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Talent crisis hits multinationals in China

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Research from global management consultancy, Hay Group, has revealed that more that 37% of foreign companies in China are failing to achieve their growth, revenue and profit targets.

The findings are likely to make worrying reading for UK multi-nationals struggling to achieve a return on their investments in China – currently estimated to total some £363 million.

The study of 4,500 executives from foreign multi-national companies’ Chinese operations found that firms are underperforming and struggling to grow due to a severe shortage of talented employees.  

This scarcity of talent is identified as the biggest barrier to better business performance: 76% of executives described a lack of talent as a critical issue for their company, whilst just 32 believe they are managing this issue successfully.

Deborah Allday, associate director, Hay Group, said: “There is a growing talent crisis in China and it’s starting to hit companies where it hurts. Multinationals must fix their talent pipeline or lose their competitive edge in China.”

China’s extraordinary economic growth over the past 20 years has caused enormous pressure on the talent pool. Hay Group’s research finds that companies operating in this highly competitive market are facing spiralling wage costs as a result of the battle to recruit and retain talented and experienced employees.

Salaries in China have been increasing at a rate of eight per cent for the last five years, and are forecast to rise by more than nine per cent in 2008, according to Hay Group. The situation is set to worsen under China’s new Labour Contract Law, which came into effect on 1 January. The law directly boosts salaries by raising the minimum wage, and is likely to have a further knock-on effect on wage inflation by enhancing employee bargaining power.

The research also identifies that poaching is rife in the Chinese job market, where employees can expect an average 40% pay rise when they move jobs – escalating to a startling 91% when moving two steps above their current position. A buoyant employment market means that companies struggle to retain Chinese staff for more than two years, with employee turnover almost three times more than in the West.

Chinese managers are approximately five years younger than their counterparts in Asia. This shortage of experienced employees often leads to younger managers being promoted well beyond their level of competence.

Allday concluded: “A shortage of employees with the right skills and experience is leading to frequent poaching and a culture of job-hopping. Employees are taking the opportunity to seek the highest possible salaries and career positions in the shortest possible timescales.

“If they are to win in China, firms must protect, develop and retain their most talented individuals, and align pay with performance – ensuring that stellar pay rises are only awarded on merit.”

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