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Human Capital Management in CHINA 2007
 

Human Capital Management in CHINA 2007

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    Human Capital Management in CHINA 2007 Human Capital Management in CHINA 2007 Presentation Transcript

    • China Issues Presents: Leading Practices for Human Capital Management in Today’s China Clarence Kwan, Dick Kleinert, Jungle Wong October 25, 2006
    • Contents 1. Overview of HC market in China 2. Talent Management issues in China 3. Leading Practices in Human Capital Management Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Overview of China’s Labor Market The city labor market across China Among the city labor market, SOE’s has seen a stable annual increase of have the largest share of the labor approximately 3%. The market market. Employment at SOE’s has includes all types of companies in decreased while at MNC’s it has cities and towns. increased along with more and more foreign capital flowing into China. City labor market in China Unit: Million SOE vs. MNC in labor market 270 265 265 76 72 80 69 68 Percentage 260 257 255 249 60 250 245 40 SOE 240 240 MNC 235 20 3.5 3.9 4.5 5.6 230 225 2001 2002 2003 2004 0 2001 2002 2003 2004 Sources: Ministry of Statistic Bureau 1 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • The Trend of Labor Supply and Demand in China Since 2001 the relationship between labor supply and demand has become more balanced. In 2006 the ratio of supply and demand is predicted to reach 1:1. China will no longer have an excess of labor supply. Additionally, in 2009 China may face labor shortage problems. Unit(00,000) The change of labor supply and demand from 2001 to 2005 2nd quarter 2001 1st quarter 2002 2nd quarter 2002 3rd quarter 2002 4th quarter 2002 1st quarter 2003 2nd quarter 2003 3rd quarter 2003 4th quarter 2004 1st quarter 2005 2nd quarter 2005 3rd quarter 2005 4th quarter 2005 1st quarter 2001 3rd quarter 2001 4th quarter 2001 4th quarter 2003 1st quarter 2004 2nd quarter 2004 3rd quarter 2004 Source: Ministry of Labor and Social Demand Security, and China Supply Youth Newspaper Ratio of Demand over Supply 2 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • China is Facing Talent Shortage Problems Despite China’s 1.3 billion population, pockets of talent shortage exist. The cause of this newly emerging phenomenon is that the job seekers’ skill sets do not match the job requirements. The fields that suffer labor shortage in China: Qualified Rate 2.08 Manager • Rapid economic and social change has spurred a skills shortage that is Sales 1.06 expected to escalate in the next few years. Technician 1.53 2.25 • The shortage in management Skilled candidates is slowing the expansion Technician of foreign businesses. Engineer 2 Rate is the ratio of demand and supply Source: Ministry of Labor and Social Security, PRC 3 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • The Talent Market in China is Characterized by Shortage of Key Talent Segments • With the rapid growth of China’s economy, comes an increase in the number of MNCs entering China. This results in a growing demand for talent • The demand for key talent segments exceeds the available supply 140000 10 14 T Unit (10 Thousand) 9 12 T 120000 8 100000 10 T 7 6 8T 80000 5 60000 6T 4 4T 3 40000 2 2T 20000 1 0 0 2004 Volume of MNCs in China China’s GDP (in RMB) The number of MNCs in China Sources: Ministry of Statistic Bureau 4 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • It’s Harder for MNCs in China to Find Qualified Talent China has a vast pool of labor supply, but only a small percentage of this pool is qualified to work in MNCs. According to a survey conducted by the McKinsey Global Institute, on average, fewer than 10% of Chinese job candidates possess the skills to work in a foreign company. Lack of English Speaking Capability: Skills Gap Most Chinese employees have low English-language skills. An intense competition Lack of pratical experience: for well- China's education system educated, emphasizes theory rather Skills Gap than finding practical English- solutions. speaking, professional Lack of qualified staff who have management skills: experience Older managers from China's working with Cultural Revolution lack the Skills Gap education needed for foreign- MNCs based companies, while recent university graduates lack experience 5 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Polling Question 1 How much growth do you anticipate in your employee population in China over the next 2-3 years? • None • Small increase (less than 10%) • Moderate increase (10-25%) • Large increase (25-50%) • Very large increase (more than 50%) • Not applicable Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Labor Costs Continue to Increase in China • China has seen a consistent salary rise with an annual increase of nearly 10%. The national average wage increase covers all industries • Average wages at MNCs are 26% - 57%, higher than those at SOEs. For executives it may be between 50%-200% higher. • Salaries in tier I cities such as Beijing, Shanghai, Guangzhou are higher than other cities. Annual Average Salary Monthly Salary Comparison RMB 32808 RMB 35000 4500 28348 3820 30000 4000 24045 3500 25000 2916 2789 20728 3000 20000 2500 15000 2000 1500 10000 1000 5000 500 0 0 MNC LNE SOE 2005 2004 2003 2002 Source: Ministry of Social security Source: National Salary Report of 2004 6 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Average Actual Salary Increases by Nearly 8% For All Industries in 2005 Source: Watson Wyatt “ salary survey report-2005” 7 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • The Shortage of Talent has Pushed Up the Cost of Business • The shortage of talented labor is pushing up wages and swelling the ranks of the country's middle class. According to a survey conducted of the salaries of China and India, labor costs in China has surpassed that of India: Position China India HR manager $32,000 $15,100 Marketing manager $25,800 $14,300 Project manager $23,400 $10,000 Software development engineer $13,400 $10,300 Financial analyst $13,200 $8,400 Accountant $9,000 $5,700 Senior customer service officer $8,300 $8,200 Sales representative $5,100 $4,700 Customer service assistant $2,400 $1,600 Production worker (skilled) $2,300 $1,900 Source from a survey by Mercer in 2005 • Rising labor costs are pinching the margins of overseas manufacturers operating in mainland China. Among members of the American Chamber of Commerce in China, 41 percent of companies and 48 percent of manufacturers report being negatively affected by increased salary and wage expenses. 8 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Mandatory Social Insurance in Addition to Base Salaries • All types of companies in China are required to pay social insurance for their employees. Ratios vary between cities, for example, in Beijing, the ratio for housing is 8% which is contributed by companies and 8% is contributed by employees, but in Shanghai it is 7% by individual and 7% by company. • Any failure of payment for mandatory insurance could lead to a penalty. • Total compensation will be around 138-145% of the total base salary. Mandatory Social Insurance Unemployment Cities Housing Fund Pension Medical Insurance Insurance Total Total Individual Company Individual Company Individual Company Individual Company Individual Company Guang Zhou 8% 8% 8% 20% 2% 8% 1% 2% 19% 38% Shang hai 7% 7% 8% 22.5% 1% 12% 1% 2% 17% 43.5% Beijing 8% 8% 8% 20% 2%+3 10% 0.50% 1.50% 18.5% +3 39.5% Source: Beijing Labor Ministry, Shanghai Labor Ministry, Guangzhou Labor Ministry 9 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Contents 1. Overview of HC market in China 2. Talent Management issues in China 3. Leading Practices in Human Capital Management Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Employee Management Issues are the 2nd Largest Issues MNCs Face in China Response % ( Multiple Choices) 83.7% 40.3% 35.8% 32.4% 30.1% 26.7% 23.3% 20.4% 17.9% 10.1% 7.7% t t p y n es en ke g d k rs l it hi es io in au is li e ul em bi ar ns ct nc R bl R ta Fr pp te M io va ag y na ns n ro nc at Su e ei ti o an Fi iv U P el re ec tit xa tR IP M al ur R pe Ta ic ee C en ts l it om un of oy Po nm C pl co e er ng Em Ac ov ha G C Source: Fortune (Chinese version 05/2006) 10 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Enterprises in China are Facing Serious Employee Management Issues The talent shortage at middle and senior management levels is proving a major problem for domestic and foreign-invested companies in China. Shortages are most severe among senior managers; two in every five companies are finding it difficult to fill senior management positions* Developing local Developing local leaders is a leaders is a significant significant challenge challenge It’s hard to It’s hard to Traditional Traditional recruit qualified recruit qualified retention retention talent talent methods no methods no longer work. longer work. The talent war is The talent war is Talent issues have serious High High getting fierce getting fierce replacement replacement implications for both MNC cost cost and Chinese companies with global ambitions. * Source: Manpower China White Paper 11 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • The Talent Management Issues Have Negatively Impacted Business Operations Issues Impacts • Not able to react quickly to • Not able to react quickly to • The talent war is getting 1 growth opportunities growth opportunities fierce • Facing higher attrition rates as • Facing higher attrition rates as candidates defect to other candidates defect to other • Companies find it hard to companies companies recruit qualified employees 2 • Having to replace people who • Having to replace people who possess significant intellectual possess significant intellectual • Developing local leaders is a capital about organization’s capital about organization’s significant challenge 3 products and services. products and services. • The cost of replacing average- • The cost of replacing average- • Traditional Retention performing staff members is performing staff members is Methods are not working 4 about 90% of their salary, while about 90% of their salary, while any more high performers can cost high performers can cost anywhere from 300% to 2,000% anywhere from 300% to 2,000% • High replacement Cost 5 • Distraction from core business • Distraction from core business operations while staff members operations while staff members must focus on training new must focus on training new employees employees 12 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Polling Question 2 What is the top challenge you have experienced with human capital management in China? • Difficulty finding and recruiting qualified candidates • Difficulty retaining qualified candidates • Performance management challenges • Communication challenges • Shortage of staff with technical / managerial skills • Not applicable Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Turnover Rate has Improved Since 2002 (30%), but is Still High Especially for Management and Officers Source: Watson Wyatt “ salary survey report-2005” 13 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Fierce Competition From Private and State-owned Firms Private and State-owned Enterprises provide more opportunities for career advancement, which increases their attractiveness to talent. The preferred companies 100% 5.70% 11.20% 90% 6.70% 80% 70% 29% 60% 50% 40% 79% 30% 59% 20% 10% 0% 2003 2004 Source: China Ministry of Statistics PE 14 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Generalizations about Cultural Differences China North America Ethnic Culture Relationships Individuals Source of Trust People Contracts Business Culture Reserved Outspoken Negotiation Style Group decision Individual authority Final word by the manager Distributed decision making Dealing with Indirect Direct Business Counterparts Ability to Make Slow Fast Quick Response 15 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Contents 1. Overview of HC market in China 2. Talent Management issues in China 3. Leading Practices in Human Capital Management Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Top Five Criteria for Attracting Talent Company location 3% Unique organizational 7% culture Meaningful and creative 7% work 19% Opportunities for career development 23% Attractive salary and benefits package • Companies that retain the best employees offer competitive pay, promote flexible working environments and provide career advancements. • High-profile multinational organizations with high retention rates typically provide more career opportunities as well as stronger training and mentoring programs. These organizations attract employees because of the future prospects they offer and the prestige associated with working for them. Source: China Employee Attraction and Retention Survey 2006 conducted by Mercer 16 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Top Five Criteria for Attracting Talent (Cont.) • The survey also found that 83 per cent of organizations offer healthcare and related insurance, while 41 per cent provide health and fitness plans and 24 per cent offer flexible working.; • Just 21 per cent offer supplementary pension plans and 10 per cent provide subsidized loans.; • Overseas assignments are felt to be the most effective tool for career development, but only 42 per cent of organizations offer such opportunities. • Individual career development plans, offered by 51 per cent of companies, are also believed to be effective. • In contrast, mentorship programmers are considered relatively ineffective and are offered by just one-quarter (26 per cent) of companies. 17 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Polling Question 3 Which of the following do you think your employees in China value the most highly? • Competitive wages and benefits • Advanced training • Clarity of performance expectations and metrics • Enhanced communications about business strategy, objectives, and operations • Job rotation and advancement opportunities • Not applicable Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Traditional Talent Management Approaches Don’t Work The Traditional Talent Management Process Acquire Deploy Develop Retain • Traditional approaches: • Do not allow individuals or organizations the flexibility they need to grow • Are costly (firms spend 50 times more on recruiting than training) • Focus on metrics and outcomes, rather than what really matters to talent • Do not get to the heart of where value is created • Are often divorced from broader business aims, such as strategic goals and firm branding 18 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • How Can One Successfully Attract and Retain Talent in China? Learning is a priority for employees because they are Create a learning acutely aware of the limitations of their educational organization... system and are keen to acquire marketable skills. Companies that employ leaders whom Appoint competent employees believe are competent and who provide leaders… employees with immediate feedback are likely to strengthen employee engagement. It is critical for companies to appreciate and respect Establish an appropriate Chinese cultural norms and practices. Companies culture for China… must align certain characteristics with management practices and organizational behavior. Provide competitive Frequent salary reviews are essential to keep track compensation and of the market rate; employees themselves will be benefits… aware of what their market value is. Careful attention to job placement increases Select the right people... retention by ensuring an optimal fit between the applicant and the skills and aptitude required for the job. 19 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Creating a learning organization. If you can’t find it, Make it Among the 50 enterprises preferred by universities between 2004-2005, the top enterprises are the ones that invest heavily on employee development and internal promotion. • Among the 50, the ratio of MNCs and domestic companies is 33:17 • Those investing heavily on employee development enjoys higher reputation 20 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • The Need to Invest in Learning and Development Learning has to be embedded Bring curricula more in line into daily activities with the needs of industry. Create a culture of Give employees projects Learning which go beyond their knowledge sharing. Organization current job’s responsibilities Develop management Participate in global tasks to training courses learn about western culture business management. 21 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Competent Leaders can Increase their Employees’ Engagement By: • Ensuring that their employees understand how their personal work goals are linked to the business objectives of the organization • Recognizing that communication in China is more diplomatic in order not to hurt employees’ face (Mian Zi). This is especially important when delivering the results of performance reviews. • Building personal relationships with employees (Guan Xi) • Ensuring employees receive ongoing performance feedback from immediate managers on a formal and informal environment • Developing career planning for talents 22 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Establishing an Appropriate Culture is an Effective Way to Adapt to the Local Market • Even if they have good qualifications and English language skills, Chinese employees are often cautious about taking initiative and can be risk averse. Therefore, HR professionals in China will need to regularly articulate the culture of the company to encourage open communication, allowing employees to make mistakes and show initiative • It is the organization’s responsibility to communicate those values clearly and simply. Developing a strong brand that describes a company’s unique work culture will help attract and retain talent • Leaders need to embody the values in their actions every day 23 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Using Market-wise Compensation to Improve Retention Though compensation isn’t top priority for many employees in China, a good compensation strategy will increase retention: Strategies Strategy I Figure out what wages your industry is offering. Examine internal pay disparities: Strategy II Make sure that the pay for each job is equivalent to that of similar jobs across the organization. Strategy III Don’t assume you have to outspend your competitors. Making sure you can meet employees’ needs is most important. Pay “hot skills” premiums to employees with crucial, Strategy IV rare expertise and stop premiums when the skills become more available or less important to your business. 24 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Compensation is Not Just About Money • Although a good compensation package is important to employees, they may also be looking for tuition reimbursement, staff outings and team building activities that should be viewed as an opportunity to reinforce the company’s values • A housing allowance or fund can also be included in companies’ benefit schemes. This is popular among mid-level employees who want to set up a home for their family • Senior Chinese managers will expect their benefits to be the same as their associates in the company headquarters, including stock options and a retirement plan. Thus, a long-term incentive plan can become part of the package. • Supplemental insurance and medical programs are influential while China continues to reform its benefits system • Offer Performance Based Pay. Talent doesn’t want to be normalized • Ready to lose some people because you cannot offer highest salary 25 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Careful Attention to Job Placement Increases Retention Employers need to anticipate what will be expected from future employees so 1 that they may create realistic job descriptions 2 Consider internal promotion before external recruitment. A loyal employee is key. 3 Employers need to understand employee job satisfaction. This is possible through the use of employee satisfaction surveys. 4 Conducting interviews with both Western and Chinese managers will ensure a balance of Western and Chinese interviewing styles. 5 Many companies are considering developing their own assessment center. 6 Create a strong training and recruiting program. 26 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Polling Question 4 Overall, how satisfied have you been with the quality of talent you have been able to hire in China? •Very unsatisfactory •Satisfactory •Mixed experience •Very satisfactory •Not applicable Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Conclusion • As the Chinese economy grows and moves into more value-added work, the challenge of attracting and retaining staff is rising with skill levels, as demand outstrips supply. • MNCs need to rethink their working practices, taking Chinese culture into account, and resist the urge to impose Western management processes and thinking on their Chinese employees. • All organizations need to take into account the multiple factors at play that affect employee attraction and retention. • Organizations must also focus on employee engagement to ensure that their workforce is committed to the long-term success of their organization and want to stay with the organization to honor this commitment. • Companies operating in China need to develop an integrated, strategic approach to attracting and retaining talent and ensuring their employees are fully engaged. Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Questions & Contact Info Clarence Kwan clkwan@deloitte.com 212-436-5470 Dick Kleinert rkleinert@deloitte.com 213-688-3368 Jungle Wong junglewong@deloitte.com 86 (10) 8520 7807 Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Join us November 9th at 11 AM ET as China Issues presents: China Business Update: Eastern China Perspective Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Thank you for joining today’s webcast. To request CPE credit, click the link below. Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member firms and their respective subsidiaries and affiliates. Deloitte Touche Tohmatsu is an organization of member firms around the world devoted to excellence in providing professional services and advice, focused on client service through a global strategy executed locally in nearly 150 countries. With access to the deep intellectual capital of 120,000 people worldwide, Deloitte delivers services in four professional areas, audit, tax, consulting and financial advisory services, and serves more than one-half of the world’s largest companies, as well as large national enterprises, public institutions, locally important clients, and successful, fast-growing global growth companies. Services are not provided by the Deloitte Touche Tohmatsu Verein and, for regulatory and other reasons, certain member firms do not provide services in all four professional areas. As a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor any of its member firms has any liability for each other’s acts or omissions. Each of the member firms is a separate and independent legal entity operating under the names “Deloitte”, “Deloitte & Touche”, “Deloitte Touche Tohmatsu” or other related names. In the US, Deloitte & Touche USA LLP is the US member firm of Deloitte Touche Tohmatsu and services are provided by the subsidiaries of Deloitte & Touche USA LLP (Deloitte & Touche LLP, Deloitte Consulting LLP, Deloitte Financial Advisory Services LLP, Deloitte Tax LLP and their subsidiaries), and not by Deloitte & Touche USA LLP. The subsidiaries of the US member firm are among the nation's leading professional services firms, providing audit, tax, consulting and financial advisory services through nearly 30,000 people in more than 80 cities. Known as employers of choice for innovative human resources programs, they are dedicated to helping their clients and their people excel. For more information, please visit the US member firm’s web site at www.deloitte.com/us. Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • The information contained in this publication is for general purposes only and is not intended, and should not be construed, as legal, accounting, or tax advice or opinion provided by Deloitte & Touche to the reader. This material may not be applicable or suitable for, the reader’s specific circumstances of needs. Therefore, the information should not be used as a substitute for consultation with professional accounting, tax, or other competent advisors. Please contact a local Deloitte & Touche professional before taking any action based upon this information. Copyright © 2006 Deloitte Development LLC. All rights reserved.
    • Copyright © 2006 Deloitte Development LLC. All rights reserved.