Workforce Planning in China
Naomi Stanford
This chapter explores the context for addressing workforce planning in China. It looks at the issues through the eyes of seven Chinese national HR directors who reveal five areas of significant challenge to them as they work to support delivery of their business strategies through their workforce. Discussion of these is followed by presentation of seven suggestions implied in their interviews that would enable a more purposeful approach to workforce planning than currently being used.
AVERAGE ANNUAL GROWTH of 10 percent in the past three decades has turned China into the second-largest global economy and top exporter. But predictions were that in 2012, Chinese Premier Wen Jiabao would target an expansion of less than 8 percent, and reports suggested that a cut could indicate that policy makers were prepared to tolerate a slower expansion as they moved the economy’s drivers to consumption from exports and investment.1
It remains to be seen whether this slight putting on of the brakes and change of direction will make any impact on the fraught situation that has faced, and still faces, HR professionals trying to retain employees, fill talent gaps, find new recruits to fuel growth, match competitors’ compensation and benefits packages, struggle with high turnover, and maintain a healthy pipeline.
A quick glance at some facts and figures about China gives the barest impression of the challenges and opportunities that face HR professionals and businesspeople as they grapple with business strategies for growth in a country that many outsiders define as a single, comprehensible “China” but that is, in fact, a country of vivid differences that almost defies definition. As James Fallows, a national correspondent for the Atlantic, points out:
The huge and widening gap between China’s haves and have-nots . . . is only one of countless important cleavages within the country—by region, by generation, by level of schooling, by rural versus urban perspective, even by level of rainfall, which determines how many people a given area of land can support.2
Nevertheless, some facts and figures serve the purpose of painting an impression of the scale of the country. (U.S. dollars are used throughout below.)
In addition, China has twenty of the world’s thirty most polluted cities and is the world’s largest CO2 emitter.3
Beyond the facts and figures, an Economist Intelligence Unit report notes that:
In many sectors, China is now an emerged, rather than an emerging, market. It is the world’s largest market for cars, air conditioners and LCD-TVs, to name just a few products. No doubt, China will soon be the greatest consumer of a whole host of other goods from medicines to designer handbags.
For many non-Chinese multinational companies (MNCs), China is an important market but not an easy one to enter or work in:
China is making greater demands—especially on foreign companies with proprietary knowhow and cutting-edge technologies. Competition is already brutal. To build a winning business in China, foreign multinationals must now plan even more meticulously—as well as make tangible contributions to the host country’s continued economic development.4
In this kind of situation, the concept of workforce planning—defined as the process of getting the right people with the right skills in the right jobs at the right time—is almost laughable. There appears no way that HR staff can follow a systematic route to:
Identify future numbers of employees required to deliver new and improved products and services
Analyze the present workforce in relation to these needs
Compare the present workforce and the desired future workforce to highlight shortages, surpluses, and competency gaps
Plan how to address the gaps
Address the gaps
Conversations with seven Chinese national HR directors in February 2012 highlighted some of the reasons why workforce planning is not currently at the top of their agenda. Companies called on represent biotechnology, healthcare, HR consulting, products for the oil and gas industry, insurance, refrigeration and heating technology, and energy. Six of these companies are foreign-owned MNCs, and one is a formal joint venture between a Chinese company and an MNC.
The seven people, interviewed separately, were all asked the same five questions:
1. What are the particular workforce challenges facing western multinational companies operating in China?
2. Are these the same challenges that Chinese companies operating in China and in other countries face?
3. What are companies doing to meet these challenges?
4. What lessons can western multinationals learn from Chinese companies, and vice versa?
5. What are the trends in workforce planning in China?
Analysis of the interviews revealed five themes that individually and collectively answered the questions:
1. The short-term business growth strategy trumps longer-term workforce planning.
2. The perception of “good places to work” is changing.
3. Local leadership is critical.
4. The education system is not delivering the needed skills and competences.
5. Drawing on a broader employment market for talent is hard.
Each of these themes will be explored in more detail in the following sections, and, finally, some suggestions for action will be presented.
THE SHORT-TERM BUSINESS GROWTH STRATEGY TRUMPS LONGER-TERM WORKFORCE PLANNING
As several reports note, business conditions in China are volatile and fast moving. While other economies are stagnating, China’s is roaring ahead and is a critical engine for global growth. For most companies, the growth strategy is bullish. The U.S. retailer Walmart, for example, has dozens of stores opening every year. In the final quarter of 2011, the company showed a 16.1 percent increase in sales from the previous year. This is nothing compared to the situation in China, however. The Financial Times reports that:
Retail sales are booming in China, doubling every five years or so. The result is unbridled competition, making it one of the world’s toughest markets.
Walmart, Tesco, Carrefour and Metro headline the foreign entrants. Japanese and Korean retailers are also pressing hard. Taiwanese and Hong Kong companies have been among the most successful. Then there are scores of homegrown competitors.
“China is a battlefield. You literally have almost everybody,” says Torsten Stocker, head of the Asia consumer goods practice at consulting firm Monitor Group.5
Confirming this, the UK retailer Tesco, which is a potential Walmart competitor, is looking to increase market share in the next six to seven years, developing as many as eighty hypermarket-anchored shopping malls, adding up to £5 billion in investment. Additionally, Tesco is entering into a joint venture to develop three shopping malls in two eastern provinces, each built around one of the supermarket chain’s hypermarkets.6 Yet no single retailer is making significantly large-scale inroads into the potentially colossal market. There is plenty of room for more growth.
This incredible drive for growth puts enormous pressure on the HR function. In the words of one interviewee:
The major challenge is not being able to find people to support an organization’s growth strategy. This is the bottleneck. If you can’t find people, you can’t grow. Some industries that are growing 20 to 30 percent per year are finding it very hard to get talent. This is true especially in those positions that require both people management experience and strong technical background. There’s a limited pool of people to draw from and poaching staff is rather common.
Hand in hand with the drive for growth goes the difficulty of retaining staff. It is not hard for employees to move to other companies. Consequently, the experience of another interviewee is common:
My own company had 28 percent overall turnover in 2010. Even in the management ranks where turnover is around 14 to 15 percent, it is difficult to fill the pipeline. This level of turnover stresses the system—there are huge costs around recruitment, training, and the time taken to become fully productive.
This leads to a tension between the realities of a very tight market and the business strategy for growth, which is, anyway, done in the context of a good number of unknowns in both the global and Chinese economic and political climate. Adding to this tension is the fact that business leaders plan with market and competitor intelligence at hand, but rarely do they plan with the employee turnover numbers in hand. When, as is common, turnover is around 25 percent and this is not factored into the business plan, it becomes, as one person said, “a big struggle” to achieve business targets. So as another interviewee confirmed:
Workforce planning is not something that people here do a lot of. Although there may be a certain amount of workforce planning done as part of developing the annual rolling business strategy, it is focused on the market and I’m not sure of the quality of it. HR people tend not to get involved. It’s based on certain assumptions which HR is not involved in developing, so what comes out in terms of workforce planning is not robust. This is not surprising as it is very difficult in these conditions to make accurate long-term headcount projections.
In most companies I know of, the workforce element of the business plan is more of a financial input to the process—the cost of headcount. In any situation where we have to watch revenue, we have to think about controlling headcount. It’s very common to do this, but it is a short-term perspective and has some serious consequences. Generally speaking, both headcount restrictions and the lack of available talent can stunt company growth, paradoxically as we’re trying to grow, and this has a knock-on effect on employee progression within the company. If the company isn’t growing, there are no additional openings for staff, and things become stagnant. But China has a tradition that people will be promoted every two years.
On this topic, another interviewee commented that:
China has been raising the minimum wage in recent years, and living costs have also increased year by year. That brings a retention challenge as people, especially blue-collar workers, will change jobs in order to get higher pay. We have recently experienced higher turnover rate in the blue-collar group than in previous years.
While a third made the point that:
The market is very dynamic. In certain industries, the central government and provincial governments decide to adopt certain different rules to regulate the industry. Business conditions can be unpredictable. It’s difficult to forecast how many people there will be in each city each year. In our business—pharma—we don’t know how many products may come onstream in each province due to ongoing bidding requirements to lower the cost of medical treatment. It’s a challenge to plan in this type of unpredictability. The business plans as best as they can and HR has to be adaptable, acting quickly to react to changes. In ideal circumstances, the number of people available in the marketplace should influence the business strategy. It should be more two-way.
THE PERCEPTION OF “GOOD PLACES TO WORK” IS CHANGING
Perhaps because of the tensions inherent in aiming to grow the business and keep a good handle on workforce costs, foreign multinational companies are beginning to lose out to local Chinese companies in their attraction of potential employees. An interviewee observed that:
Incentivizing people to either join or stay is an option in getting the needed talent, but it is difficult. What happens is that incentives take the form of career development, and here local companies have the edge. Multinationals are not able to compete in the same way on career development and are beginning to lose their attractiveness as employers. Local firms can give broader responsibilities, with more local autonomy and decision making. They are not subject to overseas decisions that have to be implemented locally.
And another one made the point that:
Big state-run companies are more attractive to new graduates. They pay very well and have a wide market and significant market share. They offer high job security [and] a good benefits package, and a job with them carries social status. Government restrictions are also something to bear in mind. In some sectors government policies are restrictive to multinational growth, enabling Chinese companies to grow by leaps and bounds, which offers good opportunities for promotion and development.
Finally, there was the trenchant comment that “if people can’t speak good English in MNCs, their career is limited. There is no language barrier in a local company for local people’s career growth.”
These individual observations are confirmed by the Economist Intelligence report mentioned earlier. Its findings—based on a survey of 328 senior executives conducted in June and July 2011, as well as in-depth interviews with executives of major foreign multinationals, business scholars, and market analysts—show that “local talent is increasingly gravitating towards mainland companies.”
LOCAL LEADERSHIP IS CRITICAL
Part of the reason why state-run or mainland companies are more attractive to workers is that they are run by people who understand local conditions and culture and have the skills and expertise to work these effectively. With this knowledge, they can act more autonomously, delegate more, and make more decisions than leaders who work for multinational companies. These abilities act to attract entrepreneurial types. In addition, local leaders have a longer-term perspective and are prepared to take time and resources to balance the workforce. As one person commented:
Chinese companies tend to have the right numbers of people but not the right skill sets. People stay with a company because it is the cultural norm—Chinese companies cannot just let people go. They have a social responsibility towards them. But that leaves the challenge of rebalancing the current workforce and the workforce structures to match the future direction of the organization.
With this in mind, a couple of interviewees made the point that western multinational companies are too short-term in their focus. They send in expatriates to lead the operation on a contract of two to three years, which is not enough to establish viable credibility, reputation, and insight into the culture and characteristics of China. As one pointed out:
There’s significant lack of understanding from multinational leadership about conditions in China. It really is essential to have local representatives to lead their company here. Unfortunately, most HQs assign management to work here. It might help if there were Chinese people in [the] HQ to help guide decisions, but there aren’t. Multinationals should have a policy of replacing some or all of their China management team with locals, but it seems that there is not enough trust or understanding of local talent to go down that route. In previous decades, if a foreign company had a business here, it was just for exporting goods, and local markets and cost models were not an issue or concern. But China is now a big market. We need local people who understand the markets to lead here.
This lack of local understanding was a point brought up by another interviewee, who observed that:
Western companies operating in China should be more flexible in the way they approach working in China and the Chinese workforce. One area where it would help is granting more autonomy in determining organization structure, compensation and benefit items, retention programs, etc.
On the other hand, several interviewees pointed out that there were a number of things that Chinese companies could learn from western ones. Below is a typical comment:
Western companies have very strong, mature management systems, and this is one of their benefits. Chinese companies need to learn to work with these advanced management processes. The advantage that multinationals have is their mature operating systems. In the HR field, we could learn a lot from the multinationals on the processes and systems they use for things like succession planning, career pathing, and so on.
THE EDUCATION SYSTEM IS NOT DELIVERING THE NEEDED SKILLS AND COMPETENCES
The point about learning—Chinese from multinationals and multinationals about the Chinese people and culture—came up in a slightly different way when interviewees talked about new product and service development. For example, one person said:
Being a manufacturing company presents many labor challenges. Several groups of the workforce are working on new products and services that will require new skills to implement: skills that we currently don’t have. We need more technically skilled people and more professional managers with the depth of expertise to carry out our growth strategy.
Another made the point that although there is a certain amount of white-collar worker competence—for example, for R&D jobs—the current education system is not good enough to produce engineers and leaders.
Good business schools to supply managers and leaders are in short supply in China as a whole right now, although things are changing. A BusinessWeek article published in 2006 noted:
The colossal effort by the central government of China to educate the nation’s next generation of managers is unprecedented, and it has been undertaken at a speed that is nothing short of breathtaking. In just 15 years, Chinese B-schools raced through the evolution it took U.S. B-schools more than half a century to accomplish.
However, graduate students noted that in some respects the MBA programs they had attended did not match expectations. Of those surveyed by BusinessWeek:
Nearly a third said their schools were merely “good” or “average” at teaching China-specific business—one of the lowest grades among the half-dozen subject areas rated. “The culture here is different from Western culture. The corporation is run in different ways,” says Zhou Shifeng, who graduated this summer from the Tsinghua/MIT program. “We need to know more about how the best Chinese businessmen run companies.”7
Asked to recommend good business schools, one respondent came up with a list of five—Peking University, Tsinghua University, Shanghai Jiaotong University, Fudan University, and China Europe International Business School—saying that others were not “outstanding enough.”
A number of Chinese universities are entering into partnerships with U.S. universities with the dual goals of improving graduate engineering education in China as well as providing opportunities for Chinese students to get a quality graduate education with the goal of retaining them in China. One example of such a partnership exists between the University of Michigan and Shanghai Jiaotong University. Another is the University of California, Berkeley, which announced at the end of 2011 plans to open a large research and teaching facility in Shanghai as part of a broader plan to bolster its presence in China. The Shanghai center will cater to engineering graduate students and be financed over the next five years largely by the Shanghai government and companies operating there. The program was expected to begin in July 2012.
DRAWING ON A BROADER EMPLOYMENT MARKET FOR TALENT IS HARD
The drive to recruit skills and competences for business growth is hampered not only by the lack of skill level, but also by the vagaries of the employment market to draw on. This point was amplified by an interviewee, who said:
A few years ago there was a lot of migration to eastern cities where multinationals typically started up. Now growth in local economies has been generated, so migration patterns have changed and there are far fewer migrant workers in eastern cities. To balance this, the companies in these eastern cities have to pay more, particularly to blue-collar workers, and this knocks on to manufacturing costs. Last year, there were blue-collar worker pay increases of 13 percent, and this year 16 percent. That’s the same for both multinational and Chinese companies.
An article in the Economist underscores the changes in China’s internal migration patterns, making the point that:
The shift in migration patterns may also reflect a rebalancing of China’s economy. Domestic demand has made a bigger contribution to China’s growth in recent years, driven by heavy investment in infrastructure and property. To serve this expanding internal market, firms do not need to nestle close to a port. The result is a fast-narrowing wage gap between the coast and the interior. In 2004 coastal wages for migrant laborers were 15 percent higher than inland, according to a survey by the National Bureau of Statistics. Now, many workers in Sichuan say that taking into account transport costs and higher living expenses on the coast, less well-paid jobs closer to home are beginning to look much more competitive.8
OPPORTUNITIES FOR ACTION
Reviewing her interview notes for this piece, one person commented, “It comes across as a bit negative. I hope the final piece doesn’t sound depressing and hopeless. The fact is we have all the good problems.” Given the “battlefield” talent and business growth situation outlined above that HR practitioners are working on, perhaps the situation could be construed as hopeless. As she points out, though, there are “the good problems” that could be turned into opportunities for innovative approaches to workforce planning that contributed to addressing the talent shortage. Seven such opportunities are implied in what interviewees talked about.
1. Integrate the Business and Workforce Planning
A business strategy cannot be executed without the available skills and capability in the workforce. From this perspective, business planners need input on the realities of the talent pool in order to adapt the plans appropriately. Not doing this leads to short-term and possibly damaging pressure on business performance. One interviewee cited the difficulties she faces, partly as a result of a lack of input into the business strategy:
I have to manage the bottom line by reducing costs due to restricted market growth. Yet simultaneously I have to keep up with competitors in terms of compensation and benefits packages, the culture and environment offered to employees, and the career progression. It doesn’t work not to have a voice in the business planning process. I feel as if I am being asked to do the impossible.
For HR directors operating in China, this means pressing for inclusion of their own technical expertise and also for the leadership contribution to the strategy of people who really understand the context and culture of China.
2. Develop a Holistic Attraction and Retention Package
It is not enough to think about competing only on pay. The benefits, including training and development, and retirement benefits that come with the job are both attractors and retainers. A report by Mercer, an HR consulting company, on employees in China noted that:
As benefits increase in importance and organizations look to improve employee satisfaction, organizations can expect a rise in employee demands for more flexible benefits plans that can address individual needs. In fact, 50 percent to 60 percent of participants [surveyed] expressed their willingness to reduce the value of some benefits received and increase the value of other benefits . . . that are important to them.9
This recommendation was also made by one of the interviewees:
I think that what all companies operating in China need to do is to think holistically about the population they are trying to attract and retain. It isn’t just a numbers and skills issue. It’s about the whole package of career paths, compensation and benefits, the work environment, the management style, and the benefits packages. The companies with the best retention rates are those that offer supplementary, and flexibly offered, benefits like retirement packages.
3. Collect Accurate Data That Can Be Converted into Financials to Feed into the Business Strategy
Given that so much business planning is done on a financial basis, it makes sense for HR directors to collect accurate data that can be converted into the financial costs/benefits of workforce decisions. It is beyond the scope of this chapter to delve into HR metrics in detail, but two books give very helpful information on how to think about and develop a framework that financial analysts and business strategists will be able to work with. These are Competing on Analytics by Thomas Davenport and Jeanne Harris and Beyond HR: The New Science of Human Capital by John Boudreau and Peter Ramstad.
4. Track the Cost Model That Specifies the Costs of High Attrition and Continuous Recruitment
Once data is collected, develop a tracking dashboard that can be discussed regularly with business planners and strategists. Hand in hand with this goes providing evidence of the benefits of ongoing investment in development, a comprehensive benefits package, and working to slow down attrition against the risks of not making these investments. It is worth the investment for the HR function to approach its work with the business tools of scorecards, cost/benefit analysis, forecasting, and risk management.
5. Initiate Collaborative Partnerships to Plan Innovative Approaches to Tackle Talent Shortfalls and Then Implement Planned Actions
Mentioned earlier are a couple of examples of partnerships between foreign and Chinese universities to develop management and engineering programs that will grow this much-needed talent. One interviewee made the point, “There are some small successes in working with academia and colleges in that they can help cultivate a supply, but again, that takes time.”
These partnerships are a good start and could be developed. Research in innovation suggests that at least four different sectors must be linked to get to innovation: national and local government, business, not-for-profit organizations, and academia. Where this happens, “decisions made at every level—investment funds, corporate strategy and HR teams, regional planning boards, philanthropic bodies, academic faculty, and many more—are naturally aligned.”10
A willingness to intentionally develop communities of economic coordination where multiple parties join forces to “coordinate innovation across complementary contributions arising within multiple markets and hierarchies” would be a powerful way to accelerate addressing talent shortages for the benefit of the whole ecosystem and not simply within a single organization.11
6. Consider Virtual and Flexible Working in Order to Widen the Pool to Draw On
One way of expanding the talent market is to appoint remote and virtual workers. This may be a cultural leap and require investment in both employee and management development. As one interviewee reported:
There is no telecommuting per se. In fact, the work-life balance schemes common in the U.S. don’t exist in China. We have people in 200-plus cities. There are cities where we have set up offices, but a lot of people in the second- or third-tier cities work from home. It’s difficult for them to have a sense of belonging to the organization—the community aspects. Managing these remote workers is hard; the employee engagement is weak. Our managers tend to stay in touch with them through regular visits, cell phone calls, and text messages.
But given the ubiquity of mobile technology, the rapid development of mobile capability, and the accelerating skills of people in using it, it would be foolish to ignore the possibilities that alternate work forms could bring to help plan for and solve talent shortfalls.
7. Do the Planning
In the heat of battle, it’s very easy to get stuck in being reactive. Making time for research, reflection, and planning might seem like a poor investment when someone is in firefighting mode. But the investment in that time is well worth it. It is useful to bear in mind a quote from U.S. President Dwight Eisenhower: “In preparing for battle I have always found that plans are useless, but planning is indispensable.”
His thoughts on planning were endorsed by British Prime Minister Winston Churchill in World War II:
The Commanders who are engaged report that everything is proceeding according to plan. And what a plan! This vast operation is undoubtedly the most complicated and difficult that has ever occurred. It involves tides, winds, waves, visibility, both from the air and the sea standpoint, and the combined employment of land, air and sea forces in the highest degree of intimacy and in contact with conditions which could not and cannot be fully foreseen.12
Perhaps what faces Chinese HR directors is not exactly on the scale of World War II, but there is some resonance in reworking Churchill’s statement. It is true to say that Chinese HR practitioners are involved in a “vast operation [that] is undoubtedly [one of] the most complicated and difficult that has ever occurred [in recent HR circles].” To get the right people in the right place at the right time requires planning and foresight, which will allow for better judgments in meeting “conditions which could not and cannot be fully foreseen.”
References
1. “Wen Seen Paring China’s 8% Growth Target on Rise in Inequality: Economy,” Bloomberg News, February 22, 2012.
2. James Fallows, Postcards from Tomorrow Square (New York: Vintage Books, 2009).
3. Wikipedia; World Bank; General Motors.
4. Multinational Companies and China: What Future? (London: Economist Intelligence Unit, 2011).
5. S. Rabinovitch, “China Growth Paradox Baffles Walmart” (2012). Retrieved from http://www.ft.com/intl/cms/s/0/7f5033ca-570c-11e1-be5e-00144feabdc0.html#axzz1nh8DBCCc.
6. R Jacobs, “Tesco Pushes Further into China” (2011). Retrieved from http://www.ft.com/intl/cms/s/0/5bf484f2-430e-11e0-aef2-00144feabdc0.html#axzz1nh8DBCCc.
7. “China’s B-School Boom,” Bloomberg Business Week (2006). Retrieved from http://www.businessweek.com/magazine/content/06_02/b3966074.htm.
8. “Welcome Home,” Economist (2012). Retrieved from http://www.economist.com/node/21548273.
9. Inside Employees’ Minds: Navigate the New Rules of Engagement—China Survey (Mercer LLC, September 2011).
10. E. J. Wilson, “How to Make a Region Innovative,” Strategy+Business (Spring 2012), pp. 20–24.
11. J. F. Moore, “Business Ecosystems and the View from the Firm,” AntiTrust Bulletin (Fall 2005).
12. And What a Plan—Churchill’s Speech on D-Day (June 6, 1944). Retrieved from http://www.parliament.uk/business/publications/parliamentary-archives/archives-highlights/archives-d-day/.
Naomi Stanford is an expert in business strategy and organization design. Before joining NBBJ as organization design lead, she worked with corporate and government clients, including the General Services Administration, Shell, Gap, the American Red Cross, the Commonwealth of Virginia, and Philip Morris International. Her skills and experience were honed in the U.K. private sector, where she held corporate roles in multinational companies. Naomi has written several books: The Economist Guide to Organization Design; Organization Design: The Collaborative Approach; and Corporate Culture: Getting It Right. Her new book, Organizational Health, will come out in December 2012. In addition, she supervises doctoral students in organization theory and speaks, writes, and teaches on many aspects of organization design. Over the last several years, she has worked with the HR Excellence Center in Shanghai, China, delivering workshops and seminars. Her blog, www.naomistanford.com, showcases her interests.