Gianni Serra, the Asia representative manager of ELS srl, an Italian event management company, is a worried man these days as he cannot find the “ready-to-use” talent needed to get his business up and running in China.
“The education programs in China have not kept pace with global education standards,” says Serra, who is searching for Italian-major graduates in China. “Many of the people I interviewed had good language skills, especially in writing and reading, but lacked in communication and problem solving skills.”
Like Serra, many foreign enterprises and domestic firms are now finding that talent is not just the scarcest commodity in China, but one that is essential to maintain economic momentum.
At first glance, it may sound odd that in a nation of more than 1 billion people, there is a talent shortage. But that is the reality. Though there are no exact numbers to estimate the actual shortfall, it is widespread and not confined to any specific industry. Human resources still remain the most formidable challenge for the big, small and medium-sized firms in China along with the multinational and foreign companies.
More than 59 percent of the 160 China-based respondents in the PricewaterhouseCoopers’ annual global CEO survey admit that hiring in China has become increasingly difficult. The survey points out that the talent shortage is spread across all sectors, with an acute shortage of senior and middle managers.
According to a study conducted by Manpower Group, 33,000 global employers found that vacancies at the managerial and executive level are more difficult to fill in China than in other countries.
Such findings have serious implications for both foreign multinationals and State-owned enterprises and private companies, especially as many of the latter are nursing global ambitions.
Arthur Yeung, academic advisor to the Executive Education Program of the China Europe International Business School (CEIBS) in Shanghai, says demand for skilled and well-educated people has outpaced the supply in China, especially after the economy has moved into the high value-added mode.
“The talent shortage in China is acute and a major source of concern for local companies and foreign multinationals,” says Yeung, who is also the Philips Chair Professor of Human Resource Management. “China used to be a manufacturing-driven economy, where there are a large population of blue-collar workers and factory managers to manage the process. But ever since it shifted its focus from manufacturing to high value-added industries, the challenge of attracting and retaining staff has gone up.”
“The shortage of talent could slow China’s growth as productivity gains slow,” he says.
Growing demand
Robert Parkinson, CEO and founder of RMG International Business Consulting (Beijing) Co Ltd, a recruitment consultancy, says that China has grown so rapidly in the past decade that the demand for talent is not able to match the potential for domestic growth.
“The US took nearly 60 years after World War II to achieve the kind of growth that China has done in 25 years. So naturally, you will be more stable if you grow more slowly,” he says.
China might have a vast pool of low-cost labor, supplying everything from textiles, toys and computer chips in a short time. But the “China speed”, the pace at which products are designed and factories are equipped, appears to have hit a speed bump when it comes to creating qualified graduates.
A report published in June by McKinsey Global Institute says that China will still face a shortage of about 23 million college-educated workers by 2020, despite producing the most college graduates in the world.
Fewer than 10 percent of the Chinese job candidates on average would be suitable for employment in a foreign company, the report says.
Learning gap
Parkinson at RMG International Business Consulting explains why many graduates, despite good paper qualifications, are often said to be unable to adapt themselves to the working environment, which often plays a major role in the talent shortage issue.
He says the Chinese educational system focuses on learning a lot of facts and curricula rather than teaching people to think creatively.
“In China’s education system there is general focus on specific experience and technical ability rather than the ability to lead, manage and market,” Parkinson says.
“In the US and Europe, there has been an economic boom for the last 30 years, and halfway through that, people started to realize that it was not good to be a specialist in just one technical area. The ability to sell, think out of the box, and imbibe transferable skills are more important than knowing how the factory production line works.”
Employers are facing a shortage of talent across a broad range of industries, but the fiercest demand is for skilled and experienced workers in sectors with huge growth potential.
In the accounting industry, the demand for qualified Chinese accountants has skyrocketed in the past decade, as a growing number of private and State-owned enterprises are seeking public listings both at home and abroad.
“The growing complexity of accounting management has made it difficult for audit firms to find experienced accountants,” says the managing partner of a local audit firm, on condition of anonymity.
“We can’t grow fast if we don’t have access to qualified people.”
Elisa Mallis, chair of the Human Resources Working Group of the European Union Chamber of Commerce in China, says for European companies the talent shortage is at all levels but more acute in the leadership rungs.
“In China, many people become managers much earlier than expected. So there is a lack of experience and specific leadership competencies compared with their global counterparts, especially in strategic thinking, being highly adaptive, collaborative and open and in skills related to empowerment and people development,” she says.
Cherol Cheuk, general manager of Hudson Shanghai, an international recruitment company, says with rising domestic consumption, not only will the demand for goods and services go up, but also the demand for skilled people in service sectors.
“If you look at the healthcare industry, it is the only industry that has not been affected by the global economic turmoil,” she says. “Since most Chinese people are moving up to the middle class level, they are also now more keen than ever to ensure longer life with proper healthcare facilities. So there is a huge demand for such services, especially in medical business and allied sectors like biotechnology and medical equipment.”
According to a report by Antal International China, a global executive recruitment organization, China’s most talent-demanding sectors are luxury goods, hospitality, leisure, finance, retail and healthcare.
“These industries are all service-oriented, probably because the concept of ‘excellent service’ is still quite new in China,” says Sarah Jones, head of operations at Antal International China. “The talent shortage mainly lies in the mid to senior-level bracket, due to the fact that very few candidates have the required five years’ experience needed to fill those positions.”
A limited supply of talent and the increasing challenge of recruitment are also resulting in high turnover rates.
A report by Hudson shows that across all sectors in China, 52 percent of the employees remained with one employer for two years or less, while 7 percent remained for more than four years.
A similar survey of China’s business climate by AmCham-China in 2011 showed that the voluntary turnover rate had risen to 20 percent in 2010, the highest rate in the last decade.
Foreign multinationals increasingly report that their employees are leaving to join State-owned enterprises and private companies rather than the previous common practice of switching from job to job in search of ever-higher paying jobs at foreign companies, the report says. The rise of Chinese global employers will place additional pressures on multinational employers to retain their top talent, it concludes.
China’s executives and leaders are now looking at alternative strategies such as internal training and building a larger base of potential managers including those from overseas.
Jones at Antal International China says human resource directors need to rethink their recruitment strategies in China, as “hiring expats for professional and managerial positions does not appear to be a sustainable solution, as they hardly understand local culture and business style”.
Zhou Xing, assurance partner of PwC China, says that good company culture, training and promoting recruits are key to keeping a low turnover rate.
“We are doing what we can to help them grow and learn new regulations and rules of accounting as well as other soft skills for career development and give them a clear and attractive career path and a sense of pride of being part of the company,” Zhou says. “Most of our mid-to-senior managers are from entry-level positions and have been working in the company for more than 10 years.”
She says the turnover of PwC China remains close to 15 percent, an average of the global turnover in the auditing industry, meaning that the staff are quite satisfied with the current working conditions.
PwC China hired about 1,900 graduates in 2012 from more than 18,000 applicants, an increase of 18 percent over the previous year.
“We don’t have any problems in hiring raw recruits, and most of them are very intelligent, hardworking and willing to take the initiative,” Zhou says.
But some argue that despite the fact that multinational companies train and promote managers from entry-level positions, the process is time-consuming and costly.
“Sometimes companies have a very shortened timeframe within which to develop their staff into senior leaders, and it will take several years for these employees to be future leaders of the organization,” says Yeung at CEIBS in Shanghai.
“So I think companies need to accelerate the process, provide select employees with special training and mentoring to put them on a fast track to secure future company management positions.”
Government strategy
In recognition of the risks of talent constraints on business, the Chinese government rolled out its 12th Five-Year Plan (2011-15) outlining a strategy for finding and nurturing talent, with the idea of bringing 2,000 skilled Chinese home all in an effort to meet the country’s pressing talent demand.
The program is aimed at encouraging experienced engineers, scientists and other experts of Chinese origin back from the West to grow more domestic companies into the ranks of the world’s top 500 companies.
The commencement of MBA courses in many colleges is also testament to the government’s effort in increasing the education level of China’s workforce and to build an innovation economy.
China’s business schools such as CEIBS in Shanghai and the Guanghua School of management at Peking University now rank among the top business schools in the world.
However, some say that China is not a good breeding ground for training talent, and if China is not able to provide a more competitive and creative environment, it cannot generate talent.
“I think how people are going to be managed needs to be changed in China, because people need to realize that the kind of ‘top-down’, ‘managing to please the boss’ is not good in a modern competitive enterprise,” says Parkinson of RMG.
“If you have a culture that encourages ideas and criticism and people work there not just for the money, then you have a sustainable development in your company.”
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