Cablegate: South China's White Collar Worker Shortage

DE RUEHGZ #1579/01 2930830
R 200830Z OCT 06




E.O. 12958: N/A
SUBJECT: South China's White Collar Worker Shortage

1. (U) SUMMARY AND COMMENT: Speakers at an October 16 conference on
human resources organized by the American Chamber of Commerce -
South China addressed the increasingly serious competition among
foreign multinationals in the Pearl River Delta (PRD) for the
limited number of skilled professionals in the area. The
competition, which focuses on pay scales and which is expected to
last three-to-five more years, has led to an ever higher turnover
rate for company managers, who are jumping between companies in
pursuit of higher pay. Just as serious, companies are poaching more
and more on one another's staff. Human resource (HR) consultants
and companies are tackling the problem with performance-based pay,
career advancement, supplemental benefits, and non-compete
agreements. Foreign multinationals may be making the situation
worse by putting too much emphasis on English skills and not
developing talent from within their ranks. END SUMMARY AND

Pay Race in the Pearl River Delta

2. (U) Media reports and business surveys are clear and consistent
about China's severe lack of skilled professionals. One commonly
cited statistic stands out: China has only 5,000 internationally
qualified managers to fill a demand for 75,000. Managers give
little thought to jumping from one firm to another. A 2006 survey
by Mercer HR Consulting reported that wages in Guangzhou, located in
the PRD, would rise 8 percent in 2006, up from 7.2 percent in 2004.
Wages in Beijing and Shanghai will rise 7.5 percent in 2006.
Guangdong has raised its minimum wage seven times during the past 12
years. According to Mercer, managers can earn a 50 percent pay
raise by switching companies and some managers in PRD-based firms
are earning as much as their Hong Kong counterparts.

3. (U) Companies are also more willing to poach staff from
competitors. A Metlife branch manager recently told the Consul
General that competitor Sunlife had hired away one-third of its
Beijing office staff. Turnover rates have increased from 8.3
percent in 2001 to 13.8 percent in 2006, according to Hewitt
Associates. Mercer believes the current pay race for white collar
workers will continue for three-to-five years before cooling down.

Survey Says: There's a Shortage

4. (U) At the HR seminar hosted by the American Chamber of Commerce
- South China, several hundred HR professionals, company managers,
and HR consultants agreed with a recent survey of 80 PRD
foreign-invested companies that a lack of skilled talent tops the
list of HR concerns here. According to the survey, other challenges
include poor leadership skills, poor communication skills, high
turnover, and low motivation. Surveyed companies confirmed this
labor environment had already led to poaching and unsustainable wage
increases. (Interestingly, survey respondents did not cite as a
primary concern China's draft labor law, which will affect
companies' ability to use temporary workers.) These results echoed
the findings of the 2006 Mercer survey of China's skilled labor

Creative Solutions: Career Advancement and Non-Competes
--------------------------------------------- ----------

5. (U) PRD companies are trying to think creatively about how best
to tackle the problem, relying less on pay scales and more on
employment satisfaction. According to the AmCham survey, companies
are developing special retention plans, redefining HR strategies,
and changing their recruiting methods. "Best practices" that Mercer
has been teaching foreign multinationals in China include promoting
long-term career advancement, with opportunities for work abroad and
rotations among different departments. Performance-based pay is
another way for companies to move beyond the traditional promotion
scheme. Other HR strategies include sign-on bonuses and
supplemental benefits such as housing, savings, and pension

6. (U) Approximately half of the companies surveyed by AmCham use
non-compete agreements in employment contracts. Of those that do
not use them, half plan to introduce them in the future. Of those
that do use them, half have experienced a breach in contract during
the past three years. Results of enforcement actions have been
mixed, as police and courts lack experience and interest in pursuing
such cases.

Foreign Firms' "Addiction to English"

7. (U) There was one somewhat, but not entirely, contrarian

GUANGZHOU 00031579 002 OF 002

viewpoint expressed at the conference. U.S. HR consultant Irv
Beiman, Chairman of Shanghai-based eGate Consulting, said that
China's shortage of skilled workers is much less acute than claimed.
He encouraged foreign companies to break their "addiction to
English" and broaden their recruitment net, using internal
interpreters and bilingual staff to bridge the language gap. He
also said foreign companies should look for natural leaders from
within their ranks instead of relying on training. He suggested
that many successful domestic companies have stronger middle
management than they are credited with.


© Scoop Media

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