Talent: China's Elusive Strategic Resource
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Procedia - Social and Behavioral Sciences 58 ( 2012 ) 350 354 1877-0428 2012 Published by Elsevier Ltd. Selection and/or peer-review under responsibility of the 8th International Strategic Management Conferencedoi: 10.1016/j.sbspro.2012.09.1010 8th International Strategic Management Conference Talent: China's Elusive Strategic Resource Abdul Aziza*, Michael Ogbolub aMorgan State University, Baltimore, MD, U.S.A. bHoward University, Washington, D.C. U.S.A. Abstract Multinational Corporations (MNCs) as well as domestic companies in China are having difficulty in their search for talent. The reasons include not only the number of graduates but also the quality of these graduates. A recent trend shows that job seekers increasingly prefer private owned Chinese organizations over MNCs. It is suggested that MNCs should develop a comprehensive human resource strategy to be competitive in the global economy. 2 Published by Elsevier Ltd. Selection and/or peer-review under responsibility of The 8th International Strategic Management Conference Keywords: China; Talent 1. Introduction In recent decades China has seen an unprecedented rate of economic growth. The challenge faced by China is to sustain high growth levels in years ahead. Despite being the most populous country of the world, it has been experiencing difficulties in meeting its human resource needs. Without the availability of skilled labor and managerial talent multinational corporations (MNCs) and Chinese companies will not be able t* Corresponding author. Tel.: 1-703-724-1202; Fax: 1-443-885-8252. E-mail address: firstname.lastname@example.org. Available online at www.sciencedirect.com 2012 Published by Elsevier Ltd. Selection and/or peer-review under responsibility of the 8th International Strategic Management Conference351 Abdul Aziz and Michael Ogbolu / Procedia - Social and Behavioral Sciences 58 ( 2012 ) 350 354 growth, reasons for labor and management shortage and strategies for acquiring and retaining talent vital for the success of MNCs and future economic growth of China. After liberalizing its economy that allowed inflow of foreign direct investment (FDI), China has -valued GDP of China was second largest in the world after the US and its external trade was estimated to be 10% of world trade (Yiu & Chow, 2010). The reliability of such estimates of GDP has been challenged and sustainability of such high growth rates is also questionable. However, it is believed by some that the current world financial crisis, blamed ostronger after the turmoil is over (Yiu & Chow, 2010). One of the main reasons for the phenomenal economic growth is the inflow of foreign direct investment (FDI) that has increased significantly during past two decades since China lifted some restriction on foreign investment in 1979. In 1984, further restrictions were removed that expanded the list of the industries which could receive foreign investment. Finally, in 1992 China reinforced liberal policies and adopted several market oriented reforms that led to a sharp increase in inflow of FDI and growth rates ). There are two types of foreign investments in China: horizontal and vertical. Horizontal FDI involves transfer of production facilities from abroad to China for meeting internal market demand. Vertical FDI takes advantage of low labor costs to produce products for export. Horizontal FDI is mainly from US and Western Europe (Lemoine, 2000), while vertical FDI is from other Asian countries including South Korea, Taiwan and Hong Kong. US origin companies sold 80% of their products to Chinese consumers in 2002 (Fung, 2004). Japan is involved in both horizontal and vertical FDI with 45% of its products being sold in Chinese market (Whalley & Xin, 2010). China currently receives the highest FDI among developing countries and is the second highest recipient of worldwide FDI after the US. High rates of FDI to China are due to several factors including cheap labor costs (Taube & Ogutcu, 2002); Lim, 2001; Tseng & Zebregs, 2002; Grub, Lin, and Xia, 1991; Kawagguchi, 1994). 2. Strategic Importance of Talent With increasing globalization, worldwide demand for managerial talent and skilled labor is also rising. One of the most important challenges faced by MNCs in the future is the coined by McKinsey & Company in its 1998 report (Chambers et al., 1998). According to knowledge, experience, intelligence, judgment, attitude, character and drive. It also includes his or to the McKinsey report the new reality has shifted the focus of competitive advantage from machines and geography to talented people (Michaels et al., 2001: p.6). Talented people are difficult to find, they demand more, and are mobile and difficult to retain. However, companies that are rated higher in talent management, according to the McKinsey report, provide a higher return to their shareholders and such companies also have a higher performance expectation from these employees. According to this report, for companies which are falling behind, search and management of talent is not their top priority and they do not relate business performance to talent. 3. Chinese Talent Crisis 352 Abdul Aziz and Michael Ogbolu / Procedia - Social and Behavioral Sciences 58 ( 2012 ) 350 354 The perceived low cost of labor is one of the driving forces for MNCs to enter China. Although it may be true that there is a large pool of workers available in China at a relatively low cost, the skills required by these MNCs to be competitive are not easily available and not at a low cost. Despite predictions that China will emerge as one of the most powerful economic force in twenty first century (Winters Yusuf, 2007), sustainability of these growth levels may be difficult. A large number of MNCs, in addition to Chinese companies, are competing for hiring skilled labor and managers. Respondents in a survey (Sergeant & Frankel, 1998) reported that recruitment of unskilled workers did not present any great difficulties but there was serious shortage of skilled workers. Employers are trying to recruit university graduates and thus there is a fierce competition among prospective employers. Despite the fact that China produces 5 million college graduates a year (Gupta, & Wang, 2009; p.175), the competition for hiring and retaining talent has become intense (Dickel & Watkins, 2008). The graduates coming out of Chinese educational institutions do not have the skills and perspective for which MNCs are looking (Fenton, 2008). According to a research study by McKinsey Global Institute (MGI) a large number of university graduates are hired by domestic organizations but these graduates are not suitable for MNCs in China and for Chinese companies with international ventures (Farrell & Grant, 2005). In 2003, China had 8.5 million graduates with professional experience and additional 97 million people qualified for various staff positions. However, a survey among human resource professionals revealed that less than 10% of Chinese candidates were suitable to work for a foreign company in various medical, financial and engineering jobs (Farrell & Grant, 2005). According to Yang (2005), demographics predict that supply of entry level workers will shrink. As new MNCs keep coming to China, employees are leaving their jobs to join these new companies for better compensation packages. As the global economy is rapidly transforming from manufacturing to service and from industrial to information technology, the demands of the new workplace are changing. According to Michaels et al., (2001) in 1900, only 17 % of all jobs required knowledge workers but such a demand has now increased to 60%. The companies are also demanding higher managerial and communication skills in order to survive in a competitive marketplace (Dickel & Watkins, 2008). The gap between the skills of graduates from Chinese universities and the expectations of the companies is increasing (Lane & Pollner, 2008). More than the number of available graduates it is the lack of the types of graduates needed by MNCs in China. For example, China has 1.6 million young engineers more than other countries that were included in a survey. In China 33% of university students study engineering as compared to 20% in Germany and 4% in India. But they lack the skills and experience in teams and are more theoretical in their approach (Farrell & Grant, 2005). Therefore, the problem is not the number of graduates; rather it is a mismatch between their skills and needs of MNCs. Chinese companies as well as MNCs consider acquiring talent as their biggest operational challenge. A serious concern is the talent gap human resources crisis. Recruitment efforts of MNCs in China are likely to be frustrated by recent developments. Chinese private-owned companies are providing stiff competition in attracting talent. A survey by Manpower in 2010 among foreign and Chinese private owned companies revealed that job seekers who prefer Chinese private-owned companies increased by 5% in 2010 as compared to 2006 and the preference for foreign companies went down by 10% (Manpower Survey, 2010). Of all job seekers, 59% preferred Chinese private owned companies due to career development opportunities and 43% due to compensation. Of those Chinese who preferred Chinese private owned companies, 61% were at management level. Job seekers preferred foreign companies (48%) because of their desire to experience new corporate culture and environment. The global financial crisis seems to have pushed job seekers towards Chinese privately owned companies. 353 Abdul Aziz and Michael Ogbolu / Procedia - Social and Behavioral Sciences 58 ( 2012 ) 350 354 Increased competition since the onset of the financial crisis was reported by 27% of the foreign and 17% of the Chinese private companies. 3. Strategies for Overcoming the Shortages Considering the level of competition and shortage of talent, both MNCs and Chinese companies need to evolve new strategies in human resource management in China. These strategies should emphasize recruitment, management development, and compensation. Dickel & Watkins (2008) suggest that talent management should be a strategic priority. They also believe that developing a corporate vision, employer branding, clarifying expectations, and making the recruitment cycle shorter may be helpful. In order to succeed in China, MNCs may have to change their perspective and develop a more sophisticated that MNCs should be clear in terms of their expectations of the market share, productivity and R&D in this competitive market. Cultural environment as presented by China has always been a challenge for MNCs and they need to become better in adapting (Joerres, 2011). Among measures to attract and retain talent highest percentage of foreign and Chinese private-owned companies indicated that they will offer increased compensation and benefits packages, more training and learning opportunities, career planning, improved corporate culture and environment, better work opportunities and use professional human resource services. Michaels et al., (2001) suggested that the companies in China should adopt various strategies to attract and retain talent. As suggested by others, they believe that talent should be a strategic priority of any company. Companies need to develop a talent mindset and understand that they cannot win the game without talent (Michaels et al., 2001). All managers should be held accountable for talent in their team. They also believe that companies need to evolve a dynamic rather a static approach to recruitment. 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