No Free Lunch in China
By Patrick O. Courtois
I tend to receive a recurring misconception about the Chinese labor market from overseas-based clients. This misunderstanding primarily affects overseas-designed provisional staffing budgets as well as the perceived value of quality of China-based recruitment agencies. In short, agencies are perceived to attempt inflating candidate packages for higher fees. While some rogue agencies do, there is a distinctive trend that the cost of Chinese talent is catching up with international benchmarks.
China is an emerging Dragon, Shanghai, a crouching tiger…
China is an emerging and developing economy. At least, it is its official status according to the International Monetary Fund’s World Economic Outlook Report, dated April 2008 (1). Taking into consideration the measurement criteria, based on statistical indexes of element like income per capita, GDP, literacy rate and such, are calculated against the sheer size of its population, it can only make sense.
Shanghai is, along with Beijing, Guangzhou and Shenzhen the economy’s locomotive. Having the status of “wealthiest” city in China, with a GDP per capita, above US $7,000 for 2007, it is however still far behind any Major European capital (2). To give you a clearer idea, Shanghai’s GDP per capita is below a city like Istanbul, Turkey (3). Once again, keep in mind the size of Shanghai’s population (over 15 million souls) and you can understand that GDP per capita does not necessary reflect the reality of local white collars, which are far from being the majority.
Another interesting piece of information is the Mercer’s 2008 Worldwide Cost of Living survey (4), which gives us an idea on the rising costs of living in Beijing and Shanghai, with both cities present in the Top 25. The results, however not entirely applicable to local nationals, as based on expatriate populations, still gives us an insight on a certain reality of the local economy. That is, the gap in cost of living observed between a modern city like Shanghai and other “emerging” one, in China.
Despite all these, Shanghai can still be considered as a “cheap” city, with low business operations related costs, minimal salaries requirements, and reasonable living costs below those of similar sized cities in US or Europe.
The “Made in China” picture of low wages is still relevant today. Compared to wages in the EU or US, employing local nationals is indeed an affordable option. Looking at figure 1 comparison of the median US, UK and Chinese total packages (salary + bonus and benefits) on some common positions, the point is made. At first glance, it quickly illustrates the cost-effectiveness of employing local nationals, considering we are talking about the “median” or average population, of course. It quickly demonstrates that employing the “average” local candidate can still be regarded as a cost-effective solution.
If you pay peanuts, you get monkeys…
No offence to anyone in particular, as this applies to pretty much anywhere around the world… But, If you take a closer look at this “average” labor market, as it is the one providing input for most official statistics, surveys and other reports that one can easily find online and, incidentally, the segment on which a lot of people base a provisional recruitment budget upon, you get a rather interesting picture… Simply put, by a fellow recruitment specialist, “the average employee in China does not speak English, he does not work in a foreign firm, he does not think outside the box, understand western reporting structures, go to a top university, or have a chance of getting hired into your firm…”(5).
The average candidate has also the shortest retention potential, following a simple logic of job hopping for ever shinier titles and bigger financial packages, thus leaving a city like shanghai with a dramatic employee turnover at around 18 months and a managerial workforce with somewhat arguable overall managerial skills. If you are the decision maker of one of these multinationals, which are slowly initiating a shift toward management localization by cutting off expatriates’ budget plans, would you really consider handing over the keys to your financial, commercial or product development operations to an average candidate whom, however nice of a person, would most likely fail to properly relate to, understand or even communicate on basic day to day issues?
No money, no honey…
On the other hand, you have the candidates which are at the center of what is now known as the “Talent War” (6). These are candidates with bilingual English abilities, 5 to 10 years of solid people and projects management experience, strong overseas exposure, the ability to think in a systemic way, whom are fully acquainted with western reporting systems, can deal with foreign clients with the highest level of service quality, have graduated from top Western universities and can leverage on the added-value of their biculturalism. These are the candidates companies are fighting over for in Shanghai, Beijing or other tier 1 cities, with packages narrowing closer to those in the US or Europe, and sometimes going well beyond.
Figure 2 sheds some light on a more relevant picture of the Shanghai employment market (for top candidates), with key functions such as Finance, HR or Sales clearly aligning themselves on EU/US levels. This “headhunter’s” dream can quickly turn into an employer’s nightmare, if the latter does not properly understand the realities applying to the local market: An overall talented, self-motivated, creative, and experienced manager is a scarce resource in China, and a 28 years old sales manager making above RMB 1 million (EUR 100,000) is common.
Assignments, completed by our firm (7), regularly cover positions for Financial Controllers around the RMB 500,000 (EUR 58,000) figure, HRDs in the vicinity of RMB 700,000 (EUR 80,000) and many others, with financial packages often giving a new meaning to the common image of China as the land of cheap labor. You need to face the facts, if you want to buy yourself the next superstar everyone else wants, you will most likely have to fork out a substantial amount for it, at least, more than your competitors.
Money can’t buy happiness…
But you can definitely get yourself a top senior HR or Finance candidate, in China, for the right price… Sure, there are no comparisons possible between a Shanghai or Guangdong based factory worker and his counterpart in Europe, the US or Japan. China has and will continue to retain its image of “world’s factory” for years to come, with affordable labor costs and ever increasing quality standards. Nonetheless, good management, talented leaders and high potential profiles come with a high price tag, just like it would, in “Developed” economies.
Companies that will successfully implement localization strategies, in the upcoming years, and leverage on the amazing opportunities this rapidly growing market yields; are the ones currently understanding that quality, experience and skills come at a certain price, in particular in the Chinese economic capital Shanghai is.
A solid and ethical executive search firm, with deep networks, up-to-date market knowledge, and experienced consultants, is therefore a partner of choice to prevent your next hiring from becoming a time bomb, in your company’s development plan, or a pricey mishap that may not look great during your next board meeting.
Patrick O. Courtois, HR Shanghai, is also a Principal Consultant at Orion China, a dedicated executive search boutique, based in the heart of Shanghai, China.
November 21st, 2008 at 6:46 am
Great analysis. great insight on a situation some of us had to deal with.
The Hudson report is a good backup of your point. sorry i forgot the link…
DC
November 21st, 2008 at 2:52 pm
Quite accurate insight about local China market, and I’d like to see aspects of a high turnover rate trend in China as well as some “semi-expatriate” packages.
November 21st, 2008 at 6:41 pm
A very true picture of China’s talent market today. Been there, done that.
November 21st, 2008 at 8:37 pm
I have been reading so many things since I arrived here. So many negative things.
I want to say that China is filled with negative things if that’s what you’re looking for.
I am a CEO of an International Property Company in China and have faced many trying times in China since I have arrived.
The good news I bring, because I’m tired, and I’m tired of reading the rubbish bad news is this…
I have found wonderful people to work with…
Once you get over the protocol, and the ways that are different to what you have been brought up to think and believe, there are many many fabulous people in China.
God only knows I’ve been tried and I’ve been tested. If I was 99.9% of the population from where I come from they would have turned back and kissed this fantastic opportunity a kiss good bye.
What people read about and what people think will only be their sad solem belief.
If people start actually reading the good news then they will believe this.
I’m tired of listening to bad news.
I’m tired of listening to stuff like, “when you’re in China be careful of x. y & z…!’
For goodness sake, can someone just print something good and happy for once.
I now work with 4 fabulous people! I came to China with great expectations. I have beeb put through the mill and back again. Believe you me. I want to say that my experience has been all happy, but sadly I can’t…
What I want to tell poeple here from a foreign country is … just stick it out … you will find your ground … you will make it … you will success and the rest will follow …
China and Chinese poeple are really quite interesting given half the chance.
I can gie you advice and comfort but I have a business to run, I am a CEO and I can only devote a short amount of time to all of you out there.
Please just be you…be the person you were when you landed here, you will eventually find those those are loyal to you. Once you find these people you will have a dream come true!
Many Thanks for reading this,
Tif
November 23rd, 2008 at 12:41 pm
Patrick, Great article!!
Tiff, pretty harsh and irrelavant comment. I read it a couple of times and do no seem to observe any criticism against China and its people… The article is simply a reflection of market realities. I am also a CEO… working in China for over 20 years and in the recruitment field for more than 10.
November 25th, 2008 at 3:13 pm
Very good analysis of the market realities.
I have posted elsewhere on this site regarding general hiring practices which focus on minutia, not actual skills. I wonder if it is true that those with the experience you cite are actually in demand or are there other factors, such as race, gender, and age which are considered more important?
Tiffany seems to not be well-connected with the realities of doing business, vis. many articles are written to help others _avoid_ problems. Simple logic: It’s not possible to help someone avoid a problem or issue without discussing the issue or problem.
Only “reporting the good news” does not help anyone.
I would much rather be told “There is a pothole. Don’t step in it” than to be misled into believing the streets are all paved with gold and everyone drives a Lexus.
The deliberate misconstruing of helpful articles as an “attack” is unwarranted and parochial.
November 25th, 2008 at 4:49 pm
Well, I have had a few of these bilingual wonder-kids, doing professional PowerPoint presentations, talking big and drawing top salaries. The experience was dismal.
As ever, the way goes through the middle. If you can live with broken English, you can have top achievers and super performers.
In case of totally bilinguals you run a higher than 60% chance of hiring hot-air-balloons.
November 26th, 2008 at 5:17 pm
Patrick - Great article. I agree with you. Just as everywhere else in the world, “you pay for what you get”. And in response to Tiff, I couldn’t agree with you more. The intense drive and dedication of the Chinese people is an ex-pat manager’s dream if you love to lead.
December 3rd, 2008 at 7:25 am
Great article Patrick and the situation is very similar in Beijing as well. When I first started running a search firm in Beijing in 1995 most of our contracts were on a flat fee basis that often equaled or even exceeded 1 year of salary, my minimum flat fees are now rarely invoked as percentages of annual packages far exceed the flat fee. I even have a finalist (offer stage) financial candidate (who is not a returnee with a Wharton MBA) right now for a client whose annual salary is on the par with salaries paid to top financial controllers in California!!
Thomas, I feel for you and this is one reason search firms provide valuable services to help you screen through the hot air balloons. Our problem with the non bilingual excellent candidate types is usually with clients who require that the candidate be able to hold their own on global conference calls i.e. internal needs outweighing the market benefits. This is very frustrating for those of us in our industry.
And yes, there are many low level low ethic contingency fee firms out there whose pricing may seem low, but who do jack up salaries, hide bad references and even take payments from candidates!! All I can say is: Buyer Beware and keep an eye out on how your local HR searches for bargains.
December 3rd, 2008 at 8:47 am
Terry
I have actually always found what I was looking for and yes, almost exclusively through search firms. There are a couple of gifted search experts out there, who understand what you need and try to get it for you, rather than shoving down your throat whichever candidate they have at hand.
I continue using search firms extensively, because to me it has a lot of merit being able to check out the people I know in the industry through a neutral third party, and to get to know people I didn’t know before.
However, I am strongly opposed to retainer fees, as eventlually it leads to foul compromises.
December 3rd, 2008 at 6:06 pm
Dear all,
I am interested in relocating to China. I am wondering if any of you can recommend good search firms to approach. There is a ton of search firms in China and I am not sure which is genuine anymore.
I have years of Fortune 500 experience in software development, R&D commercialization and large-scale architecture project management. I am a graduate of Columbia University and UCLA. I am able to converse fluently in Mandarin and Japanese (reading and writing).
Since everyone is an expert here on China, I am also interested in finding out what is the best strategy for a candidate to find a challenging job with rewarding experience in China? I have heard some horror stories from a friend who was relocated to China but didn’t have a good experience. It was mainly because the search firm and the company which had hired him were both fraudulent!
Your input is appreciated.
Michael
December 4th, 2008 at 6:28 pm
Well, if you are young, energetic and qualified, here is the Search Firm of the Year 2008:
Wang & Li Asia Resources
(Tel) 86 21 6288-5426
www.wang-li.com
I personally have a very good impression of them. he owner is Taiwanese and he knows what he is talking about.
The, generally IT jobs, do try www.newchinacareeer.com
The likes of HP, IBM, Hudson and so on advertise there. Lots of IT jobs get posted there.
monster.com also a place not to be neglected.
Small ones, new ones and fly-by-night search firms try to convince everyone, that they invented the wheel. Forget about them.
January 9th, 2009 at 3:06 am
@Thomas:
I assume you work for Wang & Li and that is the reason for your posting.
I never understood who made the \’Search Firm of the Year 2008\’ - I assume they gave the title to themselves. Nobody would seriously call them like that.
If they would be operating worldwide I am pretty sure they would be in the lead of all spammer of the year lists. Sometimes I received the same mail 5 times a day, although I never willingly signed up to receive their bullshit newsletters. They are just spammers and lack main features that headhunters should have, e.g. trustworthiness and credibility.
January 9th, 2009 at 12:29 pm
@thomas
ditto on what Frank has said about Wang & Li and their massive e-mail dumps, however Larry Wang is not Taiwanese, he is from the US and doesn’t really speak Mandarin at all well. He is quite the the promoter and is in the business of selling candidates. I too question the “Search Firm of the Year 2008″ moniker but can’t really comment on the quality of the work they do for clients.
@Michael, quite honestly, approaching search firms as part of your job hunting strategy is probably going to give you the worst results in terms of rewards for time expanded. Search firms are in the business of going out and recruiting employed individuals who have very specific work experience. You are much better off thoroughly researching the market and targeting specific companies who may have needs for someone with your skill sets and then networking your way into meetings with those companies.
January 10th, 2009 at 3:36 am
I do not work for Wang & Li, however, I have been a customer.
I have no clue where all the awards come from, it actually does not matter too much anyway.
As far as e-mails are concerned, unless you have some kind of mental block and scare of cold calling, contacting them and telling them that you don’t want their mails should be a lasting cure.
The amount of useless “search firms” and the idiocy of their approaches is mind-boggling, and, no matter what weaknesses you find in Wang & Li, they still stand out among their “peers”.
I have been both candidate and customer of many of the world’s leading search firms in the past 20 years. So I tend to believe that I know what I am talking about.