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China's Talent Crunch

In recent years, finding and financing the right talent has become as much a matter of geography as of costs. Therefore, it makes sense that companies have flocked to China to set up shop and take advantage of the massive working-age population and low wages. What a surprise it was to find, then, on a recent study tour of Beijing, Shanghai and Guangzhou, that every HR or general manager I interviewed was dealing with talent shortages. Many of these businesses were being forced to rethink their growth strategies—not because of souring economic conditions or a lagging product demand—but because they can't find the talent they need.

Rapid Growth, Rising Pay and the Lure of a Different Job
In the world's most populous nation (1.3 billion people), a labor shortage seems an odd problem to have. However, something akin to a talent-management "perfect storm" has threatened to blow even established organizations off course. A recent survey reported in The Economist found that among 600 chief executive officers of multinationals, a shortage of qualified staff ranked highest of all business concerns in China ("Capturing Talent," 2007).

One explanation is that the rapid economic growth of recent years has effectively depleted the pools of available talent. Angie Eagan, who works for a headhunting firm that helps multinational corporations in China find needed talent, reports that to fill a position at one level, you must hire at least one level down in terms of experience and training and pay two levels up (Jie, 2008). As record growth continues, these fledgling managers are too soon promoted, while their duties expand. At that point, Eagan says, managers begin to experience a great deal of stress as they operate in positions for which their background has not prepared them.

The talent shortage is most pronounced among skilled workers. Airline pilots, lawyers and judges, doctors and nurses, accountants and IT professionals—all represent sectors of the economy where China faces massive staffing shortfalls. One recruiting strategy that is gaining ground, given the lack of training facilities in China supporting these industries, is to lure employees from overseas. Since there is a surplus of pilots in Brazil, for example, many Chinese airlines are poaching them despite the high costs involved. Vanessa Moriel, a managing partner with Human Capital Partners in Shanghai, reports that "the going rate for a human resources director working for a medium to large multinational in Shanghai is now $250,000 per year, and that is for someone who has probably never even left China." According to Hewitt Associates, talent shortages are reflected in wage increases throughout Asia, with China's salaries having increased by 8.6% in 2007 (Hansen, 2008).

Another factor responsible for rising salaries in China is found in the updated labor law system. As of January 1, 2008, firms are paying higher wages and staffing up. Wages have increased because the law now requires 1.5 times the standard hourly rate for weekday overtime, double pay for weekends and triple pay when employees work during a national holiday. Chinese businesses are hiring more people because the new law places restrictions on how much overtime can be worked per week. And, for long-term employees, the new legislation requires contracts that basically offer lifetime tenure, health insurance, and benefits (Sun 2008).

Compounding the problems of rapid growth and increasing wages is the fact that turnover rates can exceed 30% per year. A Hong Kong consultant advises clients to forecast spending another 15% to account for hiring and retraining costs associated with turnover. For example, the average tenure of an employee in Shanghai is just 1.8 years, with HR managers topping the list of the most difficult to retain.

News on the education front is somewhat mixed. On one hand, China is poised to make significant improvements in its compulsory education system, thereby exploiting its natural advantage as the world's most populous nation. As a result, China is projected to move to 14th place from 22nd on the Hedrick and Struggles Assessment, which assesses the ability of 30 countries to develop talent (Heid and Murphy 2007). However, in the short run, the education system is not equipped to respond to the types of skills needed by growing businesses. Schools and universities have simply not kept pace with the demand for qualified workers. Chinese families are increasingly sending their children, often as young as 11, to school abroad. While experts agree this trend results in a "broadened mind," others worry that sending children overseas, away from family, will have negative developmental implications (Lai 2008). Most view this trend as one that will contribute to what is being referred to as a Chinese "brain drain." That is, as the Chinese have gained more freedom to study abroad, around 70% don't return to China, thus exacerbating the talent crunch ("Capturing Talent," 2007).

The Little Emperor Syndrome
So, one would think that a Chinese manager able to hire a young, bright employee for a reasonable wage would be breathing a sigh of relief. Not necessarily. Just as Americans make comparisons among the Baby Boomers, Gen X, and Gen Y cohorts and strategize on how to accommodate their differences, the Chinese are struggling to make sense of their youngest cadre of workers. Members of the newest group of workforce entrants were born as the one-child-per-family policy was first imposed in the early '80s. Because each child was the only one in the family, parents often lavished him or her with great amounts of time, attention, and high expectations. These children, described as little terrors with a dynastic sense of entitlement, have now arrived in the workplace with the same spoiled, self-centered tendencies they used on the playground. Their managers face a catch-22—fire them and have great difficulty finding a replacement or keep them and develop new communication styles, motivation and reward programs, and a more rapid promotion track. Either way, as companies increasingly compete on the basis of talent, success will hinge on making the best of these issues: managing growth, pay and turnover; capitalizing on the positive aspects of the education system; and finding ways to transform little emperors into productive members of work teams.

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• Capturing Talent. (2007, August). The Economist, 384, 59–61.
• Hansen, F. (2008, April). Looking South. Workforce Management, 87 (7), 21–26.
• Heid, M., and W. Murphy (2007, December). It's 2012: Do You Know Where the Talent Is? Financial Executive, 28–31.
• Jie, L. (2008, May). Talent Crunch: A Global Headhunting Firm Says It's a Candidate's Market in China Now. China Daily, 7.
• Lai, F. (2008, May). Too Young to Be Dreamers? Shanghai Daily, 1–2.
• Sun, N. (2008, May). New Labor Law Favors Workers, Not Margins. Plastics News, 20 (10), 23