South China's White Collar Worker Shortage

UNCLAS SECTION 01 OF 02 GUANGZHOU 031579 SIPDIS SIPDIS E.O. 12958: N/A TAGS: ELAB ECON EINV CH SUBJECT: South China's White Collar Worker Shortage ¶1. (U) SUMMARY AND COMMENT: Speakers at an October 16 conference on human resources organized by the American Chamber of Commerce - South China addressed the increasingly serious competition among foreign multinationals in the Pearl River Delta (PRD) for the limited number of skilled professionals in the area. The competition, which focuses on pay scales and which is expected to last three-to-five more years, has led to an ever higher turnover rate for company managers, who are jumping between companies in pursuit of higher pay. Just as serious, companies are poaching more and more on one another's staff. Human resource (HR) consultants and companies are tackling the problem with performance-based pay, career advancement, supplemental benefits, and non-compete agreements. Foreign multinationals may be making the situation worse by putting too much emphasis on English skills and not developing talent from within their ranks. END SUMMARY AND COMMENT. Pay Race in the Pearl River Delta -------------- ¶2. (U) Media reports and business surveys are clear and consistent about China's severe lack of skilled professionals. One commonly cited statistic stands out: China has only 5,000 internationally qualified managers to fill a demand for 75,000. Managers give little thought to jumping from one firm to another. A 2006 survey by Mercer HR Consulting reported that wages in Guangzhou, located in the PRD, would rise 8 percent in 2006, up from 7.2 percent in 2004. Wages in Beijing and Shanghai will rise 7.5 percent in 2006. Guangdong has raised its minimum wage seven times during the past 12 years. According to Mercer, managers can earn a 50 percent pay raise by switching companies and some managers in PRD-based firms are earning as much as their Hong Kong counterparts. ¶3. (U) Companies are also more willing to poach staff from competitors. A Metlife branch manager recently told the Consul General that competitor Sunlife had hired away one-third of its Beijing office staff. Turnover rates have increased from 8.3 percent in 2001 to 13.8 percent in 2006, according to Hewitt Associates. Mercer believes the current pay race for white collar workers will continue for three-to-five years before cooling down. Survey Says: There's a Shortage -------------- ¶4. (U) At the HR seminar hosted by the American Chamber of Commerce - South China, several hundred HR professionals, company managers, and HR consultants agreed with a recent survey of 80 PRD foreign-invested companies that a lack of skilled talent tops the list of HR concerns here. According to the survey, other challenges include poor leadership skills, poor communication skills, high turnover, and low motivation. Surveyed companies confirmed this labor environment had already led to poaching and unsustainable wage increases. (Interestingly, survey respondents did not cite as a primary concern China's draft labor law, which will affect companies' ability to use temporary workers.) These results echoed the findings of the 2006 Mercer survey of China's skilled labor market. Creative Solutions: Career Advancement and Non-Competes -------------- -------------- ¶5. (U) PRD companies are trying to think creatively about how best to tackle the problem, relying less on pay scales and more on employment satisfaction. According to the AmCham survey, companies are developing special retention plans, redefining HR strategies, and changing their recruiting methods. "Best practices" that Mercer has been teaching foreign multinationals in China include promoting long-term career advancement, with opportunities for work abroad and rotations among different departments. Performance-based pay is another way for companies to move beyond the traditional promotion scheme. Other HR strategies include sign-on bonuses and supplemental benefits such as housing, savings, and pension contributions. ¶6. (U) Approximately half of the companies surveyed by AmCham use non-compete agreements in employment contracts. Of those that do not use them, half plan to introduce them in the future. Of those that do use them, half have experienced a breach in contract during the past three years. Results of enforcement actions have been mixed, as police and courts lack experience and interest in pursuing such cases. Foreign Firms' "Addiction to English" -------------- ¶7. (U) There was one somewhat, but not entirely, contrarian GUANGZHOU 00031579 002 OF 002 viewpoint expressed at the conference. U.S. HR consultant Irv Beiman, Chairman of Shanghai-based eGate Consulting, said that China's shortage of skilled workers is much less acute than claimed. He encouraged foreign companies to break their "addiction to English" and broaden their recruitment net, using internal interpreters and bilingual staff to bridge the language gap. He also said foreign companies should look for natural leaders from within their ranks instead of relying on training. He suggested that many successful domestic companies have stronger middle management than they are credited with. GOLDBERG