China: Land of Opportunity And Challenge

By Sep 1, 2007
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HR Magazine, September 2007 HR professionals at U.S. companies in China have to work fast to attract, develop and retain employees in this booming economy.

“When good fortune finally comes, no one can ever stop it.” This Chinese proverb accurately describes the current mood in the world’s most populous country.

After three decades of economic reforms and promises of prosperity, China is enjoying an economic bonanza. That translates into record annual growth rates near 10 percent a year for the past decade and the foreseeable future. In less tangible terms, this translates into overwhelming optimism among Chinese people: Seven in 10 believe that five years from now they will stand on the top rungs of the ladder of life, according to the Pew Research Center.

They are moving up the ladder with the help of hordes of multinational companies seeking to capitalize on the country’s unprecedented growth. After a steady stream of foreign direct investment began in the late 1970s, the trend has accelerated. The country’s accession to the World Trade Organization (WTO) in 2001 made it more amenable for foreign companies to operate securely and profitably.

By 2004, the WTO required China to allow foreign owners to distribute goods without state-owned Chinese partners. Such partners often siphoned profits and stole technology, according to the American Chamber of Commerce in China. Since then, the percentage of American Chamber members operating joint ventures in China slid from 78 percent in 1999 to 27 percent in 2005.

Another measure of growth comes from the Chinese Ministry of Commerce, where foreigners must sign contracts before investing. U.S. contracts increased 44 percent since the WTO accession to 3,741 in 2005, according to the U.S.-China Business Council (USCBC).

China’s economic shift up the value chain—from parts manufacturing to research and development—represents another change. With that shift toward higher-end manufacturing, innovation and services comes greater need—and competition—for experienced and skilled labor.

“Local managers are shifting their expertise away from the traditionally heavy emphasis on technical skills to skills that are more business-focused,” says Nick Chang, a management consultant in Beijing who leads Accenture’s Human Performance practice in China.

That’s the flip side of enormous growth. Many HR professionals in China face the significant challenge of finding, training and retaining skilled employees who can thrive in Western-style multinational corporate cultures. In 2006, USCBC members ranked human resources as their No. 1 concern—the first time the top reason was not a regulatory issue. In particular, members cited the ability to attract and retain talented employees, especially mid-level managers.

But U.S. companies in China are having some success attracting and retaining local managers, mainly through development and other upward career-planning initiatives. However, HR professionals must stay several steps ahead of this fast-moving market to retain the talented people they train. It requires flexibility and creativity to manage Chinese employees’ steep expectations for career growth.

Scarcity in a Sea of Plenty

Despite China’s population of 1.3 billion and a workforce of 800 million, only a small percentage of workers is considered skilled and experienced enough to work in multinational companies (MNCs). The McKinsey Global Institute estimates that of 4.9 million college graduates in 2006, only 10 percent had skills necessary to work in MNCs. Language, basic education and interpersonal skills, and attitudes toward teamwork and flexible working hours were lacking.

“The shortage exists primarily because the Chinese educational system has not yet evolved to teach the range of skills that MNCs are looking for,” notes Chang. “Cultural differences also continue to play a role.” China’s Ministry of Education estimates that 350 million Chinese are studying English.

What’s more, the mid- and high-level managers in short supply are usually 40- to 50-year-olds in the generation affected by the Cultural Revolution, the period between 1966 and 1976 when the educational system was brought to a halt.

Of the talent paradox, Tom Petersen, director of the University of Southern California Global E-MBA program in Shanghai, notes, “This is a result of the fast economic expansion combined with a shortage of educated personnel in this age range.”

Enormous demand and short supply create a seller’s market for managers. Those with skills can demand high salaries and expect fast upward mobility. If one MNC does not meet the seller’s demand, there are plenty of other buyers.

Furthermore, state- or privately owned Chinese companies have joined in the fierce competition for high-caliber talent, according to Patrick Ran, GPHR, chief representative for the Society for Human Resource Management (SHRM) in Beijing. “As more Chinese companies seek to expand overseas, they are also looking for talent with MNC experience,” he says.

The 2007 Flight of Human Talent survey of HR professionals and Chinese employees by SHRM and Development Dimensions International (DDI) found that 38 percent of HR professionals said turnover has increased in the past 12 months, and 53 percent said it had remained the same, with no sign of relief.

Nearly three-fourths (73 percent) of employees surveyed had resigned previous jobs, and 22 percent said they were likely to leave their positions in the next year. Although higher-level leaders had been employed with their organizations longer than other employees, their average tenures were still only one to two years.

During China’s boom, “a lot of workers see this as their time to be upwardly mobile,” says Rich Wellins, senior vice president of DDI in Bridgeville, Pa.

Skills Needed

Just a few years ago, U.S. companies could rely on workers with basic skills, as the manufacturing processes were not end to end and the services industry was nascent. That changed when China’s accession to the WTO loosened restrictions on foreign investment in the services and financial sectors.

Two years ago, Beckman Coulter, based in Fullerton, Calif., became first in the health care industry to establish a wholly owned legal entity after China abolished restrictions in 2004. The manufacturer of biomedical testing instrument systems, tests and supplies first invested in a Chinese joint venture 20 years ago. It now has 270 employees working in sales, marketing and services in Shanghai, Guangzhou, Fuzhou and Beijing as well as in a small manufacturing facility in Suzhou.

“We are trying to find people who have the experience, the expertise, the contacts, the understanding of the business and the relationships,” says Lesley Feinberg, vice president of international HR at Beckman Coulter. “That’s a shift. Five years ago, we weren’t even interested in that expertise. Now, we’re very interested because we’re thinking long term.”

Similarly, when Springdale, Ark.-based Tyson Foods opened operations in Shanghai during 2001, obtaining talent with technical skills was the higher priority, says Vivian Lee, HR manager. Today, at two operations employing 250 in Shanghai and Shandong, “the main challenge is management skills and [the] people skills of finding qualified local managers. The managers in the key positions are qualified. But in the long run, we need them to train their subordinates. If they fail to do that, we either have to ‘buy’ talent again or the shortage may affect our operational competitiveness.”

Development as a Recruitment Tool

Company officials try to avoid “buying” talent in China. It’s a slippery slope. With wage growth of 9 percent to 14 percent annually, luring talented candidates on salary alone does not attract the people companies want to invest in.

Yet Manpower’s The China Talent Paradox study offers good news: 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.

“It’s easier for multinational companies with brand names to attract workers,” says Wellins. “Chinese workers are very brand conscious. Also, multinationals are more aggressive about wanting to develop people. Their development programs are much more advanced and comprehensive.”

Chinese culture calls for learning and growing. A Chinese proverb says, “If you want one year of prosperity, grow grain. If you want 10 years of prosperity, grow trees. If you want 100 years of prosperity, grow people.” And, creating opportunities for learning sends a message to potential candidates that the company is in China long term.

“We’re trying to show local [People’s Republic of China] people that we want to invest and develop them and don’t want to rely on expatriates and returnees all the time,” says Feinberg.

That’s a not-so-subtle message to the workforce at large. Workers have seen many companies come to China, expand too quickly and shut down, leaving many without jobs. Lured with visions of dollar signs, these companies did not take the time and resources—including labor—to make a profit and sustain long-term growth.

Also, if Chinese employees see that a company relies heavily on expatriate managers, they will think its investment in China is short term and not a place of career growth for them. “If you bring more expatriates or hire non-Chinese locals, people will question whether you want to develop local people or not and will look for other companies,” says Lucille Wu, managing director of Manpower China in Beijing. “It will hurt your ability to recruit.”

Developing Chinese employees also produces coveted word-of-mouth. “Chinese employees like to talk to their friends about what they are learning and what projects they are working on,” says Wu. “They need to show [their friends] they are working on something interesting and are upgrading their skills. If they are, they will stay … and share that with their friends.”

Retention via Leadership Development

Leadership development is also critical to retention. Once you attract Chinese talent with the promise of leadership development and career progression, you had better follow through on those promises—or they will be out the door quickly.

The SHRM-DDI survey asked HR professionals and employees to rank reasons for turnover. The top two reasons for both groups were lack of growth and development, cited by 53 percent of employees and 54 percent of HR professionals, and better career opportunities elsewhere, according to 42 percent of employees and 70 percent of HR professionals.

While company officials recognize the importance of development, they are not always meeting employees’ expectations. Fewer than half of the employees surveyed (44 percent) were satisfied with growth opportunities.

“Training and development is a great retention tool that the Chinese employees demand,” says Feinberg. “They see this as critical for their careers.”

These development plans reach hyper speed—they’re not your typical U.S. five-year or longer plans.

“We see a lot of young people with huge expectations,” notes Feinberg. “They expect to move so quickly up the organization and if they don’t, in a couple of years, they’re gone.”

Wu agrees: For good performers, “you better have a change in their assignments after the two years or they will look for another company.”

Because young managers are promoted quickly, many don’t have the skills and experience to lead. This results in turnover at lower levels, since the employee-manager relationship is so critical to retention in China.

“A middle manager in China is not at the same level as one in the United States,” explains Wu. “You often promote or hire people and their skills fit maybe 60 percent to 70 percent of the qualifications.”

Leadership Centers

U.S. companies in China are establishing leadership development programs that meet employees’ expectations and business needs. For example, San Jose, Calif.-based Cisco Systems Inc. opened its Chinese operation during 1994 and now has sales, research and development, and manufacturing operations employing more than 1,000 workers in nine cities.

Recognizing the need to create its own skilled labor, the company opened Cisco Network Academy in Shanghai during 1998 and now has 220 academies in all provinces with more than 22,000 students enrolled at any time—more than Cisco needs to hire.

“We are developing and nurturing talent, not waiting for the education channels to provide us,” says James Jianbo Li, head of human resources in Greater China. “We go to universities that provide good academic skills, and we put in new employee training and coaching and invest in the young people the skills that Cisco believes are important,” such as effective communications, project management and teamwork.

Open to all students, not just Cisco employees or candidates, the academies accomplish a twofold strategy: Create a ready source of labor and improve the employment brand with the Chinese government and the workforce. Leadership development centers such as Cisco’s are one way U.S. companies use corporate social responsibility efforts to build employment brands and carve a competitive edge.

In 2004, Cisco created an initiative to attract top talent from colleges and “train them as the core of Cisco’s next-generation workforce with the mind-set, skills, passion and cultural alignment we needed,” Li says.

The program sends about 20 new hires a year to its training center in Raleigh, N.C., for nine months to study Cisco culture, values and skills such as proposal design, presentation, teamwork, and product knowledge and sales. Then, “They come back and have one year of coaching under senior staff,” says Li.

Development by Phases

In October, Beckman Coulter plans to launch a leadership development program to work on basic, professional and strategic levels of leadership. “We are initially working with high potentials,” says Feinberg. “These people meet the criteria that we’ve laid out in our talent management strategy, and we want to invest in them.”

Led by company executives, the first leadership foundation will contain two sessions of five days each over several months. In addition, external consultants will lead small teams on projects where they take on specific business challenges. At the end, team members will present their findings and solutions.

The second level of the program will roll out next year and focus on participants’ business acumen and development as leaders in the company. They will work with customer panels, review financial indicators and learn how they impact the business.

The third series will focus on strategic leadership, organizational change, and how to create and maintain company culture.

“It’s a leadership journey over 18 months, with 30 days total of training,” notes Feinberg.

After the Development Programs

Formal leadership programs have become important to attract and retain talent in China, and so have on-the-job learning opportunities achieved through mentoring, coaching, succession planning and job rotations.

Many companies such as Cisco and Beckman Coulter manage attrition by bringing top talent to headquarters for a period of time or rotating top performers through the organization globally, being mindful to rotate them into jobs that have more responsibility or at least changes in titles, a critical element for this “saving face” culture. Also, establishing formal mentorships or apprenticeships promotes engagement and loyalty.

“Give them access to global or headquarters people for mentorships,” advises Wu. “Involve them in global projects. Don’t be afraid to give them additional work.”

In the SHRM-DDI study, employees ranked “did not find the work interesting” as the No. 4 reason for leaving. In interviews, several employees described restlessness and boredom resulting from uninteresting jobs, according to the report.

A 2006 Towers Perrin study, Winning Strategies for a Global Workforce, also found that only 8 percent of Chinese employees consider themselves “engaged and involved,” compared with 20 percent in the United States.

“Give managers more challenging and strategic work and empower them while also making them accountable for specified results,” says Accenture’s Chang. “Empowerment is among the most motivating ways to develop talent in China.”

HR professionals invariably remark on the frenzied pace of retention efforts in China compared to other parts of the world. For an example, look at succession planning: “Every quarter, we identify high potentials, assess them, develop them and rotate them through different levels,” says Li.

Beckman Coulter has lower-than-average turnover in China, yet it will not rest in making sure top talent remains happy, learning and progressing, Feinberg says. “We are doing a thorough talent review for the second year in a row and putting plans in place for key players,” she adds. “We want to look down the organization at up-and-coming people who aren’t ready to take a lead role today but have the potential. We ask ourselves, ‘What can we do today to keep them, develop them and motivate them?’ We know those young people are looking around.”

At Manpower, succession planning is part of the manager’s performance appraisal. “I have to ensure I have two or three people to be my successor as managing director, and I’m measured on developing them,” notes Wu.

Money Still Talks

No amount of development and opportunity will be enough to retain talent without competitive salaries. “Every year, we check the market on salary, and we have to respond quickly,” says Wu. “That’s a lot different than every three years or so in the United States.”

If your company can’t afford to raise rates for the entire workforce every year, at least concentrate on top performers. “We’re doing a much more proactive analysis of the best people who, if we lost, would be detrimental to our business,” says Feinberg. “We then look at their total compensation, make market adjustments proactively and communicate to [them].” That forestalls “employees coming to us saying they have [other job offers]” that spark rounds of counteroffers. “We do this analysis much more often in China,” she adds.

It’s an investment worth making. China is “such a dynamic environment,” says Feinberg. “That’s because of the growth potential and the investment we are making there. We need the right people to allow us to expand.”

Indeed, don’t get caught in the accelerated pace in China and the opportunity for expansion without adequate workforce planning. It’s something that Cognizant Technology Solutions, an outsourcing firm in Teaneck, N.J., has kept in check.

Cognizant’s philosophy “has been to slowly build a strong foundation and then scale it up to meet increased business demand,” says Henry Yang, head of China operations in Shanghai. “Because of our moderate growth in China, we have been able to specifically go after the right talent, and, with internal grooming programs, build our next level of managerial professionals.”

Adrienne Fox, a freelance writer and editor in Alexandria, Va., is a contributing editor and former managing editor of HR Magazine.

Web Extras

Online sidebar: China's Developing Regulatory Climate

SHRM video: Eric Drummond, GPHR, on hiring local managers and developing an employment brand

SHRM webcast: Doing Business in China: An HR Perspective (SHRM Online Global HR Focus Area)

SHRM report: 2007 Corporate Social Responsibility

Report: US Companies Gain in China, Still Face Hurdles ( U.S.-China Business Council)

Web site: American Chamber of Commerce in China

White paper: The China Talent Paradox (Manpower)

Survey: Global Workforce Study-China (Towers Perrin)


Developing Managers Key to Retention at All Levels

In China, the manager-employee relationship has become critical to retention at all levels. It’s another reason why U.S. companies are investing in developing managers.

If employees have good managers, they are highly unlikely to leave the organization, according to the 2007 Flight of Human Talent survey by the Society for Human Resource Management (SHRM) and Development Dimensions International (DDI).

Lesley Feinberg, vice president of international HR at Beckman Coulter in Fullerton, Calif., repeatedly stresses the role that managers play in retention on her regular visits to operations in China. Before the company’s leadership development program rolled out, she says, “I met with the top managers and said, “[This program] is important because you can make or break this person’s motivation and the retention piece if you don’t support it.’ ”

What makes a good leader? “Communication, experience and humility,” says Lucille Wu, managing director of Manpower China in Beijing.

Because of Chinese employees’ reluctance to admit when they don’t understand, Wu explains, “Leaders must not make assumptions that employees know their work. Check their understanding. Be humble. A good leader in China can’t order someone to do something because they will do the opposite. You won’t get buy-in. You also need to model the behavior you want them to emulate.”

Another key to buy-in among employees: Managers should communicate and be open about the company’s direction and financial goals. “Leaders need to show how their work relates to the company’s direction,” says Wu. “That will make employees feel more secure.” Employees also need to understand “the expansion plans, the vision.”

Respect for elders and those with experience prevails in Chinese culture—so much so that it can be hard to create an environment where employees feel comfortable bringing problems to their managers or to HR. “Going from this hierarchical, top-down model [in China] to a flat, team-oriented, more empowering Western-style multinational corporation is a culture change for these people,” says Feinberg. “It’s a challenge. You have to respect both sides, but you want the employees to feel empowered and that it’s OK [to be critical].”

To those ends, “You have to be open in communication with Chinese employees and be very visible about your follow through” if problems are brought to your attention, says Feinberg. “Building trust and having strong relationships with leaders is key.”

Adrienne Fox

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