China Recruiting and Retention Issues
By Ames Gross and Andrew Connor, Pacific Bridge, Inc.
April 2007
Published on the SHRM Global Forum
Introduction
In 2007, Chinese universities will produce nearly 5 million new graduates. It is estimated that 30% of these will not find jobs appropriate for their educational background. It was no surprise that a December 2006 job fair in Beijing attracted close to 30,000 candidates. Students stood in line from the early morning hours and swarmed into the Beijing Convention Center when the doors opened at 8 AM.
Companies attending job fairs in China often end the day with literally thousands of resumes. The challenge for HR Managers is to find excellent, qualified candidates among the masses and retain them. While new graduates are plentiful and eager to work, skilled middle-managers are harder to find. In a country where many middle managers’ résumés proudly list the English language as a skill, there are very few individuals with a true understanding of Western business practices.
With a 2006 GDP growth rate of around 10%, foreign direct investment of $72 billion last year (more than 12 times that in India), and the fourth largest economy in the world, China is here to stay. In order to compete, it is crucial for Western HR teams to be familiar with recruiting and retention in the Chinese context.
Recruiting in China
Charles Browne, CEO of DuPont China says, “There is really high-quality talent in the market. The difficulty is that all businesses – including top Chinese companies – are recruiting from the same pool.” Indeed, the central theme of recruiting in China in recent years has been the development of strategies to deal with the talent shortage. Talented managers and executives who are in high demand are generally already happily employed by their companies. Talented managers who have already been headhunted and switched jobs multiple times have a good sense of their own value and can demand inflated wages.
Sourcing Options and Recent Trends
There are three main types of candidates available for recruiting in China: expatriates, returnees, and locals. Each group has its own advantages and disadvantages. Companies should consider the way in which each type of candidate fits in with the company’s specific needs and the overall dynamics of the organization.
There are currently more than 150,000 expatriates working in China, not including students and diplomats. Exapts with key technological knowledge or who know the country’s corporate culture are often appropriate choices for foreign-invested enterprises (FIEs) in China.
There are also significant drawbacks to hiring expatriates in China. First, expats are very expensive and they generally expect compensation packages exceeding those they would receive in their home country. Expats in China are generally paid two to three times as much as their local counterparts in similar positions. Second, expats may have difficulty relating to the Chinese workforce and may have difficulties with the language barrier. For these reasons, many FiEs in China have been reducing the number of American or European expats working for their companies.
A desirable alternative to Western expats is Asian expats. These are generally ethnic Chinese from Hong Kong, Taiwan, Singapore or other parts of Southeast Asia. These expats may be less expensive (than a Western expat) and have a better understanding of the Chinese language and Asian business practices.
Returnees are another popular option for foreign firms. Chinese returnees are bilingual, bicultural Chinese individuals who have lived, studied and worked in the US or other Western countries and wish to return to their home countries for good job opportunities. These individuals are generally more familiar with the West and generally speak fairly fluent English. They may also have family or friends still living in China, whose connections are valuable for doing business in China.
Returnees, however, may have difficulty relating to the mainland China work environment. Having become accustomed to a Western lifestyle, coming back to China to work may seem like a hardship to some. HR managers should also be wary of those returnees who are not willing to make long-term commitments or have trouble assimilating with their local colleagues. Many overseas Chinese are interested in working in China for a few years, but not for a career.
An alternative to returnees is locals. The supply of young, local candidates with college degrees in China is massive. Local Chinese bring with them ambition, knowledge of local customs, and often connections to local organizations and government bodies. Locals also have lower salary requirements. An excellent salary by local standards will be significantly lower than that expected by an expat or returnee. However, local pay is on the rise quickly.
While many Chinese go jobless after graduation, graduates from China’s top schools often have four or five job offers even before finishing school. Competition for these candidates between both local Chinese companies and FIEs is fierce. Similarly, skilled middle managers are extremely sought after. The so-called “Cultural Revolution Generation,” which was of college age in the 1960s and 1970s, is severely lacking in skills. Most institutions of higher learning in China were closed during this time and people of this generation were sent to the countryside to work in agriculture. When economic reforms were introduced in the 1980s, this generation had a lot of catching up to do.
Recruiting Strategies
In the past two years, internet recruiting has become increasingly popular in China. At the end of 2006, there were an estimated 137 million internet users in China. This was an increase of around 23% from 2005, and the number is expected to continue growing. Job boards such as 51job.com, chinahr.com and zhaopin.com receive thousands of visits daily. 51job also publishes an extremely popular print edition that is dedicated to job classifieds. Local versions are available in many Chinese cities.
Multinational companies in China often find it most successful to post jobs in Chinese rather than English, even when seeking a candidate with English language skills. Job postings should include information on language requirements (supplying a minimum TOEFL score for English is helpful), education requirements, and job location.
Campus recruiting is also very popular in China. For undergraduate studies, Peking University (Beijing), Fudan University (Shanghai), and Tsinghua University (Beijing) are considered the top three schools in the country. Peking University is best known for its applied sciences and law courses, and was ranked the best university in Asia by The Times (UK) in 2006. Fudan University is strongest in the social and physical sciences, while Tsinghua University is often referred to as the “MIT of China.”
Recruitment at these and other top tier universities in China is extremely competitive. In fact, many FIEs in China send their top executives regularly to speak at university campuses and network with students. GE China’s CEO, for example, is known to have personally visited Fudan University six to eight times annually to bring the GE name to the attention of top students there and inform them of GE’s benefits and training programs.
According to the Financial Times, the world’s 11th best MBA program is also now located in China. The prestigious China Europe International Business School (CEIBS) was founded in Shanghai in 1994 as a joint venture between the Chinese government and the European Commission. The school’s classes are taught by both Chinese and foreign professors. Classes are taught in English only. CEIBS is not alone in China. Many top American business schools, including MIT Sloan, Wharton, and Kellogg also have collaborative programs with business schools in China.
Job fairs are also taking China by storm. Annual job fairs in China’s major cities draw the largest crowds, as described in the introduction to this article. Many cities also host “fixed” job fairs. These are regular events that occur on a fixed schedule, often on a daily or weekly basis. The Guangzhou Recruitment Fair, for example, hosts at least two job fairs per week. Fixed job fairs are sometimes comprehensive, but often focus on a specific industry or specialty each week. In Beijing and Shanghai, there are some job fairs designed specifically for foreign companies.
Retention in China
For HR managers in China, recruiting is only half the game. With the hot job market in China in recent years, it has proven as difficult to keep talent as to attract it, even for large FIEs. Successful HR strategies go well beyond simple benchmarking of compensation and benefits. They also work to integrate international HR practice with the Chinese culture and mentality.
Compensation Standards
HR Managers worldwide know that in order to keep talent, they need to pay the going wage or higher. In China, determining the going wage can be difficult. Blue collar workers in Beijing, Shanghai, and Guangzhou generally earn salaries well above the national average. Comparable jobs in second tier cities such as Tianjin or Dalian may pay 50% less. Professional and management salaries are also significantly higher than the national average wage. Professionals in accounting, finance, and management can earn anywhere from $20,000 to $100,000.
For a clearer understanding of the variance in white collar wages, even within a single city, we will examine current trends in Shanghai for accounting executives. Here, a local Chinese who has graduated from a good Chinese university and has five years of accounting experience at a state-owned enterprise (SOE) would likely receive an annual salary of only around $6,000. Someone with the same qualifications, but with experience at an FIE instead of an SOE might earn two to three times as much. Headhunting and poaching of top mid-level executives with five years of accounting experience at foreign ventures in China may drive salaries to $20,000 or $25,000. Ten years of experience (instead of five) is likely to bring this individual’s salary up to $40,000. Fluent English would likely further increase this individual’s salary to $50,000 or $60,000. Finally, a returnee with five years of experience working in the West in addition to five years of experience at an FIE in China may command a salary of $90,000 or more in China today.
Two types of bonuses are common among FIEs in China. Performance-based bonuses are a relatively new concept in China, but have been welcomed with enthusiasm by the younger generation of workers. Annual bonuses are traditionally paid by SOEs around the time of the Chinese Lunar New Year (usually in late January or early February). This trend is also often followed by FIEs. Annual bonuses, however, do not typically exceed one month’s salary.
Housing Benefits
To the new generation of Chinese professionals, housing is of primary concern. Under China’s Communist “Iron Rice Bowl” system, basic housing was automatically provided to employees. Today, a wide variety of housing options are available for rent and purchase in Chinese cities. Young Chinese professionals are eager to live in modern, convenient accommodations. Good housing benefits increase retention.
Many cities in China have mandatory housing contribution funds, to which firms must contribute at least 5% of employees’ salaries. As is often the case in China, however, general practice varies significantly from official regulations. Many FIEs issue housing allowances directly to employees rather than contributing to the government fund. In 2005, although most FIEs had some kind of housing scheme, less than 40% reported participation in the government schemes in Beijing and Shanghai.
Rent reimbursement and help with home loans are both common forms of housing assistance in China. Large FIEs are also building their own state-of-the-art condominiums, which they sell to their employees. For example, Motorola China has built hundreds of condominium units since 1998. Motorola sells these to its employees with relatively small down payments and affordable monthly mortgages. The company requires employees to withhold money from their base pay for housing expenses; it then matches this amount.
Housing prices in China vary widely, with housing in large cities being exponentially more expensive than in smaller cities. Housing suitable for most expats can be more expensive in Beijing or Shanghai than in many American cities. The housing market in some large Chinese cities has increased by 30% per year. In 2007, a modern 2 bedroom apartment convenient for expats or Chinese professionals in Beijing would likely rent for 3,900 to 9,600 RMB per month (about $503-$1,238). In Shanghai, prices for the same unit range from 6,700 to 12,000 RMB (about $864-$1547).
Training Programs
Training programs can help FIEs in China reduce turnover. Young Chinese professionals are attracted to the training opportunities that foreign companies can offer. Popular types of training include foreign language, business writing (both English and Chinese), public speaking and presentation skills, and job specific training (IT, management, sales, etc.). Many FIEs in China are realizing the advantages of hiring young, motivated staff and training them to be professionals.
Many large FIEs in China have established their own training facilities. These programs have proven effective in building company loyalty and increasing retention. GE China, for example, maintains a 42,000 square foot training facility in Shanghai, its second largest in the world. The facility is located at GE China’s Research and Development Center, allowing participants in the training program to also have first-hand access to the company’s R&D initiatives. The Carrefour Chinese Institute, also located in Shanghai, and Wal-Mart China’s regional training centers are other examples of successful internal training programs.
Smaller FIEs generally cannot afford their own training facilities, but training should remain a key element of retention strategy. Many of the MBA programs listed in this article offer executive MBA classes. Many foreign companies in China find that sending their executives to these programs enhances job performance and increases retention rates. Dale Carnegie Training and other similar programs focusing on communication, leadership, and presentation skills are also available for multinational companies in China.
A major advantage for FIEs over SOEs in terms of retention is the ability to offer overseas training programs to employees. The prospect of overseas training can be an incentive for employees to stay at a company. Those who perform best may be given the opportunity to go abroad for training.
Career Advancement and Job Titles
Career advancement is crucial to retention in China. In the past, with guaranteed lifetime employment, job performance was not important for promotion. Today, the most talented individuals in China are very demanding in terms of career advancement. The younger generation in China’s private sector is not willing to wait for promotions based on years of experience. They expect to be rewarded immediately for their accomplishments.
One surprisingly simple, yet effective way to reward performance in China is through job titles. The Chinese are generally very sensitive to their titles. The title of “director,” for example, seems much more impressive than “manager.” Some FIEs have established the practice of assigning a standard title in English and a more important-sounding title in Chinese. This allows for adherence to the company’s global HR policy while allowing the employee to feel accomplished among his or her peers.
Performance Reviews in the Chinese Context
Performance reviews were not traditionally found in Chinese SOEs. FIEs have introduced this concept to China during the past two decades. Chinese employees generally like to have their work evaluated, and this has become a strong drawing point for foreign firms.
Reviews at FIEs in China are generally conducted in a similar style to those in the US, with a written review and meeting with a supervisor. In terms of content, however, Western-style reviews may not work well. Very capable and talented Chinese employees may score badly on a performance review with inappropriate criteria. Risk taking, for example, is often not an appropriate attribute on which to judge Chinese employees. Culturally, the Chinese are not natural risk-takers. Similarly, evaluating Chinese employees on their problem solving skills may be unwise. The Chinese method of problem solving can be quite different, though equally effective as a Western strategy. From a Western perspective, however, the method may seem non-intuitive.
Boss-Employee Relationsihips
Strong relationships between boss and employee are important in any corporate setting. In China, they can be one of the keys to retention. In general terms, boss-employee relationships in China are deeper and more complex than the same relationships in the US. The Chinese see their company as part of an extended family. There is a strong desire to fit in as part of the corporate culture and it is very important to make Chinese employees feel “liked.” Organizing social events such as parties or other types of celebrations helps Chinese employees bond with their employers and colleagues.
Because the manager is often seen almost as an older sibling figure in the Chinese context, he or she is also expected to be available to give advice on personal matters. In exchange for their hard work and loyalty, Chinese employees may expect personal favors from their managers. This should not be considered rude or unusual. It is simply a way for employees to show that they are part of the corporate family.
The Chinese term guanxi, or “connections,” is extremely important for HR Managers in China to understand. It is often used to refer to personal relationships between business people. To the Chinese, earning respect and trust is considered the first step to business interaction. In some circumstances, it makes sense to hire an individual who has been recommended by another employee. This type of inside connection strengthens the bond between the new employee and the company from the start. The new employee will also be less likely to leave the company so as not to hurt the reputation of the recommending friend.
An understanding of the concept of “face” in the Chinese context is also key to reducing turnover. The Chinese are particularly sensitive to preserving trust and authority. In business relationships, it is essential to do nothing to openly offend or unnecessarily criticize a Chinese business partner, especially in front of his or her colleagues. It is important in China, for example, not to pit employees against one another. Posting comparative sales figures publicly in the office could cause employees to lose face. Promoting one employee without somehow commending or promoting others in the group may also cause loss of face. This phenomenon is much more intense in China than in the West, and can lead to rapid staff turnover if not handled correctly.
Conclusion
While China has much to learn from the West in terms of transparency and standard business practices, the West also has much to learn about China. HR is the single biggest challenge for many foreign companies that want to be successful in this Asian economic powerhouse. HR managers must not only stay abreast of current regulations and standards, but must also be keenly aware of the driving force behind business – the motivations and mentality of the workforce.