How did things get so bad in the world's most populous nation that recruiting the right people has become not just difficult, but a full-blown battle? "There is a war for talent worldwide, but in China it's a war for survival," says Concetta Lanciaux, executive vice-president, human resources, at LVMH. It's a simple case of demand outstripping supply. With an annual growth rate of more than 9% over the past two decades and a further 8% expected until 2010, it's not surprising that the production of talent in China has found it hard to keep up with the economy.
Recent research from the American Chamber of Commerce in Shanghai revealed that companies' number one concern in China is management-level human resources, far outstripping other factors such as bureaucracy, regulatory difficulties or corruption. It seems an unlikely concept that a nation of 1.3 billion people could have such a shortage of relevant skills. Yet research by the McKinsey Global Institute (MGI) reveals that China's great numbers simply don't add up.
In 2003, the country had about 8.5 million young professionals with up to seven years' work experience, and 97 million who would qualify for support-staff positions. Despite this mind-boggling figure - the US, UK, Japan, Canada, Germany, Australia, Ireland and South Korea combined had only 166.3 million support staff - multinational companies (MNCs) are finding that few of these graduates have the skills they require. Fewer than 10% would be suitable for employment in a MNC.
Lack of experience in big companies and exposure to international business are cited as the main reasons. "There is a serious shortage of people who have managed a P&L of over $50 million, because of the very structure of business in China," says Joy Chen, head of the China cross-border talent initiative at Heidrick & Struggles. People may have worked in their own company or for state enterprises, but seldom for companies acting at a global level with huge turnovers, she says.
Poor English and cultural clashes also top the list of reasons why Chinese graduates are not always up to the job. The differences between business practice in China and the West have been well documented, but they never cease to complicate the business dealings of multinationals in China.
The Chinese have to trust their business partners with their head as much as their heart (guanxi), and the notion of loyalty and favour (renqing) is much more deeply rooted than in the west.
As Jorgen Clausen, CEO of Danfoss, recently commented in the web pages of the McKinsey Quarterly: "The Chinese rarely disagree with a higher-ranking person and won't speak until asked to do so. This is no good for us, because we need their help to find solutions to the challenges of growing quickly in the Chinese market."
But beyond the problem of suitability, young professionals also need to be accessible. China is a vast country, but in 2003 just under a quarter of its 1.7 million graduates lived near a city or region close to a major international airport - a prerequisite for most MNCs setting up offshore facilities.
But if MNCs find it hard to cope, the situation is far worse for small businesses who lack their brand appeal. MGI estimates that China will produce 15.7 million graduates between 2003 and 2008; of these, only 1.2 million will be suitable for employment in a world-class company. Large MNCs will likely take up 60% of this batch. Discounting another substantial proportion due to inaccessibility leaves just 650,000 for small businesses to fight over.
Historically, MNCs have countered the skills deficit by bringing in their own people. LVMH says that during its early days in China, 90% of its staff were expatriates. This is fine when a company's operations are limited to a single joint venture, but as many MNCs now have 2,000 staff on their payroll, bringing expats over en masse would be highly expensive (a typical 'expat package' can cost a company more than $1 million).
Additionally, expatriates have not always proved worth the investment.
The cultural divide mentioned earlier goes both ways; if the standard of English among Chinese is low, then Westerners' fluency in Chinese is dismal. Dave McCann, human capital leader for China at PricewaterhouseCoopers (PwC), has lived there for more than eight years. A Chinese-speaker, his experiences have been largely positive, but he admits: "However long you live in China, you will never get the full grasp of how things are done here." Most companies now offer Chinese lessons to their employees and some, such as PwC, even extend the offer to spouses in an effort to smooth integration.
Expats have received a mixed press in China. Chen quotes failure rates of 20% among expatriates in her White Paper Do you have the people you need in China?, and poor performance of 40%, leaving an unimpressive 40% meeting or exceeding expectations. Ames Gross of consultancy Pacific Bridge, which specialises in placing Asian returnees, draws similarly unenthusiastic conclusions, which he puts down to some expats' unwillingness to "get their hands dirty".
However, McCann says companies have become smarter at choosing the right people; on the whole, he says, expats are now very successful in their missions. Also, China is an easier sell now that its 'glam factor' is on the up. Sally Bott, executive vice-president, human resources, at BP, sums it up: "China is a less difficult location for expats than Angola, Azerbaijan, the Middle East, Indonesia and many other locations around the globe. It is safe and has a highly educated workforce. Also, most Chinese will want to go back after having worked overseas."
Furthermore, expats have particular assets. "There will always be a need for expats, for their knowledge and skill transfers; they're not an endangered species," says McCann. They can set up a business fast and train locals in very short time frames.
LVMH's Lanciaux says although it is not her company's policy to employ large numbers of expats, those they do (and who speak Chinese) have become their 'pillars' in China. "It's a question of mindset. Our expats know that our policy is to rely on locals, and so they don't come with a colonialist attitude."
In the past decade or so, a new phenomenon has also helped the country alleviate its skills shortage: that of the 'sea turtles'. Ever fond of wordplay, sea turtle is the Chinese nickname for native Chinese who have been educated or worked overseas, and are now coming home. The words 'sea turtle' (hai gui) and 'returnee' sound similar and they convey the notion of trans-Pacific migration.
Most sea turtles are people who fled China in the years following the Cultural Revolution. Throughout the 1970s and 1980s, those who had the chance - or could afford - to study abroad left for Europe and North America.
Most were educated at top business schools and went on to work for some of the world's best-known companies.
These returnees and their enviable skill-set have been hailed as the solution to China's talent shortage. The advantages are obvious: sea turtles have often been born and raised in China, so are familiar with the language and culture. They are also very westernised, having studied and worked in the West.
The trend is fairly recent. The pioneers came back in the early to mid-1990s, when China began opening up. The first wave came back to set up their own businesses, often an internet or technology company. Andrew Wu, CEO of LVMH China and an early pioneer of both brain drains (he left China in 1980 and came back in 1993 after 13 years in Canada), says that it was often a very proactive choice - and a risky one back then - motivated by the belief that China would make it big. "I'm pleased to have had such foresight and to have made good contributions to what China has become today," he says.
The second wave, in the late 1990s, was more reactive. The world had become aware of China's huge potential, and companies were sending people back to sound out the market and set up offices. The third wave probably coincides with China's entrance to the WTO in 2001 and has seen an acceleration of the trends started in the 1990s - a reverse brain-drain.
There are no official statistics on the number of returnees, but experts agree it's about 200,000. Most come from the US and Canada, with Europe and Australia leaking substantial numbers too. Improved opportunities in China motivate many returnees, as do tougher post-9/11 visa regulations.
Sea turtles say their prime motives are work and opportunities, with family links and the desire to contribute following closely behind. Geoffrey Chen, who works for L'Oreal in Hong Kong, says that Chinese people have "a deep-seated need to pay back, a deep-rooted constitutional desire to be useful to society". This is such an integral part of the value system that many have accepted pay cuts to move back.
Joy Chen and McCann also point out that for many sea turtles, life in the West isn't always rosy. "There are plenty of Chinese people who struggle to do well in the US," says McCann. "There is a problem of affinity with local people. It's not quite discrimination, it's just human nature."
Joy Chen agrees, noting the 'glass ceiling' encountered by many Chinese: "In the US, the returnees speak English with an accent and get stuck in a technology position where it is harder to get into management. But those very bi-cultural characteristics that held them back in the US or the UK are what make them incredible assets in China," she says.
Many returnees are hot property in China. There has been intense competition among companies to recruit - and retain - the best, and people such as Geoffrey Chen are approached once or twice a month, sometimes with offers to double their current salary. Turnover can therefore be as high as 50% - a great source of frustration for HR departments and CEOs alike.
Oded Shenkar, a specialist in global business management at Fisher College of Business, Ohio University, and author of The Chinese century: the rising economy and its impact on the global economy, the balance of power, and your job, says that the Chinese's love of money is a new phenomenon. "We've seen it with the former Soviet Union and Eastern Europe," he explains.
"After years of socialism, many young people swing right to the other extreme. People will jump ship for $1,000."
It would be unfair to accuse all returnees of careless job-hopping - as LVMH's Lanciaux stresses, "there will always be turnover, it's competition, but you have to minimise it" - but companies have had to ensure better career development for employees. LVMH has set up a mobility committee to ensure that staff get the chance to move across the company's 10 operations in China. Similarly, Bill He, senior manager at Accenture in Washington DC, says that he took the job with the tacit agreement that he would eventually go back and work in Accenture's operations in China. Such personalised career plans are guaranteed to promote loyalty among employees.
Even on a smaller scale, career opportunities matter. Sheng Lu, CFO of young technology company Onewave, says that he took a significant pay cut to take the job last September: "To be a hired gun in a more or less red-tape environment is less and less appealing to me. To make this company successful will give me the utmost satisfaction and pride, and if it is as successful as we expect it to be, I will be rewarded handsomely."
Not all sea turtles have been as successful as Lu or Geoffrey Chen, however.
Gross reckons that only about half of them do well and end up settling down. They may go back expecting a hero's return and matching status, an attitude that fails to impress local employees, who dub them 'bananas': yellow on the outside, white on the inside.
The key to a successful return is humility. Gross says that the best sea turtles are those who have experienced life as a minority somewhere else, "got beaten up a little" and know what it's like to be the underdog.
Lu, for his part, talks about the emotional intelligence needed in bridging the gap between western practices and Chinese realities. "Chinese people are slow at taking decisions, and this longer view can be hard to accept for companies working with quarterly results and performance," he says.
"A typical 'banana' will not have the maturity and EQ to deal with these complex issues."
Returnees will also have to deal with a country that is probably very different from the one they left behind 10 or 20 years ago. For those who haven't kept in touch or visited regularly, it can be a hard landing.
Shirley Huang, an associate brand manager for Sanford LP in Chicago, is contemplating a return. Originally from Guangzhou, she is aware of the difficulties that may lie ahead. "If I went back, I would start in Hong Kong to ease the transition back into the country. It would also be easier for my American-Chinese husband," she explains. "But I don't feel brave enough to make the move."
Besides, with 23 provinces, 56 ethnic groups and hundreds of different dialects, China is not a homogeneous entity. Many returnees struggle with the cultural differences between city and countryside, Hong Kong and the mainland, Beijing and Shanghai, Cantonese and Mandarin, overseas Chinese and local hires. Some may find that salaries don't live up to expectations, as companies become increasingly reluctant to shell out vast sums on returnees when they could hire a local for much less. Many end up unemployed (the Chinese nickname for such unfortunates is 'seaweed', which sounds like 'unemployed').
Accenture's He says that too many sea turtles do not have the right skills and as there are more of them now, "you have to find a way to differentiate yourself". He continues: "I hired a graduate from Fudan university five years ago and he was pretty good. It's nice to hire home-grown talent."
Returnees will not solve China's HR shortage; they're only part of the equation, and companies have had to work hard at developing long-term strategies to ensure talent provision. LVMH has invested in the business school Ceibs and helped found the Euro-Asia centre with INSEAD. It also has a well-established network of scholarships, recruitment fairs, exchange programmes and partnerships with other universities in China, such as Fudan, Tsingua and Nanjing.
BP has had a local graduate recruitment programme in place since 2002.
It plans to recruit 30 graduates in 2006 to increase its 1,200 staff across different parts of its operations in China, and received 4,000 applications for these coveted positions.
Other companies have gone to even greater lengths to secure the relevant skills. PwC has started something of an internal sea turtle system, whereby it recruits Chinese graduates in the US and trains them for two or three years before sending them back to China. McCann says: "It's an act of faith, as we won't see the pay-off for two or three years, but we have real faith in these people and in the programme."
The programme has been extended to Australia and may take off in the UK. In 2005, PwC recruited 16 graduates in the US and the intake for 2006 is 50, with another 25 from Australia. Graduates are treated as if they were Chinese employees on secondment in the US. McCann believes that there is an element of risk in the programme, but says the real competition is at executive level. For example, BP has just brought a number of people from other multinationals to fill its HR team.
The Chinese government, which has been slow off the mark, is now also offering incentives to entice talent home. There have been changes in immigration laws, the opening of industrial parks to encourage the creation of new enterprises, tax rebates and housing incentives.
Gross predicts that in 10 years' time the human capital picture will be radically different. The quality of local recruits is improving all the time, and most senior executive positions will probably be taken by Chinese very soon. Instead of the current ratio of 25% expats, 50% returnees, 25% locals ratio, he envisions a reversal of power, with 50% locals, 25% sea turtles, and 25% overseas Chinese (from neighbouring Singapore, Taiwan and Hong Kong).
Wu agrees. "The sea turtle phenomenon will water down. People who left after the Cultural Revolution thought they would never come back. Now people already have their return ticket booked when they go over to the US or Canada." In other words, the phenomenon is the product of a particular set of circumstances, and is unlikely to occur again. "People don't want to be away from China for so long any more. People will just work their way from entry-level to the top."
Considering the Chinese regard for education, together with rapidly improving standards, Wu will probably be proved right. It might take a few years, but China will get there. Huang observes that many of her college friends already speak good English and have done a rotation with a university abroad. They have no desire to go and work abroad, in the same way that Huang and He aren't necessarily rushing back to China. They will go back if and when the time is right.
What links these returnees is the feeling that wherever they have decided to live, they are at ease with who they are: international products of conflicting cultures.
Shenkar believes the world's future talent map will be very different from today's. "There will be new boundaries, but a lot of people will cross these boundaries. The flow just won't be as predictable as it used to be."
When he left China, LVMH's Wu thought he would never go back; when he returned, no-one thought much of his decision. He pioneered both brain drains; perhaps we should be looking to him for the next talent revolution.
Sea turtle: A native Chinese who left China in the 1980s and 1990s to pursue higher education and a career in North America, Europe or Australia, and who is now going back to China to work as an executive or to set up a company.
Overseas Chinese Ethnic: Chinese living in Taiwan, Hong Kong or Singapore, who have benefited from a better education and who have often maintained strong links with mainland China. Many are now heading back to China to plug the skills shortage.
Seaweed: An unsuccessful sea turtle. Most are unemployed because of inflated salary expectations and an unwillingness to adapt to the market.
Banana: 'Yellow on the outside, white on the inside', they are the worst type of sea turtle: westernised, pretentious and conquering, often detached from the reality of their fast-changing homeland. They are unpopular among the home-grown talent.
SEA TURTLES - RETURNEES RIDING THE WAVES
ANDREW WU (left) LVMH, group representative director for China, Beijing CV Born: Shanghai 1980: Moves to Toronto, Canada BSc Economics, York University, and MBA, Schulich Business School; works for Maple Leaf Foods 1993 Goes back to China to set up and lead Parfum Christian Dior's operations under LVMH 2000: Vice-president, Asia, Sony Music Entertainment 2005: Group representative director, LVMH China "It's a fine balance between being away long enough to be familiar with the West and being away for too long to still know what China is like"
SHENG LU (right) Onewave Inc, CFO, Shanghai CV Born: Nanjing 1987: BA English and MA Comparative Literature, Fudan University 1993: MBA, University of North Texas 1998: Moves back to China with Coastal Power 2003: Principal consultant, Heidrick & Struggles, Shanghai 2005: Joins Onewave "I feel like a bridge between two cultures. I never feel 100% Chinese or 100% American. There are some things I miss, but if you manage your time well, you can get the best from both sides. That's the privilege of being a sea turtle"
POTENTIAL SEA TURTLES
BILL HE (left) Accenture, senior manager in supply chain management, Washington DC CV Born: Shanghai 1990: BSc Physics, Fudan University, works for five years in telecoms 1997: MBA, University of Chicago Graduate School of Business, management consultant at AT Kearney 2000: Goes back to China to work on internet start-up 2001: Returns to the US, works for Campbell Soup and AOL 2005: Joins Accenture "I feel like a citizen of the world - I have US citizenship with Chinese heritage. I feel very comfortable in both places. Now I'm fully integrated professionally, as well as socially and culturally, here in the US. I think I belong to both China and the US"
SHIRLEY HUANG Sanford LP, a division of Newell Rubbermaid, associate brand manager, Liquid Paper & Paper Mate Correction Products, Chicago CV Born: Guangzhou 1990: BSc Mechanical engineering, Shanghai Jiao Tong University 1991: Senior marketing manager, Matsushita Electric Industrial (China) 1999: MBA global marketing, Thunderbird, Phoenix 2000: Associate brand manager, KitchenAid brand at Whirlpool Corporation, Michigan 2004: Associate brand manager, Sanford, Newell Rubbermaid "I am looking at going back to China, but not very actively. I still get a lot of satisfaction from my job here in the US. Also I would be leaving a lot of things here, my house, the lifestyle. People work longer hours in China, sometimes even weekends. There is no clear line between work and life"
American corporate experience in a changing China: insights from AmCham business climate surveys 1999-2005, The American Chamber of Commerce China, 2006 www.amcham-china.org.cn
The Chinese century: the rising economy and its impact on the global economy, the balance of power and your job, Oded Shenkar, Wharton School Publishing, 2004 (paperback, June 2006)
China, Inc: how the rise of the next superpower challenges America and the world, Ted Fishman, Simon & Schuster, 2005 (paperback, May 2006)
KEY POINTS FOR HR DIRECTORS
- Do your homework - basic Chinese and a good understanding of Chinese business practice will save you a lot of growing pains and misunderstandings
- Get the right skills - expats and sea turtles are expensive but indispensable to get a business off the ground. Local hires will need training, but will also prove essential over the long term
- Go out with an open mind and trust your Chinese employees, even if their decisions seem counter-intuitive in Western management terms
- Have training and personal development plans ready for both local hires and more westernised staff - this will boost loyalty and minimise turnover.