Scarcity of talent is a problem that pervades many emerging markets. But every country’s distinctive characteristics make it essential that companies acquire a deep understanding of the individual country’s local business context, right down to the provincial or city level.
To that end, it’s worth identifying the key factors that are shaping China’s talent landscape.
Demographics will not help employers. China’s median age is projected to rise from 34 in 2010 to 37 in 2020, a situation that has been fueled by the government’s policy of one child per couple. The size of China’s available working-age population will peak in 2015. By contrast, in other BRIC countries, such as India and Brazil, the working-age population will continue to grow over the next decade.
Employee engagement is weak, contributing to high turnover. Various studies of employee engagement in recent years—typically, measuring self-reported discretionary efforts and intent to stay with an employer—find the level of engagement among Chinese employees to be roughly half the global average. The low levels of engagement have contributed to an annual attrition rate that averages 16 percent. (See Exhibit 1.)
Wages will continue to rise faster than productivity. Competition for talent has driven up wages: disposable income in China rose at a compound annual growth rate (CAGR) of 10 percent during the first decade of this century, while productivity rose approximately 9.5 percent per year. Over the next decade, disposable income is projected to continue to grow at a CAGR of 9.7 percent, but productivity is forecast to decrease to 6.9 percent.
Education is not aligned well with the skills that employers seek. China ranks very low in the alignment of its higher-education curriculum with employers’ needs. Local education systems encourage skills such as memorization, so that even graduates with strong mathematical skills or excellent reading retention can fall short in terms of the soft skills that companies demand, such as problem solving and persuasion. And although English-language skills are improving, they remain relatively low.
Although government policies will help, they may not be able to bridge the entire gap. The National Talent Development Plan 2010–2020 aims to increase the share of highly skilled employees from 24 percent of the labor force to 28 percent by 2020, at the same time, doubling the share of college graduates in the labor force to 20 percent. The government is also trying to attract overseas talent, including students who, after pursuing higher education abroad, are returning to China. This group is relatively small, however, and the effects of government policies will take years to ripple through the economy.
Multinationals face stiff competition from local companies. Multinationals are losing ground to local companies: 80 percent of the 50 most preferred employers in 2011 are Chinese companies, up from just 50 percent in 2007. Strong local players match or exceed the compensation offered by multinationals, and, in many cases, the local companies offer employees upside potential in equity packages. By contrast, multinationals are perceived to have a “glass ceiling” that limits career opportunities, and employees use positions at those companies as stepping stones where they can burnish their resumes. (See Exhibit 2.)
The convergence of these factors means that companies must get serious about talent management in China. China has plenty of excellent employees, but companies need to know where to look for them and how to develop them. Relying on serendipity to meet current and future talent needs is far too risky a plan. Instead, companies will have to professionalize their talent management. The following four imperatives of professionalization will raise the odds of success:
Undertake rigorous planning of talent supply and demand.
Craft and articulate a powerful employee value proposition.
Build a talent management engine.
Put the marketing of talent advocacy on every executive’s agenda.
For example, the quarterly Engagement Trends country surveys of the Corporate Leadership Council of the Corporate Executive Board track this.
“Program for International Student Assessment,” OECD, 2010.
The data are based on results of several assessments, including the 2000, 2005, and 2011 versions of the Test of English as a Foreign Language, administered worldwide by Educational Testing Service, and the EF English Proficiency Index, administered worldwide in 2011 by EF Education First.
Survey of 171,000 students by ChinaHR, a China-based subsidiary of Monster Worldwide.