the top priority for US companies in China? Contrary to what you might
expect, its not protecting intellectual property or trying to
understand China's shifting regulatory sands.

The issue that gives US expat managers most sleepless nights is recruiting and retaining staff.

So says Laurie Underwood of the Shanghai office of the American Chamber of Commerce in this article in a Financial Times report on risk management ($).

Its an issue we have touched on before at EngagingChina
but its worth revisiting because some western businesses still
underestimate the size of this problem. They are in for a big shock.

Jixun Foo, Shanghai-based MD at VC outfit Granite Global Ventures, told Reuters:

Understanding the people-risk factor may be one of the most important things an investor needs to know before coming here.”

He was talking specifically about financial positions, where young
western-savvy executives who have language skills, regulatory knowledge
and international experience are highly sought after and hard to find.

The problem of recruiting and retaining experienced staff is common
throughout the labour market but particularly marked in China's new
economy, according to this Knowledge@Wharton article. Ramona Yan, director of consulting, with Hewitt Associates' Shanghai office, told Wharton:

On the whole, China is short of talent. Apart from those new
occupations that were not even in existence in the past decade in China
— like brand management, supply chain management or risk management —
there is a shortage of individuals with international vision and
management capability.”

The obvious choice for western companies is to import experienced
staff from developed economies where such skills are plentiful.

China is among the easiest countries to attract expatriate executives
to work, says US recruitment firm Korn/Ferry International. But it is
also one of the hardest places for them to succeed, according to the
more than 140 international recruiters who contributed to the
Korn/Ferry's research.

The most common reason for expatriate assignments to fail is a lack
of cultural fit. Other popular responses were family or personal issues
and not enough direction or goal setting.

Because of these cultural problems and the high costs of expats, the
growing number of western firms that are in China for for the long haul
want to train up local staff.

This can be an arduous process with the obvious risk that having
invested a lot of time and effort in training local staff, they are
then poached by a competitor.

One way to retain valuable local staff would be for western firms to
offer better career opportunities for home-grown staff. According to
Yan, many middle-level Chinese managers working for multinationals
(MNCs) in China end up leaving the company or going back to private or
state-owned Chinese companies because they hit a career ceiling. She

I think there has to be a breakthrough. Otherwise, the MNCs will
lose a great many people who are very capable and who hoped to leverage
their influence.”

China's skill shortage is bad news for western businesses, but even
worse for the country's ambitions to wean itself off reliance on
manufacturing exports and create a more advanced services-led economy,
according to this Financial Times story.

McKinsey Quarterly carried an excellent feature (free registration reqd) on China's skill shortage last year.

($) subscription required

Technorati : , , ,