China 's people problems are raising the cost of doing business in China Though developing economies often encounter talent shortages as they start to grow, China 's history has left it with some peculiar deficits. Its Confucian heritage, which emphasises rote learning and hierarchy, may partly explain why many graduates, despite good paper qualifications and English language skills, are often cautious about taking the initiative. Some firms complain that China 's one-child policy has made it harder for them to find natural team-players. Mao's legacy Mao's Cultural Revolution in 1966-76 wiped out a generation of management potential, as millions of Chinese learned that capitalism was evil. After a lifetime under socialism, many lack the mindset to adopt western working practices. The talent pool consists either of managers from state firms who are too bureaucratic or entrepreneurs who have come up through the private sector and are unconstrained by capital or the law. Foreign firms now invest some $1 billion a week in China . As they expand, they increasingly need staff able to handle the complexities of multi-site operations. Staff shortages threaten these plans. In a recent speech, Arics Poon, managing director of Oracle in China , stated that "we need a group of strong, professional managers or we may fail to support our growth in China ." Anthony Wu, head of accounting firm Ernst & Young in China , admits that "we have decided not to tender for some major clients because we feel we don't have the staff to service them." Business plans for China rarely reflect the cost and time involved in recruiting and retaining local staff. Firms are finding that they cannot replace expensive expatriate staff with cheaper local hires ("localise" in the jargon) as quickly as they hoped. Many underestimate the cost of local staff and many foreign managers complain that Chinese graduates often have an inflated view of their own worth. Multinationals are also competing for talent with China 's domestic companies, which strive to improve the quality of their people as their markets open to foreign rivals. Chinese people returning from overseas (named hai-gui or " sea turtles ") are plugging some of the shortages, particularly at the most senior levels. But at a more junior level, returnees can sometimes have problems reintegrating, may lack local market knowledge and are expensive. Recruitment, retention and localisation of staff is now top of the agenda for firms in China . Paolo Gasparrini, head of China for L'Oréal, says that "to find good people in China is not easy. In administration they are very good. But in marketing a crucial discipline there are just a few people with experience and everyone is competing for them. You find yourself micro-managing more than you'd like." Fierce competition and a limited supply of talent is resulting in high turnover rates. Research points to a nationwide employee churn rate of higher than 10% in 2004. Some smaller firms see turnover as high as 30%, but also leading global firms are not immune. L'Oréal, with 3,000 people in China , says that staff turnover in its marketing department is immense. "We lose almost all fresh graduates we hire in the first three years," says Daisy Dai, its human-resources director. Pay and benefits are soaring. A Chinese middle manager at a foreign company in Beijing or Shanghai can now command total annual cash compensation (salary plus bonus) of some $30,000. Senior managers receive between $45,000 and $55,000 and top executives can expect $80,000 or more. While underlying inflation in China is around 2%, average annual salary increases for mid-level and senior managers now reach 10%. Bonuses, longer-term incentives, free housing and meals, a mobile phone and a car are becoming standard perks. More holidays, maternity and paternity leave, more frequent job rotation and share options also now feature. Add in the big contributions that employers must make to China 's national security fund system and the total cost of an employee can be double their basic pay. Above all, Chinese employees want good training, as they are acutely aware of the limitations of their educational system and keen to acquire marketable skills. Ping-on Mak, senior human resources manager for GE Consumer Finance in Asia , says that the attitude of many young Chinese managers is "if I want training, I'll go work for a multinational and then after three years I'll leave." Some foreign firms hope to persuade the expatriates they send out to stay longer than first planned despite their higher cost. Some are relocating operations from the coast to smaller, cheaper cities to tap new markets for talent. Some are even considering outsourcing from China itself, by moving parts of their operations to, say, Vietnam and Cambodia, where the workforce is even cheaper. None of this has yet, slowed China 's economic growth. Basing production in mainland China remains cost-effective for most foreign firms. But the growing shortage of executive talent may make the growth assumptions written into many business plans over-optimistic. Bernhard Thurnbauer, Factorytalk Thailand, May 5, 2005 We are located at : Factorytalk Pte Ltd E-mail Address : |
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