Center for Advanced Human Resource Studies

Developing HR Employees in China, in Good Times & Bad

It seems remarkable, but the most populous country on earth has a labor shortage: managerial talent, especially in the human resources field. China is undergoing transformation on many levels—economic, political and even cultural. Its human resources field is also in the midst of rapid change. Recently, CAHRS conducted a study based on eight CAHRS partner companies doing business in China.

The corporations surveyed are all in the Fortune 500 and seven of the eight are headquartered in the U.S. The challenges they are facing, and strategies they are employing, are important to both the multinational companies with operations in China as well as Chinese companies seeking to grow and better utilize human capital.

Developing a National Workforce

Because of state controls, there was no human resources management system in China until the late 1990s. Since China opened to global markets in the 1970s, business infrastructures have been changing, but they still lack maturity compared to other countries. The HR field is emerging and just beginning to mature.

The relative youth of the HR field is complicated by China's changing economic policies and their impact on the employer/employee relationship. Recent laws have been passed that better protect the labor force. Several provinces have increased minimum wage requirements and social security contributions. Chinese nationals may now participate in employer-sponsored stock plans. Programs and policies western companies take for granted are just now developing in China.

In spite of its population of just over 1.3 billion, there is a shortage of qualified labor in China. This is very apparent at the managerial level, where only 2.6 percent of the employed population between the ages of 40 to 44 has a university degree.

China's one-child policy has also created a generation of only children who desire to be self-sufficient and support their extended families. They change jobs quickly looking for better pay and opportunity. And while this age group represents the most sought-after segment of potential employees, it's also the smallest. These factors make recruiting a challenge.

Recruiting and Selecting Talent

One similarity between China and its western counterparts is the method for recruiting talent. Recruiters use a combination of job fairs, newspapers, employment agencies and web-based recruiting. Top-level jobs are likely to be filled using search firms. Entry-level candidates are often recruited through campuses.

University graduates represent a growing field for talent. From 2005 to 2006, the number of graduates from MBA programs in China increased by 22 percent. This may sound like good news, but there are quality issues with these graduates. One report indicates that managers consider only three percent of graduates with general degrees employable.

Graduates of the new MBA or HR concentration programs are in high demand, but that demand still exceeds supply. The talent pool is growing slowly, so companies must retain these highly sought-after employees. This makes one of HR's most significant roles—employee development—critical to success.

Investing in Employees For Multiple Benefits

Training HR employees is crucial in any country, but in rapidly changing China it is imperative. As government regulations change, managers and HR policies must adapt. Employee development is significant for maturation of China's fledgling HR workforce as well as retention in this high demand market. Companies simply cannot source enough talent from outside or directly from sophisticated university programs. They must develop from within.

Most large companies in China have in-house training and development (T&D) functions. In smaller companies, outsourcing and web-based training are common. Coaching, mentoring and shadowing are used to speed development. Rotational programs provide international experience for HR executives. English language skills are at a premium. At least one company interviewed for this report pays for employee English classes.

Sourcing employees from outside the country is expensive and so is using outsourced solutions and shared service agreements. There is a significant cost benefit to internal development. Particularly at the senior management level, companies want to hire locals and provide them clear development plans—not just for career growth, but to hopefully secure long-term employee commitment.

Compensating HR Employees

Development is just one method Chinese companies use to stem turnover. Salaries of HR professionals have been growing at a fast pace. Although Chinese labor is often called "cheap" in comparison to other markets, the market there is growing quickly and there are a limited number of qualified professionals—so other salaries are on the rise as well. Recent trends suggest that multinational companies are no longer willing to pay exorbitant expatriate salaries, further reinforcing develop-from-within approaches.

Retaining High Potentials

Companies are beginning to focus on a total rewards strategy that includes T&D, benefits, increased job responsibilities and other long and short-term incentives. Also, large and small companies alike are building on (or updating) their employer brands to help retain top talent. Finally, the transformation of HR from a transactional, administrative function to a strategic business driver is important for high potential retention. As the HR function in Chinese companies matures, this will likely mark the next wave of change.

Rapid Change: Increasing Maturity of a Profession

China's transformation is fascinating and its impact on the HR profession in that country is profound. Multinational firms and those based in China need scalable HR workforces with robust internal training functions. Focusing on employee development will mitigate the expensive expatriate solutions relied upon in the past and move China's workforce beyond its "Iron Rice Bowl" history. Indeed, the more things change in China, the more its HR professionals must evolve into strategic business partners who can help firms create sustainable growth.

Update: Global Economic Crisis Hits China HR; Changes Recruiting/Retention and Compensation