Archives April 2009

Managing human resources in a global downturn

THE “global war for talent”, which became the byword of human resource (HR) management in the 2000s, appears less urgent as unemployment surges in the wake of the world recession.

Jobless rates in the Euro zone and the United States surpassed 7% at end-2008, and will approach double digits in 2009 as companies slash their payrolls.

Unemployment rates in the BRIC (Brazil, Russia, India and China) countries and other emerging markets are also rising, creating worker surpluses in what were recently tight labour markets.

The weakening of the global labour market affects a broad spectrum of industries and occupations.

Attention divertion

Under these circumstances, corporate managers have a strong temptation to divert attention from the global war for talent (driven by competition for skilled employees amid labour scarcity) to downsizing of the workforce (impelled by falling output and declining revenues).

HR management becomes a target of discretionary spending cuts as companies struggle to boost flagging earnings.

HR managers face a weaker imperative to retain talented employees, whose bargaining power and job mobility have diminished in the slack labour market.

Companies that yield to short-term disturbances in the global labour market risk losing their long-term competitiveness.

The structural factors underpinning the war for talent remain intact despite the economic downturn:

Globalisation heightens the importance of human capital as a competitive asset, particularly for companies based in high-income economies that rely on productivity gains to neutralise the labour cost advantages of emerging market competitors.

Demographic patterns clearly point to future labour shortages in North America, Europe and developed Asia, where fertility rates are low and aging workers are approaching retirement.

The increasing technological content of global services and manufacturing raises the premium on highly-talented employees, who enjoy high international mobility and multiple professional options.

Deficiencies in production of university-trained scientists and engineers in Western countries widen gaps between workforce capabilities and enterprise requirements, compelling many American and European companies to tap the labour-rich emerging markets for skilled workers.

The entry of growing numbers of Generation Y members into the global labour market in coming years raises new challenges for corporate managers, who must compete globally for talented young professionals bringing different values and expectations into the workforce.

Nothing in the current economic downturn indicates a diminution of these long-term drivers of the global labour market.

Accordingly, companies that sustain investments in human capital during the recession will enjoy a strong competitive advantage over companies that neglect HR management.

The traditional model of HR management focuses on administrative functions – application processing, benefits, compensation benchmarking, dispute resolution, employee grievances, performance review and rules compliance.

HR professionals typically spend the bulk of their time absorbed in these day-to-day tasks, disengaged from the organisation’s broader objectives.

The HR curricula of business schools reinforce this tendency, producing HR professionals well trained in administrative processes but lacking a firm grasp of the links between human capital and corporate strategy.

The HR profession is undergoing a migration from this tactical model to one that treats HR management as a core strategic activity.

Graduates of elite MBA programmes, who previously shunned unglamorous HR jobs to take positions in corporate finance or management consulting, are now pursuing HR careers.

Factors driving new HR

Several factors are driving the rise of the new HR:

Growing recognition by senior executives of the centrality of human capital in corporate strategy, especially managers of companies situated in global industries where strong HR management is a competitive differentiator.

Increasing complexity of global HR management, which demands HR professionals able to recruit employees with varied backgrounds and to navigate diverse geographies and cultures.

Exhaustion of productivity gains from investments in new plant and equipment, which heighten the importance of high-quality workers as drivers of productivity growth.

Expanding opportunities for outsourcing of HR functions (e.g. benefits administration) that free up corporate resources to engage the strategic dimensions of human resource management.

Changing attitudes toward work by Gen Y individuals, whose recruitment and retention require an integrated approach to professional development and careful attention to the entire employee “life cycle”.

These factors heighten demand for HR professionals possessing a strong strategic acumen, a global perspective, an embrace of workforce diversity as a competitive asset, and a capacity to identify and develop rising stars in the organisation.

They highlight the need to align HR practices with labour force dynamics: e.g. forecasting future workforce requirements; assessing leadership pipeline trends; and devising performance metrics that address both the “hard” and “soft” skills of employees.

And they underscore the imperative of continuous and visible engagement in HR management by senior organisational leaders – articulating the links between human capital development and corporate strategy; mentoring and coaching young employees with leadership potential; surmounting organisational silos to expand lateral opportunities and optimise deployment of the company’s human assets.

HR management in a global recession

Investments in human capital are not likely to be a high priority for companies whose very survival is threatened by the global downturn. But for companies with strong balance sheets and compelling business models, the economic downturn presents important opportunities to strengthen their HR management capabilities and position them for the inevitable rebound:

Utilising slack time to engage employees in professional development and technical training programmes, which serve both to sharpen skills and to preserve morale during tough times.

Opportunistic hiring of talented individuals caught in downsizing at weaker enterprises, which augments the company’s human capital base for long-term growth.

Promoting cross-divisional and cross-functional collaboration, which improves utilisation of HR and encourages teamwork between employees who previously had little or no contact.

Redefining and expanding spheres of authority and responsibility of star employees, which permits assessment of the leadership potential of individuals who may eventually occupy executive positions in the organisation.

Few companies are escaping the fallout of what now rates as the worst global economic crisis since the Great Depression. As a result, even robust enterprises are downsizing.

How companies manage downsizing is an important component of HR management.

Generous treatment of departing workers – including high-quality placement services and severance packages – not only creates goodwill among former employees who will speak favourably about the company and who may indeed return as “boomerangs”, it also burnishes the company’s image as an attractive workplace and thereby strengthens its capacity to recruit and retain talented persons when the economy recovers.

China In-Focus: China Agritech To Cut Executive Pay

China Agritech, Inc. said it is implementing a salary program for its senior management team which will reduce the cash compensation of their base salary levels for the 2009 year as part of a new cost control plan.

In a statement, the company said it will consider a performance-based option plan, “to further incentivize the management team to focus on producing greater business and financial results.”

As a part of the cost control measures, China Agritech is also reducing the standard of senior management’s travel expenses, in particular of business class travel and lodging.

Beijing-based China Agritech is engaged in the development, manufacturing and distribution of liquid and granular organic compound fertilizers and related products in China.

The company sells its products to farmers located in 26 provinces of China.

Momentive to cut 80 jobs in Willoughby, taking work to Newark, Ohio, and to China

Momentive Performance Materials Inc. said it intends to cut 80 hourly and salaried workers at its 130-employee Willoughby quartz tubing, fiber-optics and lamp materials plant.

The Albany, N.Y., based company, a spin-off from General Electric Co., will determine the timing of the layoffs during a 60-day consultation with the IUE-CWA, an electrical union allied with the Communications Workers of America Local 707, which represents hourly workers in Willoughby.

Momentive plans to consolidate work at its plant in Newark, east of Columbus. Work force reductions at that plant have thinned employment by almost 100 since fall, including 23 layoffs last week.
The job cuts, including those in Willoughby, are part of a broad set of cost-saving measures in response to a slowdown in Momentive’s business. The company hopes to lower expenses by $40 million.

Specifically, the manufacturer is cutting quartz-related jobs in Willoughby and in Geesthacht, Germany, and moving part of the work at those two plants to its facilities in Newark and in Wuxi, China. The company also said it would temporarily reduce salaries for its top executives by 10 percent and for most professional and administrative employees by 7.5 percent, and require some workers to take an unpaid week off.

Those laid off at Willoughby, some of them members of IUE CWA, may be eligible for severance pay and other benefits, a written statement said. “Qualified employees would also be eligible for tuition reimbursement and retraining benefits for a period of up to 12 months” and, possibly, preferential consideration for employment at other Momentive locations, according to the statement.

The Willoughby plant will remain open and continue to process materials that are used in quartz-product manufacture. Momentive said it did not expect to hire additional employees at the Newark site and will hire only a small number in China.

As of the beginning of April, Momentive had about 4,600 employees globally. It said the salary cuts and furloughs would affect about 2,300 employees and probably would continue through 2009.

The company manufactures silicone materials, sealants and adhesives, special heat-dissipating ceramics and quartz tubing. The products are used in lamps and in the semi-conductor industry as well as in a range of consumer, industrial and medical products.

Momentive grew out of the sale of GE Advanced Materials to equity firm Apollo Management L.P. in 2006. It has become a global leader in the development and manufacture of specialty materials. Momentive’s revenue in 2008 was $2.6 billion.

In addition to the Willoughby and Newark plants, it also has Ohio facilities in Strongsville and Richmond Heights, according to spokesman John Scharf.

No free lunch in China…

by Patrick O. Courtois, DaCare Consulting

I tend to receive a recurring misconception about the Chinese labor market from overseas-based clients. This misunderstanding primarily affects overseas-designed provisional staffing budgets as well as the perceived value of quality of China-based recruitment agencies. In short, agencies are perceived to attempt inflating candidate packages for higher fees. While some rogue agencies do, there is a distinctive trend that the cost of Chinese talent is catching up with international benchmarks.

China is an emerging Dragon, Shanghai, a crouching tiger… China is an emerging and developing economy. At least, it is its official status according to the International Monetary Fund’s World Economic Outlook Report, dated April 2008 (1). Taking into consideration the measurement criteria, based on statistical indexes of element like income per capita, GDP, literacy rate and such, are calculated against the sheer size of its population, it can only make sense.
Shanghai is, along with Beijing, Guangzhou and Shenzhen the economy’s locomotive. Having the status of “wealthiest” city in China, with a GDP per capita, above US $7,000 for 2007, it is however still far behind any Major European capital (2). To give you a clearer idea, Shanghai’s GDP per capita is below a city like Istanbul, Turkey (3). Once again, keep in mind the size of Shanghai’s population (over 15 million souls) and you can understand that GDP per capita does not necessary reflect the reality of local white collars, which are far from being the majority.

Another interesting piece of information is the Mercer’s 2008 Worldwide Cost of Living survey (4), which gives us an idea on the rising costs of living in Beijing and Shanghai, with both cities present in the Top 25. The results, however not entirely applicable to local nationals, as based on expatriate populations, still gives us an insight on a certain reality of the local economy. That is, the gap in cost of living observed between a modern city like Shanghai and other “emerging” one, in China.

Despite all these, Shanghai can still be considered as a “cheap” city, with low business operations related costs, minimal salaries requirements, and reasonable living costs below those of similar sized cities in US or Europe.

The “Made in China” picture of low wages is still relevant today. Compared to wages in the EU or US, employing local nationals is indeed an affordable option. Looking at the table 1 comparison of the median US, UK and Chinese total packages (salary + bonus and benefits) on some common positions, the point is made. At first glance, it quickly illustrates the cost-effectiveness of employing local nationals, considering we are talking about the “median” or average population, of course. It quickly demonstrates that employing the “average” local candidate can still be regarded as a cost-effective solution.

If you pay peanuts, you get monkeys… No offence to anyone in particular, as this applies to pretty much anywhere around the world… But, If you take a closer look at this “average” labor market, as it is the one providing input for most official statistics, surveys and other reports that one can easily find online and, incidentally, the segment on which a lot of people base a provisional recruitment budget upon, you get a rather interesting picture… Simply put, by a fellow recruitment specialist, “the average employee in China does not speak English, he does not work in a foreign firm, he does not think outside the box, understand western reporting structures, go to a top university, or have a chance of getting hired into your firm…”(5).

The average candidate has also the shortest retention potential, following a simple logic of job hopping for ever shinier titles and bigger financial packages, thus leaving a city like shanghai with a dramatic employee turnover at around 18 months and a managerial workforce with somewhat arguable overall managerial skills.

If you are the decision maker of one of these multinationals, which are slowly initiating a shift toward management localization by cutting off expatriates’ budget plans, would you really consider handing over the keys to your financial, commercial or product development operations to an average candidate whom, however nice of a person, would most likely fail to properly relate to, understand or even communicate on basic day to day issues?

No money, no honey… On the other hand, you have the candidates which are at the center of what is now known as the “Talent War” (6). These are candidates with bilingual English abilities, 5 to 10 years of solid people and projects management experience, strong overseas exposure, the ability to think in a systemic way, whom are fully acquainted with western reporting systems, can deal with foreign clients with the highest level of service quality, have graduated from top Western universities and can leverage on the added-value of their biculturalism. These are the candidates companies are fighting over for in Shanghai, Beijing or other tier 1 cities, with packages narrowing closer to those in the US or Europe, and sometimes going well beyond.

Figure 2 sheds some light on a more relevant picture of the Shanghai employment market (for top candidates), with key functions such as Finance, HR or Sales clearly aligning themselves on EU/US levels. This “headhunter’s” dream can quickly turn into an employer’s nightmare, if the latter does not properly understand the realities applying to the local market: An overall talented, self-motivated, creative, and experienced manager is a scarce resource in China, and a 28 years old sales manager making above RMB 1 million (EUR 100,000) is common.
Assignments, completed by Orion China, regularly cover positions for Financial Controllers around the RMB 500,000 (EUR 58,000) figure, HRDs in the vicinity of RMB 700,000 (EUR 80,000) and many others, with financial packages often giving a new meaning to the common image of China as the land of cheap labor. You need to face the facts, if you want to buy yourself the next superstar everyone else wants, you will most likely have to fork out a substantial amount for it, at least, more than your competitors.

Money can’t buy happiness…but you can definitely get yourself a top senior HR or Finance candidate, in China, for the right price… Sure, there are no comparisons possible between a Shanghai or Guangdong based factory worker and his counterpart in Europe, the US or Japan. China has and will continue to retain its image of “world’s factory” for years to come, with affordable labor costs and ever increasing quality standards. Nonetheless, good management, talented leaders and high potential profiles come with a high price tag, just like it would, in “Developed” economies.

Companies that will successfully implement localization strategies, in the upcoming years, and leverage on the amazing opportunities this rapidly growing market yields; are the ones currently understanding that quality, experience and skills come at a certain price, in particular in the Chinese economic capital Shanghai is. A solid and ethical executive search firm, with deep networks, up-to-date market knowledge, and experienced consultants, is therefore a partner of choice to prevent your next hiring from becoming a time bomb, in your company’s development plan, or a pricey mishap that may not look great during your next board meeting.

Nortel Cuts 200 Jobs in China

Nortel Networks Corporation (OTC: NRTLQ and TSE: NT) has reduced about 200 jobs in China, as part of its global 3,200-employee layoff plan announced in February 2009, according to Nortel Networks (China) Ltd.

The global job cut is expected to end in several months, but it is not clear whether more employees in the country would be dismissed. In part of Nortel’s earlier 1,800-employee layoff plan, a certain number of employees in China were fired. By far, the company’s China-based staff has had over 4,000 employees.

On January 14, the global telecoms equipment provider filed for bankruptcy protection, due to a credit squeeze and a sales decline. And it is set to shut most of its R&D centers over the world, only retaining those in Canada and China.

In addition, Nortel has established four subsidiaries in China for production and technological services, as well as two cutting-edge R&D centers in Beijing and Guangzhou.

Hong Kong’s jobless rate at near 3-year high

HONG Kong’s unemployment rate rose to a 32-month high because of staff cuts by firms reducing costs to weather the city’s deepening recession.

The seasonally-adjusted jobless rate for the three months through February climbed to 5 percent, the government said yesterday on its Website, from 4.6 percent at the end of January. That was more than the 4.9-percent median estimate of 13 economists surveyed by Bloomberg News.

Walt Disney Co, the second-largest United States media firm, said yesterday that it was shedding staff in the city. The government has pledged to create about 120,000 jobs by quickening infrastructure spending, subsidizing employers for new hires and setting up temporary government positions.

“Although the government has pledged a massive job creation program, the timing and the scale of the scheme is uncertain and much will depend upon the response of the private sector,” said Joanne Yim, chief economist at Hang Seng Bank Ltd in Hong Kong. “With more employers likely to shed jobs in the coming months, the unemployment rate may climb to as high as 7 percent this year.’