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April 18, 2005
China faces a labor shortage?
Companies moving operation's to China are running into a familiar problem: lack of qualified workers. According to The Economist:
Though China has a vast pool of unskilled labour, firms in the south now complain that they cannot recruit enough cheap factory and manual workers. The market is even tighter for skilled labour. As the economy grows and moves into higher value-added work, the challenge of attracting and retaining staff is rising with the skill level, as demand outstrips supply. The result is escalating costs for firms operating in China. "If you think that China is a cheap place for labour, think again," says Vincent Gauthier of Hewitt Associates, a human-resources consultancy.
The particular shortages mentioned most often are of creativity, of an aptitude for risk-taking and, above all, of an ability to manage-in everything from human resources and accounting to sales, distribution, branding and project-management.
The solutions that companies are turning to sound very familiar:
Bonuses, longer-term incentives, free housing and meals, a mobile phone and a set of wheels are becoming standard perks. More than one-third of 1,600 multinational firms surveyed by Hewitt now offer a company car. More holidays, maternity and paternity leave, more frequent job rotation and share options also now feature. Add in the big contributions that employers must make to China's national security fund system and the total cost of an employee can be double his basic pay.
Above all, Chinese employees want good training, as they are acutely aware of the limitations of their educational system and keen to acquire marketable skills. Ping-on Mak, senior human resources manager for GE Consumer Finance in Asia, says that the attitude of many young Chinese managers is "if I want training, I'll go work for a multinational and then after three years I'll leave." But GE, with an in-house "university", and L'Orèal, which provides mentoring, say that training produces employees who tend to stay longer.
Two points jump out from this story:
1) modern production systems are no longer (if they ever were) simply a case of putting done a factory in the middle of a low cost labor pool. There are numerous other skills that are needed to run a modern system. I've talked to companies doing business in China for a number of years - and the technical and managerial problems are immense.
2) China is clearly moving up the value-added chain as evidences by their concern over having more "creative" workers. For the US to build a lasting advantage on the engineering and creative side will be an ongoing challenge. If a product can be traded, the Chinese will be in the market.
One other point from the Economist story about company responses to the problem is also interesting:
Some foreign firms hope to persuade the expatriates they send out to stay longer than first planned-despite their higher cost. Some are relocating operations from the coast to smaller, cheaper cities to tap new markets for talent. Some are even considering outsourcing from China itself, by moving parts of their operations to, say, Vietnam and Cambodia, where the workforce is even cheaper and younger.
Vietnam and Cambodia? Last I heard at least Vietnam was worried about Chinese textiles overrunning their own nascent textile industry. I had always heard of Vietnam as moving further up the value-chain - not becoming China's maquiladora. More on this later.
Posted by Ken Jarboe at April 18, 2005 8:04 AM
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