Chinese Multinational Corporation Skilled Labour Crisis Economics Essay

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Research questions Research question 1: How to retain Chinese talent in MNC? Sub-question1: What motivate the Chinese talents to retain in MNC? Sub-question 2: What kind of retentions tools can be used to retain Chinese talents? Research question 2: How to develop Chinese talent in MNC? Sub-question 1: Which tools can be applied for the development of Chinese talents? Sub-question 2: In what way the development tools can be applied for Chinese talents?

Introduction

Background

China is the most populous country in the world with a population of 1.3 billion (China Popin, 2008). For two centuries China had tried a range of ways-empire, warlords, republic, capitalism, socialism, and others. However, all end up failure. Until 1976 Deng Xiaoping began to emerge as the paramount Party leader, he started to introduce Western-style market systems to China. The core of Deng's policy initiatives is to link the boundaries with the global market system. Since then, China is transforming from a planned economy to a socialistic market economy (Tian 2007).

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Based on the successful experience of reform and the open door policy China has been the fastest growing economy in the world over the past thirty years, with an annual gross domestic product (GDP) growth rate over 9 per cent (Tian 2007). While foreign investments have been one of the major driving forces behind the explosive growth. Since 2001, China successfully accessed World Trade Organization (WTO) had provided unprecedented opportunities for foreign companies and China became a valuable land for global businesses. Investors from all over the world are moving to explore business opportunities in China (Tian 2007).

As a result, the international economic and business trade had been developed expeditiously in China recent years. According to the 2010 work report of the State Council of China, in the first 7 months of 2010, China's foreign trade totalled 1.6 trillion US dollars. Foreign Investors launched about 12,400 new companies in China in 2010. There were roughly 690,000 approved foreign companies in China at the end of 2010 which had invested more than 1 trillion U.S. dollars, according to China's Ministry of Commerce (Xinhua 2010).

Skill crisis in china

Following rapid economic growth, however, China has not been able to supply enough skilled workers to fuel its growth and therefore, a skill crisis has arisen in China. A skilled worker by definition is someone who is educated and who have specific skills and competencies required in his job. For example, a software engineer who has a professional degree in software program and able to draw up a software programme would be considered a skilled worker, since he has specific skills to do thing that an ordinary person cannot do. According to McKinsey quarterly report, there is a skill shortage in the following occupations: general service position, life science researchers, doctors, nurses, support staff, finance workers, accountants, generalists and quantitative analysts (Farrell and Grant 2005). Skill crisis exists in many fast growing economies. If the skill crisis cannot be resolved, the problem would grow and widespread across the country which can affect economic growth and development of country. The cause of shortage of skilled worker in China is due to many issues such as social evolution, incomplete educational programs, globalization and entrepreneurial practices and other reasons which those issues will be discussed in the latter part of this paper.

Literature Review

How does the Chinese government react with current skilled worker shortage

Since the reform of China and open door policy in late 1970's. China has gives priority to education. The Ministry of education of the people's republic of China reported that Chinese government has been invested heavily since the 1986, in order to provide a favourable environment and conditions for Chinese people's all around development. Data shows input in education has been continually increased in recent years. During 2000 to 2002, the Chinese government invested 1.02 trillion RMB for educational development. For example, the Chinese government provides 9-year compulsory education for schooling age children. By the end of 2009 China's total labour force had reached 1.06969 billion, of whom 311 million were urban employees. The total number of urban employees increased around 80 million compared with the year 2000 (Ministry of Education PRC, 2010).

Poverty gap in China

Despite this large investment in educational development, there is still a huge proportion of Chinese people cannot gain access to higher education. The huge wealth gap between rich and poor in different regions in China has been one of the most outstanding factor to cause skilled labour shortage. In 2010, China state council reported that the average disposable income of urban residents is 15,781 Yuan, while the average net income of rural residents is only 4,761 Yuan (Wang 2010). According to Lin (1999) who indicates that one in twenty rural students is able to enter higher education and over 30 percent of eligible Chinese student in rural areas do not have the opportunities to go to secondary school and mainly due to financial reason such as lack of funding. The trend could give worse, since the secondary school is not compulsory by the Chinese government (Lin 1999). In addition, in 2000, a research conducted by Li (2002) based on the data from 34 Chinese universities shows that the proportion of students from rural families is only 15.57 percent compared with 84.43 percent of students, of whom from urban families. While rural and urban populations contribute 80.77 percent and 19.33 percent of the total working population respectively.

Unbalanced Decentralization

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Furthermore, the decentralization of education finance has increased inequalities across different regions in China. Some local government in poor regions do not have the funding and resources to invest in local educational system, therefore they have to reduced capacity to finance education. For example, in 1992, the investment in higher education per student was 6,630 Yuan in Guangdong and only 3471 Yuan was spending on each student in Sichuan province (The Work Bank for China 1997).

Inequality of treatment between students from poor regions and student from urban regions would ultimately result in the increase of skilled worker shortage.

Raising of tuition fees

In addition, Dahlman and Subert (2001), who state that tuition fees have been increased rapidly in Chinese educational system, the average tuition fee in Chinese universities is between 450 and 700 US dollar per year. The expensive tuition fee has been the biggest barrier for Chinese students, especially for those from low income families; their families cannot afford to give them the opportunity to access to higher education (Dahlman and Subert 2001).

Incomplete education system

Another factor that behind this skill crisis is due to lagging education system. The Chinese education systems have traditionally focused too much on students' "academic skills" such as reading, writing and calculating (Young 2001). while Chinese universities often provide single subject courses for students, which emphasizes student to seek on theory and perception, instead of taking practice and exercise. However, such education system failed to develop student's creation, leadership, teamwork and skills that most MNCs would require in the real business world (Rossi 2007). In fact, many university graduates in China have not received any kind of training from the universities, and they do not have competitive advantages such as good language skill and logic thinking. As a result, many local graduates are still lagging far behind to meet the needs of MNCs which would eventually lead to further shortage in skilled worker (Wu 2008).

Preferential policies

In accordance with the requirements of the socialist market economy system, the government of China has introduced a series of policies to encouraging further migration. Allowing local students to leave China to obtain their education abroad. Since 1978, the Government implements polices more flexibly in dispatching both self-founded and government-supported overseas student. The Chinese government has been widely supporting self-founded student and states many efficient steps to help and protect the Chinese citizen study abroad. The outside procedure has been facilitated and they have founded the consultation division between China and foreign counties for the regularly intercommunion in order to make sure there is an efficient media of communication to help and solve any problems during their study. The Chinese government also provides financial subsidy to encourage overseas students to achieve a further education( Wang and Yang 2008).

For the government -supported students, apart from the tuition fees and living spend; the government also affords the travel cost and provides job opportunity after study. students who have already earned postgraduate degree e.g. master or PHD are especially welcome to take a more advanced course of study or training abroad with the government support. Meanwhile not only current students were encouraged to study abroad, many incumbents who has made a great contribution also been sent abroad to pursued advanced studies. During the period of study, they will still earn the salary from their original division or enterprise. And this experience will become an ascendancy in their future career (Zhu 2010).

According to Yue (2010), the Chinese Ministry of education claimed that from 1978 to 2009, there are 1.62 million students have been studied abroad, this figure has an average increment of 25.8% for each year, and the total number has been expand 267 times in the last 3 decades. In 2009, this number has been increased to 229,000 and 210,000 of them are self-founded students which has grown 30% from previews years. Self-founded students dominated the total amount with a high percentage of 91.6% (Yue 2010). Today, there are 1.1 million Chinese oversea students over the world and 820,000 of them are doing study in undergraduate, master, PHD degree or academic research. Around 30,000 people choose to stay abroad, although the percentage of students return back to china has increased (e.g. 2009 this number has been increased up to 56 .2%), there is still a considerable amount of people have been highly educated choose to not come back. Hence a number of actions have been made in order to attract overseas students to come back to work in China. The Chinese established a platform to allow the government and enterprise to communicate with the overseas students directly and to pass the idea of preferential policy for entrepreneurship. (e.g. Guangzhou Overseas Student Scientific and Beijing Scientifically International Exhibition) Information exchange needs to be expedited and comprehensive between the requirement of the student abroad and the offer from the enterprise in order to build up efficient job resources. The government also has set up the initial capital for those people choose to come back as their preliminary expenses. Simultaneously, multifarious fund have been used to support those who have highly academic success or possess a great potential of creativity. (Wang and Yang 2008) For those high levels of competent people who choose to work in china, the Chinese government provides job opportunities for oversea Chinese skilled worker to work for the stated -owned enterprises such as bank of China.

Challenges for Companies

Shortage in managerial staff for MNCs

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On the other hand, although multinational corporations (MNCs) are reaping great benefits from this huge market, Multinational corporations are facing numerous challenges when operating business in China and particularly in human resources management (HRM). For instance, shortage of skilled work, cultural differences, social environment differences and ect. However, the shortage of managerial staff in China among other factors has been the most painful "headache" for both MNCs and locally owned Chinese businesses. MNCs in China currently face a shortage of professional, managerial and senior executive level talent. As pointed out by Rebecca McComb, chief representative of Norman Broadbent International (China):

"since 1990s… the demand for qualified local managerial candidates has continued to soar exponentially, while the supply remains small" (McComb 1999).

According to a recent Shanghai survey conducted by McKinsey & Co, a US management consulting group, shows 37 percent of foreign owned enterprises in Shanghai reported that recruiting managerial staff was their biggest operational problem and 44 percent of the executives at Chinese companies reported that deficient of managerial staff in China was the biggest barrier to their global ambitions (Lane and Pollner 2008).

Leininger( 2004) states that a qualified managerial staff, the employees must complement with a set of competency skills that include knowledge, skills, and experience in business and management. Additionally, MNCs in China need a specific type of skilled worker who are young, upward, progressing, professional and efficient with advanced technical skills and a solid understanding of international management techniques. They are also expected to possess strong foreign language skills, initiatives, and strategic mindset (Wu 2008).

However, these talents are difficult to find. The reason behind shortage of talent is complicated. First, since the reform and Deng's open door policy, China just has a short history of less than 30 years in market-oriented economy to foster them. Therefore, the supply of this type of employee is small in the market. Second, with the hot wave of foreign direct investment influence, there is growing number of new foreign enterprises to the market. Due to intensifying competition within the Chinese market, both domestic and foreign corporations are fighting the war for skilled worker (Fan 2006).

Now-days, the fierce competition and limited supply of talent resulted in high turnover rate. Chinese skilled workers have numerous career opportunities, and the turnover rate is extremely high in China. According to study conducted by Hewitt's Attrition and Retention Asia Pacific(2006), results show that most organizations in China have been continuously experienced a double-digit turnover rates in the recent years. In 2005, the average turnover rate in China was 15 percent. Turnover rates among Chinese managers are more than 25 percent greater than the global average and 30 to 40 percent of senior managers at multinationals switch jobs every year (Howard, Liu, Wellins and Williams 2007). AS Salop and Salop (1976) indicate that labour turnover is costly for all firms. In the event of a sudden employee departure, the firm suffers two types of cost: direct and indirect cost. Direct cost includes leaving costs, replacement costs such as advertising, interviewing and selection costs and transitions costs, and indirect costs refer to the loss of production, reduced performance levels, unnecessary overtime and low morale (Schlesinger and Heskett, 1991).

Talent Management

Today, the evolution of environment and global competition made companies to agree the importance of having the right skilled worker for continue the value creation for business competitiveness. In order to compete in dynamic market situations, businesses need to search for the right skilled work to drive organisations forward and sustain business performance. A paper by a team of researchers, has found over 80%of value creation is driven by intangible assets such as talented people and not by those tangible assets on the balance sheet which boils down to the core issue of retaining the talented employees(Lawler 2008). As a result,organizations should pay extra attention to attract, retain and develop Skilled employees. Thus talent management has been a hot topic in recent business circle. Snell (2007) defines talent management is "the implementation of integrated strategies or systems designed to improve processes for recruiting, developing and retaining people with the required skills and aptitude to meet current and future organizational need".