It is surprising how little thought foreign companies give to the issue of finding and retaining talent in China. Yet one of the most challenging aspects of doing business in China is finding the right people for the job and ensuring they don’t leave within the year. This article will briefly explain five common HR challenges for foreign companies in China.
Issues with finding local talent
Before we dive into the most common challenges, let’s first take a quick look at China’s labor market to get a more holistic view on the subject. There is much to be said on China’s labor market, however here I will try to keep it to the absolute basics.
China is transitioning from an export-led, cheap-labor economy to a consumption-led economy. The country’s high economic growth has caused a surge in consumer prices and consequently people are now demanding higher salaries.
On the horizon we also have a looming, retirement-ready graying population that will not be numerically replaced by the next generation. At the same time, younger generations are trending away from the kind of repetitive factory work that has fueled past Chinese economic growth.
In short, labor supply is starting to go down and employee’s career expectations are starting to go up.
Previously, multinationals were the preferred choice for talent; MNC’s were able to offer higher wages, the option to travel abroad and more attractive career development opportunities than domestic organizations. However, private and state-owned companies are now battling with MNC’s in the war for talent by offering increasingly attractive incentives.
What does this mean for MNC’s in China? I strongly believe that if foreign companies want to effectively compete with local organizations in the battle for talent, they will have to start offering more attractive incentives in order to attract and retain employees.
The employer-employee challenge
Foreign companies often struggle with HR issues in China. And from my own experiences I know how difficult it can be to recruit and manage cross-culturally.
Case in point, several months ago we were recruiting a Chinese assistant to support us in our administrative tasks. The requirements for the position were quite straightforward: the candidate had to possess strong English skills and preferably 1-2 years of working experience with an MNC in a similar role.
However the recruitment process didn’t go at all as planned. Half of the candidates did not turn up for the interview and the majority of the candidates that did turn up did not understand the position for which they had applied. I received hand-written resumes, resumes with cartoons drawn on them and none of the candidates were able to clearly express their reasons for applying for the position in the first place. .
Needless to say I didn’t find a suitable candidate during the first round of interviews. Eventually we did, however it took much longer than I had anticipated. I have since learned to pre-screen all candidates more vigorously, call all applicants an hour in advance to confirm the interview and to extend the search-time allocated for finding a suitable candidate.
“A bad hire will cost you two-to-three times more than a good hire. It therefore pays off to be patient in your recruitment process.” –Gijsbert de Bruin, CEO of the CHC Group
The process of searching for suitable candidates works pretty much the same in China as anywhere else. Usually we do the recruiting in-house unless we are searching for a highly-skilled executive. For the vast majority of positions we post advertisements on multiple job boards and employ our own networks to find candidates. If you are looking to recruit new employees, take a look at the following websites:
5 Common challenges for MNC’s in China
In the past years I have spoken to multiple foreign business-owners about HR in China and the following five challenges were regularly mentioned.
A lack of creativity. Although the country has made great strides towards developing its economy, its educational system still lags behind. Memory-based or rote learning curriculums form an integral part of the Chinese educational system and unfortunately do not encourage creativity. Instead of producing innovative employees, the system produces individuals conspicuously lacking in creative-problem-solving skills who have not learned how to ‘think outside the box’. This cripples innovation and will also hinder future-growth as the country is attempting to switch from Made in China to Created in China.
Many university students do not engage in internships or part-time jobs during school and therefore lack any sort of practical work experience upon completion of their degree. Simply put, the majority of fresh graduates lack the basic skills that most foreign employers are looking for. As a direct consequence, companies must often provide supplementary internal training programs for fresh graduates in order to adequately prepare them for their jobs.
Mismatch between skills and requirements. The above also showcases the significant discrepancy between companies’ requirements and candidates’ actual qualifications. Although a lack of experience plays a role, the Chinese educational system also fails to equip students with the skillsets companies are looking for. In an interview performed by HRMASIA, a former VP of Philips had this to say on the subject:
“With an abundance of university graduates available, the issue is not talent but suitability,” explains Elizabeth Martin-Chua, former Senior Vice-President, HR, Greater China and Co-ordinator, Asia at Philips Electronics.” Many of the talented individuals may not fit the kind of jobs that are available as they lack the relevant experience and skills, putting a great deal of pressure on training, coaching and mentoring.”
Opportunistic behaviour. Retaining employees tends to be difficult in the local market. Employees readily leave the company for a marginally better offer elsewhere and tend to have little loyalty towards an employer. My personal experience confirms this; many of the Chinese I personally know are job-hopping just to receive better pay and doing so based on the short-term calculations of a month-by-month paycheck. This has created a market that rewards opportunistic behaviour. Companies therefore have the challenging task of offering appealing enough incentives to retain their employees.
But there are sound ways of combating these problems. Properly designed and provisioned training programs have actually proven to be an aid in employee retention. A well designed training program is an ongoing training program that helps employees engage in the company and helps them hone their skills for a more long-term outlook on the job market. President of market research agency nQuire in China, Thomas Fuller, says he keeps his expectations at market level:
“I hope to get 2+ years from a good hire. I don’t expect them to stay forever. I try to keep them learning as well as doing and not to put anybody in a box. I engage them in our company strategy and ask their opinions on serious issues.” Thomas Fuller, President of nQuire China
The gap between productivity and rising wages. Although wage growth is moderately slowing, according to a survey by the German Chamber of Commerce, foreign companies still expect wages to increase by 8.2% in 2014. In contrast, HayGroup states that wages in Europe increased only by approximately 3.3% in 2013. Although this shows how fast average salaries are rising in China by comparison, it doesn’t say much on it’s own.
The best way to look at it this phenomenon is by measuring whether the rise in pay is justified by a higher output by the employee. In other words, a salary raise must be in line with one’s productivity. By looking at the average unit labor cost – which measures the cost of labor for one product – we can see that wage increases in China have outpaced productivity increases, which in turn implies decreased competitiveness. And we see this in both the manufacturing and service industries. Read more about the link between productivity and rising wages.
What are your experiences with recruiting, managing and retaining employees in China?
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