Q. Where do you see the largest shortfalls of staff in China now and in five years from now?

A. “The most critical shortages will be global managers followed by sales and engineers. Many multinational companies have their eyes on the secondary or tertiary cities and that’s where the critical shortages have become a problem.

This new trend is because in China, the coastal cities, the tier one cities like Beijing, Shanghai, Guangzhou, Shenzhen are pretty developed and the costs are rising. A lot of manufacturing based companies are moving their facilities further inland to the second tier cities and that’s where the shortages of professionals are found.”

Q. Are there any difficulties in moving people from China's coastal cities into the hinterland?

A. “For the most part, companies need to recruit their managers locally. Lack of internal mobility is one of the issues that many multinationals face in China. There are multiple factors that are creating this problem.

One of the factors is that China’s society and infrastructure, social security and all of the social supporting structures are not accommodating for people moving around from city to city. For example, the social security or pension payments that you make in one city are not transferable to another city. Social security is managed by the municipality or by the provinces.

Another factor is that the local job market is very good, so people have minimal motivation to move. They can easily get another job across the street. I am often asked by clients “Why can’t you move people from Shanghai to Guangzhou? They are both tier one cities. Between these two cities there are cultural differences. It is relatively easier to move people to Beijing or Shanghai.”

Q. Do you see any changes in this? Is there anything that companies can do?

A. “The whole country is facing labor shortages especially in sales and mid-level management. I don’t see the government doing much in this area. Companies are taking initiatives on their own. For example, our leadership development courses in Mercer College are very, very hot. We have developed an in-house program jointly with Mercer Delta. This program has received an excellent reception and we are selling a lot of them.”

Q. So the way companies are addressing the issue is by developing in-house rather than poaching from other companies. Is that right?

A. “Poaching from others is one way, but you cannot add enough to accommodate your growth needs.”

Q. Will the number of tertiary and secondary graduates increase enough to meet demand?

A. “It will take several years. For example, many of the secondary cities are well known to have good universities. Places like Xian and Chengdu are known to have a lot of good universities. The problem is that graduates need experience working in a multinational environment. Plus, there is the language requirement. This means that all university graduates require some time for seasoning. That is something that you cannot replace by any means.”

Q. Do you believe the quality of education in China's second tier cities will improve and that they will be a greater source of graduates in the future?

A.“Yes, there is no doubt about it. The entire education system in China is improving. It is changing and migrating from the old structure from which I graduated. This was very much like the old Soviet education system. The education system is now new and more contemporary. The universities are, at least, trying to learn and support the new labor environment, but it is a process. I think that China is on the way there, but we not quite there yet.”

Q. China's population is gradually aging. What impact do you see on companies over the next 10 years?

A. “The aging population will probably have minimal impact on multinational companies other than changes in pension legislation. The aging issue has a much greater impact on the state-owned enterprises which now employ many people close to retirement age.

The state-owned enterprises have a historic obligation to their employees to support them in retirement. The retirement obligations are like defined benefits which my parents’ generation came to expect. The burden for these companies is huge as these people are living longer but the companies are not necessarily doing any better.

For multinational companies operating in China, the only area or issue that I can think of that they could get into trouble is when they make local acquisitions. Sometimes they have to buy into a population that is retiring or an obligation to provide retirement support. Even so, most multinationals have learned to try to push this obligation over to the government before they finalize the investment."

Q. How have these issues impacted the provision of health care and retirement benefits in China?

A. “The “enterprise annuity” is a way of providing supplementary pension. It is getting more popular and it is highly publicized. A lot of attention is being paid to it and many employers are beginning to think of ways to move towards it. In addition, China is gradually fine-tuning or changing benefits regulations. For example recently there was new legislation that came about regarding long-term care and disability regulations. There is also a new employment contract. China is getting into a very active legislation period regarding benefits and pensions.”

Q. What are the trends in China over the next five years, and what types of benefits will companies need to give?

A. “Benefits will become a defining factor of companies trying to improve their employee attraction or retention position. Many companies are beginning to deploy different kind of stock venture programs as a way to retain their people or to make an offer more attractive. As competition becomes more intensified, more and more employers will use benefits as an innovative way to address this situation.”

Guo Xin will be presenting The changing demographics of the workforce in China and India at Mercer's Global HR conference in December.

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