expand into China, the headhunting business is growing quickly and moving online, says Zhaopin CEO Liu Hao

Zhaopin was founded in Beijing in 1997 as an old-fashioned headhunting company. Since then, it has shifted much of its focus to the Internet, and has become one of China's leading online recruitment firms. Still, Zhaopin hasn't abandoned the old ways of doing business, continuing to run recruitment ads in newspapers, especially in smaller cities. Clients include many multinationals such as Microsoft (MSFT), Shell (RDSB), DaimlerChrysler (DCX), Hewlett Packard (HPQ), Motorola (MOT), and Intel (INTC). Advertisement

Thirty-six-year-old CEO Liu Hao has degrees in physics from Beijing University and the University of Washington in Seattle, and a law degree from Yale University. He recently met with BusinessWeek's Beijing bureau chief, Dexter Roberts, at Zhaopin headquarters to discuss his Internet operation and the overall recruitment market in China. Edited excerpts follow:

How has your company developed recently?
We have been growing very rapidly, with 100% annual growth in revenues the last three years. A couple of years ago we were profitable, but in the last few years, with the speed up of our expansion -- we have grown from 4 cities to 16 cities -- we have not been profitable. In early '04 we had fewer than 300 people. Today we are at about 1,000.

We are particularly strong in the multinational business. Think of the Fortune 500 companies -- 95% of them are our clients. We are definitely not the largest recruiter in China. No. 1 is [Nasdaq-listed] 51job.com. But their strength is mainly in newspaper ads. They do only 20% of their business online. We instead are 60% online, with 20%-plus in newspapers. The rest of our revenues are from headhunting.

Why are you expanding into the interior of China?
We see this as the driver of our growth. In the past, the online market has really been centered in Beijing, Shanghai, Shenzhen, and Guangzhou. Outside these cities it was just in the development stage. But China's secondary cities also have huge populations. In the past, Internet penetration was not so high there, but that is changing.

For cities like Wuhan and Hangzhou, for example, their online jobs market might only be worth a couple million yuan ($125,000) right now. But in the next few years it will grow to 10 million yuan ($1.25 million). As multinational companies expand across China, we will go with them. We will probably be in 20 cities by yearend.

How bad is the talent shortage in China?
In the past, when companies first came into China, they were all struggling to fill managerial positions with people with solid operating experience. Chinese returnees with overseas degrees came back, but often had very little managerial experience. Over the last couple of years we have started to see a new pattern. General managerial staff is still in great demand, but the market demand is getting much more specialized.

For example, there's an acute shortage of skilled workers such as specialized engineers. That's particularly true in industries like autos, with the entry of BMW, Mercedes, and all the Japanese brands into China over the last few years. The pharmaceutical industry and the finance industries are also facing talent shortages. In general, sales and marketing professionals, medical care staff, and investment and fund managers are all facing serious shortages.

Are wage inflation and turnover a big problem right now?
China has doubled the number of people in its colleges over the last few years. That has had a deflationary effect on salaries for entry-level people. But in certain industries over the last couple of years, salaries have increased dramatically. For example, in the computer and Internet industries they have gone up 20% to 30% over the past year. Wherever you have venture capital flowing, salaries will go up. But in consumer electronics and the cell phone industry, we have seen that pay levels have dropped a little bit. So we actually see pockets of deflationary pressure.

Second-tier cities face a more severe problem. Cities other than Beijing and Shanghai have a particularly hard time keeping top talent. For example, take Xian. There are 100,000 to 200,000 college graduates in Xian every year. Xian is a city with a high educational level. But most graduates leave Xian after college. Beijing- and Shanghai-based companies offer higher salaries and a sexier work environment.

Chinese employees are known for changing jobs quickly. Why?
China's job market is still not very mature, and professional ethics are still in the process of developing. We still see cases where job candidates will sign an offer and then decide not to take it. People also jump ship more often here in China. The general sentiment of society is impatience.

People are very ambitious. It's like a virus affecting the job market: It is very hard to develop employee loyalty. People see working at a multinational as a stepping stone -- something to put on their résumé before moving on. Talented people are being lured away by local or private companies. Others would prefer to start their own companies.

How does that drive your business?
A lot of employers are starting to realize that going online is the best way to find the kind of employees they want. Certain employers use the Internet as a way to screen employees -- anyone the company would consider hiring should be proficient online. And a lot of multinationals are spending more online, while decreasing their print ads.

How do you see the overall online jobs market developing?
In Beijing, revenues from online job listings overtook newspaper listings last year and now lead by a large margin. Online jobs are growing at 30% a year now and were about 100 million yuan last year in Beijing. The size of the Shanghai market is a little smaller but growing at the same pace. Nationwide, newspaper revenues from recruitment ads are around 2 to 3 billion yuan, but growth is pretty much flat. The online recruitment market for all of China was probably around $50 million last year, and is growing at around 30%.

Any plans to take your company public?
Yes. Probably late next year. And it will most likely be on Nasdaq. It's where all the Chinese Internet companies have gone