HR Challenges in China - Essay Example

? Strategies adopted by domestic or foreign firms in China to reduce turnover of their staff and assessment of effectiveness of specific measures. Abstract China is a country abundant with population strength. This means that there should be abundance of labour for industries in the nation. However, the reality is quite different. China lacks majorly in availability of quality qualified staff. Another labour problem that plagues China is that there is abundance of educated staff who are not work ready and persistent shortage of labour to work at the shop floor level The paper is aimed at analysing different strategies that companies in China, both domestic and multinational, adopt in order to combat and manage the recruitment and retention issues with labour. Introduction In the recent years, China has been in focus for its astounding growth rate and future potential. The country has recorded high growth rate of up to 13% and the power that triggers this rate of growth is its vast and varied population. Today, there are about 1.3 billion people living in China of which about 38% reside in the coastal areas where most of the industries are located. Of these about 72% of the people fall within the working group and literacy rates among the Chinese is about 96%. Unemployment in China is at 9%. China capitalises on its immense human resource and this is why it attracts such huge foreign flow of capital. Despite such a glorious economy and strength of human capital, China is not free from problems. Its human resources pose the greatest problem despite being its strongest factor. The country is plagued by concerns like foreign exchange risks and financial and currency risks but of these, the human resources top the charts of concerns for China in the present and near future (Lubman, 2010). Figure: top concern for China at present and the coming 3 years (Source: Eusmecentre, 2012) The figure above shows the respective ranking of the topmost problems faced by China at present and also predicts the future ranking of these problems in the country. We observe that Human resource issues like availability of qualified employees are the biggest problem with companies in China, both domestic and international. The study also indicates that HR shall remain the topmost concern for China in the coming years as well. Problem The shortage of qualified staff has created an overheating in the Chinese labour market. There is a widespread lack of experienced and qualified employees. Adding to woes, employee turnover has become a critical problem that arises out of this shortage problem. In terms of statistical data, one out of every three employees runs a high risk of turnover in China. HR managers and executives have a critical concern of retaining their best talents. This number is almost double of what runs in other global markets. China’s employee situation has turned into a poachers den where existence and growth of foreign multinationals has generated a huge demand for talented, experience and qualified staff. In case of employee availability, the demand situation far exceeds the supply scene. The big fight persists among both domestic and foreign companies and this buyers market is plagued by presence of employees who always look for better options (Thomson, 2011). Most Chinese organizations try to combat the situation through an out paying strategy to attract talent into their companies. It has been realised that high pay attracts employees and what also acts as a catalyst to employee retention is strong employee development potential and attractive career paths. In China, candidates are attracted more towards job opportunities that promise a better pay. But with time, as the candidature shifts towards the younger generation, the demand for career opportunities that are differentiated and developmental opportunities tend to attract employees more. The general belief in most companies is that they need to design better pay packages so as to fight of poachers, or in other words, competing companies. However, it is wrong to assume that employees leave their companies in search of better paying jobs. Managers are of a general view that higher paying jobs takes away their employees but research suggests that employee make career moves driven by opportunities to explore better career paths and opportunities for personal and professional development. As per the research results of Asia Competitive Board, more than 85% of the employees leave their employers either because they are dissatisfied or are ambivalent about their career growth and developmental plans within the firm. It has also been found out that if career expectations of employees are met, their retention rate is likely to rise by about 20%. Companies, domestic or international, who work towards development of their career development paths, can become more effective in retaining employees and attracting skilled staff (Asia HR Executive Board, 2008). It has been well understood that attracting employees and recruiting qualified staff in China is a painful task for foreign multinationals as well as domestic firms. Retaining the talent within the organization also proves to be equally difficult for HR people in China. Based on one of the research reports by a leading Chinese HR service agency, for privately owned concerns, the average employee turnover rate was at 18.5% in China. The primary reasons cited by various employees behind such high rate were Higher compensation packages attractive career opportunities luring training and development plans better scope to use personal and professional skills attractive benefits Brighter prospects of company success High competition and shortage of labour supply has together contributed to high turnover in the country. The primary problem of retention has impacted both domestic and foreign firms. On the flip side, the number of people entering the labour pool has increased by 5 million in the past decade. The present Chinese has observed the country grow and wants to share the benefits of growth in his economic success. (Rein, 2010). Strategies and their effectiveness Cultural Mismatch The reasons for occurrence of this high level of turnover rate in China can be numerous. The country has a culture that is quite different from western culture of work. When companies from the west go into China, they generally forget to absorb the culture bend of the country within their work culture. The Chinese student has a very different view about working with logistics and also about the pay scale at entry level. This is one of the prime reasons why multinationals might have to rethink their strategies about recruiting. While recruiting from level 1 university, multinationals have to weigh their needs and measure the qualifications required in their organization. Top level universities cannot be pitched to recruit entry level employees. Instead, national schools and universities that do not rank in the scale should be pitched for meeting entry level requirements. Such recruitment shall prove to be fruitful where companies want to make recruitments in supply, warehousing and logistics. For office jobs, lower rank universities can be targeted (Ro, 2012). Strategy: Brighter company success prospects To lure talented people into the organization, altering mindsets is a difficult task. People trained to be managers cannot be retained in jobs that are supervisory in nature unless they see prospects of good growth and associate their success with the company’s performance. Along with rational recruitment for entry level staff, companies also have to strengthen their market standing in order to become an attractive company for job seekers. Unlike the west, employees in China see managerial positions reserved for recruits from top universities. However, if they are absorbed for supervisory position, it is difficult to retain them unless the company has a good brand name and recognition. Domestic firms should realise that in these terms, they face stiff competition from foreign multinationals. Such strategy bends the thought process of talented employees who now value company brand name more than the nature of their job. This strategy however cannot work singly. It has to be supported by better pay packages. Companies shall have to design pay structure that are higher than normal pay scales for staff in China in order to retain qualified employees in their respective job roles (Cooke, 2009). Disparity between Reality and Expectations Candidates also leave companies on account of disparity between expectations and achievement. People often get disappointed by what they discover at work when they actually get on the job. Such mismatch of expectations might also arise on account of the pattern of their training. To address this problem, the education system in China has to be made customised according to the needs of corporate with high focus on a combination of both engineering and business and not either engineering or totally business. A company has fewer needs of specialised attributes in different fields. Such combination is essential to make people feel oriented towards their work type and not feel that the job is unsuited to their qualifications (Handfield, 2011). Chinese education system has been producing employees who have high qualifications. It is also argued by foreign multinationals established in China that Chinese college graduates have somewhat of a high opinion about themselves. Whatever be the case, education seek to demand a job that suits and supports the qualification. Chinese students are getting highly skilled to serve highly specialised engineering or management. Companies today need to address a situation that requires a mix of both these skills. Also, Chinese employee lack majorly on marketing skills as per opinions of multinational companies in China. Very few people have the required experience in the marketing field (Khatri, Budhwar, and Fern, n.d.). Strategy: Training and Development Facilities Companies are increasing arranging for better training programs and tools for personal development of employees. It has been found out the off all the needs, Chinese value personal development and training to be the most essential need that has to be satisfied by a company in order to gain their loyalty towards it. To address the training needs of Chinese students and employees, it is imperative that companies arrange for good training programs that equip employees to train themselves on marketing grounds. It has been found out that Chinese people are keen on learning marketing skills but the general attitude among them is that they shall find jobs abroad for a few years so that they can train themselves with marketable skills and then hop into better job options. This creates more turnovers in the marketing segment and needs to be eliminated. Domestic firms compete with multinationals to source the best talent for their company. An in-house training facility would benefit the company by retaining employees, motivating them to work with a different skill set and encourage loyalty towards the firm (The Economist, 2005). Skill Mismatch Chinese college graduates are unwilling to work for factories and look for office work. It is likely that college graduates remain unemployed while people with basic education falling within the same age group find jobs in China. Adding to this issue is the underdevelopment of the services sector in China. Chinese industries on the other hand, look for semi skilled workers and this has created a troubled mismatch between supply of skill and demand for skill in the country. It has been found out by standardization test scores that Chinese students account for one of the brightest people in the world. This is a problem for China. It is striking yet true that Chinese people get high scores in standardization tests but while measuring the success barometers, they lag behind tremendously. In other words, it is said that Chinese students are so rigorously prepared for tests that they leave themselves with no time to prepare for skills required in the job market. As reported in a McKinsey study, almost 44% of companies in China reported that they had ill prepared talent who are very highly qualified but rank low in terms of delivery. A study by the Chinese Academy for Social Sciences found that the dollar difference between the earnings of a college graduate and a migrant worker was $45 (Quer, Claver and Rienda, 2007). Strategy: better scope to use personal and professional skills Firms, both foreign and domestic engage in relocating employees in areas of work that require a different set of skills other than the ones they have already been into. This includes frequent relocations between different job sets and job locations. Such a strategy is adopted with a view to retain the interest of employees in the company by allowing them the scope for exploring different job roles and talents. This is beneficial for the company as well because it helps to identify which jobs are best suited for the candidate such that the best potential of the employees are extracted. Scope for personal development has made companies allow benefits like internal and external training programs (HCOnline, 2012). When companies move up in the value chain, they start to substitute labour for technology and their demand for semi skilled staff increases. In case of China, this speed of value chain movement has been outpaced by the supply of college graduates. There are more knowledge workers than semi skilled labourers. To address the situation, certain level of vocational training and engineering skills is required that is specific to industries. This shall help China address the immediate need of manufacturing staff. China has to now focus on training employees in such a manner that right skills are encouraged in workers for the appropriate places in the industry. Along with this, education system should target at students becoming more industry ready. Education has to also allow for practical needs of working climate so that Chinese students can compete and sustain competition in multinationals as well (Singh, 2012). Mobility Restrictions Imperfections that are prevalent in the Chinese market impede usage of labour and their mobility. This means that apart from availability of highly educated staff that prove to be unsuitable for the requirements, the shortage of labour in China can also on account of lack of labour movement of people in China. The actual shortage could definitely be much less if labour movement was encouraged. China restricts labour migration through what is known as the hokou residency system. China’s policies for rural support also discourage workers from leaving agriculture by finding better benefits in the industries. Such policies also include attractive subsidies that help in retention of labourers within agriculture. The Lewis model of over employment in the agricultural sector does not hold true in case of China. It is found that Chinese are surplus and working at depressed wages in small towns. This has brought about huge income disparities in China between the urban and the rural population (Wu, 2010). So the question arises as to why don’t these workers move into the industrial sector and get paid better. The answer to the dilemma is that minimum wage for these employee has increased and it has been set at a level that is much high than that promised by their present wage rates. Also the cost of moving into cities is viewed very high. Prices of housing in major cities are unaffordable for those living in smaller towns. Also, these people might have ownership to lands in these small towns that cannot be sold off at complete market value. Adding to these problems is the cost associated with emotions of moving into a newer location by the people living in smaller towns, which is also very high (Cooke, 2011). Now, since people find it difficult to move to seemingly foreign coastal regions of China, it is expected that companies shall soon bring jobs to these people. In other words, relocation of companies shall move inland. This is expected to be driven by the rising levels of consumption and incomes in China. Also, more than 2/3 of the population of China resides in the land and naturally economic gravity is expected to move where the consumer resides (Huang and Lynch, 2013). Strategy: Higher packages and attractive benefits Since moving the company inland is a process that is gradual and time taking, employers are presently working with higher salaries and better benefits to employees. Pay scales and benefits that are allowed to employees are rising. The present inflation rate in China is close to 3% while the salaries for mid level and senior managers increase at the rate of 7-10 %. In most cases, meals, mobile phone, long term incentives, car and free housing have become standard perks. Along with this, the number of holidays has also increased along with maternity and paternity allowances. To retain employees, companies are also engaging in frequent job rotation of skilled workers so that the interest in company is maintained and also allow for share options to instil a sense of ownership within employees. Companies also mandatorily contribute towards the national security fund in China and this sum up to a double of what employee’s basic pay emoluments are. These strategies are effective in luring talent within the organization but expensive in nature. Also there is immense competition in terms of salary scales in the industry that is also inhabited by foreign multinationals. In this view, this strategy appears effective for the short run but does not serve the purpose of long run retention of talented staff (WantChinaTimes, 2006). Conclusion and Recommendations Apart from suggestion made above, it is being seen that more and more companies are looking at shifting their operations from coastal China into inlands. This strategy can be highly beneficial because of several reasons. Inland China has higher population that coastal China which offers more people to serve, in other words, greater customer base. Additionally more people means higher number of staff to work with. Also, inland China has more people who are engaged primarily engaged in agriculture and would be easy for recruitment in low skill jobs. Cost benefits shall arise out of lower recruitment and retention costs. Companies shall also benefit from government backing and support in terms of incentives and subsidies allowed for establishing industries in inlands of China (China Business Solutions, 2007). Reference List Asia HR Executive Board. 2008. Fighting Employee Turnover: Compelling Career Opportunities—Not Pay—Promote Retention. [pdf] Corporate Executive Board. Available at: [Accessed 27 December 2013]. China Business Solutions., 2007. Chinese recruitment. [pdf] n.p. Available at: [Accessed 28 December 2013]. Cooke, F. L., 2011. Researching HRM in China: challenges and research directions. Journal of Chinese Human Resource Management, 2(1), pp. –. Cooke, F.L., 2009. A decade of transformation of HRM in China: a review of literature and suggestions for future studies. Asia Pacific Journal of Human Resources, 47(1), pp. 6–40. Eusmecentre., 2012. HR Challenges in China. [pdf] EUSME Available at: < http://www.eusmecentre.org.cn/elearning/downloads/HR_Challenges_in_China.pdf/> [Accessed 28 December 2013]. Handfield, R., 2011. Why is supply chain employee turnover in China so high? [online] Available at: [Accessed 28 December 2013]. HCOnline., 2012. What's your China strategy? [online] Available at: [Accessed 28 December 2013]. Huang, Y. and Lynch, C., 2013. Where have China’s Worker’s Gone? [online] Available at: < http://www.bloomberg.com/news/2013-03-06/where-have-china-s-workers-gone-.html/>.[Accessed 28 December 2013]. Khatri, N., Budhwar, P. and Fern, C. T., n.d. Employee turnover: bad attitude or poor management? [pdf] n.p. Available at: [Accessed 28 December 2013]. Lubman, S., 2010. China’s continuing labour problems. [online] Available at: [Accessed 28 December 2013]. Quer, D., Claver, E. and Rienda, L., 2007. Business and management in China: a review of empirical research in leading international journals. Asia Pacific Journal of Management, 24, pp.359–84. Rein, S., 2010. China's Surprising Unemployment Problem. [online] Available at: [Accessed 28 December 2013]. Ro, S., 2012. China's Labor Problem In 2 Charts. [online] Available at: [Accessed 28 December 2013]. Singh, R., 2012. The China Syndrome: Recruiting Can Be Tough When There Are Only a Billion People Available. ? [online] Available at: [Accessed 28 December 2013]. The Economist., 2005. China's people problem. [online] Available at: [Accessed 28 December 2013]. Thomson, R., 2011. China’s Recruitment Problem. [online] Available at: [Accessed 28 December 2013]. WantChinaTimes., 2006. High staff turnover a problem for most Chinese firms: poll. [online] Available at: [Accessed 28 December 2013]. Wu, L. Y., 2010. Shortage amid plenty: a critical review of talent recruitment by western MNC’s in China. [pdf] n.p. Available at: [Accessed 28 December 2013]. Read More