Recruiting in China

VANCOUVER - Canadian companies doing business in China are having trouble finding people - the right people - in the world's most populous country.

As multinational corporations race to set up shop in the economic powerhouse, China's supply of experienced, English-speaking workers is rapidly dwindling.

"There is intense competition for well-educated, English-speaking, professional staff who have experience working with multinational companies," said Diana Barkley, director of public affairs for Vancouver-based Methanex Corp.

Partly to avoid that problem, Methanex, the world's biggest methanol producer, decided not to establish its Asia-Pacific headquarters in mainland hot spots such as Beijing and Shanghai when it moved from New Zealand earlier this year.

The company maintains a small marketing office of three workers in Shanghai, but it chose, instead, to base its regional head office in the former British colony Hong Kong, where the pool of talent is wider. ''When we chose to relocate our Asia-Pacific logistics office that was, in fact, one of many criteria we looked at," Barkley said.

Despite a population of more than a billion, China is facing a critical talent shortage, according to a report released last month by the international employment services company Manpower Inc.

Managers and executives are in greatest demand, the report, titled The China Talent Paradox, stated.

Older managers arising from China's Cultural Revolution lack the education and training needed to work as senior managers for foreign-based companies, while recent university graduates lack management experience, it said.

Most Chinese employees also have low English-language skills, and those who do meet companies' standards for high-level positions tend to be difficult to retain, especially when they're presented with higher salaries, career advancement opportunities and benefits by competing firms.

Although Chinese students and workers recognize the need to learn English, the shortage of fluent English-speakers is "still a very big issue," said Vincent Wong, president of Richmond, B.C.-based ACT360 Solutions Ltd., which markets its language-skills testing software to universities and companies in China.

Most university graduates have good English reading and writing skills, he said, but their ability to speak the language is often poor.

"Even in some of our own dealings there, the English standard isn't as fluent as needed for high-level business discussions," Wong said.

With the exception of some of the "more progressive" multi-national companies in China, most business operations there don't provide internal corporate training, leaving it up to employees to learn English themselves, he said.

But, in light of the strong competition for talent, Wong said he expects more companies in China will start offering language training for their staff.

According to the Manpower report, the number of university graduates in China is expected to increase by 22 per cent in 2006 to 4.1 million, which will add to the pool of educated potential employees.

Even so, demand is outpacing supply, and the report estimated it will still take six to eight years before graduates gain sufficient work experience to ease the current competition for mid-level and senior managers.

In a survey of 141 companies, Manpower found two in every five are struggling to fill senior management positions in China.

Manpower's spokeswoman Britt Zarling said recruiting and retaining qualified staff can be even more of a problem for small and mid-sized businesses.

Nearly 75 per cent out of more than 300 Chinese job candidates surveyed by Manpower said they would prefer to work for a wholly owned foreign company rather than a joint-venture or domestic Chinese firm because they tend to offer higher wages, and better training and working conditions.

But with large multinational corporations clamoring for the best workers, the competition among smaller foreign companies is all the greater, Zarling said.

In the report, Manpower noted China's talent shortage deals a "quadruple blow" for many companies. They aren't able to quickly jump on growth opportunities because they can't recruit workers needed to expand their businesses; they face higher attrition rates as staff defect to other companies; they are forced to replace people that have significant knowledge about their products and services; and they are distracted from their core business while they train new employees to replace those leaving.

As well, higher labour costs boosted by the rising demand for trained professionals is squeezing companies' margins, the report added.

Still, Manpower said, foreign-based companies find it more beneficial to hire local Chinese employees, rather than bring in expatriate managers.

"Local managers have an advantage over their western counterparts when it comes to working with their local staff, given cultural considerations," Zarling wrote in an e-mail.

It's important for western companies to adapt to the local environment and adopt an insider's perspective, she said.

"For those hardest-to-fill positions, companies may bring in their foreign managers (expats) to run the business but sooner or later it is likely that they will be replaced by local people," she added.

And despite rising labour costs, foreign companies still find it more affordable to shell out for local staff than to bring in foreign workers, said Alison Winters, general manager of the Canada China Business Council's Vancouver office.

Winters said some sources have indicated that companies can, on average, hire five Chinese workers for the same amount of money required to hire a single North American worker.

"They know it's terribly expensive to hire expats and the expats don't want to stay that long," she added.

Winters said that many of council's member firms have been able to weather the talent shortage in China by building loyalty among their staff over time.

The fundamentals of attracting and retaining employees are the same in China as anywhere else, she said. Employers need to select people that fit well within their company, offer strong leadership, and provide opportunities to move up in the company, as well as bonuses or other incentives.

"It's not any different from any other country," she said.

PARIS (MarketWatch) -- Hubert Giraud of French IT and consulting company Capgemini (12533.FR) never thought hiring people in China, the world's most populous country, would be so difficult.

As multinationals like Capgemini flood the market looking for skilled workers, they are running up against unforeseen problems. Salaries among qualified workers are rising faster than expected, mid-level managers in their 40s are scarce, education standards are weak and many Chinese say they'd rather work for a local rather than Western company.

Strong competition for experienced employees, the cultural complexities of working in a Western company and the sense that the top positions will always be held by European or U.S. managers push many Chinese workers out of Western companies after only a few years.

"Eighty million people live in this province," Giraud says, referring to Guangdong in southern China, where Capgemini employs 500 people in its business outsource unit. "When you see that you think you can get anything you want. It's just not true."

In a nation of 1.3 billion only 5.2% of the population has a college degree and above, China's National Bureau of Statistics reported in March. By comparison, roughly 25% of the U.S. population of 298 million have college degrees.

Many multinationals, which spend heavily on training young Chinese graduates to compensate for the educational shortfalls, lose them to local companies after a few years because young Chinese perceive that opportunities for career development and promotion are greater.

In China as well as rapidly developing economies like India, it isn't unusual for Western companies to lead investment and import their own educational standards. What surprises some companies are the lengths to which they have to go to train young Chinese, as opposed to Indians who generally have workable English.

It's not uncommon, managers interviewed for this article say, for a company to lose a third of its workforce in a year. Heidrick and Struggles, a headhunting firm, said in a July study that "talented managers" in China change jobs every 15 months at present.

Heidrick says most companies are happy if they can limit turnover to no more than 15%, particularly in fast-growing industries like technology and telecommunications. Bob Krysiak, STMicroelectronic NV's (STM) president and general manager for Hong Kong, Taiwan and China, says attrition rates for the company's China operations range between 12% and 15%.

"China is like the Internet bubble in the U.S. - vibrant and bullish," says Vincent Gauthier, general manager for Hewitt Associates in Hong Kong. "If you are in your 30s, have English and skills you can walk right out of one job and into another without breaking a sweat. And people do."

The recent influx of college students to Chinese universities means it is easy to recruit 22-year-olds with no job experience. However, people with even a few years of experience are in deep demand.

The surge in employment opportunities has been driven by China's entry into the World Trade Organization in 2001, which led to a leap in investment in China. Last year foreign companies invested $60 billion in China from $38 billion in 2000, according to the China's National Bureau of Statistics.

China's Ministry of Commerce said in the first four months of 2006 roughly 12,000 new foreign companies began operations in China. Heidrick and Struggles notes that established companies in China, both local and foreign, are rapidly expanding their ranks. Of the companies polled by Heidrick, the number of those with staff of more than 5,000 tripled in the last two years from two to six.
Few companies are backing down from ambitious plans to carve out a corner for themselves in China's thriving marketplace, despite rising wages and intense competition. That is because most companies see the Chinese market itself as an important source of revenue. According to Heidrick and Struggles, two-thirds of respondents cite selling to China's 1.3 billion people as the key reason for being in China while setting up operations to outsource goods for the West is a secondary concern.

Both U.S. based and other foreign companies face intense competition for staff and rising salaries to increase their operations. Capgemini, which derives 1% of its revenue from China, is looking to triple its staff in China in the next four to five years to 2000-3000 employees.

STMicro, which draws a quarter of its sales from China, announced last spring it would invest $500 million in a new semiconductor factory. It plans to hire 2,500 across China during next few years.

Meanwhile, General Electric Co. (GE) said it is looking to maintain its annual 10% earnings growth in part by outsourcing to China. At present the company makes about $5 billion in revenue from China and recently Chairman Jeff Immelt said he expects that number to double in the next four to five years. GE employs 13,000 people in China.

The labor shortage, particularly among experienced workers, means companies routinely poach talent from each other, driving up salaries in the process. Hewitt Associates estimates that wages are rising as much as 15% a year for experienced, English-speaking workers, but anecdotal evidence puts the number much higher.

Stefan Dyckerhoff, head of Capgemini's consulting arm in China, hires first-year consultants for $5,000 a year but bumps their pay up to $35,000 by the third. By comparison the average rural salary in China is $225 annually and the average urban salary is $1,164 according to the China's National Bureau of Statistics. Dyckerhoff says salary inflation is outpacing what the company charges in consulting fees, though profit is still possible.

STMicro which employs 4,000 people in China, pays a relatively experienced engineer in Shanghai about $40,000 a year, about a third less than an engineer's salary in Silicon Valley, but not a pittance, the company says.
The problem says STMicro's Krysiak, is that raising salaries alone doesn't keep workers. Many are leaving for rising Chinese technology companies or even to become entrepreneurs.

"There is a lot of venture-capital money chasing Chinese enterprises," he says. "We lose people because some of these guys all want to be part of the next IPO."

Junwen Mo, a 22-year-old Chinese business student, has an internship at BNP Paribas SA (13110.FR) but says many Chinese want to work for a Chinese company in the long run. "For prestige and personal satisfaction it is better to work for a Chinese company," he said, adding that foreign companies might pay better salaries but they don't grant promotions. "If you are ambitious you have to work for a Chinese company after a few years of experience."

Losing people like Mo is painful for Western companies that have spent both time and money training them.

Although China produces 3.1 million college graduates a year, educational standards are lacking, U.S. consulting firm McKinsey & Co. (MCK.XX) says in a 2005 report. Even engineering students from the most prestigious universities in Beijing receive little practical training in either projects or working with a team. Few speak passable English. As a result McKinsey estimates that only 160,000 engineering graduates a year are suitable to work in multinationals - a pool no larger than the U.K.'s, who's population is about 60 million.

To compensate for the poor education system companies are investing in training programs to get new recruits up to speed which can add 15% to personnel costs, McKinsey says.

STMicro routinely trains new recruits for six months or more. Teaching English is the biggest problem but the basics of business - everything from marketing to how to say no to your boss - has to be taught.

Steven Shaw, head of Networks for Nokia China (NOK), spends a fifth of his time mentoring Chinese workers.

"We have English classes, technical training classes, lots of training." Shaw says. "It can be expensive, but it has to be done. It's one of the most important things to young Chinese. They want skills."

However, they also want to believe that they can reach the highest echelons of the companies. It's a message that Western companies are finally getting loud and clear, although finding Chinese managers to head operations is by far the most vexing personnel issue, several managers said.

"Graduate degrees were basically suspended in the late '60s and '70s," says Gauthier, referring to China's cultural revolution. "The 45-year-old manager who speaks English really isn't available."

Nevertheless companies are bending over backward to find Chinese-speaking managers, increasingly poaching talent from firms in Hong Kong, Taiwan or Malaysia.

Capgemini recently hired Chen Bo, the former vice-president of Hewlett-Packard China (HPQ), as chief executive officer of Capgemini China, despite the fact that he doesn't speak English. Chen works closely with a multilingual assistant.

Nokia, too, has boosted its Chinese representation. Shaw says on his management board two thirds are Chinese nationals.

Other companies are also taking notice. Heidrick and Struggles reported that three-quarters of firms operating in China today have native-born Chinese represented on their management teams, up from half two years ago.
"It's important for morale to have Chinese managers, either from China, Hong Kong or Taiwan, at the top," Shaw says. "It is not always the easiest thing to find them."

(Mimosa Spencer in Paris contributed to this article.)

In the three years since receiving his engineering degree in Shanghai, Jason Zhang has switched jobs twice and quintupled his salary as overseas companies scour China for professional workers.

"If you have language skills, if you have technical skills, it's very easy to find a job," says Zhang, 26, who speaks fluent English and now writes software for International Business Machines. "There are more jobs than even two years ago because of the outsourcing from Europe and the U.S."

Employers like General Electric, Freshfields Bruckhaus Deringer and Ernst & Young are struggling to find engineers, lawyers and accountants as Chinese universities fail to turn out qualified professionals, especially those who speak English. The shortage is threatening expansion plans and driving up salaries in the world's fastest-growing major economy.

"We could argue that more than water, energy and infrastructure, talent is the greatest constraint on China's growth," said Andrew Grant, who heads the greater China office of McKinsey, a consulting firm that advises two-thirds of the Fortune 1000 companies.

Fewer than 10 percent of Chinese job seekers are qualified for accounting, finance and engineering jobs at overseas companies, according to a November report by McKinsey that was based on interviews with more than 80 human resources officials. Most lack English skills and a "cultural fit," the report said.

Ernst & Young, which plans to expand its work force in China fivefold to 25,000 in the next decade, has turned down clients because it cannot hire enough accountants, said Anthony Wu, a senior adviser and former chairman of the firm's China office.

China lifted a one-year ban on share sales this year, and public companies are required to meet international accounting standards by next year, spurring demand for accountants.

The country has 69,000 licensed accountants and needs more than 300,000, said Chen Yugui, secretary general of the Chinese Institute of Certified Public Accountants. China did not have a university major in certified public accounting until 1994.

"The gap between the need and the supply is still huge," Chen said.

Other professions are suffering, too. Even though a third of China's university graduates receive engineering degrees, international companies cannot find enough engineers. Many graduates are not qualified because they are steeped in theory and have not learned to handle projects or work in a team, McKinsey said in its report.

Freshfields, a London-based law firm that has offices in 18 countries, is searching for qualified lawyers as it plans to add as many as 65 attorneys in China over the next five years, said Mary Wicks, human resources director for Freshfields in Asia. Freshfields is recruiting lawyers who are fluent in Mandarin and have international law degrees.

China has 120,000 lawyers, or one for every 10,800 people, compared with a ratio of one to 375 in England and Wales.

"Competition is tough," Wicks said.

Companies are increasing pay and benefits to attract talented workers. The average salary for accountants at firms such as Ernst & Young and Deloitte & Touche Tohmatsu rose 30 percent to $9,000 last year, according to a survey by Mercer Human Resource Consulting, based in New York.

Ernst & Young is offering more vacation time and flexible work schedules, said Catherine Yen, head of human resources for China.

In the first half of this year, average annual wages in urban China rose 14.3 percent from a year earlier to $1,160, the National Bureau of Statistics reported.

Many companies are responding to the shortage by expanding internship programs and sponsoring university training programs.

General Electric has forged relationships with 17 of China's 50 top universities, including Fudan University in Shanghai and Peking University, said Heather Wang, personnel director for GE in China. "China has a significant imbalance of supply and demand for talents," Wang said. "It's still tough to find people who are strong in technical expertise and bilingual."

The search for talent has led to rapid turnover. Manpower, one of the world's largest providers of temporary workers, said in June that 24 percent of the more than 300 employees it had surveyed in China planned to leave within the next year.

Ernst & Young, one of the biggest U.S. accounting firms, has watched its own clients lure away auditors.

"Everyone is striving very hard, so they poach," Wu, the former chairman, said. "Who better to pinch than the auditors working on your company?"

The loss of senior employees is especially costly in China because of the concept of "guanxi," or relationships based on mutual interests, said Victor Apps, Manulife Financial's general manager for Asia. Manulife, the biggest Canadian insurer, has 12 offices and 4,500 workers in China, and is preparing to open offices in the cities of Jiaxing and Jiangmen, as well as in Shandong province.

"Guanxi and relationships are very important to business," Apps said. Workers are the winners in this competition.

Zhang, who has been at IBM for a year, said that his first job at a software developer paid 2,000 yuan, or $251, a month. Within six months, Citibank hired him away for twice as much. Now he earns 10,000 yuan a month.

"For young people today, job security is really not a problem," Zhang said.

Author: RP news wires

Despite being the world's most populous country, filled with people who would prefer to work for foreign companies, multinational corporations operating in China are finding their businesses hindered by a pervasive talent shortage and struggling to retain their management and employees. A new white paper by Manpower Inc., a world leader in the employment services industry, examines this paradox and offers insight and answers to help multinationals improve their talent management strategies in China.

"Ninety percent of the world's top 500 multinationals have now invested in China, yet many of them are struggling to generate the sales or growth they want because of talent management challenges," said Jeffrey A. Joerres, chairman and CEO of Manpower Inc. "Recruiting the right people, retaining the best staff and developing leaders of the future are difficult tasks in any market. For foreign companies operating in China, the difficulties are magnified by the talent shortage - particularly of managers and executives - and the difficulty of understanding how to adapt talent management strategies to the country's unique business culture and values."

Manpower's white paper, The China Talent Paradox, offers five practical strategies for multinational corporations to embrace if they want to improve employee attraction, engagement and retention in China:

1) Create a learning organization

2) Appoint competent leaders

3) Establish an appropriate organization and culture for China

4) Provide competitive compensation and benefits packages

5) Select the right people

"It is vital that organizations view these five strategies as a holistic, integrated solution," said Joerres. "Neglecting even one of the strategies will weaken the solution considerably."

These five strategies represent the core elements of Manpower's proprietary Workforce Optimization Model that is used to assist clients in recruiting and retaining permanent employees in China.

Joerres said, "These strategies may seem to be self-explanatory to an HR professional, but it is important to recognize what they actually mean in the work environment in China. Effective talent strategy in China relies heavily on grasping the cultural nuances and leveraging this knowledge."

"Learning is a priority for Chinese employees because they are acutely aware of the limitations of their educational system and possess a strong desire to continuously acquire marketable skills," said Lucille Wu, managing director of Manpower China. "Learning has to be embedded into employees' daily activities so that they learn new skills and gain new experience every single day. Lacking this stimulus, they will leave for another company to find better career development opportunities."

Previous Manpower research of 33,000 global employers found that vacancies at the manager and executive level are much more difficult to fill in China than in other countries, which has a direct impact on the ability of organizations to grow.

"To fuel the current level of growth that multinationals are experiencing in China, they need to attract and develop competent leaders that can work effectively in the Chinese workplace," said Wu. "Chinese employees respond best to hands-on leadership and having a role model to demonstrate what is expected of them so that they may replicate their actions. They are also unlikely to tell a manager when they do not understand how to complete their work. This requires a different leadership approach than most Western multinationals expect when they come to China."

Manpower has found that nearly 75 percent of Chinese employees would prefer to work for wholly owned foreign companies rather than joint venture companies or wholly owned Chinese companies. This is a distinct advantage for foreign multinationals competing for talent in China, yet ironically, retention remains an issue for them.

"In addition to the many multinationals who come to China to set up manufacturing operations, there are also many companies that come to China to market their products and services to Chinese consumers," said Joerres. "The preference of Chinese workers to join a foreign company underlines the tremendous opportunities for companies that develop the right talent strategies to compete for a bigger slice of the world's largest consumer market."

Deloitte, one of the world's four biggest accountancy firms, is planning to beef up its staffing pool in China from the current 6,000 to 9,000 by 2009 to handle its growing business in the country, a top executive said yesterday.

"Currently we have 6,000 professionals in 10 offices in China serving our clients and we expect (the number) to be in the range of 9,000 in 2009," said Manoj P. Singh, regional chief executive officer for Deloitte Touche Tohmatsu Asia-Pacific region.

"Our presence is sometimes dictated by the needs of our clients," said Singh, who took the post in 2003.

"Building larger practices on the (Chinese) mainland is part of our growth strategy," the CEO said.

China is already one of the top eight markets for Deloitte's global operations as measured by staff numbers, Singh said.

The service firm has seen tremendous growth in China in the past few years thanks to the country's booming economy, he said, declining to reveal specific revenue figures.

Deloitte achieved aggregate revenue of US$18.2 billion last year, a 10.9 per cent increase over the US$16.4 billion reported the previous year.

"We have been growing at a double-digit rate both in terms of headcount and revenue in China in the last couple of years," said P. Christopher Lu, regional managing partner.

Singh said the firm's market share had increased four-fold among the top 100 Chinese companies over the past three years, including not only auditing services but also consulting, tax and other services.

"Our strategy is focusing on building our brand around the transformation of Chinese companies, especially for those top 100 and 200 firms," Singh said.

He said the services firm is well-positioned to provide auditing, tax and management consulting services to help build domestic enterprises into world-class or Fortune 500 companies.

Deloitte's existing client base in China is dominated by multinational companies operating in the country, but this varies according to the service.

For example, Lu said, about 70 per cent of its tax customers are multinational companies, while about 65 per cent of its corporate financing customers are foreign firms.

But he said Deloitte is luring more and more Chinese companies.

"We could only achieve our six-year strategy by having the right balance of both local domestic firms and multinational companies and being able to provide valuable services to them," Singh said, referring to his firm's ambitious goal to become the best service provider, a roadmap announced three years ago.

The company announced two years ago it would invest US$150 million in China over the next few years, which Singh said "is the biggest and most significant" global investment the firm had ever made.

The investment in recruitment, training and resources is "well on track," said Singh.

Global CEO Bill Parrett said last year that the firm planned to build China as its second-largest market by 2010 and the largest by 2030.

Source: China Daily

SEPTEMBER 01, 2006 -- Best Buy Co. Inc., Richfield, Minn., has announced plans to open a store in Shanghai's busy Xujiahui shopping district by year end--the chain's first outlet in China. Best Buy is partnering with Jiangsu Five Star Appliance Co., China's fourth-leading appliance and consumer electronics retailer, to open the new store. In May, Best Buy announced that it paid $180 million for a majority stake in Jiangsu Five Star, giving the retailer an immediate presence in Asia's fast-growing market. Best Buy says it is concentrating on researching the market and recruiting and training staff before making its next move in China, which is one of Asia's most saturated and competitive markets for appliance retailers and manufacturers. "We are still learning about this marketplace," said Robert Willett, Best Buy's CEO. "The Chinese consumer is pretty unforgiving if we get it wrong."