Skills crisis puts Chinese dragon on the back foot

Just as the TUC called for action to help UK manufacturers fight the threat to jobs from the fast-growing Chinese economy, the eastern dragon finds itself struggling to fill skills gaps. Leah Larkin reports

After stagnating for two decades under the rigid authoritarianism of early communist rule, China now has the world’s fastest-growing economy and is undergoing what has been described as a second industrial revolution.

The country ranked number 28 in global exports in the early 1980s. Today it is ranked number three and has become one of the leading competitors in low-cost manufacturing in a variety of industries.

This rapid growth has led UK employers to raise fears about the ‘fierce competition’ they face from Chinese rivals.

And yet, despite a population of 1.3 billion people, the country has serious labour shortages in many parts of the country. From factory workers in south-eastern China to managers in the big cities, the country’s current talent pool cannot always fill the demand created by its booming export market.

Migrant shortage

Experts estimate that there is a current shortage of between one and two million migrant workers in south-east China, those who fill the majority of the factory jobs.

“The problem of labour shortage is affecting most of our member companies which have manufacturing facilities in China,” said Lawrence Chan, vice chairman of the Hong Kong Toy Council, which represents more than 250 members in the toy industry.

These factories, which are located near the coast, and the container ships that carry their goods to overseas markets, have traditionally been associated with cheap labour. Migrant workers live in dormitories at the factories, often work long hours – as many as 14 hours per day in peak production periods – and are paid minimum wages.

However, the standard of living in China has been improving and more and more workers are refusing to tolerate low pay for hard work in poor conditions. And, as workers go back home to their farm villages and tell of their dismal working life, fewer and fewer people are willing to follow their path to the factories.

This is increasingly the case, especially since the Chinese government has been successful in encouraging farmers to remain with agriculture by providing incentives.

Another problem is the shrinking number of young people, according to Dali Yang, professor of political science at the University of Chicago. The one-child policy implemented in 1979 means that those in the 15-20 year age bracket will decline by 17% in the next five years.

“These people are the most desirable for assembly line work,” he said. “They are energetic and well-educated with a high school or junior high education.”

Jim Hemerling, senior vice-president at the Boston Consulting Group in Shanghai, described the current situation as a “matching problem”.
“There are hundreds of millions [of people] working on farms still under- employed,” he said. “They could easily be freed up to work in factories.”

Complex logistics

Many companies are building new plants deep in the countryside to be near potential workers, although this means increased costs as the logistics are more complex, according to May Wong, China program officer at the Asia Monitor Resource Center, which monitors factory conditions.

“In the past, only the south of China was being developed,” she said. “Now, the middle of the country is rapidly turning into an industrial area.”
A few companies, such as Kingmaker Footwear Holdings which makes Timberland and Caterpillar shoes, are even opening up factories in Vietnam where labour is abundant and cheaper.

At its China plant, David Lay, financial controller for the company, said Kingmaker pays its workers between $100 and 120 (55-66) per month, which is above the Chinese minimum wage, yet it still cannot get enough workers.

Like Kingmaker, other companies increasingly offer higher wages, and improved benefits, perks and working conditions. Printer manufacturer Epson, for instance, chartered 58 buses over Chinese New Year to take workers from its factory to their home towns, then back to the factory after the holiday. And according to Epson China’s HR executive Vincent Leung, the workers were grateful and the retention rate improved by 8%.
At management level, personnel shortages are just as critical. In a recent study on Chinese employers by Hewitt Associates, the consultancy stated: “Chief executives (CEOs) are increasingly realising that there simply are not enough talented leaders and managers to go around.”
Hemerling speaks of a “shortage of those with 10-plus years of experience to be put in leadership positions”. He said the shortage was most acute in large cities, such as Shanghai, which have experienced the most growth.

“This leads to people hopping from one company to the next where they are often given compensation increases,” he said.
A recent article in the International Herald Tribune stated that, in some roles, salaries were approaching US and European levels. Yet, according to the Hewitt study, “throwing money at the problem does not present a long-term solution”.

HR strategies are, in fact, playing a key role in attracting and engaging employees, according to Jessica Pfeifer, a compensation specialist at Hewitt.

She said that leading Chinese companies were taking a closer look at career development opportunities and other more intangible aspects of the employment package that attract employees to their jobs and then engage them in the day-to-day processes.

“CEOs in China put HR – attracting, motivating and retaining talent – at the top of their business agenda,” she explained.

Embracing best practice

The Chinese government itself, for so long an introspective and distrusting regime, is also keen to embrace the best practices of international employment.

Recently, it signed an agreement with Manpower that will see the recruitment firm working with government agencies to develop HR strategies and infrastructure to support the evolving requirements of China’s growing workforce.

Employers around the world will be watching closely to see if these strategies can help China become a true economic superpower in the years to come.

TUC calls for summit on threat of China’s high-speed growth

The TUC has called on the government to host a summit to examine how UK industry can prepare itself to tackle the threat to companies and jobs posed by the rapidly expanding Chinese economy.

The China, Europe and UK Manufacturing report argues that employers are wrong to think the UK can compete with the Far East by forcing down labour costs or blocking new workplace rights. The only effective response was to put more money into skills, research and development, and innovation, it said.

The report said that companies in Germany, often cited by UK employer organisations as among the most heavily regulated in Europe, had won export markets in China at a time when UK exports have struggled.

TUC chief economist, Ian Brinkley, said: “Chinese competition certainly poses real threats to many UK firms, and too few employers are doing enough to ensure manufacturing’s long-term survival.

“We need to invest in the things that matter like skills, research and innovation. And while each firm has to make and sell its own products, it is right to ask how government and the sector can work together to make the changes needed. That is why we need a special summit to help focus minds and enable everyone to work together.”

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