With growth averaging ten percent a year for much of the last three decades, China has been a key driver of global economic progress in recent years. Today, however, there are growing concerns about China’s future growth. The country’s recent economic uncertainties, and falling demand for commodities have already demonstrated how a Chinese slowdown could have significant implications for trade and the global economy.
Can China overcome its current slowdown and transition to a more sustainable model for economic growth? The country is in the middle of a planned transition from a high-investment, industrial and export-led model to a more sustainable one based on services and domestic consumption. To succeed, the country will need new sets of skills and experience – from visionary business leaders to workers with more technical, digital and adaptable skillsets.
What are the specific challenges facing organizations operating in China and what can they teach us about the factors businesses need to consider when seeking the right talent to help drive corporate business strategies?
According to Aon’s Global Risk Management Survey, global business leaders rank a “failure to attract and retain talent” as their fifth biggest concern. This risk is particularly prevalent in the Asia Pacific region, where it ranks third among top business concerns. Yet the challenges facing businesses are not uniform around the globe. While there are some similarities, developed and developing markets face unique business challenges and as a result have different talent needs.
As the world’s biggest emerging economy, China’s talent challenges can serve as a valuable example to emerging economies. What are the factors driving these challenges and how should they be addressed?
Similar to Western nations, demographics are a force at play within China. Peter Zhang, Partner, Head of Performance & Reward Practice, Aon Hewitt China notes that China’s aging population poses a great challenge to the workforce market.
China’s population has more than doubled since 1950, from 600 million to 1.3 billion. The result is a surplus of young workers that has driven down wages and helped fuel the country’s rapid development from the 1970s onwards. The population boom became so acute that the country implemented the controversial “One Child Policy” to keep it under control.
Today, as in the West, China’s Baby Boomers are nearing retirement, while population growth in younger generations has tailed off. What’s more, China’s education system is struggling to provide necessary training. According to a Stanford University study, just 24 percent of China’s workforce has attended at least some form of upper secondary school, compared to an Organization for Economic Co-operation and Development (OECD) average of 74 percent.
Even those who receive a higher education may not always meet the needs of employers, says John Chan, Talent Program Manager, Asia Pacific, Middle East and Africa, Aon Hewitt. “While China has been graduating a large number of students through its universities, many would argue that they are not as prepared to transition into a professional environment,” he says. It will take more time and supervision for the younger workforce to grow into needed management roles.
Organizations around the world are faced with addressing the impending brain-drain of retiring senior workers, increased demand for new skills, and younger talent not yet having the necessary experience to lead in a dynamic and always-evolving business environment. These challenges are driving increased demand for the best and brightest workers – particularly in the Asia Pacific region, where new players are contributing to competition in skilled labor markets.
“Local companies are booming in China,” says Zhang. Today, 110 of the world’s 500 largest companies are Chinese, up from 46 in 2010, and just ten in 2000. At the same time, the opening up of the Chinese market has resulted in more non-Chinese multinationals establishing a presence in the country, which increases competition for top local talent.
At the same time, China’s transition from a manufacturing-based economy to one based more on services and the knowledge economy means that, “the supply and pipeline of talent is not nearly as strong as other countries more mature in this transition,” says Chan. While China has plenty of experienced construction and factory workers, it has fewer with digital knowledge, or customer service experience.
“Both multinationals and local companies in China are struggling to achieve growth goals due to the twin challenges of insufficient supply and increased demand for critical talent,” says Peter Sanborn, Managing Director, Human Capital Advisory, Aon. In Asia, where multinationals and fast-growing regional companies are competing for experienced leaders and top new graduates, talent shortages are more acute.
The Need To Attract
Worries about “damage to reputation and brand” – the top risk for the Asia-Pacific region – is a growing concern for hiring managers in the region. With increased competition for talent, maintaining a positive employer brand can be a powerful pull-factor for in-demand workers. China’s relatively high turnover rates demonstrate that building an attractive employer brand is an increasingly urgent priority for businesses.
In China, a concerted effort to build a positive employer brand to attract the best candidates and retain the most promising staff is becoming a priority for local companies. “Prior to the global financial crisis many Western firms were the preferred employers in China,” Chan says, “but within the last decade, a lot has changed. Now, there are more choices between state-owned enterprises, private enterprises, multinationals and ever growing start-ups.”
This is part of the reason why local Chinese companies are increasingly offering more competitive compensation and career development opportunities. “In China, salary increases remain around seven percent, taking a higher proportion of sales revenue, while margin growth is falling,” says Zhang. Those in middle and senior management roles also tend to have higher salaries than their counterparts in the West, making it even more expensive to attract them – and to keep them from moving to a competitor.
How To Attract And Retain The Best Talent
While the compound causes of China’s talent challenges may be unique, there are a number of things that organizations can consider to effectively compete for tomorrow’s talent, advise Zhang and Chan:
- Develop strong leadership – especially true for junior- to middle-level management, leaders should encourage professional growth and focus on the long-term goals of the individual as well as the business
- Define a compelling employee value proposition – consider the growing employee demand for an emotional connection to the organization, including strong corporate social responsibility efforts and support from a diverse and inclusive work culture
- Revisit performance review systems and processes – ensure there is a clear link between performance and rewards that encourages skills development and career paths
- Build a robust talent pipeline – think of employees as potential future leaders – from the selection process to the identification and development of high-performing talent
While China’s talent challenges may be unique, the solutions can be applied globally, says Sanborn. “Throughout the world, we’re seeing organizations focus on attracting and developing the talent and capabilities needed to achieve their business objectives.”
Talent shouldn’t be considered in isolation. Instead, Sanborn advises that “leading organizations develop human capital strategies that ensure that their leadership, workforce design, talent acquisition and development, total rewards and culture align with achieving long-term business goals.”
Just as China is seeing the need for different skillsets to transition to a new growth model, so do businesses worldwide. Whether you are a country or a company, “growing” talent internally can help you adapt and evolve, and prove more beneficial to your culture and strategy in the long-term than simply “buying” skills from outside to meet short-term needs.
“Reform of state-owned enterprises is difficult because it is directly linked to the employment issue… Reforms will involve social risks, but it is also true that it is becoming increasingly difficult to carry out reforms when downward pressure on the economy is strong.” – Shao Ning, Vice-Chair, Financial and Economic Affairs Committee, People’s Republic of China National People’s Congress
“Young labor resources between the ages of 20 and 34 will plunge year by year from 2021. The drop could amount to 11 million each year from 2022 to 2025. By 2030, the youth labor force at this rate will drop to 221 million, 32 percent, or 104 million fewer than 2010.” – Yao Meixiong, Deputy Head, Fujian Provincial Bureau of Statistics Center for Population Census
“In China, despite a slowing economy, a severe shortage of skilled candidates in certain industries is resulting in fierce competition and wage pressures, with employers doing their utmost to retain and hire qualified talent.” – Christine Wright, Managing Director, Asia, Hays
- China’s Shrinking Workforce Raises Concerns – CRI English, May 30, 2016
- China’s Graduates Face Rapidly Changing Jobs Scene – Bloomberg, June 14, 2016
- China’s Real Unemployment Rate Might Be 3 Times The Official Figure – Fortune, June 6, 2016
- Are Fears Of Mass Unemployment In China Overblown? – Reuters, June 23, 2016
- Best Employers Asia – 2015 Country Report – Aon report