Recruiting in China

Shaun Rein of the China Market Research Group submits: My firm recently interviewed senior executives of MNCs in China about their operations in China and what parts are strong and what parts need improvement. One of the respondents’ biggest complaints in doing business here surprisingly was not corruption or IPR issues. Indeed, the majority of respondents said that the Chinese Government has cracked down on corruption and IPR enforcement to the improvement of business conditions.

Instead, the most common complaint from our interviews was HR related. As China’s economy booms, executives said that it is hard to recruit and retain good talent that will help them scale their businesses and enter into the potentially lucrative 2nd and 3rd tier cities of China .

I wrote about strategies for retaining talent in a recent Harvard Business Review piece, and how MNCs need to put in place better training programs, eliminate glass ceilings for Chinese workers, and reduce if not eliminate outsized expat packages that cause jealousy amongst lower paid Chinese employees.

China’s HR conundrum is something that confuses a lot of people who have not had to hire people here. They reason that there are so many people in China looking for jobs that it must be easy to hire people. They point to the fact that China’s number of university graduates matriculating every year has quadrupled in the last five years from 1 million to 4 million and to the fact that there are 180 million migrant workers who “float” around China looking for job. How can it not be easy to hire talent, these people reason, especially if you give them salaries like $500 USD a month that is far less than what companies pay workers in the US but far more than the average GDP per capita in China which stands around $100 USD a month.

The problem is that the skills that most workers possess are not necessarily what MNCs are looking for. For those with the needed skills, it is an employees market. They can and do demand ever higher salaries, with MNCs regularly doling out 20% annual increases to retain even mediocre talent. Restless and wanting to be the boss and make millions, they are switching jobs every year or so, leaving MNCs constantly looking to hire.

As a result of market conditions, large executive search firms like Korn/ Ferry (KFY), Russell
Reynolds, and Spencer Spuart as well as boutique ones have been multiplying. It seems like every other office in my building in Xintiandi is either a headhunting or textile company.

But online recruiting sites like 51jobs.com (JOBS), ChinaHR.com, Zhaopin.com, and an aggregator that pulls job listings from across the internet called Yingjiesheng.com is of the most interest to retail investors. The top three sites together control nearly 70% of the online job market with 51jobs.com leading the pack with a 39% market share, followed by ChinaHR.com at 15% and Zhaopin.com with roughly 14%. And it is a booming market.

My firm, the China Market Research Group (CMR), estimates that the online job market in China will grow fourfold by 2010 from its 2005 value of $100 million USD. Growth will remain steady as the majority of China’s 125 million internet users fall between the ages of 18 and 28. This age group, which I have termed China’s Baby Boomers, are internet savvy, much as their peers in South Korean are. They are willing to apply to jobs online. In our surveys, China’s youth said that they like to conduct a job hunt using online job hunting sites because it is “convenient” and because some of the sites like Yingjiesheng.com “actually have relevant information about companies including the interview experiences of other applicants.”

Investors have been paying attention to these numbers and sentiments.

Monster.com (MNST) invested $50 million USD in 2005 to buy a 40% stake in ChinaHR.com. More recently, Monster invested another $20 million USD to increase its stake in the company to 45% and has announced that it intends to take control of the company sometime in 2008.

Zhaopin.com, at present the smallest of the big three, recently received an investment of $20 million USD from Seek Limited, the largest job site in Australia. It has announced plans to differential itself from its competitors by targeting younger job seekers in China’s 2nd and 3rd tier cities.

Of the big 3 online job hunting sites, only one, 51jobs.com is public. So, should investors buy shares in the biggest player of a hot market?

The financials for 51jobs.com has been promising in 2006. Q1 2006 saw revenue of $21.5 million USD, 21% higher than Q1 05. Total second quarter revenue was $21.7 million USD 18% higher than Q2 05. The growth continued in Q3 with revenue was up 12.5% over 2005 Q3. Profit for Q3 was $12.1 million USD, 15.9% higher than the same period last year.

The stock has been wild, moving from $15 USD in early January to a high of $31.90 USD in the middle of May after beating estimates, before crashing back down to $12.70 USD at the end of October after missing earnings estimates. It is now holding steady at $16.56 USD on December 22.

Right now, 51jobs.com seems to have the edge in terms of market share over its competitors. But Chinese internet users are fickle and mass migrations from one site to another after a change in technology or service are quite common as 51jobs.com still has not created a stickiness factor. MNCs seem to post jobs on all 3 of the major sites.

We found recently the following examples of MNCs that use online job hunting sites to find talent:

51job: ABB (ABB), Advanced Micro Devices (AMD), General Electric (GE), Hitachi (HIT), HP (HP), Microsoft (MSFT), Motorola (MOT), Oracle (ORCL), Tyco (TYC), and Webex (WEBX)

Zhaopin: Bayer (BAY), Bayerische Motoren Werke AG (BMW), Colgate Palmolive (CL), Ford (F), HSBC (HBC), Philips (PHG), Shangri-La (SHANG), Royal Dutch Shell pls (RDS.A)

ChinaHR: Timken (TKR), China Mobile (CHL), Cisco (CSCO), Dell (DELL), Ebay (EBAY), Google (GOOG), International Business Machines Corp. (IBM), Morgan Stanley (MS), Sina (SINA), and Western Union (WU)

However, more and more MNCs are getting used to posting jobs on university BBS which are free and which is where the majority of students we interviewed said they go first when looking for jobs. Students like BBS like Fudan University’s because they can “discuss” a company there, get “company specific interview information”, ask for “advice on salary” packages – a scary situation for companies, however, as all their rejected applicants might criticize them.

In the next 6 months, I do believe that 51jobs.com has room to grow and capture more market share. It might be worthwhile for investors who are willing to take a few risks to look at buying a few shares. I think that the risks in 51jobs.com are quite high because of the potential competition. I see Zhaopin making big strides with its new war chest – this could pose a threat. However, I don’t see Zhaopin being able to take away major market share in the next 6 months.

Keep your eyes on the competition though. I believe that one major player will emerge in the next 12 months and that there will be a consolidation of the industry to 1 or 2 major players.

Note: CMR Analysts Ben Cavender, Natalie Zhu, and Allen Lee contributed to this article.