Geo Expansion and HR Challenges

June 13, 2009China Talent Market Insight

Although China continues on track to meet projections of becoming the world's largest economy, more and more multinational companies have encountered fierce competition and slowing growth in premium market segments and in major top tier cities. These MNCs are now turning to smaller but high potential cities to achieve growth and profitability.

As Hewitt Quarterly states : "As China's economy matures, foreign and domestic companies are increasingly seeking new business opportunities in second and third tier cities, where markets are less saturated and start-up costs are lower." It's also evidenced on the 2008 China Business Climate Survey issued by the American Chamber of Commerce in China, "Capacity expansions were on the table for a lot of companies and 41% are looking at moving to the inner provinces." We have seen lots of white papers published talking about how to do the business transition, how to set up new offices, how to do the business collaborations and how to run business on remote cities. But few of them did contributions to talent strategy in order to support your company's business strategy. As we all know, people are the organization's most important asset, which implement your business strategy to success. When the talent demand increase accordingly with fast speed, how to maintain continuity of service and product standards in those new sites is becoming a headache for people running business there. According to lots of MNC's China growth strategy, the trend of remote location hiring is expected to be continually up. Making a rough estimation, more and more, even close to half of China new hiring request is for T2 and T3 cities once companies walk out the headcount freeze policies in 1Q and 2Q. From the job function perspective, service delivery and sales will dominate, following with the consulting services. Currently, there is a huge gap between the talent availability in the market and the hiring requirements from companies. Highly skilled and experienced individuals are almost exclusively concentrated in China's most economically important cities. we are facing the great challenges in finding capable talents in 2nd tier and 3rd tier cities, which could be summarized as being caused by:

Looming Skills and Talent Shortage:

- Only fewer than 10% of Chinese graduates, on average, would be suitable for working in MNC and most of them are unwilling to relocate to other cities. - McKinsey Report

         - 75,000 business leaders will be needed in China in the next 10 years. It estimates the current stock at just 3,000 to 5,000.          -McKinsey Global Institute
        - About 80% of companies reported difficulty attracting, developing and retaining both managers and skilled workers in China.      - The American Chamber of Commerce
        - Lots of MNCs admitted having lost up to half of potential business as a result of not finding sufficient staff in some locations.

Candidate Preference for Remote Location:

        - Chinese people often face culturally related personal conflicts when deciding whether to move, e.g., family, career path, paperwork, schooling for children….
        - Few highly skilled workers will agree to relocate to second-tier or inland cities.        -The US-China Business Council
        - Chinese professionals unwilling to relocate without incentives.                - China Staff

Then, we could easily come out 4 major HR challenges:

Recruiting/relocating qualified candidates
Development of existing local talent
Internal equity issues – relocated employee & local employee
Maintaining purchasing power / life style

I understand that every company's situation is different and there is no one-size-fit -all solution for all comapnies. I will share more insights in terms of remote location talent market intelligence as well as recruitment strategy only from hiring perspective soon after.

Defining the Tiers in China: (Click on it to see big picture)

Tags: Geo Expansion

China Recruitment Marketing