At the end of May, amid signs of a likely economic slowdown in China, the country’s government released a set of labor statistics that bucked the trend. Imports and exports may be down, but wages are up. Companies are continuing to expand their workforces and, even as China’s growth cools, the country remains one of the most competitive markets for attracting and retaining employees in the world. “The talent war is intense,” says Mark Carriban, managing director of China for Hudson, a global consulting firm headquartered in New York that focuses on human resources. “For most sectors, there is probably more demand for top talent than there actually is top talent.” 

Companies operating in China, whether they be multinationals, locally owned firms or state-owned-enterprises, are competing for a relatively small pool of qualified workers. Even as China churns out an increasing number of college graduates each year, employees with managerial or other special skills remain hard to come by and companies are going to increasingly great lengths to attract and retain the nation’s top talent. 

While other markets floundered during the global financial crisis, China’s economy remained relatively robust. Many firms responded by growing their operations in the country, building retail developments, manufacturing more automobiles and opening research and development centers tailored to the Chinese market. In a recent survey conducted by Hudson, 60% of respondents in mainland China said they planned to expand their workforces in the next quarter. “This is 50% higher than Hong Kong or Singapore,” Carriban points out. 

In addition, the wage increases of the last few years, although starting from a relatively low base, are impressively large. In 2011, wages increased by 18%, compared to a jump of 14.1% in 2010. Wages in the manufacturing sector climbed even more precipitously, increasing by just over 20% in 2011. According to Carriban, the competition for talent has led to a pool of potential employees with high expectations: They are looking to advance quickly, and are willing to jump from company to company to speed the pace at which they gain responsibility and increase their salaries.

‘Well Networked and Aspirational’ 

Compared to other markets, such as Europe and the U.S., the demographics for China’s top talent skew relatively young. Because of the gap in education and work experience left by the Cultural Revolution, many of the most desirable employees in the nation today were born after 1980, the group known as Generation Y. “This generation is the most well-educated, well-networked and aspirational generation China has ever seen,” Carriban says. 

Although China’s education system has expanded significantly in the last 30 years, with the number of college graduates reaching around 6.6 million in 2011, many companies are looking for more than just a degree. “I hear this story from headhunters and from local business schools,” notes Wharton management professor Marshall Meyer. ”Basically, local graduates aren’t prepared to make senior management decisions…. They haven’t really had the experience of taking initiative.” 

According to Henry Sheng, the head of productized services in China for Hay Group, a global management consulting firm, many firms are looking for employees who can jump in and immediately make an impact. But recent graduates often need to be trained. “This may be because of China’s education system — your degree is often not very relevant to your future work,” says Sheng. And while some companies are willing to invest in training new employees, the younger generation’s tendency to move from job to job often renders the firm’s investment useless.

 As a consequence of those trends, some of the most desirable hires are returning expatriates, known in China as haigui or “sea turtles.” These candidates have a combination of Western education, work experience and knowledge of China that make them extremely attractive to both multinationals and local companies. “Many multinationals are trying to lower costs and hire local talent,” Meyer notes. While haigui may not be as cheap as recent graduates, they will likely sign on for less than Western hires who would expect the firm to pay relocation expenses and an “expat package” that could include a housing stipend, education expenses for children and annual plane tickets home. 

New Competitors and Changing Demands

 While the pool of desirable employees remains small, the number of companies looking to hire is increasing. Not only are multinationals continuing to expand their workforces in the country, China’s state-owned enterprises (SOEs) are becoming increasingly desirable places to work. 

“The situation has changed over the last five years,” says Carriban. Before the financial crisis, if Hudson offered a high-value employee a choice between a position with a multinational and one with an SOE, the multinational would almost always be the top option. “They thought of [the SOE job] as not quite as sexy,” he notes. 

Today, more and more people are exploring opportunities with SOEs. The firms are becoming more sophisticated, Carriban adds, and as their HR services improve, management are better able to offer employees plans for career growth. “Business school graduates have gotten very cautious,” Meyer notes. “The preference of many students is to stay within a traditional and secure system.” SOEs are considered the safe option. 

In addition, as many of China’s CEOs and upper managers approach retirement age, Chinese businesses are starting to look more closely at developing succession plans and nurturing burgeoning talent. “In Chinese companies, company loyalty was like family — you were all in the foxhole together,” says Meyer. “I don’t know what you replace that with.” Meyer cites the story of management at one Chinese firm who are so aware of the problem that they are working to establish a 10-year trajectory for replacing people, offering senior managers ten-year options that can be exercised only when they retire. “This is an incentive to build a loyal management team,” Meyer notes. 

As demand for China’s top talent continues to heat up, the country’s most desirable employees have high expectations of its employers. According to a Hay Group survey, employee priorities in mainland China change with age. The youngest age group, which includes all employees under 30, is looking first for learning opportunities, second for competitive wages and third for the company environment. For employees ages 30 to 39, the first priority is wages, followed the brand of the company and then learning opportunities. Employees ages 40 to 49 list a challenging environment as their top priority, followed by competitive pay. 

Hay Group also found that employees who had recently moved from one firm to another listed leadership, lower than desired compensation and a lack of growth opportunities as their primary reasons for leaving. According to Carriban, high-potential employees interviewed by Hudson in Mainland China regularly cited salary and bonuses as their top concern when choosing an employer. 

Firms competing for talent, however, can’t stop there. “Companies need to have a strategic management process in place, rather than relying on salaries alone,” says Sheng “The most important thing is to demonstrate that employees have career opportunities inside the company, particularly for younger employees.” If employees feel that they aren’t learning enough or advancing quickly enough, they may leave, he adds. 

Carriban says managers should start strategizing as soon as they begin the interview process. In another Hudson survey, respondents said about 60% of their recent hires did not meet their expectations. “The golden rule is to make sure that you are trying to hire the right talent,” Carriban notes. “In this market, there is such pressure on companies that people will often take their second choice.” 

To find the best fit for their needs, hiring managers should conduct more rigorous reviews of potential employees, Carriban suggests. Potential employees should be tested for specific skill sets, rather than sitting for generalized interviews. Employee reviews should also be tailored to the culture of each firm. “All organizations have very different cultures and an employee’s attitude and motivations might not fit the environment they’re moving into,” Carriban says. “If the organizations get it wrong, the cost of exiting in [terms of] loss of morale and counter-productivity is high.” 

The competition for top employees doesn’t stop once someone is hired. “This generation often gets accused of being disloyal,” Carriban notes. “But if you are entering an organization as a 24- or 25-year-old and you’re getting great offers somewhere else, this is probably the best chance you have to make such a dramatic jump forward in terms of pay and responsibility.” Generation Y employees are also facing lots of pressure from home to achieve quickly. Due to the country’s one-child policy, “you often have parents and two sets of grandparents all focused on one child’s success,” Carriban points out. 

To retain more of their top hires, more and more companies are implementing mentorship programs and corporate social responsibility activities that involve all employees. Programs such as these can help build loyalty among employees. Clearly structured development plans for employees, experts note, help people feel as if they are moving forward in an organization, rather than sitting still. 

Beyond Wages 

While employees in China still list salary as their top concern, an increasing number of employees are looking for other benefits. Health care, education and work-life balance are all important factors in an employee’s happiness at an organization. In a recent survey conducted by the human resources consulting group Catalyst, 80% of respondents in China said that maintaining a healthy work/life balance was important to them. Forty-nine percent of women and 43% of men said achieving this balance is difficult. 

“We found that, in China, people were generally less satisfied with the level of flexibility offered,” says Laura Sabattini, senior director of research at Catalyst and the author of the report, which included India, China and Singapore. Popular programs for improving work/life balance include allowing employees to work flexible hours or to work remotely. Some of these strategies can be difficult to implement because of Chinese law, however. Part-time work, for example, is difficult to arrange. Once you’ve gone to work twice, legally it is no longer considered temporary work in China. 

“Working from home is a growing trend, at least in Shanghai,” notes Debbie Soon, senior vice president of strategy and marketing at Catalyst. Particularly at multinationals, where employees are often required to take conference calls at odd hours to coordinate with global teams, Soon says there is a growing awareness of the need for flexibility. 

Making the workplace more flexible, however, is not always as simple as offering the option to work from home. Companies have to make it clear to employees that working flexible hours and remotely is acceptable — even encouraged — and won’t result in penalties. Multinationals face additional challenges when it comes to offering flexible schedules that also promise advancement, Soon says. “If you are working at a multinational, the power base is somewhere else,” she points out. “So if you want to advance past a certain point, this means you will have to relocate.” In China, this means most employees would lose a network of support that often includes multiple sets of parents and grandparents. 

Soon and Sabattini agree that a company’s approach needs to incorporate programs including mentorship initiatives, team-building activities and career development opportunities. There is no sign that the competition for China’s talent will cool down any time soon and corporations looking to hire will remain challenged to find and retain the people they need. While there is no one solution, corporations can benefit from taking into consideration their own corporate culture and staying up-to-date with the expectations of their employees. “No one corporation will come up with the same program,” says Carriban. “There is no magic bullet.”