In North America and Europe workers are begging for jobs. In China companies are begging for workers.

How can this be?  How can a country of 1.3 billion people, with a slowing economy, be facing a shortage of workers?

In fact, China’s demographics and China’s role as the factory to the world are changing. In a 2010 manufacturing competitiveness study[i] released by Booz & Co., nearly 83 per cent of companies said their primary motive for locating manufacturing in China was to access the Chinese consumer market. And this year, 32 per cent of companies reported[ii] they were importing completed goods from North America to distribute in China.

Let’s be clear: China is important as a hub for exports. But, China as a manufacturing base is no longer “Cheap China”. China is moving up the value-chain, and has been for several years. And with this movement, salaries have been rising and the world’s largest middle class consumer market has been created.

So, what’s this about China as a marketplace?

At GM, foreign markets account for 75 per cent of sales and China has been GM’s largest market since 2010. In August, GM had another record month of sales in China, on the heels of record year-to-date sales.

The Four Seasons opened its fifth China hotel last month and has 10 more under development, which, upon completion, will be equivalent to 50 per cent of their total U.S. portfolio.

Yum Brands’ KFC and Pizza Hut restaurants saw 50 per cent of 2011 operating profit come from China compared with 32 per cent from the U.S.

Chinese consumers are replacing business lost in Europe. Armani’s 23 per cent operating profit growth in 2011 was driven by China where sales were up 45 per cent – three times the total company average.

Scott Price, CEO of Wal-Mart Asia, phrased it best saying: “When a car shifts from 100 miles an hour to 69 miles per hour, it’s still going pretty fast. A Chinese economy growing at 7.5 per cent is still an enormous growth opportunity with masses of under-served customers.”

In China, today, seven to eight per cent GDP growth is accepted as the new normal.

Moving to “Sales in China”

The days of “Made in China” are diversifying into “Sales in China” as the megatrends of population growth, urbanization and a growing middle class make China an important consumer market opportunity for Chinese, Asian and Western companies alike.

In the wake of the global slowdown and stagnating western markets, most Asian markets, led by China, have shown themselves to be resilient and diversified.

Three key factors for this are:

 1.    China and Asia are diversifying their trade base.

China and Asia are becoming less dependent on Western trade as domestic and intra-Asian trade expands by 7.5 per cent p.a. compared to 2.0 per cent for European trade[iii]. And, as new trade corridors become more important between Asia and Latin America and Asia and Africa.

2.    The stabilizing effect of economic diversity

This diversity ranges from highly developed financial centers in Hong Kong and Singapore to sophisticated manufacturing in China to the shift of low cost manufacturing to Vietnam and Bangladesh; and finally, being situated in the world’s fastest growing new consumer markets.

 3.    China and the region are well financed

A fact boosted by an increasingly stable political environment.

Today, China and Asian growth rates are well ahead of those in the world’s developed economies, and, look set to remain highly attractive. Consumption of both consumer and capital goods is on the rise, with the Asian middle class being the megatrend of the decade ahead. The Asian middle class is expected to expand six-fold, and grow to account for 42 per cent of total global consumption in 2020, compared to only 23 per cent in 2009[iv].

The emerging middle class is both the consumer and the workforce. They have rising disposable incomes created by salaries that are increasing twice as fast as Europe and North America and they have job choices – plenty of job choices.

So, China and Asia remain growth opportunities as the Western world and in particular Southern Europe, work through a protracted recovery – which some predict may take years. Today, a global talent imbalance persists, with mature markets facing high unemployment amid economic malaise, while Asian markets experience talent scarcity amid more rapid economic growth.

The growing need for talented managers in China represents by far the biggest management challenge facing multinationals and locally owned businesses alike.

In a recent survey out of Shanghai, 37 per cent[v] of MNC companies reported that recruiting talent was their single biggest operational problem in China —a bigger problem than concerns about regulations, lack of transparency or intellectual-property rights.

Separately, 44 per cent of executives at Chinese companies, surveyed by McKinsey, reported insufficient talent as the biggest barrier to their global ambitions.

Never, at any time in history, has the demand for talent been so concentrated and intense in this part of the world. Many of China’s largest private employers report rising wages and hiring.

Hon Hai Precision Industry Co., which produces Apple’s iPad, added 82,000 new jobs, in 2011, bringing its total Mainland China workforce to almost 1 million. They report year over year wage inflation of 11 per cent.

Yum Brands’ KFC and Pizza Hut restaurants employ 400,000 workers in China, and are adding around 40,000 a year. They report year over year wage inflation of 17 per cent.

Wal-Mart estimates they need to hire 150,000 people over the next 5 years to support growth in China, India and Brazil.

Six million new full-time jobs were created in China in the first half of this year[vi] while labor ministry surveys in 91 Chinese cities showed demand for workers outstripping supply by a record amount.

Reflecting the tight labor market, average urban household wages are up 13 per cent in the first half of the year and average monthly wages for migrant workers rose 15 per cent. At current rates, China’s private-sector manufacturing wages are expected to double, from their 2011 levels, by 2015, and triple by 2017.[vii]

This is causing the shift of lower value manufacturing activities to adjacent South Asian markets; and, more investment by Chinese factories in labor-saving technology and productivity initiatives to offset rising wages and labor shortages in China.

More than 816 million[viii] workers make up China’s current labor force, but the size of the workforce has plateaued and will start to shrink in 2015, intensifying competition for workers. By 2015, the United Nation projects the number of new entrants to the workforce will dip to 95 million, a 22 per cent decrease from 2005[ix].

 

 

 

 

 

[Source: Wall Street Journal]

So, what does this mean?

By 2020, it is possible that China may have 228 million fewer workers than required to operate effectively[x]. And, as China shifts from “Cheap China” manufacturing to more value-added services, the type of skills it requires is changing.

Today, the key growth sectors are in: finance, insurance & real estate; retail & hospitality; and IT. In other words, the service sector. The most sought after experience is:  sales & marketing, controller/CFOs and IT professionals.

As the consumer market grows and expands to second, third and fourth-tier cities, the need for trained, informed sales and service staff has skyrocketed. The lack of a tradition of service quality makes it difficult for staff to recognize and provide good service, particularly for luxury brands.

Facing limited experience and staffing shortages, some brands have begun to recruit and train large numbers of new employees from the ground up. Richemont, the owner of brands like Cartier, Chloé and Mont Blanc, opened its first luxury retail academy in Shanghai, last November. Students are immersed in the luxury retail experience, with nine-week classroom and boutique training on topics including: “The World of Luxury”, “Etiquette and Grooming” and “The Importance of Service.”

Dior plans to open a China campus of its famous Dior Academy.

Graduates of luxury retail schools will not only be useful in the new Chinese markets, but also in boutiques abroad as the numbers of Mainland Chinese shopping tourists continue to increase.

Not too long ago, working for a multinational company, with a prestigious global brand, was the ultimate career goal for aspiring Chinese nationals. The huge bureaucratic Chinese state-owned enterprises or Chinese private enterprises held much less appeal, paid relatively poorly and offered limited career opportunities.

But an interesting shift is occurring in the Chinese talent market. With the rise of Chinese global leaders like Huawei and Haier and the growing global prominence of Chinese banks, increasing numbers of returning Chinese graduates are questioning the merits of working at the China subsidiary of a western multinational corporation (MNC) when they could work at the global headquarters of a Chinese company.

All firms in China have similar demands for top talent: people, who can manage businesses, lead others, create and innovate. With the limited supply of these critical skills, all firms are now competing head to head to attract and retain such talent.

Chinese companies are matching or exceeding MNC salary packages, offering enticing benefits and attractive career paths to senior management, including international expansion assignments. This disadvantages MNCs who have created a perceived glass ceiling as senior roles often go to expats.

MNCs, facing astronomical growth expectations from China, have to adapt to this new competition from Chinese firms, as all need senior managers who can deliver growth.

In June, IBM announced the opening of its 50th branch office in China and has opened in 20 cities over the past 12 months as the IT services market is forecast to double.

The speed of business growth exceeds the experiential learning curve of most managers – talent and strategic thinking do not develop as fast as the markets are moving. There is a lack of business experience in the talent pool in these markets.

Companies are investing heavily in training and executive education to shorten the timeframes for developing managers into senior leaders. In the case of IBM, they report a 5-7 year senior management development plan in growth markets compared to 10-15 years in developed markets.

Many companies have instituted separate “high potential pools” providing selected employees special training, mentoring and embedding academic programs with international rotations. For instance, Agricultural Bank of China (ABC) sent 26 high potential managers to Canada for 1 year to complete an Executive MBA with our school and to obtain work experience at Bank of Montreal.

Since graduating, a year ago, more than half of these participants have been promoted to new roles in China and internationally.

Next month, ABC is sending another 250 executives to our campus in Hong Kong for a 5- week program focused on international risk management, international finance and international marketing.

Meanwhile BASF, the German chemical company, annually sends 25 – 30 high potential Chinese managers for 2-year international assignments in their German headquarters. They also actively recruit Chinese graduates of German universities into management trainee programs that start in Germany, rotate through Asia and end up in roles in their China operations.

The training and development investments by companies in China are substantially higher than western markets. They have to be. With a shortage of experience, a tight labor pool and high turnover rates, companies are finding that investing in your own talent is yielding much better results and retention than bidding up for available talent in the market.

 

The door is open for Canada and Canadians

As I mentioned earlier a global talent imbalance persists, today, with mature markets facing high unemployment and Asian markets facing talent scarcity amid rapid economic growth.

Does this mean that available talent from mature markets will be shifting to China anytime soon?  No. I don’t think so. Language and cultural competencies are still must-haves for most roles in China, including the majority of the top jobs.

But, I do see a number of opportunities for Canada and Canadians.

FIRST, the opportunity to actively attract more international students, from China, to Canadian universities offers a number of economic and strategic benefits.

A 2011 report commissioned by Foreign Affairs and International Trade Canada found that, in 2010, international students contributed $8.0 billion to the Canadian economy in the form of tuition, accommodation, discretionary spending and tourism. That translates to 86,570 jobs for Canadians and $455 million in government tax revenue.[xi]

Earlier this year Canada and China agreed to expand two-way academic mobility aspiring to reach a combined goal of 100,000 students studying in each other’s countries within five years.

The strategic benefit of this is: improved two-way market understanding; and, contacts between Chinese and Canadian students that may lead to future business opportunities.

For example, Michael Chan, the Chairman of Café de Coral, Hong Kong’s largest fast food chain, is a University of Manitoba grad. He discovered Manchu Wok restaurant while studying in Canada, in part, he says, because he missed food from home. When he had the opportunity he bought Canadian-founded Manchu Wok Group, which now has more than 200 restaurants in North America.

And, Ivey EMBA, Simon Cua, chairman of an LED and large-scale energy efficient light manufacturing group who hired three of his EMBA classmates to help build the business in China, North America and Europe.

SECOND, Canadian subsidiaries of global multinationals can play an important role in developing internationally capable talent for China operations.

Just as BASF partners with German universities, MNCs operating in Canada could partner with Canadian universities to offer international work assignments for Chinese students post-graduation. The best of these students could then become eligible for management trainee programs in China.

This is a true win-win.

China is already Canada’s top source country for international students, but, we face tremendous competition from bigger brand university markets in the U.S., U.K. and Australia. Being able to offer Canadian work experience and access to China management trainee programs would enable Canadian universities to attract more of the best and brightest of China’s international student pool. As mentioned earlier, there are compelling economic benefits to attracting more international students to Canada. And, this approach would provide MNCs with compelling access to an internationally experienced talent pool.

THIRD, “Women Shuo Putonghua”…we need to make mandarin a priority in our schools. In July, 100 Canadian primary and high school principals were in Beijing for meetings with the Confucius Institute to explore ways of bringing more mandarin language programs to Canada.

As a point of reference, the world’s largest Confucius Institute is in the city of Chicago. It opened in 1999. Today, more than 12,000 public school students from 42 Chicago schools are in mandarin programs.[xii]

Our children’s generation will need to be capable of operating in a world where both the U.S. and China are the dominant economies. Developing Chinese language proficiency and cultural familiarity will enhance the mobility and future job opportunities for our children.

The FOURTH & final opportunity on my list is to build on our trade strengths by extending our relationships and interaction with China in key areas of Canada-China trade engagement.

Currently, our top areas of engagement are: agriculture & agribusiness, energy, green tech, financial services and education. Targeted forums and joint working groups that bring together Canadian and Chinese business leaders in these sectors will improve Canada’s understanding of the challenges China faces in trying to address its next stage of growth and will improve China’s understanding of Canadian technologies and capabilities. And, it will strengthen opportunities for us to work together.

Let me close by summing up the key themes:

• In a country of 1.3 billion people, lack of people, is the biggest barrier to growth facing business in China today.
• This is being felt by western and Chinese MNCs alike as western MNCs try to achieve high growth expectations and as Chinese MNCs pursue domestic market growth and international expansion opportunities.
• China is entering a new stage of development as it diversifies from Cheap China to higher value manufacturing and a service based consumer economy. By 2020, the Asian middle class consumer may represent 42 per cent of global consumption.
• This is increasing the demand for service sector skills and internationally capable experience at a time when demographic shifts project China’s labor force to begin declining in size in 2015.
• It is also increasing trade engagement opportunities between Canada and China in a number of key sectors. Among them, education provides a key opportunity for greater interaction that can be economically and strategically beneficial.

So, while it may seem counter-intuitive that a country with 1.3 billion people, with a slowing economy, is facing a shortage of workers…this is the case as China’s demographics and China’s role as the factory to the world changes.

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