Essay: China is facing major challenges about hrm

Human Resource Management (HRM) of Multinational Enterprises operation in China is facing major challenges:

Recruiting

Guangdong, one of the economic powerhouses in South China Province, reported a shortage of half a million workers after the Spring Festival this year as business has skyrocketing for many companies. Hence the provincial authority has adjusted the minimum wage by an average of 21% to attract the labor mainly blue collar.

Similarly to other booming regions like coastal cities of Fujian Province, Zhejiang Province, Shanghai City and Beijing City increased their minimum wage for manual laborer by 24 to 30% in Q2′ 2010.

The labor shortage at the booming coastal cities is partly because the west of China (Sichuan Province), where many of the migrant laborers come from, is also developing. And workers are choosing to stay closer to home because of culturally and dialects differences from coastal cities.

The new generation of workers born in the 1980s and 1990s are aware of their employment rights. They not only demand higher pay but also ask for better opportunities for career development. They also have cultural and spiritual needs.

Hiring of manual workers is getting tougher and tougher in China because of one-child policy adopted by China in 1978. The parents with child born in late 1980 and early1990s are normally at middle-class income groups; as a result they can afford to send their children up to colleges. Overtime these group of children are in the age of 20s now and are more educated and hence do not want manual labor works.

The minimum wage rise will result in more financial burdens to smaller companies. These companies should attach more important to industrial and technology upgrades with more automations to reduce the use of more workers.

Most people still think of China as a country with an inexhaustible supply of cheap labor. But China’s booming coastal cities are now actually facing a shortage of manual labor. That’s partly because the west of China, where many of the migrant laborers come from, is also developing. And workers are choosing to stay closer to home.

China Government is rich in cash with very healthy foreign reserves and is expected to introduce more preferential policies such as tax reductions for companies to avoid labor costs being going to fast hence reduce competitiveness to world market. China has 1.35 billion people to feed; they cannot afford to see closure of companies both foreign and local.

There is no problem is to attract “white collar” employees like Technicians, Engineers, Accountants, Government servants and job related in technical fields because China produced far too many graduates. There were 4.8 million graduates in 2008, and went up to 5.45m graduates in 2009. This year 2010 Government’s statistics shows 6 million graduates will pour into labor market in July. And the year after is minimum 10% increases of graduates in each year. China’s new challenge is on how to create enough jobs for these highly educated graduates.The China Government continues need to attract foreign investments while working on their own branding.

Training:

Companies in China for example in Electronic Industries spent between 1 to 3% from the overall input cost on training. But the number is gradually going up for a simple reason due to high attrition rate. The rich and wealthy companies are willing to pay handsomely for the experienced staffs of other companies and competitors. The culture of pinch staffs from one another is common in China. Furthermore the “loyalty” in mind of Chinese is worth nothing. They are looking for quick gain in money. The money is power. Whoever can pay, they go.

Every company has their own training centre equipped with comprehensive training systems and real-live hand-on training equipments. These cause money. But, they cannot do without it.

Training is very important aspect of the work. Training for newly hired employees have to go classroom curriculum like company policies, labor law, company culture, compensation packages, company expectations, company goals, company KPI (Key Performance Index) and of course hands-on equipment training.

Most of Chinese are not well-versed in spoken English. Overseas training helps to enhance their spoken English which is good for the company.

All specifications for Company situated in China has to be translated from English into Chinese because this is China.

Retaining:

Have to use money (yearly merit increases) and career advancement to retain the key staffs and key talents. Most companies have retention bonuses to retain the key staffs and key talents. Some of the retention programs are sponsor for further educations, overseas training, stocks option, career advancement opportunities.

Normally the employees who took the programs like further educations or overseas training have to be borne with company for X number of years pending the amount spent.

As for stocks option is normally split over 4 years. The stocks are exercisable 25% of the stocks per year. If the employee resigns before the maturity date of stock options, the balance of the stocks will be taken back by employer.

Cross functional training is also one of the good systems for retention program. The employee would feel bore is he or she stays at one particular department for too long.

Short overseas assignment (outside China) is one of the favorite Chinese employees love to take up. We have to borne them after the assignment

Managing employees:

Here are some of biggest challenges on how to manage employees in China by Foreign Invested Companies.

* High attrition rate (resignation), average is 50-60% per year for blue collar workers in developed eastern coastal provinces and cities. Average 30-40% attrition rate for white collar jobs. This resulting skyrocketing training cost. The perks for workers are on the rise too year on year.

Proposed actions to counter high attrition rate:

1. Companies have to find ways to improve labor productivity at least 10% per year and cut expenses to compensate for the gradual increase in labor costs (2 digits per year in particularly the rich eastern coastal cities and industrial towns).
2. Approach City or Provincial Government to subsidise the training cost and provide incentives for capacity expansion and so forth…
3. Companies have to go for more advanced automation equipments instead of the traditional manual machines.
4. Move the factories from coastal cities to rural western China (Sichuan Province) for cheaper labor costs. Take for example Intel and Molex (both are American based companies) closed their factories in Shanghai in early 2009 and consolidated into their cheaper labor rate factories in Chengdu City. Also National Semiconductor closed their Factory in Suzhou and consolidated into Malaysia. The reasons given by National Management are high labor cost, high attrition rate and high training cost made them uncompetitive.
5. Have to make use of the technical strengths to up keep equipment efficiency and hire less people. China Colleges produce knowledgeable engineers and technical experts.
6. Continue to dialog with co-workers to understand their needs. Deliver those that make sense to company, it has to be a win-win model.

Set-up factory in China has to maintain good rapport with Provincial and local Government. They are in good help when urgently needed to expidite the raw materials from overseas and export finished goods to overseas markets during weekends.

Other Facts:

During economy recession in 2009, China Government pumped in US$585 billion dollars into market. They came out several stimulate packages mainly encourage the general public to spend and build infrastructures. Construction of roads and high speed railway tracks are the number no.1 benefiters!

With China increases the investments outside China, more on more Chinese workers and professionals are leaving the country too, this does not help whereas China is still facing labor shortages.

Below Facts are picked up from Google website titled “China Labor Market 2010”

The central government’s first policy document of the year focused on rural development, a move that showed the importance of the issue in China. This week policy makers and advisors gathered in Beijing are again addressing the issue in an effort to make sure that the benefits of China’s economic growth are more evenly spread throughout the country. One thing that should alleviate the gap between the more developed east and the less developed west of China is the growing shortage of manual labor. Coastal cities are already feeling the pinch as more migrant workers look for jobs closer to home. Factories now have to compete for labor, which is driving wages up for China’s workers. What created the development gap between China’s urban and rural areas, and what can be done to reduce it? Will China’s labor shortage drive up wages and narrow the gap? Ni hao, you’re listening to People In the Know , bringing you insights into the headline news in China and around the world, online at crienglish.com, and here on China Radio International. In this edition of the show we’ll discuss rural development and the labor market in China. So let’s get started. In the first part of our program we’ll be focusing on rural development. We’re speaking with Dr. Wang Xiaobing, lecturer in economics at the University of Manchester. And after a short break, we’ll talk with an American management expert about China’s labor shortage. Most people still think of China as a country with an inexhaustible supply of cheap labor. But China’s booming coastal cities are now actually facing a shortage of manual labor. That’s partly because the west of China, where many of the migrant laborers come from, is also developing. And workers are choosing to stay closer to home. For more on China’s manual labor shortage we go now to Professor Marshall Meyer from the Wharton School at the University of Pennsylvania.