A Booming Chinese Economy
Published 23 Feb 2017
It has been said in the past that China is like a sleeping dragon. And when the dragon awakes the whole world will know. The prophecy has come to pass and much more. China has not only awakened from deep economic slumber but it has also taken the whole planet by storm transforming how business is done in a global way.But as the Chinese government tries to steer a zooming economy into a sustainable future, problems began to arise. They became a victim of their own success. As China began to improve on their image from being a mere major outsource player into a major leader in innovation and technology they are beginning to feel the seriousness of growing pains. With regards to the latter China is learning fast that it will require significant upgrades in their human capital if the country expects to play with the big boys. But it is in this area that China is critically in need of help.
This study will look into the effect of China’s booming economy in terms of attracting, developing and retaining high quality employees, CEOs, consultants, etc. An explanation on how things came to be will also be provided to serve as background information to fully grasp the context of the problem.
In the past few decades China is enjoying robust economic growth as one of the major recipients of Foreign Direct Investments. Those who have been following the headlines and business related news are well aware that Multinational Companies “MNCs” that invested in China were able to post spectacular profit. One can easily deduce as to the reason for their success. The said MNCs have found a use for China’s huge labor market that can be easily transformed into a cost efficient workforce. But it seems that this is already old news.
The MNCs that are in China are worried about the current trend – the lack of skilled employees that can improve the stability and competitiveness of the company. The high turnover and poaching of employees is a picture that suggests non-sustainability and this has to be resolved if MNCs could hope to continue their winning streak.
It is common knowledge in the Western world that China is a land of more than one billion people. How then, can a serious lack in human capital be explained considering such an enormous population? The answer to that question serves also to frame the problem.Adrienne Fox was able trace the root cause of this nation’s most immediate need and she wrote, “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” ( 2007, p. 1). It is now clear that China’s economy is evolving to a point that there is an awful need to fill up vacancies.
Hiring and Retaining
It is the finding, training, and retaining, “…skilled employees who can thrive in Western-style multinational corporate cultures” (Fox, 2007, p. 2) that is the immediate need of MNCs operating in China. In order to do this, MNCs must first be aware of the strengths and weaknesses of the following talent pool (Lau, 2007):
- Western expatriates – their strength comes with their global perspective and their familiarity with Western management expertise. Their downside is also quite obvious since they do not possess a deep understanding of the Chinese culture and they are very limited in terms of using the Chinese language.
- Asian expatriates – their strength lies in the fact that they are as good as the Western expats in terms of mastery of Western type of management and are far better in terms of their grasp of Chinese culture and language.
- Mainland Chinese (returnees) – born and raised in China but went to the West for training, further study and work. This group is obviously at an advantage when it comes to understanding China the only problem is that oftentimes than not they chose to stay in the West rather than come back to China.
- Mainland Chinese – these were born and raised in China yet never able to experience working or studying abroad. This also means that they lack international exposure, lack English language skills and standards are not world class.
Solving this problem requires a clear battle plan. This is provided by the think tank from Egon Zehnder International and they called their program as the managing of the entire talent cycle, shown in detail below(Lau, 2007):
- Attracting the best and the brightest;
- appraising and benchmarking them;
- developing and coaching them;
- deploying and redeploying and;
- retaining them.
Attracting the best and the brightest can be as simple as dangling an offer that no skilled employee or top talent can refuse (Schuler & Jackson, year, p. 281). But hiring expatriates can be very costly indeed. This fact is supported by Gross and Connor who remarked that, “While expatriates are often desirable for FIEs (Foreing-invested enterprises) setting up business in China, they are generally much more expensive and might have difficulty relating to the Chinese work environment or communicating with the locals” (2006, p. 2). This means that businesses are better of with the hiring of local talent. Hiring local talent can also mean hitting two birds with one stone because as businesses hire a Chinese national, this signals long-term commitment and this will encourage many to stay for the long haul.
Aside from localizing the management team one way of retaining top talent is through investing in training and development. It is important to remember though that training programs should be a product of careful planning with an eye towards the future and not simply a bunch of programs thrown together for the sake of having a training department. According to Schuler and Jackson, “Enterprises often carry out training without strategic planning, costing or taking into account what the training needs of the enterprise” (2007, p. 282).
It is important to note that when doing the whole talent management cycle the priority is to fill up the leadership position from the top down with quality people. A haphazard filling up of position for the sake of plugging the holes in the employment chart can result in more turnovers and more problems down the road. A good leader can motivate workers under them to perform better and to make them have greater ownership and responsibility for their own work (Schuler & Jackson, 2007, p. 282).
Based on the above-mentioned information, it is becoming obvious that China’s long term sustainability is ultimately dependent upon the creation of localized management teams. Hiring a Mainland Chinese person either as a returnee or a local can immediately score high points in the area of loyalty, cost-efficiency, familiarity with culture and the Chinese way of doing business and master of the language.
Aside from the palpable benefits, Fox also highlighted a not so obvious benefit of going local and she wrote:
…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’ … It will hurt your ability to recruit (2007).
The current problem faced by MNCs can be solved by hiring more Western expatriates. But it has been shown that there is a better chance of sustaining growth and retaining workers if the company begins to increase the number of Mainland Chinese hired as workers or as top level executives. It has been shown that Chinese workers are less likely to leave if they can see that their particular MNCs has displayed a high level of commitment by establishing “localized” teams instead of hiring from the Western world.
A clear battle plan is required to be able to attract, hire and retain workers. In the short term MNCs must offer attractive compensation packages in order to hire the best and make them stay for a long time. But the long term solution is to improve the educational system of China and raise the standards so that it can compete with top universities in America.
Therefore if the government can help improve the capability of Chinese universities to reproduce highly quality human capital, the PRC will be looking at a steady supply of top local talent. This means that they will have skilled employees and topnotch CEOs that are not only loyal to China, understand the local culture, but more importantly, can be hired at a lower cost.But before all that happens there is a pressing problem that requires an immediate solution. Chinese firms as well as a multitude of MNCs could not wait for the universities to produce top level talent, they need skilled employees now. The obvious solution to their problem is to recruit Western expatriates but as shown earlier this is not the best option for them in the long run. First of all Western expats could not easily be retained because their loyalty is not with China. Secondly, Western expats are not familiar with Chinese culture and this is a big deal in China. Now, culture is tricky. There is no way it can be learned by reading books only. An expatriate must immerse himself into the targeted culture and learn by observing, conversing, tasting, and of course by doing business. It is only when observing people in their natural setting can one fully understand the difference in values, beliefs, and in this case the unspoken rules of doing business in China.
A multinational corporation can send in an aggressive player but unschooled in the Chinese way, he or she may end up offending many. And if the goal is attracting and retaining quality employees then that too will have to wait a little bit more until the HRM department comes full circle and has already figured out how to do things the People’s Republic of China way. Understanding Chinese culture is not only for managers to become effective leaders and motivators of those who are working under them.
A mastery of Chinese culture will help in designing an effective recruitment and training program. As Fox explains, “Chinese culture calls for learning and growing. A Chinese proverb says, ‘If you want one year of prosperity grow grain … 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” (2007, p. 4). Knowledge about Chinese culture will surely reap dividends. This same knowledge of Chinese culture can be used for HRM purposes as well.
Thus, the next best thing is the hiring of “localized” human capital. As one can see there can be three major sources of localized talents. The first major source is Asian expatriates that can be found within the neighboring nations. These Asians are more familiar with Chinese ways the only problem is that Taiwanese, Malaysians and Korean expats require extensive study in the Chinese language and here is where their weakness lies.
Mainland Chinese who went to the West to study and learn should be top priority in the hiring process. The next best thing is to hire those who are Chinese nationals who never left the country, learning everything they can in the local setting. They will not be a burden financially because their salaries will remain competitive even in the long run. But they require extensive training they have very little or zero international exposure rendering them incapable of running sensitive areas in Multinational companies. This can remedied by designing an effective and continuous training program designed intelligently to produce top quality and highly skilled employees.
- Fox, Adrienne. “China: Land of Opportunity and Challenge.” HR Magazine. [online] Sept. 2007.
- Gross, Ames & Connor, Andrew. “China HR and Recruiting Issues Update.” HR Magazine.
- Lau, Davy. “China: Skills Shortage Makes Long-Term Talent Management Key to Success.”
- Egon Zender Leadership Magazine [online]. “ 05 Oct 2007
- Schuler, Randall & Jackson, Susan E. Strategic Human Resource Management. 2nd ed. Malden, MA: Blackwell Publishing, 2007.