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China funds scramble for pros

HONG KONG/SHANGHAI (Reuters) — Poaching and job hopping is rampant in China’s $64 billion fund industry, making it a struggle to hire and retain ace money managers.

With markets rebounding from a four-year slump and money pouring in, analysts say salaries are jumping to Hong Kong levels while the shortage of fund managers is likely to last for at least the next few years.

“Everyone is screaming for better professionals. What has happened is that there’s been serious poaching between the fund managers,” said Joseph Ngai, an associate principal with management consultants McKinsey & Co. in Hong Kong.

“Managers have told us they’ve had a lot of their lower level staff poached to fill senior positions at other funds, which they are clearly not qualified for. But for lack of better talent right now, there’s nothing they can do about it.”

A Chinese fund manager, on average, will run a fund for just about one year, with more than 30 percent of funds managed by one manager for less than half a year, according to a recent survey conducted by the official Securities Times.

“Every Chinese fund house is struggling to obtain and retain skilled fund managers. The fund industry is a very young industry in China, and we did not have proper training programs to keep up with the demand,” said Jeanne Zhen, an investment consultant with Watson Wyatt.

“That’s why you’ve seen a lot of joint ventures in the fund management industry, because the government realized the shortage of skills.”

Pay nears Hong Kong levels
China now has more than 20 joint ventures with global fund management firms, which are keen to lure China’s $2 trillion in personal savings into fee-rich products such as mutual funds.

While the foreign players have brought much-needed expertise, industry watchers said their deep pockets have also helped fuel turnover and drive up salaries.

“(Pay packages) are reaching Hong Kong levels at this point. For the joint venture mutual fund companies, the joint venture asset management companies, they’re definitely getting close to Hong Kong territory,” said a Hong Kong-based partner with an executive recruitment firm.

“The local firms are no dummies either. They know what it takes to keep and attract good quality people.”

Industry sources said a junior manager at a mid-level Hong Kong firm could make from $130,000 to $190,000, while a chief investment officer could make more than $1 million. But a pay package of $200,000 to $400,000 is typical, they said.

Analysts said rising salaries will eventually curb the shortages as financial professionals are lured away from industries such as insurance, but the process will take time.

Fast growth
The fund industry’s overall outlook is bright, with assets from both mutual funds and pension funds likely to reach almost $1 trillion within a decade, said McKinsey’s Ngai.

“On the talent pool catching up, to be honest, we’re not as worried because it’s proven to be a very attractive industry,” he said.

“The talent imbalance will be there for a few years. But we think it will get to more of a state of equilibrium given another three years or so.”

The mainland Chinese fund industry had 54 firms managing 511.4 billion yuan ($64.4 billion) in assets at the end of the first quarter, according to data from regulators.

These include joint ventures with global fund powerhouses such as UBS AG, JPMorgan Chase & Co., and HSBC Holdings Plc.

While small when compared with most developed markets, the industry has made a huge increase from 1998, when six firms managed just 10.74 billion yuan ($1.35 billion).

The rapid growth has put fund management talent at a premium, and spurred many managers to jump to larger state lenders and foreign brand-backed fund companies.

Industry sources cite the case of Merchants Fund manager Du Haitao, who left for larger rival ICBC Credit Suisse Fund in the first half of this year.

“The turnover in China has been relatively higher than at Western firms,” said Frank Yao, executive vice president with Huaan Fund Management Co. Ltd. in Shanghai.

“In some Chinese fund firms, a fund manager could only work for up to half a year and then he or she hopped to a rival firm,” added Yao, whose firm manages nearly 40 billion yuan.

Watch out India! China wants to be outsourcing powerhouse

Already known as the world’s factory floor, China now wants to turn into an international outsourcing powerhouse, a report said Friday, a move which could challenge India’s prominence in the industry.
Outsourcing will become a new area of foreign investment for the country and China will encourage multinationals to outsource from here, the official Xinhua news agency quoted Vice Premier Wu Yi saying at a forum in the southeastern city of Xiamen.

China, already a favorite with multinationals for manufacturing and research and development would make a snug fit for outsourcing services, Wu said.

With four million graduates entering the workforce every year China offers a huge pool of talent for high-end industry outsourcing, she said.

China wants to restructure its low-end manufacturing economy by investing in services, outsourcing, high-end manufacturing and Research and Development services, Wu said.

India, the global leader in outsourcing services such as software and call centers, employs about 350,000 people in an industry that earned US$6.7 billion in the year ended March 2005.

However, rising costs could threaten India’s headline position as major IT groups such as Apple Computer and software maker Pervasive, have joined Anglo-German Powergen in closing operations in technology hub Bangalore.

Separately, the Indian science minister said in Beijing on Friday that India and China plan to set up a Cabinet level body to pursue joint technology development amid rapid growth in trade between the former Asian adversaries.

New Delhi also is looking to China as a market for farm exports and a source of investment for infrastructure projects, said Indian Science and Technology Minister Kapil Sibal.

“From the Indian standpoint, China will be our biggest partner in years to come,” said Sibal, who was on a five-day visit to the Chinese capital.

Sibal said he signed a memorandum of understanding Thursday with his Chinese counterpart, Wu Guanhua, to set up a committee to promote joint research. He said a formal agreement is expected to be signed when Chinese President Hu Jintao visits New Delhi in November.

Under the agreement, the two sides will create a “road map” for joint research on high-tech projects and on solutions to common problems facing their vast, poor populations, Sibal said.

“If you were to marry China’s hardware with Indian software, we could make goods for the international market that are high in quality and low in cost,” he said at a news conference. “This is an ideal relationship that we can nurture for the future.”

Sibal’s visit coincided with a trade show in Beijing by 48 Indian companies, ranging from biotechnology and electronics firms to makers of textiles and machine parts.

The minister said the two governments also hope to collaborate on solving environmental and other problems where he said India and China have unique experience.

China faces a critical talent shortage

VANCOUVER – Canadian companies doing business in China are having trouble finding people – the right people – in the world’s most populous country.

As multinational corporations race to set up shop in the economic powerhouse, China’s supply of experienced, English-speaking workers is rapidly dwindling.

“There is intense competition for well-educated, English-speaking, professional staff who have experience working with multinational companies,” said Diana Barkley, director of public affairs for Vancouver-based Methanex Corp.

Partly to avoid that problem, Methanex, the world’s biggest methanol producer, decided not to establish its Asia-Pacific headquarters in mainland hot spots such as Beijing and Shanghai when it moved from New Zealand earlier this year.

The company maintains a small marketing office of three workers in Shanghai, but it chose, instead, to base its regional head office in the former British colony Hong Kong, where the pool of talent is wider. ”When we chose to relocate our Asia-Pacific logistics office that was, in fact, one of many criteria we looked at,” Barkley said.

Despite a population of more than a billion, China is facing a critical talent shortage, according to a report released last month by the international employment services company Manpower Inc.

Managers and executives are in greatest demand, the report, titled The China Talent Paradox, stated.

Older managers arising from China’s Cultural Revolution lack the education and training needed to work as senior managers for foreign-based companies, while recent university graduates lack management experience, it said.

Most Chinese employees also have low English-language skills, and those who do meet companies’ standards for high-level positions tend to be difficult to retain, especially when they’re presented with higher salaries, career advancement opportunities and benefits by competing firms.

Although Chinese students and workers recognize the need to learn English, the shortage of fluent English-speakers is “still a very big issue,” said Vincent Wong, president of Richmond, B.C.-based ACT360 Solutions Ltd., which markets its language-skills testing software to universities and companies in China.

Most university graduates have good English reading and writing skills, he said, but their ability to speak the language is often poor.

“Even in some of our own dealings there, the English standard isn’t as fluent as needed for high-level business discussions,” Wong said.

With the exception of some of the “more progressive” multi-national companies in China, most business operations there don’t provide internal corporate training, leaving it up to employees to learn English themselves, he said.

But, in light of the strong competition for talent, Wong said he expects more companies in China will start offering language training for their staff.

According to the Manpower report, the number of university graduates in China is expected to increase by 22 per cent in 2006 to 4.1 million, which will add to the pool of educated potential employees.

Even so, demand is outpacing supply, and the report estimated it will still take six to eight years before graduates gain sufficient work experience to ease the current competition for mid-level and senior managers.

In a survey of 141 companies, Manpower found two in every five are struggling to fill senior management positions in China.

Manpower’s spokeswoman Britt Zarling said recruiting and retaining qualified staff can be even more of a problem for small and mid-sized businesses.

Nearly 75 per cent out of more than 300 Chinese job candidates surveyed by Manpower said they would prefer to work for a wholly owned foreign company rather than a joint-venture or domestic Chinese firm because they tend to offer higher wages, and better training and working conditions.

But with large multinational corporations clamoring for the best workers, the competition among smaller foreign companies is all the greater, Zarling said.

In the report, Manpower noted China’s talent shortage deals a “quadruple blow” for many companies. They aren’t able to quickly jump on growth opportunities because they can’t recruit workers needed to expand their businesses; they face higher attrition rates as staff defect to other companies; they are forced to replace people that have significant knowledge about their products and services; and they are distracted from their core business while they train new employees to replace those leaving.

As well, higher labour costs boosted by the rising demand for trained professionals is squeezing companies’ margins, the report added.

Still, Manpower said, foreign-based companies find it more beneficial to hire local Chinese employees, rather than bring in expatriate managers.

“Local managers have an advantage over their western counterparts when it comes to working with their local staff, given cultural considerations,” Zarling wrote in an e-mail.

It’s important for western companies to adapt to the local environment and adopt an insider’s perspective, she said.

“For those hardest-to-fill positions, companies may bring in their foreign managers (expats) to run the business but sooner or later it is likely that they will be replaced by local people,” she added.

And despite rising labour costs, foreign companies still find it more affordable to shell out for local staff than to bring in foreign workers, said Alison Winters, general manager of the Canada China Business Council’s Vancouver office.

Winters said some sources have indicated that companies can, on average, hire five Chinese workers for the same amount of money required to hire a single North American worker.

“They know it’s terribly expensive to hire expats and the expats don’t want to stay that long,” she added.

Winters said that many of council’s member firms have been able to weather the talent shortage in China by building loyalty among their staff over time.

The fundamentals of attracting and retaining employees are the same in China as anywhere else, she said. Employers need to select people that fit well within their company, offer strong leadership, and provide opportunities to move up in the company, as well as bonuses or other incentives.

“It’s not any different from any other country,” she said.

Western companies find China hiring surprisingly tough

PARIS (MarketWatch) — Hubert Giraud of French IT and consulting company Capgemini (12533.FR) never thought hiring people in China, the world’s most populous country, would be so difficult.

As multinationals like Capgemini flood the market looking for skilled workers, they are running up against unforeseen problems. Salaries among qualified workers are rising faster than expected, mid-level managers in their 40s are scarce, education standards are weak and many Chinese say they’d rather work for a local rather than Western company.

Strong competition for experienced employees, the cultural complexities of working in a Western company and the sense that the top positions will always be held by European or U.S. managers push many Chinese workers out of Western companies after only a few years.

“Eighty million people live in this province,” Giraud says, referring to Guangdong in southern China, where Capgemini employs 500 people in its business outsource unit. “When you see that you think you can get anything you want. It’s just not true.”

In a nation of 1.3 billion only 5.2% of the population has a college degree and above, China’s National Bureau of Statistics reported in March. By comparison, roughly 25% of the U.S. population of 298 million have college degrees.

Many multinationals, which spend heavily on training young Chinese graduates to compensate for the educational shortfalls, lose them to local companies after a few years because young Chinese perceive that opportunities for career development and promotion are greater.

In China as well as rapidly developing economies like India, it isn’t unusual for Western companies to lead investment and import their own educational standards. What surprises some companies are the lengths to which they have to go to train young Chinese, as opposed to Indians who generally have workable English.

It’s not uncommon, managers interviewed for this article say, for a company to lose a third of its workforce in a year. Heidrick and Struggles, a headhunting firm, said in a July study that “talented managers” in China change jobs every 15 months at present.

Heidrick says most companies are happy if they can limit turnover to no more than 15%, particularly in fast-growing industries like technology and telecommunications. Bob Krysiak, STMicroelectronic NV’s (STM) president and general manager for Hong Kong, Taiwan and China, says attrition rates for the company’s China operations range between 12% and 15%.

“China is like the Internet bubble in the U.S. – vibrant and bullish,” says Vincent Gauthier, general manager for Hewitt Associates in Hong Kong. “If you are in your 30s, have English and skills you can walk right out of one job and into another without breaking a sweat. And people do.”

The recent influx of college students to Chinese universities means it is easy to recruit 22-year-olds with no job experience. However, people with even a few years of experience are in deep demand.

The surge in employment opportunities has been driven by China’s entry into the World Trade Organization in 2001, which led to a leap in investment in China. Last year foreign companies invested $60 billion in China from $38 billion in 2000, according to the China’s National Bureau of Statistics.

China’s Ministry of Commerce said in the first four months of 2006 roughly 12,000 new foreign companies began operations in China. Heidrick and Struggles notes that established companies in China, both local and foreign, are rapidly expanding their ranks. Of the companies polled by Heidrick, the number of those with staff of more than 5,000 tripled in the last two years from two to six.
Few companies are backing down from ambitious plans to carve out a corner for themselves in China’s thriving marketplace, despite rising wages and intense competition. That is because most companies see the Chinese market itself as an important source of revenue. According to Heidrick and Struggles, two-thirds of respondents cite selling to China’s 1.3 billion people as the key reason for being in China while setting up operations to outsource goods for the West is a secondary concern.

Both U.S. based and other foreign companies face intense competition for staff and rising salaries to increase their operations. Capgemini, which derives 1% of its revenue from China, is looking to triple its staff in China in the next four to five years to 2000-3000 employees.

STMicro, which draws a quarter of its sales from China, announced last spring it would invest $500 million in a new semiconductor factory. It plans to hire 2,500 across China during next few years.

Meanwhile, General Electric Co. (GE) said it is looking to maintain its annual 10% earnings growth in part by outsourcing to China. At present the company makes about $5 billion in revenue from China and recently Chairman Jeff Immelt said he expects that number to double in the next four to five years. GE employs 13,000 people in China.

The labor shortage, particularly among experienced workers, means companies routinely poach talent from each other, driving up salaries in the process. Hewitt Associates estimates that wages are rising as much as 15% a year for experienced, English-speaking workers, but anecdotal evidence puts the number much higher.

Stefan Dyckerhoff, head of Capgemini’s consulting arm in China, hires first-year consultants for $5,000 a year but bumps their pay up to $35,000 by the third. By comparison the average rural salary in China is $225 annually and the average urban salary is $1,164 according to the China’s National Bureau of Statistics. Dyckerhoff says salary inflation is outpacing what the company charges in consulting fees, though profit is still possible.

STMicro which employs 4,000 people in China, pays a relatively experienced engineer in Shanghai about $40,000 a year, about a third less than an engineer’s salary in Silicon Valley, but not a pittance, the company says.
The problem says STMicro’s Krysiak, is that raising salaries alone doesn’t keep workers. Many are leaving for rising Chinese technology companies or even to become entrepreneurs.

“There is a lot of venture-capital money chasing Chinese enterprises,” he says. “We lose people because some of these guys all want to be part of the next IPO.”

Junwen Mo, a 22-year-old Chinese business student, has an internship at BNP Paribas SA (13110.FR) but says many Chinese want to work for a Chinese company in the long run. “For prestige and personal satisfaction it is better to work for a Chinese company,” he said, adding that foreign companies might pay better salaries but they don’t grant promotions. “If you are ambitious you have to work for a Chinese company after a few years of experience.”

Losing people like Mo is painful for Western companies that have spent both time and money training them.

Although China produces 3.1 million college graduates a year, educational standards are lacking, U.S. consulting firm McKinsey & Co. (MCK.XX) says in a 2005 report. Even engineering students from the most prestigious universities in Beijing receive little practical training in either projects or working with a team. Few speak passable English. As a result McKinsey estimates that only 160,000 engineering graduates a year are suitable to work in multinationals – a pool no larger than the U.K.’s, who’s population is about 60 million.

To compensate for the poor education system companies are investing in training programs to get new recruits up to speed which can add 15% to personnel costs, McKinsey says.

STMicro routinely trains new recruits for six months or more. Teaching English is the biggest problem but the basics of business – everything from marketing to how to say no to your boss – has to be taught.

Steven Shaw, head of Networks for Nokia China (NOK), spends a fifth of his time mentoring Chinese workers.

“We have English classes, technical training classes, lots of training.” Shaw says. “It can be expensive, but it has to be done. It’s one of the most important things to young Chinese. They want skills.”

However, they also want to believe that they can reach the highest echelons of the companies. It’s a message that Western companies are finally getting loud and clear, although finding Chinese managers to head operations is by far the most vexing personnel issue, several managers said.

“Graduate degrees were basically suspended in the late ’60s and ’70s,” says Gauthier, referring to China’s cultural revolution. “The 45-year-old manager who speaks English really isn’t available.”

Nevertheless companies are bending over backward to find Chinese-speaking managers, increasingly poaching talent from firms in Hong Kong, Taiwan or Malaysia.

Capgemini recently hired Chen Bo, the former vice-president of Hewlett-Packard China (HPQ), as chief executive officer of Capgemini China, despite the fact that he doesn’t speak English. Chen works closely with a multilingual assistant.

Nokia, too, has boosted its Chinese representation. Shaw says on his management board two thirds are Chinese nationals.

Other companies are also taking notice. Heidrick and Struggles reported that three-quarters of firms operating in China today have native-born Chinese represented on their management teams, up from half two years ago.
“It’s important for morale to have Chinese managers, either from China, Hong Kong or Taiwan, at the top,” Shaw says. “It is not always the easiest thing to find them.”

(Mimosa Spencer in Paris contributed to this article.)

Best Buy to Open First China Outlet

SEPTEMBER 01, 2006 — Best Buy Co. Inc., Richfield, Minn., has announced plans to open a store in Shanghai’s busy Xujiahui shopping district by year end–the chain’s first outlet in China. Best Buy is partnering with Jiangsu Five Star Appliance Co., China’s fourth-leading appliance and consumer electronics retailer, to open the new store. In May, Best Buy announced that it paid $180 million for a majority stake in Jiangsu Five Star, giving the retailer an immediate presence in Asia’s fast-growing market. Best Buy says it is concentrating on researching the market and recruiting and training staff before making its next move in China, which is one of Asia’s most saturated and competitive markets for appliance retailers and manufacturers. “We are still learning about this marketplace,” said Robert Willett, Best Buy’s CEO. “The Chinese consumer is pretty unforgiving if we get it wrong.”

China Labor Paradox: Manpower Research Report Reveals Management Shortage Affecting U.S. Multinationals

Wednesday August 30, 12:01 am ET

MILWAUKEE, Aug. 30 /PRNewswire/ — Despite China’s population of 1.3 billion, a critical talent shortage has multinational corporations struggling to retain their management and employees. A new White Paper by Manpower Inc., a world leader in the employment services industry, examines this paradox and offers insight to help multinationals improve their talent management strategies in China.

“The United States is the biggest investor country in China, yet many of its companies are struggling to generate the growth they want because of people issues,” said Jonas Prising, President of Manpower North America. “Recruiting the right people, retaining the best staff and developing leaders of the future are difficult tasks in any market. For foreign companies operating in China, there is the added difficulty of understanding how to adapt talent management strategies to the country’s unique business culture and values.”

The White Paper, The China Talent Paradox, reports that rapid economic and social change has spurred a skills shortage that is set to escalate in the next few years. The labor shortage in China is even more problematic than in other nations because it is most severe among managers. Two in every five companies find it difficult to fill senior management positions. Mid-level managers are also in short supply, particularly those who are Chinese nationals and can interact with local people.

Competition is stiff for this elite group of employees, and high turnover compounds the issue. Management-level attrition rates in China are more than 25 percent greater than the global average, and replacing a high-performing manager can cost 300 percent to 2,000 percent of that individual’s salary.

The White Paper details Manpower’s proprietary Workforce Optimization Model, which offers practical strategies for multinational corporations to improve employee attraction, engagement and retention in China. These talent management strategies rely heavily on understanding Chinese cultural nuances and leveraging that knowledge.

“To fuel the current level of growth that multinationals are experiencing in China, they need to attract and develop competent leaders that can work effectively in the Chinese workplace,” said Lucille Wu, Managing Director of Manpower China. “Chinese employees respond best to hands-on leadership and having a role model to demonstrate what is expected of them so that they may replicate their actions. They are also unlikely to tell a manager when they do not understand how to complete their work. This requires a different leadership approach than most Western multinationals expect when they come to China.”

There is good news for U.S. multinationals operating in China if they are successful in developing an employment strategy that fits the culture and values. Although employee retention is an issue, these businesses have a distinct advantage in competing for talent in China. Nearly 75 percent of Chinese employees would prefer to work for wholly-owned foreign companies rather than joint venture companies and wholly-owned Chinese companies, according to Manpower research.