Recruiting in China

We're Moving....

2007-07-02T16:44:00.000+08:00

As there seems to be some trouble viewing this site from within China I have moved us over to a smaller server. You can click on the title, above, of any of the links, below, to find our new home. I have also syndicated the feeds to the new blog, below, and my ERE blog, on the right. Thanks, Brian.

www.blog.recruitinginchina.com.cn

www.recruitinginchina.com.cn

Employment Contract Law is Passed

2007-06-30T17:32:00.001+08:00

Employment Contract Law is Passed

(The following is from an e mail Newsletter sent out by Baker & McKenzie and will be the topic of many future posts bith here and elsewhere. The repurcussions of this will be felt globallyand I will do my best to keep you informed of how this will affect your recruiting in China...)

On June 29, 2007, the Standing Committee of the National People’s Congress (NPC) approved the long-awaited Employment Contract Law (ECL).

The new law marks a significant change in PRC employment law. Overall, the impact of the ECL will be to expand individual employee rights and protections, and to strengthen collective rights through unions, employee representative congresses, and collective contracts. The ECL will come into effect on January 1, 2008. The most significant changes brought about by the ECL include the following: · An employer may have to negotiate company rules/codes of conduct/employee handbooks with a union or an “employee representative congress” elected by all employees. Such congresses may be established at any single facility of a multi-facility business. · Employees will be entitled to open-term contracts after one fixed term contract has been completed and the parties agree to continue the employment relationship. Since China does not recognize at-will employment and statutory termination grounds are narrowly defined, employees will have long-term secured employment. · The use of agency workers is restricted to temporary, substitute, and auxiliary positions. · Regional collective bargaining is encouraged for certain industries and could cover competing entities in the same industrial sector. Baker & McKenzie will shortly provide a Client Alert analyzing changes made to current law as a result of the ECL. An English-language translation of the ECL will be available upon request. This may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome. Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm. This Publication has been prepared for clients and professional associates of Baker & McKenzie. Whilst every effort has been made to ensure accuracy, this Publication is not an exhaustive treatment of the area of law discussed and no responsibility for any loss occasioned to any person acting or refraining from action as a result of material in this Publication is accepted by Baker & McKenzie.

Choosing Clients

2007-06-29T14:35:00.000+08:00

I love doing Business Development, I get to talk shop with experienced professionals and find out what is driving the hiring neeeds of the market and I get to spend time with my BDM. We have a good time, my BDM and I, in deciding which clients we will be able to work with and which ones we will have to pass on. She is a bit more optimistic than me when it comes to potential clients and I am a bit more cynical than her; we make a good team. We have developed a list of key questions that we put to potential clients in order to ascertain there strengths and to find out if they would be a good business partner for us. Most of the potential clients we meet ask similar questions of us and most of them are not the right questions to be asking. Many of the younger HR managers seem to have the same sheet of questions and we get asked them so much we have a sheet of answers that they can staple to it to save them time, this seems to please them. The thing is, you can tell a lot about a person by the questions they ask, or don't. I have had the list of questions, below, for a while, it has travelled through two computers and I lost the source somewhere along the way so if you know who wrote it please let me know, if you wrote it, I hope you don't mind if I share it here. This si a list of questions you should be referencing when you choose a recruiter. These questions are going to get you some very good information while at the same time letting your potential recruiter know that you understand the business. (You will look smart! These are much better questions to ask than, for example, "how big is your database?") I hope you use them in your next meeting. 1. ARE THEY CONSULTING OR SELLING? The best executive search consultants: Do their homework on your company before they walk through your door; know the questions that potential prospects are likely to have about your organization and the position; and are prepared to discuss the position and search strategy options. If a recruiter dominates the conversation with stories of search successes, worldwide capabilities and research that "their people" will conduct to pinpoint your candidate, think twice. A recruiter like this won't know enough about your company, the position and the upside/downside of the opportunity to pitch it successfully to an executive who receives 10 other recruiting calls every week. Test the recruiter's consultative approach by asking: How would you describe our needs to a prospective client? How would you describe our culture and business? What are the hurdles in the search assignment and how can you overcome them? 2. IS WHAT YOU SEE WHAT YOU GET? Although most large and mid-sized search firms have strong placement capabilities, they also have a two-tier structure -- an upper level of partners responsible for bringing in business and a lower level of associates and researchers who actually perform the data dredging, phone calling, interviewing and qualifying of candidates. So despite your having provided a detailed description of your company culture, dynamics, management style to the partner who sells you the search -- the researchers who actually conduct the assignment rarely receive this information. The results? Candidates who match the letter -- not the spirit -- of the job description; mis-hires who don't fit your corporate culture; and poor performance down the road. Check how involved the interviewing partner will be in your assignment: What parts of the search will you personally handle? Who calls prospective candidates to qualify them? Who interviews them in person? Who analyzes the candidate and authors the official candidate "write up"? 3. WHOSE "EXPERIENCE" IS HANDLING MY ASSIGNMENT? When recruiters hear of potential new business at your company, their administrative staff shifts into high gear. They may print out an impressive list of assignments similar to yours that have been booked by the firm, packaged it between glossy covers with your corporate logo. The partner might claim extensive experience in your industry sector or functional area. But take a closer look: the list most likely represents the firm's collective experience. The recruiter himself may never have conducted a search in your industry. The searches listed in the proposal may not have been completed -- or may have taken months to complete -- and the executive placed by the search firm may have stayed only a short time. Check out a recruiter's legitimate experience: Which of these search assignments did you personally complete? How long did these searches take to complete successfully? How many of these searches resulted in hires that stayed with the client at least a year? 4. HOW IMPORTANT IS MY SEARCH TO THIS RECRUITER? Retained search consultants -- those who handle the top-level assignments -- are paid on the basis of their billings, not their successful completions. Since search assignments are "billed out" after 60 days, recruiters have little incentive to monitor the successful completion of the search assignment. There's more money to be made selling more assignments. Three years ago, a typical search firm partner conducted seven assignments at a given time. In today's overheated economy, they may conduct 15 to 20 assignments simultaneously, overwhelming their associates and research staff. Unless your search is carrying the highest fees or is relatively easy to complete, it may be shunted to the bottom of the heap. Check the recruiter's workload: How many search assignments are you currently conducting? How many searches is your support staff handling? Who's calling the shots? 5. WHAT'S THE SEARCH PROCESS? Many search firms operate on a "don't ask, don't tell" basis, convincing companies that the search process is mysterious and incomprehensible. The reality is, recruiting isn't rocket science -- but it does require focus, perseverance and attention to detail. Given the volume of business they are handing off to recruiters, human resource executives need to closely scrutinize whether focus, perseverance and attention to detail are being applied on their assignments. Many recruiters don't discuss how they conduct a search or how long it will take to find suitable candidates until the client has signed a contract. In addition, the recruiter's process may or may not suit your needs. For instance, you and your company may prefer to review candidate resumes before allowing the recruiter to spend money on personal interviews. But some search firms won't show clients any candidates until 45 days after the search begins, even though they may have a stockpile of resumes and interviews after two weeks. Some search firms will only present candidate information to clients in person, which can involve air fare, hotel and entertainment expenses. Clarify the search firm's process and timing before hiring them. How will the search be conducted -- step-by-step -- and how long will each step take? When will I see information on potential candidates? How will you communicate the number of prospects under consideration, when you are interviewing candidates and when I will interview the final slate face to face? How can you accommodate your firm's process to fit our company's needs? 6. WHO'S FOOTING THE BILLS? Many search firm contracts contain vague references to expenses. Seldom do clients question a search firm's expense billings or what they include. Even more rarely do clients realize that these expenses can add another 20 percent of the search fee -- or more. While expense billings can cover legitimate expenses like airfare and telephone charges, they can also be a rug under which secretarial salaries, subscription expenses and fax machine depreciation can be swept. Clarify your recruiter's expense procedures: What charges are included in your expense billings? Will you provide documentation? If you buy any resources for our search (CD-ROMs, special directories), will you turn them over to us when the assignment is completed? 7. WHAT'S THE COMMITMENT TO CLIENT SATISFACTION? Recruiting firm’s reward their partners for selling searches, not satisfying clients. In fact, the informal motto of several prominent search firms is, "Book 'em, bill 'em and forget 'em." If the fee for the search is fully collected, it qualifies as a successful search in many firms -- whether or not a candidate is placed. Consequently, what motivates the partner -- finding a client to bill -- runs counter to what motivates a company's human resource executive -- finding a high quality candidate quickly. Ascertain how well the recruiter's motivation aligns with your company's needs: What happens if the search is not filled within a given time? Are there performance goals and objectives to be met before the search firm receives future payments. Will the search firm reimburse a portion of the search fee if the assignment is not completed? If you fail to perform to my expectations, to whom do I voice my dissatisfaction? What happens if the final retainer is paid and we still don't have a hire? It's important to remember that search firms are service providers. Determine the firm's commitment to your company, assess its process and unmask its hyperbole. Ask yourself whether this search firm is passionate about serving your company's needs and providing what you and your company want. And if the recruiter is evasive or refuses to answer the questions, it may be time to recruit another recruiter.

Where are you recruiting your recruiters?

2007-06-25T12:56:00.000+08:00

You need to pay more attention to who is doing your recruiting. Probably.

I spend a lot of time talking to recruiters, I have a bunch here to manage, I am always looking for another one to hire, most of my friends are recruiters, a lot of my corporate contacts are recruiters, you get the picture. I even recruit recruiters for corporate clients from time to time, although, with the challenges most companies face hiring the people they need in China I am always surprised at how little attention is paid to this crucial position.

Many of the corporate recruiting positions in China are the second lowest position in the HR department and not particularly well paid. Some recruiters are paying their dues, some enjoy the work, and others have been handed a job for which they are not well suited. In this market I advise anyone interested in improving their internal talent to take a long hard look at their own recruiting staff.

I often hear that companies have named hiring the right people as their number one challenge in China. I often wonder,then, why they are not using one of their sales people as a recruiter. Great recruiters are great sales people in that they specialize in drilling down to core issues involved in prospect decision making and they are good at meeting rebuttals with information. This is a personality type that you will most readily find in your own sales department or that of one of your competitors.

AdMark China is often chosen by our clients here because we are experienced professionals who know the market and the positions we work on very well. When we talk to a candidate we are able to connect with him or her on a professional level and, as a result, we have more influence with our candidates. If you are having trouble getting the best candidates it may be because they need to connect with someone at your company who makes a better impression. Your candidates have a lot of options in this market and if you are not doing everything you can to impress them with your company's professionalism and culture you are going to miss out on too many of them.

Your top people have also met with good (and bad) corporate recruiters, make a point of asking who they know. Good recruiters stand out and they will remember. You can also find out who recruited away your employees during their exit interviews. If you keep up with this kind of information gathering you will begin to build a list of recruiters you should be contacting. Keep up with them and treat them like the money makers they are and you may end up with a top recruiting team.

Third party recruiters make excellent internal recruiters, as well, but they make good money and usually enjoy a certain amount of freedom and Independence that you may not be able to offer them so be prepared to pay if you go this route.

Finally, if you are really serious about recruiting, if you really want to hire away the best from your competition and see top line results from the professionals you have hired you should probably handle this function at the highest level your organization can handle. In very competitive markets that are short on talent it is not unusual for hiring mangers, Controllers, and General Managers to be fully engaged in this process.

If you are managing a company here in China or are responsible for the hiring function it might be a good idea to honestly assess if your current recruiters are good enough to get the best.

A post about a blog post about an article.

2007-06-22T14:09:00.000+08:00

Newsflash: Fraud is big in China. Today at lunch I was told by one of my consultants that one of our clients got to the offer stage with a candidate (not one of ours) and was surprised to find out that he had created most of the companies on his resume. When they called him on it he told them that he had done so to impress them and though they should still give him a chance. The client found out during a standard reference check. Most companies do not do reference checks and even fewer go a step further and use a company like PSA (http://www.psagroup.com/) to do basic background checks or identity verifications. I recommend these steps to all of our clients and feel that in China's current business climate they should be built into every recruiting process. We provide reference checks for free to our clients as part of our service.

China is booming and salaries are climbing at such a rate that it can be very tempting for job seekers to lie on their resumes, about their qualifications, or even who they are. Take the time to make screening part of your hiring practice and you may avoid big problems later. I found this post on the China Business Services blog, it is a good site, good blog ans, I am told they are a good bunch of guys over there and very reliable. I usually do not blog about other people's posts but in this case I will make an exception. Check out the article from the CBS: CV = Check & Verify While the FT reports a suggestion that “Your CV should make your closest friend gag but not vomit”, it also points to the case of Patrick Imbardelli, the chief executive of Intercontinental Hotels Group Asia-Pacific, who just “resigned” (as they like to say) after it was discovered he had claimed false academic qualifications. The issue of false claims is a common one around the world, and China is no exception. My company is often asked to check out potential employees and business partners. There are a variety of checks that can be carried out, including: • Identity verification – many people don’t think to question this most basic issue, but in a recent investigation we found that the target had been operating under an alias, and that a previous court action had therefore been hidden. • Criminal record checks – most people are honest, but many with a criminal record would rather try to hide the fact, as it does not provide a glowing reference. This is an important due diligence box to tick. • Employment verification – it is amazing how many companies do not check out the employment history of their staff. If nobody has time in-house, the task can easily be outsourced. • Qualification verification – false qualifications are nothing new. Again these are easy to verify. • Reputational checks – while the job history may be factual, what about the achievements? It is useful to know whether the CV in question is, to follow the FT piece, a “gag” or a “vomit” job. It also useful, especially when hiring senior employees, to know about someone’s reputation among key audiences in business and government. As one of my associates in the risk management business likes to say, when people lie it generally points to a pattern of behaviour that will be repeated. If these checks are done at the outset, everyone can move on with a much higher degree of confidence. And the future CEO may not have to appear on the wrong side of the page in the FT. The same issues are true when dealing with corporate entities, as outlined in some previous posts: • More Due Diligence (and a Guide) • Due Diligence = Sound Sleep • How to Scupper a Scammer See news source: CV reviews lead to resignationsThe chief of Intercontinental Hotels Group’s Asia-Pacific unit announced his resignation following a review of his academic qualifications.

More resumes, please.

2007-06-20T17:49:00.000+08:00

Our number one priority.

I have been on business development meetings all week with one of my consultants here in Shanghai. We have seen quite a few clients and potential clients from the Fortune 500 and I have come to the conclusion that in race to hire the best there are a pretty good number of turtles and too few hares. I wrote a book review for the American Chamber of Commerce’s monthly publication, Insight, of Ed Cohen’s new book Leadership Without Borders (Wiley and Sons.) I mention this because it is the latest article/book I have read that tells me that we are in a global struggle for talent and that “recruiting, retaining, and managing personnel is more important than it was historically.” We are also told that The Economist reported that “62% of all senior human resource managers worry about company-wide talent shortages,” and that “Three-quarters of them made attracting and retaining talent their number one priority.” I am skeptical that it is really their number one priority. The way I see things shaping up in China we are faced with several challenges in finding and getting top talent hired into the companies that need them. The majority of companies I speak with are not having as much trouble finding the talent that they need as they are having trouble affording it. (I have taught the phrase “internal equity” to four people this week.) We spoke to several firms this week who told us they are getting candidates that match their JD’s but they can’t afford them (and can we do any better?) This is a growing problem that many large firms are having a hard time adjusting to. I see a lot of openings that will go unfilled as the candidates who are qualified are already earning more than the positions are paying. The answer to this is not more recruiting though; it is engaging the hiring managers in some frank discussions about what the “right” candidate really looks like. I have run into some similar situations in the past and have found that when the hiring managers are really brought in on the case they will be willing to be flexible in certain areas and often end up with some great, affordable, talent. The key is having recruiters (internal) who know the market and the positions for which they are recruiting. This will allow the recruiters (internal) to engage outside search professionals as partners rather than vendors. Companies will be rewarded by candidates who are able to do the job and fit the budget. Too often in China I come across internal recruiters who are only looking for “more resumes.” These recruiters are usually most comfortable with local agencies that act as resume brokers and add little value to the process. When hiring becomes a priority to these companies they will have professionals with experience in the industry take a hard look at their salaries, job descriptions, and recruiting methods. When hiring is a top priority we will see more senior managers take an interest in recruiting rather than handing this task down the line to the least senior of all HR staff. We will also see improvements when recruiting and retention is a KPI of managers, but don’t get me started…..

Referrals...

2007-06-11T17:18:00.000+08:00

In case you have missed it, The Asia Pacific HeadHunter is a great blog, full of information on the region. I found the following posted there as I was trolling for views on the same subject and in this case I couldn't have said it better myself. One of my best clients has been feeding me leads in her industry all week and when I mentioned it at lunch today I was asked the usual "why would anyone give you referrals" question that I hear so often. Take a look at the article, below, and definately take a minute to click on the title of this post to see why I am a fan of this guy's blog... Tuesday, March 20, 2007 Why You Should Give Referrals I had an interesting question the other day from a candidate: "Why would anyone give you a referral when you get paid a huge fee and they get nothing?" I thought this was a great question and one I should really address. Many would be surprised to hear that a lot of people give out referrals. And by far, most referrals I get are from senior candidates. That's right - senior candidates are easily the most open about not only giving referrals of people they know, but also giving what I call "blind referrals". This is when they hand out names of people who they think are reasonably good or worth talking to but aren't necessarily their personal contacts. For senior candidates I think they see their ability to give referrals as almost an example of their strength and knowledge in their industry. It also shows that in their experience, they realize the importance and value of giving referrals as well as the long-term gains. But to get down to the reasons why executives should give referrals: It's all about goodwill, reciprocity, and networking. Goodwill. There's nothing really to explain here. When you help someone, it's a good thing. Becoming a referee for that person, referring that person to a recruiter for an opportunity - in the end, it's all for the benefit of that person - whether or not a new job actually materializes. The fact is, the person you helped is better off by having had at least a chance to consider an opportunity. If you gave a referral to a recruiter, you've no doubt bestowed goodwill to him or her, and as you'll soon see, is a good investment. Reciprocity. The Law of Reciprocation is powerful. I got this from Dr. Robert Cialdini, a widely recognized expert in negotiation studies, who said the power of reciprocation is extremely strong and should be used when presented with a moment of power; that is, when you have just done or given something beneficial to someone. When they thank you, it's up to you to seize that moment of power and respond: "I'm sure you would do the same for me if I needed it." That's the law of reciprocation. As it turns out from Dr. Cialdini's research, people will reciprocate when receiving a gift, advice, or help from someone, no matter how much time has passed from the initial giving. In what ways? Well, if you helped a colleague or former manager by referring them to a recruiter, or offering to be a referee for a potential employer, they may return the favour by looking out for your best interests as well. Networking. This widens and the ties strengthen from you giving referrals. The key is to give to them first. And the easiest way is to refer them to a key person, or give them a referral if they need one for a new opportunity. Hopefully, this answers the question. While it's hard to think past the short-term outcomes, like a referral fee, look to the long-term gains of having a quality relationship with someone in your network who can reciprocate goodwill to you when the time comes. It's an investment that benefits everyone.

Generation Why?

2007-06-08T11:05:00.000+08:00

China's Generation Y (a la Wikipedia) China's Generation Y (Gen Y) is a generation of approximately 240 million people born between 1980 and 1990, although characteristics of Generation Y people have also been seen in those born after 1990 but before 2000. Growing up in modern China, China’s Gen Y has been characterized by its optimism for the future, newfound excitement for consumerism and entrepreneurship and acceptance of its historic role in transforming modern China into an economic superpower.

Now , if you ask a table full of HR professionals how they would describe Generation Y in China you may get an ear full of information with a slightly different feeling>

From BusinessWeek's recent article on "China's B School Boom" one gains the sense that young China, the next generation of managers, entreprenuers and leaders expect to work hard, take risks and anticipate big payoffs.

What I see day to day is that where Gen X in China sought extra qualifications or training to get a decent job, and their fathers were looking for the security of a civil service position with a lifelong pension, the twenty somethings today aren't even worrying about getting a job, they "know" they will, they see it as their birthright, their approach is "what can I do to take advantage of these opportunities and maximize my income in the fastest, most efficient way"

This is the generation I faced last night in the form of a single candidate.

I won't get too into the specifics of the client or the search or the candidate himself but the offer and the candidate's reaction speak volumes about the market here and what HR Managers are facing everyday.

One of our clients (global, Fortune 100, great culture) thought highly enough of a candidate of ours to make an offer that would double the candidates salary. This is usually looked on as a "good offer" in my field. We are currently seeing salary increases in the 20-30% range at the moment. Our candidate was not too impressed, actaully he was kind of bored by it. He had been working now for four years (total) and felt that he should be a manager, or, maybe, they could let him "get into marketing."

This is a more and more common reaction we are seeing from this generation and I think we will be in for a bit more before it subsides. The market is hot and Gen Y speaks the international language of money: English. At lower positions they are able to move around easily and make large increases in their salaries but as the positions demand more I think we will see these candidates hit their highs pretty early and experience an adjustment. Hubris will only take you so far and, at the moment, I don't worry that this will be a permanent problem.

Of course we haven't talked about generation Z....

Why you must always be closing (part 2)

2007-06-01T18:34:00.000+08:00

Even when you think you have closed your hard-to-fill positions you may be in for a surprise. The article below comes from our own AdMark China blog (www.admarkchina.blogspot.com) and illustrates why it is important to know what is motivating your potential hires so that you can structure a package that will beat your rivals.

Chinese Paradox: A Shallow Pool of Talent This article was posted on the International Herald Tribune on April 25, 2006, by David Lague. It discusses the shortage of professional talent which faces foreign business who are hiring Chinese workers.

BEIJING: When Grace Li started a recruiting drive through China's elite universities and technical colleges late last year, she soon turned up about 500 potential employees for her client, a U.S.-based scientific services company.The company was seeking as many as 150 graduates with basic or advanced degrees to staff a research and development laboratory that it planned to open in China this year.After careful screening, about 100 candidates were offered jobs to start in June. About 70 accepted.The drawback was that most of them also accepted offers from two or three other prospective employers and still had not decided which job to take.For headhunters like Li, competition like this is now commonplace as China's headlong economic growth outpaces the supply of qualified professionals and managers."It's become a very big problem," said Li, client partner at Corporate Resources International, a Beijing-based recruiting agency. "Just because people accept your offer doesn't mean they will join your company."This talent crunch is now hurting many multinational companies, which last year invested a combined $60 billion to fund expansion and new ventures in China.Local companies are also suffering as they try to grow and meet the challenge of foreign competition.And, while experts warn that shortages of cheap labor threaten the dominance of China's powerhouse manufacturing industries, the lack of qualified graduates could derail longer-term plans for a transition to producing higher-value goods and services."We are not ringing the alarm bells yet," said Andrew Grant, the Shanghai- based managing director in China for the management consultancy McKinsey."But unless China starts moving now, this problem will become more acute."Despite turning out more than three million graduates a year, Chinese universities and colleges cannot keep up with demand from an economy that has been galloping ahead at nearly 10 percent a year for most of the past two decades.Employers complain that many graduates lack the skills and experience necessary to start work immediately, particularly for foreign companies."It is not just a question of numbers," said Gao Yang, the Beijing-based executive director of the nonprofit business education group Junior Achievement International, China. "There is a gap in communication between demand and supply."A recent McKinsey report, titled "Addressing China's Looming Talent Shortage," said surveys had shown that fewer than 10 percent of Chinese graduates across a range of technical and professional disciplines would be suitable for employment in foreign companies.Not surprisingly for a country with huge outlays on construction and infrastructure, the report found that China had about 1.6 million young engineers and that plenty more were being trained. About 33 percent of university students in China studied engineering, compared with 20 percent in Germany and 4 percent in India.Compared with their peers in Europe or North America, however, most of these students had little practical experience in working on projects or in teams.The report said this was largely the fault of an education system that emphasized theory over practice.To view the entire article at its original location click on the title of this post.AdMark China is committed to finding for our clients the best possible talent as quickly as possible. Contact us at info@admarkchina.com or at +86 21 6288 9292.

Throw away your salary survey!

2007-06-01T18:08:00.000+08:00

Your salary survey is probably wrong. I just got another salary survey in my inbox. It was very well done and probably took a great deal of time to create. It is also very misleading. The salary surveys that I see being created and distributed, and sold, give the impression that you can pay what is being paid in the market right now. This is the case only if you are looking for average employees. You are looking for top talent. The fact is, however, that if you are reading this blog you are not looking for average employees. The average employee in China does not speak English, he does not work in a foreign firm, he does not think outside the box, understand western reporting structures, go to a top university, or have a chance of getting hired into your firm. (When is the last time a hiring manager asked for a "really average candidate?" You are looking for the cream of the crop in China and you are going to be very frustrated if you use a salary survey to create your budget. I recommend that you call a recruiting firm like AdMark China (8621-6288-9292) and ask a consultant what you will have to pay. We know because we are on the ground talking to candidates every day. One thing we do at AdMark (www.AdMarkChina.com) to ensure that our clients are aware of current market demands is provide them a Real Time Report of the market as it relates to the positions they are trying to fill. This report compares your position criteria in terms of compensation, years of experience, and responsibilities to what companies of similar size and type are offering. We provide you with a profile of the talent market as it is right now. The RTR enables you to modify your search criteria to meet present market demands without wasting time or missing out on candidates. It helps you make the decisions you need to to get talent on your team without running afoul of a budget that was created using a salary survey that is not applicable to your needs. Call your recruiter to find out what you need to pay for your team members, if he doesn't know maybe you should get a new recruiter.

Hiring Managers: Read This

2007-06-01T17:26:00.000+08:00

I don't like to poach too many articles for my blog but the one below is a must-read for any hiring managers who want to know how to succeed in China. It touches on two ponts that must be made very clear to hiring managers in China: 1. Hire great candidates when you have the chance. James Rice does and he has been in this market for 16 years. I do not know James but I am going to back his decision making ability in this market. If you do not have the head count, get it. If you need a bigger budget, get it. China is extremely competitive, if you are not you should not be surprised at what you get. 2. Your employees want training, your employees are going to leave in two years. Everything in China is a negotiation - trade training for retention, use pay-back periods, defer training opportunities to meet retention and succession plans (you do have these and they are written and you have shared them with your managers, right?) Shift your retention focus to increase the typical retention by one year. You will save money, lower turnover, and your company will make more money. I talk to too many HR managers who bemoan their turnover but refuse to focus on the fact that they move every two years. Keep it real. Go fpr realistic goals and if all of your people are claimng that they are leaving because of training opportunities, give them some options.

Hiring Top Talent in China Takes a Boss Who Likes to Coach By Carol Hymowitz From The Wall Street Journal Online Any company that wants to succeed in China -- and the list grows longer every day -- needs to understand what matters even more than an understanding of distribution networks and good relationships with government officials: executives on the ground who truly enjoy coaching their employees.

Whether they work in Beijing, Shanghai or Guangzhou, executives at multinationals who stay behind closed doors and rarely offer performance feedback or advice are bound to fail. That's because the local hires they need to run their offices and plants will be seeking out bosses who will help them advance their careers. With China's economy growing so rapidly, multinationals and private and state-run Chinese companies are competing fiercely for talent. Young, educated Chinese from top schools with a few years of work experience often have their pick of entry and midlevel jobs in sales, marketing, finance, government relations and manufacturing. They can also command much higher salaries now than they could a few years ago, though they're still paid far less than expats. Money, though, isn't necessarily their top priority when weighing offers. In a recent study of several dozen Chinese managers it was found that "money is a less important reason to change jobs than the potential to grow and have a close working relationship with an immediate boss." James Rice, a Tyson Foods vice president and the company's general manager in China, understands this sentiment and has made mentoring part of his job. A 16-year veteran in China, he previously worked for Dannon and Kimberly Clark. One of his current sales managers first worked for him as a secretary at Dannon and, with Mr. Rice's coaching, advanced to management. He quit Dannon when Mr. Rice moved to Tyson last May. "I didn't want to poach [from Dannon] but he was going to take another job anyway, so I asked him to work for me again," says Mr. Rice. A few weeks ago, he recruited a young manager with an MBA degree from the University of North Carolina by promising training and promotion. The manager was weighing another offer from a multinational, and Mr. Rice didn't have a specific opening for him. But he was determined not to lose the chance to hire him. "He's very smart and speaks perfect English, and we're growing by more than 20% a year so it makes sense to hire ahead," says Mr. Rice, who plans to expand Tyson's China-based operations through acquisitions. "I pitched him very heavily on what I'd do to work with him and help him grow his career. I told him that for the next 12 months, he'll be my assistant, going with me wherever I go -- and then he'll get a line position," Mr. Rice says. Stella Hou, who manages the compensation measurement practice for Hewitt Associates in China, is often a personal counselor as well as a career coach to her 30 employees. In the U.S. and Europe, "managers don't feel they should trespass into employees' personal lives, but Chinese employees often expect their bosses to do that," she says. She spent hours listening to an employee vent anger and grief when her marriage fell apart. Young recruits, many of them products of China's one-child policy, also often require coaching on how to gain independence from their parents. Mr. Rice has had to tell some prospective employees that their parents aren't welcome to sit in on job interviews. And when an intern in Ms. Hou's office talked constantly about how much his mother takes care of him, co-workers began counting the number of times he invoked his mother's name and then subtly suggested he change that habit. "He'd say, 'my Mommy bought me this shirt,' or 'my mommy made me this meal,' " says Ms. Hou. "One day he brought her up 25 times." She prefers hiring employees whose parents live in provinces far from Shanghai or who went to boarding school at young ages. "They've been less pampered" than only children who have had their parents' and grandparents' undivided attention, she says. For their part, Chinese employees, especially those in their 20s and 30s, don't want to stay in any one job for more than a few years. They are looking for training and frequent promotions, and they're willing to job hop to advance. Among the companies that has benefited is Beijing-based Sohu.com, one of China's main Internet portals. Founded eight years ago, Sohu.com, which now has 1,400 employees, has wooed hundreds of upwardly mobile young Chinese from multinationals. Andy Zhao, a group leader in human resources at the company, formerly worked at McDonald's, where he advanced from trainee to store manager over a six-year period. But then he quit, because his boss, he says, "was too vague" about his chances for future promotions. He says he likes Sohu.com's innovative culture and his "caring bosses," who encourage him to "make fast changes every day." But he adds that how long he stays there will depend on "whether I can keep growing and changing."

"Multinationals in China should..."

2007-05-31T17:46:00.000+08:00

Shaun Rein, founder and Managing Director of China Market Research Group, based in Shanghai, had the following acticle published in for Forbes Magazine: "How Multinationals Err In China." The article arises from interviews Shaun's company recently conducted with senior executives of multinational corporations (MNCs) and it focuses on three common human resource (HR) mistakes MNCs make in China.

He raises some valid points but I find that he is painting the picture of the market here in some pretty broad strokes. The article is worth a read and you can get it on Forbes.com by clicking the Title of this post. Whle the majority of his reasoning rings true with me his assertion that companies here need to "implement uniform pay packages," is unsound in my opinion. I spend hours per day singing a completely different song: if you want to compete in China you must have a creative and flexible compensation and benefits plan that is going to allow you to recruit the top-talent you need so that you can increase the number of high level Chinese executives who get promoted through the ranks. The companies that do this are able to get the best. My clients use a number of tools to do this, signing bonuses, deferred compensation models, savings plans, children's tuition payments... The point is to be creative and to make room for the best availbale candidates in your organization rather than creating salary bands and uiform pay packages that will hinder recruitment.

From the article: The executives interviewed are of the view that "the No. 1 impediment to [their company's] growth in China is finding the talent they need to scale their businesses" and Shaun is of the view that these companies are, at least to a certain extent, responsible for this problem: As China shifts from manufacturing to a service-led economy, the demand for skilled labor is heating up. The lack of white collar workers has created a mercenary class of executives who bounce from job to job seeking wage increases of even just several hundred dollars a year. Many multinationals follow misguided human resource strategies that intensify the problems. The companies that implement the right HR strategies and focus on three key areas will be able to attract and keep the right executives needed to turn their China operations into humming profit centers. The mistakes Shaun describes and his solutions also apply to small and medium sized foreign companies (SMEs) doing business in China. First mistake: Glass ceiling. Two-tier pay systems undermine the morale of Chinese workers who want to climb the corporate ladder and cause top mainland talent to prefer to work for domestic Chinese companies, where they do not feel discriminated against. China Market Research Group exit surveys with Chinese workers leaving multinationals indicated the main reason they had left was their feeling they lacked a clearly visible career path with their company. "The majority said they would have stayed if they felt that the company appeared to be 'interested in developing their careers.'" Multinationals doing business in China should implement uniform pay packages, increase the number of high level Chinese executives who get promoted through the ranks and develop clear career paths that Chinese employees know they can follow. Second Mistake: Ignoring Need for Work-Life Balance. China's baby boomers have experienced 30 years of uninterrupted economic growth and they are "incredibly optimistic" about their career paths. In interviews with Chinese between the ages of 21 and 28 in Shanghai, Beijing and Guangzhou, the overwhelming majority responded that a "balanced life" was the most important consideration in job satisfaction, ahead of a good salary and job security. Companies need to understand that paying high salaries is no longer enough to keep executives from jumping ship. Third Mistake -Ignoring education and training. Chinese employees need and want continuing education and training options. An online survey revealed that 90% of Chinese between the ages of 18 and 28 stated they wanted access to continuing education and 41% said considered continuing education the best way to raise salary packages and realize their professional and financial goals. Foreign firms must develop training courses that give employees the business skills they need: Some of the most successful multinational companies in China, like L'Oréal (LRLCY) and Starwood (HOT), have implemented rotational training programs that give Chinese employees the chance to spend time working in other countries. Overseas training is one of the most prized benefits Chinese employees mention in our surveys. Offering top workers the option to spend six months in France or the U.S. is a smart way to build company loyalty and develop the business savvy currently lacking in many Chinese executives.

Turtles and Rednecks

2007-05-24T12:49:00.000+08:00

On Turtles and Rednecks… Ray Zhang, from Pepsi China, is quoted in a recent article on the ERE site (follow the link in the title:) “Zhang, speaking at what has been billed as the first-ever U.S.-based conference on HR in China, describes the Chinese workforce as belonging to two groups: "turtles" and "rednecks." Turtles are returnees from education abroad; about a million Chinese have gone abroad for education in the last 30 years, and only 30% have come home. The advantages of hiring turtles, he says, are their communication skills, thinking and problem-solving skills, their international view, and their understanding of different cultures. They tend to have strong presentation skills and "high social maturity." Chinese managers used to "blindly worship the turtles," he says, but have since come to their senses. “ The article is worth a read and I am happy to see someone addressing the cultural implications of hiring a returning Chinese candidate as I have too often seen this fail. I see companies hire candidates based on their language skills and interviewing skills too many times be unhappy with the performance of those same candidates that dazzled them in the interview process. In roles where local knowledge is indispensable, Sales/Marketing especially, I caution my clients to pay close attention to the candidates past performance in the market. Local market skills are more easily transferred from one industry to another; sportswear to cosmetics, for example, than are cultural skills. Our firm, while working across all of Asia, still maintains a deep, local market focus on our searches to ensure we get the best candidates for the job. I see this problem growing in our China market as more and more multinationals come to play and hope we can avoid making the same mistakes made by those who came before us.

Salary Secrets

2007-05-23T19:32:00.000+08:00

The Transparent Salary Secret in China Most of my candidates tell me they know what everyone else is making in their company. This tends to raise their expectations and makes it difficult for employers to keep up with the market. The employers are relying on information that is obsolete by the time it is published and the candidates are dealing in real-time. One tool they are beginning to use is Payscale.com. Payscale offers “real-time salary reports based on your job title, location, education, skills and experience.” I did a couple searches and found it a bit limited at the moment but it is sure to grow in accuracy as more and more people use it. Another avenue for finding out what your neighbor is earning was featured in an article in China Daily Online, Updated: 2007-02-12 09:41, entitled Salary Secrets Exposed. The article explains how employees are posting their pay slips online. It goes on to say that a search for "pay slip" on China's biggest search engine baidu.com yields almost 1.22 million results. So what? So you (employer) better know what your competition is up to in order to make the best offer that you can to your prospective employees. It would seem wise that you do the same search, look into the same online services, and take a hard look at your own company’s benefits package to see if it is up to market standards. The best packages being offered right now are using a creative mix of signing bonuses, training incentives, performance bonuses, and succession plans to lure candidates into their culture. If you are not it is time that you started.

Internal Equity

2007-05-23T14:53:00.001+08:00

Meeting Expectations In China in the "old" days you could use a once a year salary survey to determine the market value of your candidates. Today salaries are changing on an an almost daily basis. Most of the candidates in Chna are very open with one another and they usually have a good idea of their market value. There is no room in todays negotiations for low-ball offers to see if the candidate will take less. These invariably fail as the candidate can get what they are looking for elsewhere. We constantly probe new candidates and ask about the range of their other offers and track those that accept our offers to find out what works and what doesn't. Exceding Expectations Top Candidates are facing more and more offers and counter-offers from their current firms. In my opinion counter offers are (almost) always a terrible idea. In order to compete on a level above just raising the salary and hoping for the best I reccomend getting your Hiring Managers involved. Let your own managers know why the offer is better thatn the competition's and how to discuss it with the candidate when they meet. Increase sign-on bonus and stock option limits. Decrease the focus on internal equity by tying any pay over the internal maximum to performance. Get creative, the competition is! Use your recruiters to close the candidates before you make an offer. If your recruiters do not give you the candidate's "magic number" and have authority to accept on their behalf you need to get better recruiters. More than Money Applicants expect growth, communication, a great manager and a work/life balance in addition to the money. Take the initiative to alter job scope to entice top performers, offer specific training to them as a signing bonus, find out what they need in their tool kit and offer them the chance to get it. If you are unable to do this you need to talk to the decision makers at your company and impress upon them the value of the candidates you are missing out on. Shift Your focus must go beyond the buzz words: corporate branding, training, traction, buy-in, you know them as well as I do. Shift the perception of this market in the minds and hearts of your managers to make a difference. Make hiring a performance indicator. Spend some time looking (objectively) at your hiring process and exteral relationships.

Better than money?

2007-05-22T11:14:00.000+08:00

Competing in a candidate driven market. I have been here before, I have seen salaries rise in a candidate short market and I have seen the companies that are slow to react miss out on candidates and lose good people only to face growing recruiting costs and unfilled jobs. WHile this is a growing global trend it is not the first time this has happened and this is not the first market to go through it. This problem in China is being exacerbated by the fact that the China HR shortage is really beginning to affect every corner of the market. The companies that took the initiative to come here years ago are not being rewarded they are being punished by rising salaries and a hyper, disorganized labor market. They are now faced with internal equity issues that are very difficult to solve. Unfortunately in a hyper market, like China, this issue usually solves itself when current employees leave for higher packages elsewhere. I meet candidates every week who make more that the hiring manager who is looking for them. How do you beat that? Get strategic: It requires a strategic approach to talent management, from recruiting to development, and from training to retention. Employers who are willing to create the right conditions to attract talent and who strive to retain that talent will succeed. Most HR professionals already acknowledge this need for marketing oriented strategies that build a stronger “employer brand” to attract talent. I think a greater value can be achieved through clear succession planning and by offering candidates specific growth targets within the company. Whether they are skills, titles, or responsibilities, job descriptions and management tracks can be altered to be more attractive to top talent. This will require a new approach to the talent market, instead of simply reacting to current staffing needs, employers will need to develop their relationships with their external recruiters and train their internal recruiters to keep an eye on what the competition is doing to attract their own people. We advise our clients to be as pro-active as possible when structuring packages and creating job descriptions for potential hires. Our approach is to take a look at the market first, then work with our clients to create a job description that meets their needs while providing an enticing scenario to potential candidates. This is different in almost every case and it can make a huge difference in attracting the right candidates. Brian Fenerty General Manager AdMark China Brian@AdMarkAsia.com www.AdMarkAsia.com

Always be closing your candidates.

2007-05-15T18:39:00.000+08:00

Interview strategies for attracting and landing top performers

“Include a sales segment. Before you begin the interview, allocate enough time to "sell" the candidate on the job. When you're planning your interviews, divide them into time frames or segments for each assessment area and be sure and allocate at least one quarter of the time (in some cases, at least half for "hard-to-sell" candidates) toward convincing the candidate that, if offered the job, they would accept it. If you happen to know their "job acceptance criteria" in advance, it's relatively easy to put together a sales pitch. Remember to ask them at the end of the interview specifically, "Do you have any concerns?" and "Do you need any additional information in order to make your decision?" “

Dr. John Sullivan, in an article for ERE.net, (an outstanding resource for recruiters and non-recruiters who need to improve their recruiting skills,) wrote the above. I find recently that more and more Hiring Managers are getting tired of being trained in how to interview candidates and it occurred to me while reading the above article that much time is being wasted in this training when it does not include the addition of a sales segment. I recently heard that a Hiring Manager resented the fact that he had to sell his company’s benefits to a passive candidate they were meeting. This is troublesome on many levels and until hiring and retaining are added as a KPIs for managers in China this is not going to change. I don’t try to fix everything at once (not since that Ford Pinto incident in High School, at least) so I usually suggest that my clients use a three-man approach to the interview process. The order is not as important as the execution of this technique which entails using one interviewer to judge the candidate’s technical competency, another to judge the candidate’s soft skills and corporate ‘fit’, and a third to act as the company’s number one fan. Most HR recruiters are very good at the third role but are often asked to play too many of these parts and end up overwhelmed. The candidate ends up under whelmed. This model works with active candidates as well as passive candidates and is pretty quickly adopted by most organizations. It takes a lot of weight off of interviewers, as well, asking them to focus on just one aspect of the candidate and letting them use what they have learned in those interviewing classes. When dealing with passive candidates, those candidates introduced by a head hunter who, while interested in what may be a better opportunity at your company, are genuinely happy at their positions, I highly recommend a sales segment for your interviews. A passive job seeker is one who is currently employed and not actively seeking a new job. He may not be happy in his current job but he is not job hunting and has been introduced to you by your headhunter. For more ideas like these or to engage AdMark in a search please find me at brian @admarkasia.com

Sharing Market Conditions with Hiring Managers

2007-05-14T13:56:00.001+08:00

Why taking orders in this market won't work.

I had a chance to see Senior Vice President of Development Dimensions International’s Selection Solutions Scott Erker last week (he is not pictured here.) He gave a seminar on improving relationships with key stakeholders in the selection process. It was a good presentation that applied in a big-picture way to what we face here in China. One of the questions that was raised during the presentation was "How do I get my Hiring Managers to tell me what they really need in a candidate?" I went on to discuss this further with the people at my table, mostly corporate HR Managers, and found the they often have a hard time getting to the bottom of what their managers really need in a candidate and what they add to the Job Description to either fill up the page or to add to the "order" the corporate recruiter is taking. This is the same challenge that we often face as external recruiters. We need to find out what the Hiring Manager really needs while comparing it to what we know is in the market. We do this in a number of ways. First is by double checking that everything in the JD is really necessary. Can, for instance, we substitute one common software package for another. Does the candidate really need x years of experience? A good recruiter will use a number of "what-if" questions to get the answers s/he needs; "What if the candidate has all of the technical skills but only y years of experience, What if his background is in another industry?, What if...." We use these to get an idea of the candidate that can do the job. What a good recruiter is doing with all these questions is creating a functional description from the corporate job description of what the successful candidate will have to do when she gets the job while letting the Hiring Manger know that he is not able to get exactly what he has put down on the job order/job description. Compromise is key in this market as many of the "perfect" candidates that we will find will be far above the salary expectations of our clients and they need to realize that to remain within their budget they will have to be flexible and think outside the tick boxes. Good recruiters, internal or external, should not be order takers, they should be windows into the market for the managers they work with. The best Hiring Managers are those that take the current market conditions into consideration and re-think what they need to see in the successful candidate.

Kicking Tires

2007-05-10T10:53:00.000+08:00

How to find the best candidate that you can't hire. After three meetings and much salary discussion between a client, a candidate, and myself, I was confronted by a wholly avoidable situation today. The client really wanted to hire the candidate and the candidate was quite keen to join the client but the money was not in the budget. In fact it wasn't even close. How, you may be asking, could I make such a rookie mistake and waste everyone's time? Why, you must certainly be adding, would the client go to all the trouble and put themselves through all the pain of finding the perfect candidate only to come up short at the offer stage? Who, the logical next question, would do such a thing? Well, it seems, the client was fooling himself. He made an age-old mistake when I presented him with the bio and resume of a completely qualified and motivated candidate (as is my habit.) He wanted to "check her out," and see what was out there. He assured me, and thus the candidate, and himself that if she was the right man for the job he could come up with the money. Well, he couldn't and she is not motivated enough to take a job for less than she is making. The repercussions of this are not as severe for the candidate or myself as for the client. I will continue to introduce the best candidates China has to offer to my clients and the candidate will find her next position as sure as I am sitting here. The client is the one who will now judge every candidate he meets for the job against the one that got away. For a while they will all fall short until he realizes that she was a great candidate and he will have to settle for what his budget allows. A better strategy for our client would have been to take an honest look at the budget and meeting only those candidates whose expectations fell into the range. On top of the usual salary questions and discussions of bonuses and internal equity I always provide my clients with the current salary of the candidates I introduce, their expectations, and my input, when necessary. This is to avoid just such a situation and to ensure that the client will be able to successfully hire the best candidate for the job. All that and no car analogies!

Time Kills all Deals

2007-04-28T16:19:00.000+08:00

"Time kills all deals." I have been hearing this since I started recruiting in Asia in 1993. We said it then and we said it in the US when I was recruiting there. We say it to each other in my office all the time and I say it to my clients at least once a week. This is not an industry technique to increase revenue it is a long know fact that in recruiting time is a major consideration.

The fact is that the hiring process, especially when it comes to passive candidates, should be a well planned event with time lines in place well before the first candidate is called. Companies that are successful recruiting in China usually recognize this and have a sense of urgency when it comes to hiring. This translates to a well planned system for reacting quickly when the right candidate walks in the door.

The China market is hot. Talented candidates who speak English and work well in Western, performance oriented environments are in short supply and they know it. When my team introduces a candidate of this caliber to a client we expect them to react quickly if they are serious about getting a top candidate on their team. Initial lack of feedback to a top candidate is a s bad as an extended period of time between the first meeting and the second meeting when it comes to killing the candidate's interest and the deal.

I recently had a client lose out on a candidate that, in the words of the client, "would have been a key hire." The client failed to get the offer letter out quickly enough and by the time the candidate received the offer he had already talked to enough relatives and friends to come o the conclusion that he was worth a lot more than the offer (which was reasonable and fair and which the candidate would have signed after the third meeting with the client) and that if the company was really interested in him it wouldn't be taking so long.

The best hiring clients in this market are not always the ones with the biggest budgets they are more often the companies that have made a commitment to hiring the best and have put in place a system that eliminates time stealing bottlenecks in the offer process.

Learn from the best and you will close on more key hires.

Office Culture

2007-04-03T18:08:00.001+08:00

China HR: Do You Look Fat Today?

Posted by Dan Harris on February 13, 2007 at 03:10 PM

I am surprised at how often clients want to discuss their China Human Resource (HR) issues with me. They seem to be puzzled by a lot of things involved in managing an office in China and they always seem so disappointed when I tell them I have very little knowledge or experience in that arena. I try to analogize it with my trying to manage the lawyers we work with over there, but that is not the same. I do not recall ever being asked such questions regarding any other country and I cannot help but viewing their seeking my help as desperation.

A short article by Geoffrey Fowler in today's Wall Street Journal "Cubicle Culture" series, entitled, In China's Offices, Foreign Colleagues Might Get an Earful," [subscription may be required] touches on some of the more touchy HR issues Westerners face in China and concludes with some particularly good advice on what to do when someone there tells you that you look fat.

The article starts out discussing how "Chinese people draw the lines between personal and work space differently from Americans." In China, companies are still viewed by many as "surrogate family." At the same time, hierarchy is still king and Chinese employees are "baffled by 'brown-bag lunch' conferences, during which junior staffers rudely chomp while somebody senior is giving a talk. It's rude because it mixes a social event with an official one." According to a Chinese national who works at an American law firm in Beijing, "Chinese law firms would not have this kind of lunch. . . . Maybe we would go outside to a really good restaurant to drink and chat for a while. But in the U.S., people pay much more attention to efficiency."

If you have an office in China, check out this article as I am sure you will recognize much of what you read.

"So, how should a foreigner respond when he's told he's fat?" Mr. Fowler's stock response is, "There's so much good food here."

Good one.

We would love to hear about your China HR stories.

See other posts in: Recommended

Expat vs. Halfpat

2007-04-03T18:05:00.000+08:00

I swiped this post from http://www.allroadsleadtochina.com/, an excellent site. It brings up some good points about the viability of the localized hire, the link to the full article is at the end.

HR in China: Expat vs. Halfpat

Posted on Thursday 25 May 2006

Many within China agree that there is a shortage of local talent in the middle management sector. In the past, this was a significant issue as companies had only two options – to hire and relocate expensive expatriate (expat) staff from overseas, or inexpensive, inexperienced local staff. In the last 5-10 years however, a third option has emerged – the “local hire expatriate”, or halfpat. Attracted to China by either a sense of curiosity, or a strong belief in China’s potential, the halfpat (including overseas-born ethnic Chinese) is generally a recent graduate or young professional who have moved to China without a predetermined career path.

There are pros and cons for hiring either of these types of Western-trained non-local staff. The strength of an expat is their long-term understanding of an industry and their ability to manage business units back home. Halfpats, on the other hand, are more stable and committed to China in the long-term and they have significant cultural, linguistic and market understanding. For many companies though, the bottom line is a financial one. The staff retention, and overall success rate, of expats is not particularly impressive – particularly in contrast to that of halfpat staff, who do not require expensive relocation packages or language training as they have already taken on those costs themselves.

To read the full article, please click here

The value of China's emerging middle class

2007-04-03T18:01:00.001+08:00

Demographic shifts and a burgeoning economy will unleash a huge wave of consumer spending in urban China.

Diana Farrell, Ulrich A. Gersch, and Elizabeth Stephenson

2006 Special Edition: Serving the new Chinese consumer

As China's economy has soared at consistently astonishing rates, many global companies have focused on serving the country's most affluent urban customers. When these well-off urbanites were the only consumers with significant disposable income,¹ this strategy of skimming the cream from the top made sense. But new research by the McKinsey Global Institute (MGI) highlights the emergence of a far larger, more complex segment—the urban middle class, whose spending power² will soon redefine the Chinese market (see sidebar, "About the research "). While some companies are already focusing on the evolution of this new class, many others have yet to broaden their vision and thus risk missing a significant opportunity.

The lure of China's urban-affluent segment is easy to understand. These consumers earn more than 100,000 renminbi (about $12,500) a year³ and command 500 billion renminbi—nearly 10 percent of urban disposable income⁴ —despite accounting for just 1 percent of the total population. They consume globally branded luxury goods voraciously, allowing many companies to succeed in China without significantly modifying their product offerings or the business systems behind them. And since this segment is currently concentrated in the biggest cities, it's easy to serve, both for companies now entering the Chinese market and for old hands seeking a steady revenue stream.

However, fixating on the urban-affluent consumer could mean that companies fail to capitalize on the dramatic changes that lie ahead as China's economic growth, barring unforeseen shocks, improves the livelihood of hundreds of millions of its citizens. Over the next 20 years more people will migrate to China's cities for higher-paying jobs. These working consumers, once the country's poorest, will steadily climb the income ladder, creating a new and massive middle class.

Although producers of luxury goods may continue to cater only to the wealthiest households, other companies—especially manufacturers of mass consumer goods—can win the bigger prize by broadening their focus to include the emerging middle class. Because tomorrow's middle-class consumers are today's urban workers (dispersed across many cities and still relatively poor), serving them will naturally require a company to change its strategy significantly. Early movers, such as Coca-Cola and P&G, have already begun creating models to target this segment profitably.

Recognizing tomorrow's middle class

The rising economy in China will lift hundreds of millions of households out of poverty. Today 77 percent of urban Chinese households live on less than 25,000 renminbi a year; we estimate that by 2025 that figure will drop to 10 percent (Exhibit 1). By then, urban households in China will make up one of the largest consumer markets in the world, spending about 20 trillion renminbi annually⁵ —almost as much as all Japanese households spend today.⁶ Furthermore, since these estimates were calculated at today's tightly managed exchange rates, they may significantly underestimate China's future consumer purchasing power.⁷

Rapid economic growth will continue to transform the impoverished but largely egalitarian society of China's past into one with distinct income classes. This evolution is already creating a widening gap between rich and poor, and tackling the resulting social and economic tension has become a focus of government policy. Our projections indicate, however, that China will avoid the "barbell economy" that plagues much of the developing world: large numbers of poor, a small group of the very wealthy, and only a few in the middle.⁸ Even as the absolute difference between the richest and poorest continues to widen, incomes will increase across all urban segments.

As this economic tide rises, we anticipate two phases of steep growth in the middle class, with waves of consumers in distinct income brackets emerging and receding at specific points (Exhibit 2). The first wave, in 2010, will be the lower middle class, defined as households with annual incomes of 25,001 to 40,000 renminbi. A decade later the upper middle class, with annual household incomes of 40,001 to 100,000 renminbi, will follow. These numbers may seem low compared with consumer incomes in the world's richest countries—current exchange rates and relative prices tend to underplay China's buying power—but such people are solidly middle class by global standards. When accounting for purchasing-power parity, a household income of 100,000 renminbi, for instance, buys a lifestyle in China similar to that of a household earning $40,000 in the United States.

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By around 2011 the lower middle class will number some 290 million people, representing the largest segment in urban China and accounting for about 44 percent of the urban population, according to our model. Growth in this group should peak around 2015, with a total spending power of 4.8 trillion renminbi. A second transition is projected to occur in the following decade, when hundreds of millions will join the upper middle class. By 2025 this segment will comprise a staggering 520 million people—more than half of the expected urban population of China—with a combined total disposable income of 13.3 trillion renminbi.

Two features of China's emerging middle class are already particularly notable. First, it will be unusually young compared with that of most developed markets, whose highest earners tend to be middle aged. In the United States, for example, income generally peaks between the ages of 45 to 54.⁹ Since higher-paying jobs, on average, require a higher level of education and training than what older generations have obtained, the Chinese government currently makes substantial investments in higher education for the younger cohorts, meaning that the country's wealthiest consumers will be from 25 to 44 years old.¹⁰

Second, the urban middle class will dwarf the current urban-affluent segment in both size and total spending power. From 2010 onward we will see some distinct subsegments among the affluent—including the mass- and global-affluent categories—but they will still total only 40 million households by 2025, accounting for just 11 percent of all urban dwellers. Their total consumption will equal 5.7 trillion renminbi¹¹ —just 41 percent of middle-class consumption.

While total spending by the middle class will exceed that of urban-affluent consumers, the latter will remain a critical market for some companies. These upper-tier households already account for 25 percent of Chinese household savings and will continue to control the bulk of the nation's accumulated wealth—60 percent by 2025. Their importance to banks and other financial-services firms will therefore increase. As in other countries that have underdeveloped consumer credit markets, Chinese households with sizable savings are the most likely to buy relatively expensive items, such as automobiles and durable goods.

Nevertheless, the biggest opportunity for companies selling mass-consumer goods and services will be the newly empowered middle class. To serve these households successfully, companies will need to understand how the saving and spending patterns of consumers change as their incomes increase.

Hitting a moving target

Although the middle class will not reach its full spending potential for nearly 20 years, its household saving and consumption patterns have already begun to take shape. Today China's thrifty households tuck away a quarter¹² of their after-tax income—one of the highest saving rates¹³ in the world. Our research suggests that while the emerging middle class will continue to save heavily, they will also spend increasing amounts of money.

A McKinsey survey indicates that the top two reasons for high saving rates in China are concerns about health care and retirement.¹⁴ Although China's social safety net may gradually improve as the country grows richer, ingrained attitudes toward saving will change even more slowly. We project that urban saving rates will decline moderately but remain above 20 percent over the next two decades, boosting total urban consumption by 8.7 percent a year during this period. The growth will be driven not only by the rapidly increasing urbanization rate but also by a substantial (6.1 percent) annual increase in per capita consumption.

As incomes rise, spending patterns change. Families tend to buy more discretionary and small luxury items, and the share of the household budget that goes toward food, clothing, and other necessities shrinks. In China this shift seems to be happening more quickly than it has in other developing countries. For several years now, urban Chinese consumers have dedicated a smaller share of their household budgets to the basics than South Koreans did at a similar point in their country's economic development, for example.¹⁵

While basics may decline as a share of consumption, in absolute terms they will continue to grow as the overall economy expands. We expect, for example, that urban spending on food¹⁶ will grow by 6.7 percent annually during the next two decades, holding its place as the largest consumption category in urban areas and making China one of the fastest-growing food markets in the world (Exhibit 3). Spending on most other categories will rise faster, however, so food's relative share of wallet will actually decline (Exhibit 4).

Housing and health care will be two of the fastest-growing categories. In many emerging economies consumers spend proportionately less on housing as their incomes increase. Since private ownership of China's housing stock has only recently begun and government subsidies for housing have been reduced, Chinese consumers will have to allocate more of their income to paying for shelter and utilities. These outlays are expected to reach a combined 16.6 percent of household budgets by 2025. In addition, increased home ownership will fuel spending on construction services, building materials, and furnishings. Given the importance of health care to Chinese families, the country's rapidly aging population, and the challenges facing the public health care system, we project that private health expenditures by urban consumers will grow at a rate of more than 11 percent annually over the next two decades. This increase in spending will create significant opportunities for health care providers, insurance companies, medical-equipment manufacturers, and pharmaceutical companies.

As incomes rise, Chinese consumers will also devote a larger proportion of their household budgets to educational expenses (such as tuition, tutors, and textbooks)—more than their counterparts in developed countries. This spending will be driven by the strong link between education and higher salaries, as well as by the growing number of options for both higher and vocational education.

Serving tomorrow's middle class today

Even companies that understand and anticipate changes in consumer saving and spending patterns may struggle to serve China's growing middle class. While the future of the consumers who make up this segment is bright, they are currently relatively poor and dispersed across cities of all sizes in China. Nowadays they are largely blue-collar workers; over the next 20 years they will increasingly migrate into service and knowledge industries. With an average household income of 17,600 renminbi, these people currently have little discretionary income to spend. Differences in exchange rates mean that products with components purchased on the global market rather than sourced domestically will usually be too expensive for them. This limitation applies not only to manufactured and imported goods but also to services, such as international travel.

Despite such obstacles, some companies have already begun targeting urban working households. As incomes rise, new entrants will find more profitable opportunities to accompany these consumers up the growth curve. By serving them today, businesses will gain the exposure and experience necessary to stay relevant as the incomes—and tastes—of urban consumers evolve.

Given the challenges of such a rapidly changing market, some companies have already had to think creatively about lowering product costs, reconfiguring business systems, and shifting to local sourcing strategies. The German retailer Metro, for example, keeps costs down by sourcing 95 percent of the products for its Metro China shops from domestic suppliers. Even a successful formula for current market conditions can soon become obsolete, however. Companies that target current urban working consumers—say, by reducing prices and repositioning products for lower-end segments—may find that these customers will abandon the brands as soon as their pocketbooks allow. To avoid this trap, several companies have adopted multitiered branding strategies, enabling them to follow their customers up the income ladder. P&G, for example, offers more affordable Olay products in supermarkets and hypermarkets and high-end lines such as Olay Regenerist in department stores.

China is evolving from a relatively monolithic, poor country into a vibrant marketplace with complex and rapidly developing consumer segments. Instead of focusing mostly on urban-affluent customers, who are just the tip of the consumer iceberg, more companies should adjust their strategies to include the emerging middle class as a core customer segment. This approach poses many challenges, but for companies that anticipate the changes that lie ahead, the opportunities will be as vast as the country itself.

About the research

The McKinsey Global Institute used an econometric approach to project income growth across different segments of China's population and to assess the implications for household spending in 18 major consumption categories. Specifically, we built a proprietary database of information on Chinese income, savings, and consumption patterns using primary data from the National Bureau of Statistics of China and other sources. We focused on urban Chinese consumers, rising from 42 percent of the total population today to more than 60 percent by 2025. Our numerical estimates were complemented by consumer research across cities of all sizes in China, as well as insights gained from our experience on the ground.

For variables such as GDP growth and inflation, we formulated a base case scenario resting on a mutually consistent set of consensus estimates. We assumed average growth of 6.5 percent in per capita GDP from 2005 to 2025 (a midrange forecast), with higher annual growth initially but slowing after 2015. We also assumed an absence of major exogenous shocks to the economy. Certain events—for example, a dramatic shift in exchange rates, an avian flu epidemic, or the disruption of the government's market-friendly policies—could make our GDP assumptions overly optimistic. Conversely, other factors (such as increased labor productivity, a more efficient capital allocation, or land reform) could make them too conservative. An analysis of the scenario for Chinese urban disposable income in 2025 therefore indicates a wide potential range of 16.9 trillion to 39.4 trillion renminbi.

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About the Authors

Diana Farrell is director of the McKinsey Global Institute, Ulrich Gersch is a consultant in McKinsey's New York office, and Elizabeth Stephenson is a consultant in the San Francisco office.

The authors would like to acknowledge the contributions of their colleagues on the McKinsey Global Institute China demand team—Jonathan Ablett, Eric Beinhocker, Ezra Greenberg, Grace Hu, Yuan Luo, Jani Moliis, and Vivien Singer, and of Geoff Greene, an external adviser to MGI—as well as Kevin Lane and Ian St-Maurice.

China the HR Challenges - IBM Study

2007-04-03T17:39:00.001+08:00

IBM recently announced the findings of a new study which concludes that in order for multinational companies to succeed in China they will need to develop strategies that focus more on China's mass markets, and increasingly less on top-tier cities where the competition is fierce and the market potential is maturing. Here is an area of interest to us:

Human Resources Challenges

The study also revealed that multinationals face a severe and growing talent shortage in China. This is a bottleneck to growth that will only worsen as they compete with each other and domestic companies for employees with critical skill sets needed for the mass market. Candidates lacking English language skills and "soft" skills, such as communications and managerial capabilities, were the top two reasons cited by multinational recruiters for the current talent shortage for multinational positions.

In order for multinational companies to grow, survey respondents indicated they will need to build their internal talent pipelines. This includes, for example, developing deeper partnerships with universities and vocational colleges to build and gain preferential access to a pool of talent that can be groomed with the skill sets needed to pursue mass markets.

Despite some marketplace perceptions of a "glass ceiling" limiting Chinese professionals from rising to management positions, multinational companies are reporting high levels of management staff localization, particularly in operational roles such as sales, logistics and manufacturing. This trend will increase as companies seek to scale up operations cost-effectively and gain the local market insight needed to pursue mass markets.

Filed in archive Management by prashanth on March 23, 2007

Recruiting in China

2007-04-03T16:57:00.000+08:00

You hear a lot about the talent shortage in China and the difficulty that firms of all sizes face in finding the candidates they need to staff their operations throughout China. Because I have something to say about this and because of th lack of information on the web I started this blog. I am the General Manager of the Shanghai office of an Asia-wide Executive Search firm. We have physical offices (not PO Boxes) in Japan, Hong Kong, Manila, Tokyo, Shanghai, and Honolulu. My team in Shanghai places Manager level candidates in Sales & Marketing, Corporate Finance, Supply Chain & Logistics, and Human Resources throughout China. Our firm places Executives throughout the region. The views expressed here are my own. Have a look, tell a friend - Brian Fenerty