Dealing With China’s Human Capital Shortage

Fish Bowl TransferThe most frequently asked questions I get about doing business in China relate to the human resource issue of how to attract, develop and retain good local managers. A recent article in the August 16th issue of the Economist, Capturing Talent, does an excellent job of showing why this is such a problem today in Asia generally and China specifically. It summarizes the situation as it exists, and describes how companies are dealing with shortages of managers, doctors, lawyers, accountants, pilots and just about every type of skilled professional imaginable. Some companies will manage to deal with these shortages more successfully than others. Those that aren’t able to deal with them effectively will need to scale back their aggressive growth plans in Asia, the article concludes.

The article was written by Graeme Maxton, a consultant based in Hong Kong with long experience in Asia. Formerly a Director of the Economist Intelligence Unit, Graeme is a frequent contributor to the Economist.

Another interesting article on the subject is one written by Shaun Rein in the May 27th edition of Forbes, How Multinationals Err In China. As the title suggests, Mr. Rein recounts some of the mistakes companies have made in dealing with this problem. Mr. Rein is the founder of a market research firm headquartered in Shanghai.

Taken together, the two articles provide a fairly complete picture of the unique human resource issues confronting companies of all sizes as they seek to grow their businesses in Asia and China.

Mr. Rein’s article is one of the best I’ve seen on the subject of human resource practices in China. The research summarized in the article (if I may use my own words) shows that educated Chinese managers understand that there are substantial opportunities in China today, and are extremely sensitive to whether the company they work for is helping them to take advantage of these opportunities. When they see a classmate who has set up his or her own company and is doing well financially or another who is working for a multinational or local company and receiving opportunities for advancement, the natural questions they ask are: “How am I doing? Am I getting career growth opportunities? Am I getting the training needed for me to develop professionally?” In this context, simply paying a higher salary will not keep Chinese managers. If there is a glass ceiling and a limit to advancement, or if the employer is not investing in training its managers and employees, they will leave. Based on my own experience in China, Mr. Rein’s research is right on.

Combining good local managers, who know China intimately, with higher paid expatriate managers who can bring the global perspective to a company’s China operations presents a particularly thorny problem. While it is necessary to have both types of managers for a company to be successful in China, balance is important. Having too large a number of managers with vastly different compensation schemes can be demotivating to local managers.

As with most issues in China, there are no right answers, and if there were, they may not be the right ones tomorrow. Nonetheless, the two articles do a good job of framing the issues and starting the discussion.

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