Regional government policies have raised problems for Chinese talent-seekers

In this on-going blog theme on China, we explore some of the challenges experienced by companies seeking talented individuals for supply chain roles as they expand in Asia. Much of my thinking here is based on a joint paper I am working on with Yanghong Shi, a visiting scholar from the Shanxi University of Finance and Economics.

Although executives tend to think that recruiting supply chain talent in China is uniformly challenging throughout the country, the reality is that there are also different reasons for this common problem. We discovered that this phenomena is primarily due to the large variation in working conditions and cultures in different regions of China

Living and working in different cities in China is a vastly different experience, based on living conditions, infrastructure, industrial sector focus, and associated career development opportunities. The underlying root of this variation among regions is due to unbalanced regional economic development. Since the reform and open-door policy of the late 1970s, China has achieved incredible levels of economic growth, but the magnitude of this growth has not been distributed fairly across all of its regions.

In China, economic development has primarily been clustered around big cities and coastal areas where there has traditionally been a well-developed infrastructure base. In the early stages of reform and the open-door policy of China in the late 1970s, the government adopted preferential policies that favored coastal regions (especially Shanghai and Beijing) which promoted their development. As a result, unbalanced government development policies further increased the inter-regional inequalities in working conditions and opportunities for job growth between densely populated regions and rural regions.

The real per capita GDP of the richest region, Shanghai, was about ten times that of the poorest region, Guizhou in 2010. (For further information, see the Report on the work of government of Shanghai and Report on the work of government of Guizhou, 2010) This unbalanced regional economical development resulted in major gaps in socioeconomic opportunities for developed vs. undeveloped areas. This included gaps in education, medical providers, hygiene, cultural development and job opportunities. Predictably, there was soon a flood of Chinese migration into first level, developed cities where better job opportunities existed, better living conditions beckoned, and learning opportunities abounded. Those enterprises who remained in less developed areas were left with a dearth of talented individuals for employment.

Evidence we collected from Western logistics recruiters suggests that logistics providers with comprehensive services and broad market coverage are more attractive to logistics users. A broader set of service offerings and broader geographical coverage are typically associated with better performance in the market. (Junjie Hong and Binglian Liu, 2007)

Foreign logistics companies in China are seeking to expand their broader geographical coverage. With rapid business development, foreign logistics companies are establishing a logistics network throughout China. The footprint of logistics companies is moving increasingly to inland locations, to what are considered “second and third tier” Chinese cities.

Because of the clustering of qualified talent in first tier cities such Beijing, Shanghai and Guangzhou (called Bei-Shang-Guang by the Chinese), foreign logistics companies have much less success in finding potential candidates in second and third tier Chinese cities .

A problem brought about by the unbalanced development in second and third tier cities is the soaring living cost in tier one Chinese cities. As more and more individuals crowded into big cities, the rising price of real estate and the inflation in recent years have pushed the living cost in big Chinese cities to a historical level. This has become such a massive problem, that the Chinese government is taking measures to prevent individuals from moving to Shanghai and Beijing for work. For example, an interview with a recruiter led us to understand that individuals could have their children’s education as well as their family’s healthcare costs curtailed if they move to a major city without the permission of the Chinese government.

According to a living cost survey of 214 cities conducted by Mercer in 2010, the cost of a broad array of goods and services in Chinese cities has increased exponentially and the trend is forecast to continue this year. In Mercer’s March 2011 Cost of Living Survey Report, the living cost of New York was 32nd among the 214 cities on the surveyed cities list. In this same list, the living cost of Beijing and Shanghai were respectively at 20 and 21 on the list.

The higher living cost in tier one Chinese cities has raised salary expectations for employees, especially for qualified and talented managers in logistics who are relatively scarce and have better market value. Our interviews with Chinese managers revealed that most of them stay in a job for less than a year, and are often pursued by headhunters who offer higher salaries and more important-sounding job titles. Even so, there is a gap that exists between expectations and reality for Chinese employees in foreign companies.

Though the living cost in tier one Chinese cities is in the top 20 in the world, the income of employees of foreign companies has not caught up with the rising living cost. According to the statistical data from Beijing Bureau of Statistic, the average yearly income in 2010 of the employees of foreign companies in Beijing is RMB 91,646. That translates to about $14,319 per year with a living cost higher than that in New York. That has greatly increased employee dissatisfaction with their salary levels, and has rendered these positions in foreign companies relatively unattractive (compared to 20 years earlier.)

Another big source of tension is the differential in salary rates between Chinese employees and expatriates from their home country in foreign companies in China . Normally, expatriates to China will receive 8X or more than their typical salary compared to their Chinese colleagues for doing the same job. This is a source of resentment especially among middle to high level Chinese employees. Several individuals we interviewed claimed that their experience and knowledge was often not appreciated, and that Western managers seemed to think they were the only ones who knew how to operate a supply chain in China.

Another phenomena brought by the high cost of living in big Chinese cities is dual career families. Many families to survive now have both husband and wife working to support the family expenses. For those couples in their 40s or 50s with years of experience and relatively high level positions, any change of job location of one family member means a big career change or even sacrifice of their career for the other. This can explain why there will always be employee’s resistance or quitting when a foreign company has to move or send their employees to different Chinese cities with the expansion of their business. People would rather find other jobs in the same city than move the whole family to another city, which will bring big changes to their spouse’s career.