A common misperception about China is that there is a limitless pool of workers from which companies can draw. But the pool doesn't look quite so full when a company starts searching for key people with high levels of technical expertise in a given industry, management ability, education, language skills, or experience working in the global economy.

Talent, Talent, Talent

The top human-resource (HR) issues cited by companies in their China operations were building leadership capabilities in employees, acquiring key talent, and retaining key talent, according to a recent survey conducted by Mercer Human Resource Consulting.

Top HR Issues in China Operations



Companies are seeing high rates of turnover, especially among 25- to 35-year-old professionals who have worked for a company for two to five years in production, engineering, and sales departments. In fact, the average tenure for people in that key age group fell from an average of three to five years in 2005 to just one to two years in early 2006.

And companies pay a real price when key people leave: Each departing professional costs an employer an average of 25 percent to 50 percent of that employee's annual pay, with top professionals costing 200 percent or more, according to Mercer. Among the strategic and operational problems associated with such turnover are missed production schedules, growth delays, and increased unit costs.

Winning the talent challenge depends on taking the right steps along a continuum from recruitment to development to retention.

Recruiting Talent

Recruiting talent is challenging for many employers because there's a limited pool to choose from and an abundance of companies doing business in China. Year in and year out, China continues to be one of the largest recipients of foreign direct investment.

Firms are seeing high turnover rates for 25- to 35-year-old professionals who have worked for a company for two to five years in production, engineering, and sales departments. Multinational companies are going to China to establish joint ventures, expand existing operations, set up research labs, and more. And they all scour the landscape for talented employees. Many of them focus on the people already working for existing multinationals, looking for ways to entice already-trained employees to jump ship. In other words, they want to "buy" experienced talent to ensure expansion goals can be met.

Some companies make the strategic decision to enter China through a joint venture (JV).There are many reasons for doing so, of course, but a key one is to gain quick access to an employee base with a particular set of skills in a given industry.

A word of caution: Make sure you know who those employees are before taking them on as partners, just as you would elsewhere in the world. For example, do any of them have criminal backgrounds, particularly surrounding IP issues? Do they own or work for other companies, especially potential competitors? China labor law makes it difficult to terminate some types of employees, so you need to know your potential exposure in advance.

Another key to getting the right people is to have a capable HR team in place. The team needs to understand the motivators for Chinese employees and how they are changing. Such an understanding makes it much more likely that the initial contact with prospective employees will be favorable and that the "right" employees will be hired.

In many cases, companies reach out to expatriates to staff their China operations. Because there is still a gap between the overall needs of companies in the employee area and the availability of talented workers, this will remain a critical aspect for many companies for a long time.

Reaching out to expatriates involves its own set of difficulties. First and foremost are issues associated with language and cultural differences. To counter this, many employers are anxious to accelerate leadership skills of Chinese nationals. For this tactic to succeed, employers must be conscious not to create an artificial ceiling that limits the advancement of key Chinese employees.

There is also the practical matter that expatriates cannot participate in Chinese government-sponsored programs such as education (including for their children), health care, and retirement. This means employers must establish separate programs for this group of employees, adding to the already higher cost of expatriate talent.

Recent trends show that employers are addressing some of these challenges by bringing expatriates in at lower technical/professional levels-and for shorter durations. The underlying goal then becomes knowledge transfer and skill building among local staff.

Developing Talent

Not long ago, it was easy to convince Chinese employees-like employees anywhere- to switch firms simply by offering more money. And while cash is still a major motivator, fortunately for employers, many employees are now seeking something from their jobs in addition to a paycheck. And much of what they are looking for involves career development.

Of employees responding to a survey by Mercer Human Resource Consulting, higher salary was still the top motivator for attracting talent to an organization. But once employees were already working, other concerns bumped pay aside for the No.1 slot, as shown in the following chart.

Top Five Employee Motivators

1. Opportunities for career advancement and development
2. Attractive salary and compensation/benefit package
3. Work/life balance
4. Relationship with supervisor or direct manager
5. Meaningful/creative work

Source: Mercer's 2006 China Employee Attraction and Retention Survey

Companies are finding that if they offer skills-development training, management training, and access to other career builders, employees will stick with them.

Retaining Talent

Employees are attracted to companies that emphasize training and career development with a clear path for future advancement.Retention involves a mix of strategies centered on meeting employees' needs and is in many ways closely tied to employee development. The pool of workers that five or ten years ago may have been attracted to a company based solely on pay is entering a different life phase involving marriage and families. Benefits will become a much bigger concern and motivator as the population continues to age. For example, companies are finding that flex benefits programs that involve a holistic approach to rewards can prove quite useful in enticing employees to stay.

Successful retention strategies now involve balancing the employee contract across pay, benefits, and careers. A company needs to understand what its differentiating factors are for its unique work force and focus on those areas that provide the greatest return on investment both now and in the future.

As already mentioned, employees are attracted to companies that emphasize training and career development with a clear path for future advancement. Thinking about retention in this way means companies need to have a clear strategy in other areas, such as matching individuals' career paths-including their training and exposure to various company locations and business units-with a clear succession plan for key positions.

Communication also takes on a larger role if employees are to be retained as key assets. Employees want to be engaged, and they seek regular feedback from managers about their progress. A transparent career progression program lets employees see where they stand on their career paths. And as brand names are important for the Chinese consumer, we also see that "employment brand" is fast becoming a driver of HR strategies.

Putting It All Together

Whether entering China with a joint venture or as a wholly owned company, it's important to have HR staff or consultants familiar with relevant Chinese laws, including tax concerns. For example, there may be critical issues to understand regarding the offering of equity and stock to Chinese nationals, there are benefits considerations for Chinese nationals surrounding residence issues, and Chinese nationals must be insured by China-based insurers for supplemental benefits.

The full report, Understanding China's Business Risk Environment, is available for download at http://global.marsh.com/risk/china/chinarisk/index.php

Tom Walsh is a senior writer/editor at Marsh who works with colleagues across the company and with others from Kroll and Mercer to develop insightful thought leadership reports around key issues affecting organizations today.