Bridging the Chinese Skills Gap

Hankscraft has been making industrial motors and mechanized pumps for more than 50 years in Reedsburg, Wisconsin. The company came to China just three years ago but already has twice as many employees here as it has at home.

Jonathan Funkhouser, who is general manager of Hankscraft's China operations and who makes the top-level technology decisions, thought it was going to be hard to get all the government approvals he would need in order to set up shop in China. But that turned out to be the easy part. "Finding good employees and managers was the most difficult," he says.

That's not the only problem. Salaries have been climbing fast -- 20 percent to 30 percent a year on average for IT managers, Funkhouser says. And turnover is high. During the past three years, he has hired five critical IT employees and lost three of them. "It's been a very challenging thing for us," he says.

Finding people with specialized IT skills, such as in-depth knowledge of secure systems, can also be tricky, says Celine Zhang, China human resources manager at Paris-based Hachette Filipacchi Medias SA. Hachette is the world's largest magazine publisher, with titles such as Elle and Marie Claire and a presence in 39 countries.

Despite widely read reports of waves of IT talent graduating from Chinese universities, the picture on the ground is quite different, say businesspeople operating in the country. The truth is that in China, a good IT professional is hard to find, and good IT managers are even scarcer.

On the plus side, says Zhang, IT outsourcing companies have been coming to China recently, gradually deepening the talent pool. "There are quite a few IT consulting companies in the market now, and they have trained a lot of IT personnel," she says.

One such company is BearingPoint. Matthew Ding, a managing director for financial services at BearingPoint's Shanghai office, says firms like his also have to deal with the skills gap. Because the IT consulting industry in China is only about five years old, there's a lack of experienced project managers, he says.

Part of the problem is the Chinese educational system. Ding, Funkhouser and others observe that China's universities are heavy on theory and light on real-world practice, leaving employers to make up the difference.

Ding, for example, has had to become an interpersonal skills mentor. He had to teach one manager to delegate, to communicate with his team members and not to tell others to shut up. "Normally, we don't hire managers; we grow them," Ding says.

But not every company can afford that luxury, and an inexperienced manager can delay a project or cause it to fail, he says.

That's one reason why salaries for IT managers are rising faster than entry-level wages. According to Pieter Tsiknas, director of the Beijing office of Shanghai-based recruiting firm SearchBank, experienced midlevel IT managers typically make between US$1,200 and US$1,500 a month, compared with just US$500 for an entry-level staffer.

Tough Times for Talent

The convergence of three phenomena in China's overheated economy is causing demand for skilled IT professionals to outpace supply, says Garry Wang, a consultant at Hewitt Associates Consulting Co.'s Shanghai office. Continued foreign investment in China, growth of existing multinational operations in China and the attempts of Chinese companies to go global are all widening the skills gap.

But there are cultural reasons as well. Many older Chinese, for example, have never experienced a market economy. "They have never been in a competitive environment," says Wang.

Moreover, studies show that Chinese employees of all ages are rarely qualified to work for a multinational company. According to a survey of 83 human resources professionals by the San Francisco-based McKinsey Global Institute, less than 10% of Chinese job candidates, on average, are suitable for work in a foreign company.

In an October 2005 report, "Addressing China's Looming Talent Shortage," McKinsey blamed much of the IT talent shortfall on the educational system and geography. The report noted that among other problems, graduates lacked conversational English skills and only a third of the 1.7 million Chinese who graduated from college in 2003 lived close to where the jobs were.

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Moreover, foreign companies have to compete with globalizing Chinese companies for seasoned managers, and that demand will continue to outstrip supply by a ratio of 15-to-1 over the next 10 to 15 years, the report says.

Most in demand are Chinese IT managers with experience working overseas.

"Everybody shoots for the returnees," says Tsiknas, noting that they have the best English skills, solid work habits and multicultural savvy. "They bridge the divide between local and Western cultures and have experience that is not easily gained here in China," he says.

The shortage of midlevel IT managers has driven salaries in Beijing, Shanghai, Guangzhou and Shenzhen -- China's leading coastal business centers -- up 8 percent to 10 percent per year, Wang says. Salaries in second-tier cities are generally 20 percent lower but are increasing at a higher rate, he adds.


Stopgap measures for handling the IT talent shortage can make things worse. Poaching from competitors, for example, is a much decried though common practice. "There is a tendency in China for employees to jump for relatively small salary improvements," says Linda Sprague, a professor of manufacturing and operations management at China Europe International Business School in Shanghai.

This is a three-part problem, she explains: The company loses an employee it has been developing, the IT person who jumps may never stay in one place long enough to become really experienced and productive, and salaries rise even faster.

Another strategy is to tap overseas communities of Chinese speakers in Singapore, Taiwan and Hong Kong, who usually have excellent English skills and are used to working to Western standards in multicultural environments. Because they are in demand, IT managers from Singapore and Taiwan -- and especially Hong Kong -- command the biggest salary packages, according to a 2005 compensation and benefits survey conducted by Watson Wyatt Worldwide, a global human resources consulting firm based in Arlington, Va.

But additional costs, such as housing expatriate workers and flying them home to see friends and family, doubles what a company would spend on a Chinese employee. "Everyone is trying to scale back on these because they are expensive," says Wang.

Multinational corporations have one distinct advantage over domestic Chinese companies when it comes to attracting the best and the brightest: The sky's the limit as far as opportunities for advancement are concerned. Well-known companies such as General Electric Co., Siemens, Motorola and The Dow Chemical Co. can attract good people if they have a reputation for nurturing employee success, Wang says. That's because, at least in one respect, Chinese IT workers are like their counterparts everywhere. "Pay is usually not the key driver for attracting top employees," Wang says. "Many people are driven by factors such as career opportunities, training and education."

Employers that provide those extras build reputations that help attract the best talent while drastically reducing the cost of recruiting. "In a profession such as IT, where turnover is 25 percent or more, this cost can be significant," Wang says.

Apparently, the approach is working for global soft-drink giant Coca-Cola Co. "We have no problems in attracting and recruiting skilled IT managers," says Coca-Cola Asia spokesman Kenth Kaerhoeg. "Fortunately, the talent pool in China is increasing rapidly. In addition, we provide intensive training to all new recruits."

In terms of career opportunities, one of the most powerful lures is the promise of an international career development path. "It's a fallacy to think you can retain people purely on cash compensation," says John Ruthven, general manager of Asia-Pacific operations at Islandia, N.Y.-based CA.

The software vendor is putting together plans for one- and two-year rotations through its Hong Kong office or other international locations for its Chinese employees. "Overseas postings make them extraordinarily marketable and extraordinarily valuable to a multinational business operating in China," says Ruthven.

And what about companies that can't afford to pay top rates or rotate people through glamorous international locations? They may have to set their sights lower, says Samuel Ritter, a senior consultant at SSBG, an IT services provider based in Shanghai.

"A lot of companies are forced to make changes in their requirements," Ritter says. "Where they were looking for 15 years' experience, they're lucky if they get five to eight. Where they want fluency in Chinese and English, they're lucky if they get just professional Chinese communication skills. Where they want a good personality and a team player, they may have to settle for someone with people issues."

Trombly and Marcus are freelance business and technology writers based in Shanghai.