Expatriates in China: Changing the Package
Though China has a vast workforce, the country is facing a severe shortage of skilled labor. ” [The shortage] is across the board,”says Stella Hou of Hewitt Associates, a human-resources consultancy. “[International] companies have a hard time recruiting ideal candidates to run their operations in China. The local workforce mainly lacks management skills, leadership, creativity, autonomy or risk-taking, marketing and research.”
Developing economies often encounter talent shortages as they take off, and China is no exception. Private business has flourished only during the past 15 years and most professionals are still at a junior level. Since most enterprises were previously State-owned and operated within a centralized economy, a sense of “corporate spirit”and “business initiative”has yet to take hold in the domestic workforce. Concepts, such as branding, project management and other skills involving international standards of corporate operations still need to be learned. “After more than a decade under State-owned enterprises, Chinese businesses lack the mindset to adopt Western working practices,”says Larry Wang of Wang Li & Asia Resources, a recruitment company based in Beijing.
However, economic growth is pushing most companies to develop higher work standards. It has also pushed them to expand domestic operations, and thus to increase their demand for employees with strong leadership and management skills. As a result, China is currently demanding a bigger talent pool that it can supply. Chinese professionals with experience working at the international level are highly sought after, and rare. Unable to find domestic workers with these qualifications, companies have thus continued to lean on experienced and skilled expatriates for management of regional operations. In fact, the dearth of a skilled domestic workforce threatens the competitiveness of companies in China, since the need to rely on skilled foreign (and therefore expensive) labor has increased operating costs.
Expatriate Demand
Multinationals have always relied heavily on expatriate executives to head their departments and organize business expansion. Foreign firms choose expatriates from their company headquarters because they represent a bridge from corporate office to the local market. “I was chosen because I already have the experience in expanding businesses overseas and can quickly adapt to diversity,”says Sheila Lester-Smith. former vice-president of Motorola for the Asian Region. Analysis by Hewitt on expatriate annual salaries for 2004 indicates that salaries are high and packages attractive. A country-level managing director receives US$250,000 to US$300,000 per year, while top executives can expect US$500,000 or more. “The salary is completed with bonus and compensation such as free housing and schooling for the children and company,”says Stella Hou.
According to Hewitt, the number of expatriates in China is rising and includes both Western foreigners and, increasingly, Asians from neighboring countries. “It is getting difficult to define what ‘expatriate’ actually means, since there are so many different kinds in China. We do not have a one-size-fits-all type,”says Hou. The Asia-Pacific region expatriate population represents fully 55.6 percent of China’s external recruitment channel. “There is a continuous transfer of Asia-Pacific headquarters to China. China is a growth in the multinational radar screen and companies are sending their employees there to ensure the development of their firms,”adds Hou.
Chinese returning from study overseas are filling up some of the shortages at the most senior levels. Confident in getting more rapid career advancement in China than in the Western countries where they studied or worked, returnees are also attracted by China’s fast business growth and improvement of quality of life. In 2004, the number of foreigners (from multinationals’ home countries) sent by their companies to China fell to 41.7 percent (from 52.9 percent in 2003). Conversely, the number of Asia-Pacific workers (Hong Kong, Taiwan and Singapore) and Chinese returnees continues to increase. “The Asia-Pacific workforce is more sensitive to Chinese culture, can often speak Chinese and English and is seen as ‘quasi-international’ by most employers,”says Larry Wang. “Their package is comfortable compared to the one they can have in their home countries and most importantly they can develop or sustain their career in the mainland.”
Recruiting, retaining and localizing
Human resource issues have become high priority concerns for companies in China. Recruitment, retention and localization of staff represent their top priorities. Georges Desvaux, director of China for McKinsey, says the key point is that the critical skills that are missing in many firms are not so much top management, where one can find highly qualified locals, but more often highly specialized functional skills at middle and supervisory levels where experience in organizations that have long-standing systematic processes is critical. Strong multinationals that want to operate at global performance levels hire expatriates for these jobs, and slowly build a cadre of skilled locals.
But most firms realize that they cannot replace their expatriate staff for local employees as quickly as they have planned. They are therefore customizing their expatriate packages and creating hybrid packages to attract skilled employees into their companies. “Most multinationals keep their expatriates and manage the process based on better selection, preparation, and mentoring of local successors,”says Hewitt. The agency indicates that 36.9 percent of companies in China have current formal localization plans and 61.3 percent plan to or are making a transition over one to three years. Since many firms are investing in training staff in leadership, management and talent development, the local skill base is rising quickly. More than 69.7 percent of companies in China have development programs to build local successors for expatriates.
But while expatriate compensation is shrinking as the workforce diversifies, the number of expatriates will continue to grow. Most firms can now find more foreign talent choices in the local market and will continue this recruitment strategy. Multinationals are also competing for talent with China’s domestic companies, which need to improve the quality of their people as their markets open to foreign rivals. Despite this demand, however, Western expatriates are still reluctant to work for local companies.”
Local companies have now started to offer decent packages for expatriate employees that can include an annual salary of US$80,000 to US$120,000 for manager and top executive levels. However, only a few local companies have successfully hired and kept expatriates in their firms. “I am extremely skeptical about local companies hiring foreign expatriates”, says Larry Wang. “Most of these companies are used to being in a more centralized economy and are uneasy about giving up control.”
Despite the high cost, foreign firms hope to keep their expatriates until the “localization”of their staff is completed. But some firms have difficulty retaining them within their companies after termination of their assignments. “I quit my job as the Motorola vice-resident because it was the end of my term in China and I preferred to stay in China and look for opportunities over the next few years,”says Sheila Lester Smith.
China’s shortage of talent has indeed given a bright future to expatriates but “they have to love the people and the country first to enjoy their work here,”says Stella Hou.