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Companies might see China as a vast pool of plentiful and inexpensive employees, with universities churning out graduates ready to work for global firms. But the reality isn't so rosy when hiring.
The shortage of Chinese managers with local and international experience is so severe, for example, that experienced managers are commanding higher salaries, which is driving some of the pay packages for top managers to global levels, according to "Bridging China's Talent Gap," a January report from New York-based business research group The Conference Board.
"Right now you have an acute shortage of talented senior- and middle-level people," said Judith Banister, a report co-author and the Beijing-based director of global demographics for the board. "The demand is still expanding rapidly. The supply is expanding, but never fast enough for the demand."
While China has a lot of raw, hardworking talent, employees who lack the necessary skill set is one of the key bottlenecks to growth for most multinationals there, said Guo Xin, managing director of Greater China for Mercer Human Resource Consulting in Beijing.
Just 10% of Chinese engineers are suitable for work at non-Chinese companies, mainly because of language issues, vs. 25% in India and 50% in Poland and Hungary, according to a 2005 McKinsey Global Institute report.
The result is rising turnover.
A 2006 Mercer study found the average tenure in China for young professionals 25 to 35 years old in production, engineering and sales jobs was one or two years--less than half of just a year earlier.
Part of the problem, Mr. Guo said, is that China's economy is large and still growing at 10% a year. In addition, Chinese firms such as computer maker Lenovo Group Ltd. are building their own global brands, further tapping the talent pool, he said.
To cope, experts say businesses should work more to develop staff.
Beijing-based auto parts manufacturer ASIMCO Technologies Ltd., for example, started an intensive leadership development program in 2002. The company, which earned a spot on Hewitt Associates Inc.'s list of the top 10 places to work in China in 2005, began it as a yearlong program for 25 senior managers, with four one-week periods of classwork and guided projects. It has since expanded to lower managers.
Jack Perkowski, chairman and chief executive officer of ASIMCO, said the U.S.-owned firm wanted to refine a strong but inexperienced talent base and show key employees they are valued.
"People in China want to believe the company they work for is giving them opportunity," he said.
The staff programs, along with locating its 18 factories away from major cities, have helped ASIMCO keep turnover at less than 3% in its operating units and less than 5% at its headquarters, he said.
ASIMCO now hires mainly from within for key jobs, but it's been a bumpy ride getting there. In the late 1990s, for example, it replaced about 50 top managers, largely holdovers from Chinese firms ASIMCO had acquired, with Chinese managers it hired from firms such as General Motors Corp., Delphi Corp. and General Electric Co.
Historically, China's management pool has tended to either be too bureaucratic, mainly veterans of state-owned companies, or very entrepreneurial types who came of age in China's rough-and-tumble environment after economic liberalization started in 1978 when there were few legal rules, he said.
"China has not had a legacy of management, until very recently," Mr. Perkowski said.
Another successful strategy employed by some foreign firms is to forge training links with Chinese universities, said Ms. Banister.
One main problem for China's workforce, she said, is that because the country's educational system has had to develop so quickly, it relies too much on memorization and not enough on developing creative skills, leadership or teamwork.
The labor shortages also mean that companies have to do more anticipatory hiring than they would in North America, Mr. Guo said.
"One of the common fallacies (companies have) coming into China from North America is the belief that 'I can add numbers as I add demand,"' he said. "You need to hire ahead of the curve. I see a lot of companies miss that."
Worker shortages are being felt in the insurance industry as well, although global firms have an advantage because Chinese nationals often seek out the overseas training and exposure they can provide, said Roger Wilkinson, managing director of Asia for Willis Group Ltd. in Hong Kong.
Still, hiring skilled employees is difficult, said John O'Brien, managing director for China and Hong Kong for loss adjuster McLarens Young International in Hong Kong.
"We can't find a local loss adjuster with 15 years of experience because they don't exist," Mr. O'Brien said. "Demand is outstripping supply. All insurance companies are looking for workers."