MNC Employment and Chinese Labour Market HRM Assignment

MNC Employment and Chinese Labour Market HRM Assignment

Introduction

China is one of the biggest developing countries in the world. It has appeared as a powerhouse in terms of human resources. It has always been world’s factory for low-end products. Even though the number of university graduates keeps increasing rapidly year by year, the vacancies in both Chinese and foreign invested companies still cannot be filled. There is a significant gap between supply and demand in terms of skilled labours. Between the year 2003 and 2008, even though 15.7 million people graduated from different Chinese universities, the McKinsey Global Institute estimated that only 1,2 million of them will be fit for jobs in multinational companies. Also, there is not only difficulty in finding fine-tuned and skilled resources but retaining them is problematic too. Having shortage of skilled workers is one issue and retaining the trained ones is one whole other challenge in current Chinese market. Moreover, turnover of employees costs a lot to the companies, starting from replacement hire to training the new ones to making them fully productive like the previous ones. This process of runaway turnover and replacement hire can drain on the productivity and morale and can have devastating effect on organization’s finances, total efficiency and productivity.

Given the problem of ageing population and rising labour cost, maintaining the quality of labour and speeding up the process of training and transformation is the need of the hour. Specially, there is acute shortage of professionals at senior manager level.

The final aim in this scenario should be coming up with the driving forces that help to retain the trained skilled resources in long term. Not only the number of employees with training and skills is less but also the enterprises inclined towards industrial upgrading lack what it takes to achieve the same.

Based on different studies and reports it is appropriate to say that China needs to put forward Macroeconomic transformation and structural change in order to bridge the gap for skills mismatches in the Chinese labour market.

Current scenario and challenges: (Why is skilled labours need of the hour?)

  • Though, China has always been the major dealer for low end products, for the past few decades it seeks to transition up the value chain to be a figure with high-end technology, products and services.
    But, the figures show that skilled/ trained workers account for only approx 19% of the total workforce, of which the highly skilled workers comprises only 5%.
  • Not being able to be well versed with different languages also comes as an obstacle for multinational companies to hire Chinese workers. Along with unwillingness of many of the university graduates to relocate, most of the potential talent pool goes away from the hands of domestics and foreign-invested companies.
  • The wage difference between skilled and untrained labours is way too high in the country. In 2007, the average pay for labours with at least a college education was 1.86 times higher than that of workers who have education till middle school or lower. In the year 2013, this increased to 2.75 times showing high demand for qualified workers.
  • Because of socio-economic growth, globalization and urban migration, percentage of citizens aspiring for quality lifestyle is increasing tremendously. This shows strong need for China to move up the value chain and start developing industries, modern technological services etc. which utilizes and demands for substantial number of professionals.
  • Since Manufacturing which contributes the most to the Chinese economy, is mostly concentrated in the eastern provinces, for the last two decades high skill industrial development and largest employment has happened in the Eastern provinces itself in China. Consequently this region faces land and labour costs rise. Due to this costlier socio-economic environment, medium and low level industries and labours tend to squeeze out of this region. Moreover, it has also led to increase in the competition amongst the high skilled professionals in eastern region.
  • Since Eastern region has become hub for highly skilled labours, both demand and supply for them is considerably less in the western regions of China. And there are visible disparities in economic development, labour supply or demand, and industrial policies/ production methods or technologies across different Chinese cities. Also, there is shortage of diverse skill sets among workers in the western regions.
    For example, manufacturing industries or finance sector in Shenzhen or in Shanghai both have relatively greater demand for high-skill workers as compared to the labour demand for high skill workers in Chongqing for different sectors.
  • Apart from facing shortage of technically skilled labours, China is also facing a challenging acute shortage of professionals with international management and strategic long term planning skills. Almost all the firms are facing skill shortage of one degree or the other when talked about competitive entrepreneurial talents internationally. This leads to high and strong demand of the more educated workers for better development.

Labour supply and retention problems:

 

  • In most of the cases, there is a broad difference between the way students are taught in school, universities and other educational institutions and the kind of work they get after the employment leading to job dissatisfaction and low rate of retention. Problems like unprepared students for employment, minimal practical value of the learning from school/colleges (70% of the companies believe that), huge dissimilarity between the actual job and the students’ expectations for the employment lead towards the retention problem in China.

  • Considering the facts like decline in the number of applications for vocational training and education, reductions in number of trainers from government etc. shows that till date more preference is given to general education over vocational training. Unwillingness of the companies to be involved in the technical training process, lack of cooperation from the school/universities and lack of funding from government make the whole process difficult for Vocational education schools resulting in less number of trained workers.
  • In China, the population of migrant workers was almost 280 million in 2015.According to facts, only 33% of migrant workers have undergone through formal training, and only 5.9% of them are certified. Only 0.3% of migrant workers got their jobs via referrals by a vocational training institute. The percentage of skilled labourers can be increase tremendously if training of migrant workers is prioritized. Also, the analyses show that the three groups with the greatest risk of unemployment are migrant workers aged 16–29, college graduates aged 22–24, and the middle aged and elderly aged 45-60.

Reasons for Retention Problems in China:

There are four main reasons due to which MNE’s are facing problems to attract and retain qualified managerial staff in China. The reasons are listed below:

  • Short of Talent: Short of talent is one of the main reason reasons due to which MNE’s are facing problems to attract and retain qualified managerial staff in China. The talent can be defined as the people who are efficient, progressing and professional. According to Chinese Ministry of Education the ratio of science graduates to arts graduates is unbalanced in the past five years. Many younger people major in arts rather than science with certain reasons (Ministry of Education PRC, 2006).In China, the major of arts such as management, marketing and language emphasize on theory and perception. It differs from science as it has no opportunity to take practice and exercise. In Chinese universities students with major in Arts learns only Arts subjects which is not related with other basic knowledge of finance, information technology or mathematics. Students are easily passing the exam and finish school successfully with no skills and techniques. They have not received any kind of training, except diploma. They also did not possess strong skill in language and no strategic thinking in management. Due to these reasons they are not qualified managerial staff on the job. These reasons would ultimately result in increase in shortage of skilled labour force in China. 
  • Differences in Social Environment: Due to differences in culture, labour market, and employment systems between China and other countries it create challenges for MNE’s to attract and maintain qualified staff in Chinese market. In 1980s, after the opening-up of Chinese reforming policy has been introduced by Deng Xiaoping. After this, the concept of human resource management has been developed because of the return of foreign companies. There is no extra incentive for managers if they work hard. Due to this the managers don’t work efficiently. They are not punctual on their job and do personal things in private time. Due to this attitude of managers, they will lose their skills and it will be difficult to train them after some period of time. 
  • Compensation and Benefits: Employed compensation and benefits system talent is also one of the main reason reasons due to which MNE’s are facing problems to attract and retain qualified managerial staff in China.  The main reason for local Chinese qualified staff to leave their company is to find a better-paid job. In MNE’s, the salary of employees, depends on their performance, which means that there is not much compensation and benefits for Chinese staff. Due to this pay system, job dissatisfaction is increasing among the qualified and experienced staff. In contrast to this, Chinese staffs are getting a variety of compensation and benefits in their domestic companies, especially for the qualified managerial employees. These state-owned enterprises are the main competitor of MNE’s as they had occupied most of Chinese qualified employees. In these state-owned enterprises apart from the basic wage, the qualified managerial staff gets several other benefits in the form of social insurance, which had been called “five insurance and one fund” in China. After completing a long-time in the company some managerial staff will be treated as family-friendly benefits, which are supportive of caring for their family.
  • Expatriate failure: Apart from the shortage of qualified and experienced staff in China, it is difficult to engage local employees in the beginning. Many MNE’s have used to expatriate top management staffs to establish their operations. Due to globalization, most MNE’s need expatriates to manage their subsidiaries as they are more familiar with management techniques and methods used in the company than local employees. But, the problem is that many companies have faced a high level of expatriates as most of them returned earlier or had a poor job performance in China. There are many reasons for expatriate failure, but the main reason is culture shock. Many expatriates become lost, confused and anxious in new country because of the unfamiliar situations and different cultural norms and values. The expatriate failure would bring in many negative results for multinational companies. Work productivity and efficiency of expatriates would be abated. Due to the uncomfortable feeling in new country, expatriates would not exert their efforts to achieve excellence during the working time.  As a result, the local staff gains little chance to be progressed and qualified, which would consequently worsen Chinese talent shortage for multinational companies. 

Study on Retention in China:

The Society for Human Resource Management (SHRM) and Development Dimensions International (DDI) worked together for studying the Employee Retention issue in China in the year 2007. Two sponsor (BMR magazine and ChinaHR.com) provided additional support in recruiting participants for the survey involved.

Online surveys done in various organizations present in China for various job profiles in different regions of the country. Apart from the online survey, one-on-one telephone interviews were also conducted with Human resource professionals as well as the employees to gain insights and point of view from them.

It was found from the whole process that the expected tenure for new-employee by the HR professionals were visibly lower for China as compared to other regions of the world. Also, after talking to different employees it was found that even their expectation was the same. Almost 73 percent of employees who participated had resigned from their previous jobs, and nearly one-fourth (24 percent) had already been to more than three jobs, despite their young age. Also, 22 percent of them agreed that they were likely to change their job in the coming year. From the research, it was found that turnover has become an accepted practice by that time among Chinese employees.

The most concerned finding from the whole study was that leaders in organizations were inclined to leave irrespective of their level. Their loyalty towards the organization was even lesser than professionals and individual contributors. It was also found out through the study that many employees felt that things like great company leadership, nice manager, or a creative/ fun workplace culture were missing from the most of the organizations leading to employee dissatisfaction and prompting them to switch jobs.

The picture given below lists down the most common reasons for low retention among Chinese employees in order from the most important to the least important reason according to the study performed:

It can be seen that the most common reason stated by the HR professionals and the employees themselves was “lack of growth and development Opportunities” in the organizations. Lack of options for personal career growth is leading to impatience among the skilled and trained employees who know their potential and worth.

The data showed that there is high salary competition in the different regions that is leading to turnover. The potential youth when gets better offer from the competitors, they tend to switch their jobs.

It was also found that occurrences where the official and the actual reason for the turnover differed. Well, this scenario is not only in the case of China. The Selection Forecast 2007 found that in the U.S. and Canada more than half of both staffing directors and hiring managers gave external factors as primary reasons for turnover compared to 10 percent of job seekers. It has been observed that employees usually give external factors as their official reason for leaving since the real reason is related to an issue they are not willing to expose.

Recommendations:

 

  • Recommendations to resolve the issue of high unskilled labour ratio:

Since it is always the best to build the base/foundation for any major transformation, in order to tackle the unskilled labour issue, China needs to start work from the very granular level which would be school and universities.

Educational institutions should start with school-business cooperation which can build a pathway for students to start understanding the enterprises needs as a part of their curriculum and accordingly adapt. In-depth cooperation between schools and firms should be promoted so that training of students can be carried on the basis of market and enterprises’ demands. Also, a certification system with trustworthy standards in professional and technical skills can be introduced in vocational education chain for different job requirements. This certification process can help in setting standard and right expectations between the trainees and the enterprises. This can also help in reducing talent waste that could happen due to skill mismatches.

Migrant workers and low skilled workers should be encouraged to undergo training and workers’ access to vocational training should be increased.

Multinational companies and enterprises should have a training program for all the new employee based on their job requirements. Moreover, government can help speed up the process by providing government subsidies to enterprises as incentives.

Since there are significant regional differences in types of skill required and the percentage of unskilled labour is pretty high, it is necessary to give more subsidies for helping rural migrant workers gain modern skill sets and upgrade their knowledge base.

Apart from these, formation of labour organizations should also be promoted that can help for better quality on-the job training.

A portal where enterprises get thoroughly involved in industrial training can help a lot.

The whole socio-economic and educational culture should be transformed so that it facilitates and promotes forced labour up gradation, entrepreneurship and industrial training participation in pursuit of equal opportunities, social security and other benefits or incentives.

Also awareness about this ongoing skill gap issue should be spread and prompt and suitable response is needed from government in collaboration with business and academia.

  1. Recommendations to tackle low retention for skilled workers:

One of the main reasons for low retention of skilled labours is job dissatisfaction for the employees.

Things like compatible work group or team, good leadership team, organization’s culture, engagement with work group, cooperation, efficiency and ease at resolving conflicts are some of the factors that lead to job satisfaction for employees working in a organization and lead to increase in retention rate.

Employees’ job issues should be addressed at the right time and in the right manner to build the foundation for trust and talent development. Opportunity for accomplishment and nature of work both play major roles in determining the retention in a company by the employee.

In China, the loyalty to company is found to be lesser in the leaders as compared to the employees.

Their lack of leadership skills then encourages turnover among their direct reports, who highly value having a good manager. Employees will more likely to continue in the company if the leadership team is effective with a good manager or boss. The figure given below shows Vicious cycle where turnover of employees and poor leadership skills are interrelated:

The educational system of China has recently started to include what it takes to meet the global competition in its academia. The students still need to be trained well when they enter corporate world and moreover they need to maintain their job skills up to date with fast growing economy. Therefore, those who manage acquire technical skills faster tend to turnover for better job opportunities. So, the companies need to start recognizing its employees worth and change their strategies accordingly to retain their valuable employees and valued talent. The data and findings suggest that organizations need to maintain competitive salary structure since compensation alone is not sufficient for retaining valued talent.

According to Hays survey, 37.8 per cent of employers who participated in the survey do not have a retention plan in place with them even though most of them (88.6 per cent) agree with the fact that employees’ turnover impacts negatively on productivity and finance.

According to one Karvard Business review in 2007, 41% of high-skill Chinese professionals preferred working for a Western multinational and only 9% of them preferred a job in a Chinese company. Again when the survey was conducted around second quarter of 2010, it was seen that 44% of them preferred MNCs and 28% of them (increased from 9% to 28%) preferred to work in domestic firm. The Chinese firms along with government should start taking advantage of this inclination of employees towards domestic enterprises and start taking immediate and effective actions to retain their skilled and unskilled employees and should start training the unskilled employees to enhance their man power in technical and professional fields to compete globally.

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