Big on opportunity, short on talent

It’s 7 a.m. on Monday morning, and the subway destined for central Beijing is bursting with people scuttling off to work. Amid the din and commotion, the casual observer would have little idea that China’s booming economy is suffering from a talent shortage.

Photo: Bloomberg via Getty Images

In the 2011 Manpower Global Talent Shortage Survey of nearly 40,000 employers worldwide, 31% of firms reported having trouble filling jobs, down from 48% in 2006. In China, the shift has been in the opposite direction, with 40% of firms there reporting having trouble filling jobs in 2010, up from just 24% in 2006. While talent shortage is an emerging trend in many countries, the challenge for a country like China is that the sheer velocity of the economy’s transformation means that the increase in demand for skilled and suitable workers is outpacing the increase in supply.

LOOKING BEYOND SKILLS TO FIND THE RIGHT TALENT

Talent shortages in China are forcing human resources managers to rethink their strategies for increasing head count in key managerial and executive positions. The traditional solution in developing markets has been to bring in expatriate professionals and managers—but there are disadvantages to that approach. One of the bigger drawbacks of hiring expats is that they do not grasp the local culture as Chinese employees would. Local managers generally have a better chance of understanding the nuances of the marketplace, which is especially important for companies looking to sell their products in China.

Unfortunately, local employees can also pose a challenge for companies managing cost. As their pay is catching up with their expat counterparts, at the executive level the savings from hiring an experienced local are becoming less obvious. Those locals who have the right skills sets are understandably in high demand, and they also understand their worth.

Emmanuel Hemmerle, a principal with executive search firm Heidrick & Struggles, believes that there is a misconception on the part of people not familiar with China: “Headquarters in Japan, in Europe and in the US tend to believe that China, because of its low cost, should be cheaper in terms of executives’ [remuneration] packages. Nothing is more wrong. In fact, if you want to woo top talent, you’re going to have to pay the right amount. Often you end up with packages for similar skill sets and similar responsibilities that are higher in China than what would be the case with similar counterparts in Europe and the US.”

Even firms that pay well are susceptible to having their best people poached. According to Karl-Heinz Oehler, vice-president of global talent management at Hertz Corporation, “Local Chinese companies are quite prepared to offer a potential recruit a 30% to 40% pay increase from their previous positions.” Furthermore, a job at a foreign firm is no longer seen as the automatic choice for ambitious Chinese professionals and executives. According to surveys by the Corporate Executive Board, in 2007 41% of highly skilled Chinese professionals wanted a job at a Western multinational, compared with only 9% who wanted to work for local firm. In 2010, 44% wanted to work for a Western multinational, but 28% preferred local firms.

The Corporate Executive Board found that the preference gap is shrinking owing to shifting attitudes about the differences between Chinese and Western companies. In particular, as Western companies have responded to the global economic slowdown with a corresponding decrease in recruiting efforts, Chinese companies have continued to aggressively recruit the top talent in their country—enticing them with opportunities for professional development and career advancement while instilling a sense of national pride. The research also found a widely held view among local professionals that there is a “glass ceiling” at Western companies—and that senior-level positions will always be held by expats.

GROW YOUR OWN

So where does this leave smaller foreign firms who need to attract talent but cannot afford to pay top dollar? Many are accepting that it is not feasible to hire experienced people who can come in and perform a role to the highest standard. Instead they are being forced to take a chance, hiring people with strong potential and developing them. Such a strategy has the added advantage of making the company attractive to ambitious young professionals. Often, a clear and attractive career path is more important than initial financial compensation. If the firm can offer overseas experience, training schemes, language lessons, so much the better.

Of course, there is a danger that money is spent on developing an employee, and then losing them to a rival—a common problem in many emerging markets. That threat makes it essential that staff development is continually emphasized and that local employees do not perceive there to be any glass ceilings within the company. For example, Novartis, a Swiss pharmaceutical company, offers employees a range of career development programs, such as university courses and rotation opportunities, combined with regular assessments of employees to determine their most suitable career direction, in a successful effort to retain talent. Compensation packages that involve a significant performance-related component have also been shown to reduce staff turnover.

More unconventionally, whereas staff in the West tend to favour a clear separation between work and pleasure, Chinese workers are more likely to want their companies to also act as social entities—almost extended families. Managers are often expected to provide their staff with guidance on personal issues, and those that are able to gain the trust and confidence of their staff will usually achieve higher retention rates.

For a foreign firm to find the right talent in China’s increasingly competitive market, there are no shortcuts. Thinking creatively is essential—especially when confronting the war for talent that is raging across all sectors. Notwithstanding the challenges, firms which employ a long-term strategy that is sensitive to the professional and personal objectives of their local employees may begin to see their efforts pay off in dividends for years to come.