Recruiting in China

R¨¦sum¨¦ flow is strong and time-to-hire is fast in Asia¡¯s largest labor pool. Broad statements in the U.S. media about an impending talent shortage in China are not borne out by more granular data on the labor supply and direct reports from companies engaged in heavy recruiting.
By Fay Hansen --------------------------------------------------------------------------------
San Francisco-based Freeborders reviewed 25,000 job applications in China last year, conducted 3,400 first-round and 800 second-round interviews, and hired 251 new employees for its IT outsourcing services facility in Shenzhen. Recruiting is proceeding at roughly the same pace this year, with more than 2,000 r¨¦sum¨¦s flowing in each month for 30 to 50 positions.

Gomez Inc., another U.S.-based high-tech firm, moved from no presence in China to a fully functioning R&D facility for new-product development in less time than it takes many companies to hire a single advanced-degree engineer in the United States. The company posted positions in May and opened its new Beijing office in July.

Despite widespread predictions of looming talent shortages in China, where GDP growth is now clocking in at 10.2 percent, Freeborders¡¯ recruiters are swimming in r¨¦sum¨¦s in Shenzhen and the company¡¯s CEO discounts reports of acute shortages of managerial and high-level technical workers. Gomez¡¯s executives anticipate no difficulties in building headcount in Beijing.

Broad statements in the U.S. media about an impending talent shortage in China are not borne out by more granular data on the labor supply and direct reports from companies engaged in heavy recruiting.

Hard data offer no evidence of tighter labor markets, even in China¡¯s first-tier cities. In 2005, 295,000 new university graduates looked for work in Beijing alone. The highly developed Chinese university system is pumping out an ever-larger annual pool of candidates whose skills more closely match the needs of high-growth multinational companies than graduates in the United States and most of Europe.

Simultaneously, China¡¯s recruiting infrastructure is growing to meet the needs of employers, including multinationals expanding in the urban areas. The number of online job boards in China hit 2,000 this year and online sites have become the dominant form of recruiting for large companies, according to BusinessForum China. Last year, Monster Worldwide bought a 40 percent stake in one of the largest players, ChinaHR.com, which currently offers 480,000 jobs and 7.5 million registered job seekers.

Bulking up
Freeborders announced in June that it plans to quadruple the size of its Shenzhen facility to accommodate 2,000 employees, who will work in coordination with the company¡¯s U.S. and European project managers. Freeborders has stepped up its recruiting efforts to sign on hundreds of new employees in short order.

"We plan to hire several hundred graduates majoring in software development in a month or two as trainee developers," Freeborders CEO John Cestar reports.

With revenue up 45 percent in 2005 and year-over-year bookings up 30 percent, Freeborders is a high-growth firm recruiting in a high-growth market.

In Shenzhen, Freeborders can pull from the 600,000 technology professionals who live there or the thousands who pour in from other regions of China every month. Most of Freeborders¡¯ new hires come from outside the Shenzhen area.

Shenzhen is home to 3,000 software companies. GDP growth for the metropolitan area is topping 15 percent a year. IDC forecasts that China will be the largest IT services market in the Asia-Pacific region by 2010, with a 24 percent share of IT spending in the region.

But those growth rates do not necessarily translate into tight labor markets. Instead, they act as a magnet for new investment and job seekers. China¡¯s Ministry of Science and Technology is pouring money into incentives for investment in new technologies, particularly in e-commerce, logistics, design and finance, and the Education Ministry is moving in tandem with university programs that boost the supply of tech candidates.

When Freeborders moved into China five years ago, it recruited 20 Chinese nationals who were working for software multinationals in North America and Europe. This core group then recruited for Freeborders¡¯ Shenzhen expansion. The company now runs a nationwide recruitment program through its own network, Web sites and job fairs.

"Our strategy is to focus our hiring for the key technologies that we know North American and European companies have demand for," Cestar says. "We determine these needs through client surveys and training-needs questionnaires with our workers. Our software graduates speak good English and become highly valuable resources after going through our rigorous training program."

Freeborders has not been forced to accelerate salary increases or bonuses to meet its recruiting goals.

"We find that many of our employees choose us because of the opportunity to work with Western clients," Cestar says. "It¡¯s a source of prestige and they know it¡¯s good for their careers to deliver services to Western companies. That¡¯s our main selling point. When we survey our teams, compensation is usually the third or fourth reason they chose Freeborders."

Freeborders minimizes its use of expatriates, but most of its senior managers in China have worked or been educated in the United States. This is changing, however.

"We are leveraging our current employees to recruit heavily within their personal networks to find managerial talent," Cestar says. "We also plan to promote the next group of managers from within."

Securing the managerial talent in China is a top priority for the company.

"It is a challenge simply because the universities are churning out so many young and highly skilled technology workers that there are not enough middle managers to handle the massive labor pool," Cestar notes. "But it¡¯s a manageable challenge. Over time, this shortage will shrink as the junior-level technology workers grow in experience to become middle managers. It¡¯s only a matter of time."

Meanwhile, Freeborders¡¯ global structure allows the company to segment tasks when necessary.

"Because we¡¯re a U.S.-based company, we mitigate a lot of the risk by having a strong U.S.-based project and technical management component to our teams," Cestar reports. "They essentially work with the client on site and with our offshore teams at all hours of the day."

Starting from scratch
While Freeborders is calmly recruiting more than 1,000 IT workers in Shenzhen, Gomez is expanding its R&D staff in Beijing, bringing in additional support staff and basking in the new recruiting environment that China offers.

"We were up and running in Beijing with 20 R&D employees in 12 weeks," reports Richard Darer, vice president and CFO of Gomez.

"We never could have done that in our U.S. office near Boston, no matter what we threw at it. The talent pool is so much smaller in the United States that there simply isn¡¯t sufficient r¨¦sum¨¦ flow." The company pulled in 3,000 r¨¦sum¨¦s to fill the Beijing jobs.

"In the United States, we use job boards like Monster, but we end up hiring contract recruiters," Darer says. "The universities in China are turning out so much talent that it¡¯s a different situation."

In its site search, Gomez considered Shanghai, but it settled on Beijing because of its exceptionally strong university system. The company¡¯s new facility is located near Tsinghua University, China¡¯s leading science and technology institution. The Beijing area is home to 274,000 tech workers, with scientists and engineers accounting for 83 percent of the total, according to the Beijing Municipal Science and Technology Commission.

Gomez provides Web application performance management solutions for 400 companies worldwide, including Amazon, Yahoo and Best Buy. Headquartered in Lexington, Massachusetts, with European operations centered in Hamburg, Germany, the company reported Q1 2006 revenue growth up 50 percent compared with Q1 2005. As its first step in expanding into China, CEO Jaime Ellertson personally recruited Yuan Cheng, a Chinese national with an engineering degree from Tsinghua University and a doctorate from MIT, as general manager for China.

The new office will triple Gomez¡¯s product development staff by the end of 2006. To recruit the first group for the Beijing location, Cheng tapped job boards such as ChinaHR.com and targeted university online job sites. The company¡¯s online job postings for China include JavaScript software engineers and technical support engineers.

"Cheng screened the r¨¦sum¨¦s to find candidates with the right technical skills and to eliminate job jumpers," Darer says.

From the 3,000 r¨¦sum¨¦s, Cheng invited 200 candidates for interviews, most with two to five years of experience and 40 percent with graduate degrees.

Large groups of candidates attended high-level presentations on the company, followed by one-on-one interviews that used the presentations as the context for detailed technical questions.

"Our challenge was screening out candidates, not finding sufficient talent," Darer says.

He worked with technology companies operating in India before joining Gomez, and notes the sharp differences there.

"If you want to fill two positions in India, you make offers to four candidates because only two of those will actually show up to start the job," he says.

During Gomez¡¯s initial recruiting drive in Beijing, a few candidates who received offers didn¡¯t accept because of compensation issues.

"Our challenge in China is that compensation is beginning to move up," Darer says. "But the economic cost ratio for the United States and China is 3-to-1, so even if compensation creeps up in Beijing, there is still a huge cost advantage."

Darer is not concerned about retention in the Beijing office.

"We work on the cutting edge of the Web and e-commerce, and part of the attraction for our employees is the opportunity to work on exciting and sexy stuff," he notes. "You can see the gleam in their eyes."

The R&D employees in Beijing develop new products with worldwide reach and the company now plans to hire direct-sales and support staff, but with different language skills.

"When companies set up R&D in China, they have to think about language proactively," Darer advises. "For some of our key managerial and customer support positions, our employees must be fluent in English. But we do not require fluent English from our engineers."

Darer, who received an engineering degree and an MBA from Harvard, sees his HR responsibilities as a logical part of his work as CFO.

"As we all know, our assets walk out the door every night at 5," he says.

Managing talent is a critical component in the company¡¯s financial success.

"And the talent in Beijing is well beyond our expectations," he notes.