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Skilled Workers Shortage in China: Causes and Effects

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Published: 5th Nov 2021

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Tagged: EmploymentInternational StudiesManagement

In this chapter the researcher will present the theoretical foundation for this dissertation. This review aims to investigate and examine extant literature on the following research questions:

Research Question 1: How great is the shortage of skilled workers in China?

Research Question 2: How do such shortages in skills affect the working of multinational corporations?

Research Question 3: How do multinational corporations, with the use of talent management practices and tools, retain skilled workers, including managerial and executive staff, in China?

Information for this literature review has been obtained from a range of secondary sources including books, journal and magazine articles and other media publications, both in online and physical form. Talent management is a comparatively new development in HR theory and practice and much of pertinent and associated literature on the subject exists in the form of publications in various periodicals. Shortage of skilled workers in China is presently attracting a significant amount of concern and material on the subject has been sourced from different articles authored by Chinese and Western experts. The various aspects of the studied subject matter have been taken up in sequence in the interest of coherence and continuity of thought and discussion.

2.1 Shortage of Skilled Workers in China

The shortage of skilled workers, whilst of recent origin, is assuming grave dimensions. The Chinese economy has been growing at an astonishing pace for the last two decades (Barbosa 2010). Such phenomenal economic growth has propelled the country from the ranks of the poorest of the poor to the position of the second largest global economy (Barbosa 2010). Having crossed Japan in the GDP rankings in August 2010, the Chinese economy is now second in size to only that of the USA (Barbosa 2010). With it being widely accepted that access to cheap and skilled labour has played a predominant role in the country's economic performance, the emerging shortages in availability of skilled workers is becoming a serious matter of concern (Powell 2009). Experts feel that the problem, whilst manageable until now, is increasing in various dimensions and can become a serious challenge to the country's economic growth in the foreseeable future (Powell 2009).

'Various domestic media reports put the labour supply gap at around a million people in Guangzhou and neighbouring cities such as Dongguan, legendary centres of China's export boom in the past three decades. Numerous assembly lines and construction sites are sitting idle while anxious employers have raised salaries by more than 30% but still can't attract enough applicants'. (Hong, S. 2010)

The current shortage of skilled workers in China is due to the emergence and interplay of a range of factors (Trading Economic 2010). It is in the first place indisputable that sharply accelerating economic growth in China has created enormous demand for skilled workers (Trading Economic 2010). The Chinese economy has grown in size from an annual GDP of 990 billion USD in 2000 to 4900 billion USD in 2010 (Trading Economic 2010). The last decade has seen the entry of numerous multinationals in the country and the establishment of thousands of local and foreign owned production units (Blanchard 2007). Such production units are now being established in different geographical areas making it easier for workers to obtain gainful employment near their houses (Blanchard 2007). The Chinese government has also in recent years embarked upon developing the economic and physical infrastructure of numerous inland and hitherto neglected provinces (AsiaNews.It. 2006). Airports, roads and housing in upcountry regions are receiving strong investments (AsiaNews.It 2006). Such investments are creating thousands of jobs across the country and reducing migration of workers to zones with strong manufacturing activities (AsiaNews.It 2006).

Experts also feel that low wages in the manufacturing sector, along with long working hours and difficult working and living conditions are forcing many workers to give up their jobs in manufacturing units and return to work on their farms (Rein 2010). The Chinese government's decision to reduce taxes on agriculture has also helped in reinforcing such attitudes (Rein 2010). The Chinese government has constantly placed emphasis upon development of agriculture and providing of adequate food supplies for the rural population, who constitute 727 million people (Rein 2010). A continuous supply of positive policies, like the elimination of onerous taxes and powerful market intercession, have enhanced rural incomes and made farming rewarding in comparison to skilled jobs in some manufacturing organisations (Rein 2010).

China implemented its one child policy in 1979. This has resulted in the development of an ageing population (Hong, S. 2010). The median age of the country, at 33 years, is closer to that of the USA, the UK and the countries of Western Europe, rather than to its southern neighbour India, which has a median age of 26 and whose economy is also growing rapidly and with a swiftness that is second only to that of China (Hong, S. 2010). The ageing population is leading to lesser numbers of people joining the workforce every year and consequentially to restrictions on the availability of skilled workers (Hong, S. 2010). The impact of an ageing population is being felt intensely in manufacturing centres like Shanghai, where people above 60 are expected to constitute practically 30 percent of the total population in another 10 years time (Hong, S. 2010). The numbers of people in the 15-19 age groups in the country have reduced by approximately 17 percent, from 124 million in 2005 to around 103 million today (Hong, S. 2010).

Academic policies in China have in recent years paid greater attention to academic performance and have neglected imparting of high level vocational training and skills training to people (AsiaNews.It 2006). Many universities have failed to understand market demands and mechanisms in the designing of their courses (AsiaNews.It 2006). Only 200 of the 20,000 vocational schools in the country are aiming to produce skilled workers and technicians with good skills (AsiaNews.It 2006). Such circumstances have added to the reduced availability of skilled workers in the manufacturing sector (AsiaNews.It 2006). Rein (2010) states that the younger Chinese unwilling to work any longer in factories. They are much too buoyant about their work prospects and perceive no compulsion to work for comparatively low wages at long distances from their families (AsiaNews.It 2006). The increase in the number of college and university graduates from just about a million in 2000 to 6 million in 2010 has reduced the pool for potential skilled workers (AsiaNews.It 2006). Even workers with low skills prefer to stay nearer home in interior provinces like Sichuan and Hunan, rather than relocating to manufacturing centres like Guangdong to work for remuneration that is being increasingly perceived to be insufficient (AsiaNews.It 2006).

The shortage of skilled workers is being felt intensely in the export regions of the country like the Pearl River Delta as also the Yangtze River Delta.

'It was officially reported that the city of Shenzhen, on the Hong Kong border, alone faced a labour shortage of about 300,000 workers this year. In Guangdong province, the government said factories were short more than 500,000 workers; and in Fujian province, there was a shortage of 300,000'. (AsiaNews.It 2006)

Surveys, conducted a few years ago, revealed that technicians constituted only 4% of the total numbers of skilled workers, even as organisations needed at least 14% technicians in their labour force (People’s Daily 2004). Personnel who are most in demand include skilled workers, technicians and marketing staff. Such shortages appear to be greater in case of enterprises where skilled workers were not trained adequately (People’s Daily 2004). Business organisations are also finding it difficult to attract and retain employees in different administrative and managerial positions (People’s Daily 2004).

It is ironical that the country that is widely considered to be the largest reservoir of cheap and skilled workers is now actually hard pressed to find and retain skilled workers as well as supervisors and managers at different levels for its own needs (People’s Daily 2004).

2.2 Impact of Shortage of Skilled Workers and Managerial Employees on the Working of MNCs in China

Shortage of skilled employees is affecting the working of all business firms, MNCs as well as locally owned establishments, across China (Roberts 2006). Such shortages are in the first case leading to progressively higher levels of attrition and employee turnover in business firms (Roberts 2006). The most important challenge in contemporary Chinese business enterprises concerns attracting, finding and retaining skilled workers (Roberts 2006). The Institute of Contemporary Observation, a research organisation based in Shenzhen, states that employee turnover in low technology industries is nearing an unprecedented 50% (Roberts 2006). There are 2.5 million jobs in the province of Guangdong that are yet to be filled, even as the provinces of Shandong, Jiangsu and Zhejiang are also facing considerable shortages of skilled labour (Roberts 2006). Such shortages are affecting the production of numerous organisations, adversely impacting expansion plans, and restricting organisational growth (Roberts 2006).

'It was officially reported that the city of Shenzhen, on the Hong Kong border, alone faced a labour shortage of about 300,000 workers this year. In Guangdong province, the government said factories were short more than 500,000 workers; and in Fujian province, there was a shortage of 300,000.' (AsiaNews.It 2006)

Numerous MNCs have increased their investments in Chinese production centres and built up large capacities (Lane & Pollner 2008). The unavailability of the required numbers of skilled workers is leading to underutilisation of capacity, idle machinery, higher finance costs, and poor productivity and profitability (Lane & Pollner 2008).

Shortages in required numbers of skilled workers are also leading to significant increases in job hopping and in the movement of employees between organisations for the sake of achievement of small salary differentials (Roberts 2006). MNCs and local companies are 'stealing' skilled workers from each other, by offering the target worker a lucrative opportunity such as a better compensation or better benefits. The 'talent' war has led to rapid wage inflation. . MNCs have been increasing salaries to keep existing employees (Downing, Rouleau, and Stuber 2008).

Whilst labour intensive industries are facing increasingly severe problems, substantial increases in numbers of employee departures are affecting all low tech and high tech organisations (Roberts 2006). 'Emerson General Manager David Warth says it’s all he can do to keep his 800 employees from jumping ship to Samsung, Siemens, Nokia, and other multinationals that are now operating in the tech manufacturing hub'. (Roberts, 2006)

Increases in employee turnovers and shortages in supply of skilled workers, as well as employees for higher level and managerial jobs, is leading to sharp increases in employee costs. 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).

'Companies across the board are feeling the squeeze. Last year turnover at multinationals in China averaged 14 percent, up from 11.3 percent in 2004 and 8.3 percent in 2001 (AsiaNews.It 2006). Salaries jumped by 8.4 percent, according to human resources consultant Hewitt Associates LLC'. (AsiaNews.It 2006) Minimum wages in China are going up steadily and are currently many times that of Bangladesh, a neighbouring low cost producer (AsiaNews.It 2006). Many organisations are perforce improving the working and living conditions of their employees and the quality of food served in their cafeterias, with result increases in total costs expended on labour (AsiaNews.It 2006 ).

Such increases in labour cost have multiple implications (Roberts 2006). At one level companies are seriously thinking of putting up new establishments in interior regions where wages are lower, or even of shifting their operations to lower wage countries like Indonesia or Vietnam (Roberts 2006). Organisations that have already made substantial investments in regions that are now facing labour shortages are experiencing strong pressures on costs and margins (Roberts 2006). Such pressures are leading either to problems with organisational viability or are manifesting themselves in higher product prices and consequent pressure on competitiveness (Roberts 2006).The American Chamber of Commerce recently reported that increasing costs of labour have reduced the margins of practically 48 percent of US organisations that operate in China (Roberts 2006). Teresa Woodland, the author of the report states that China could well run the risk of using its cost advantage (Roberts 2006).

The shortage in availability of skilled people goes beyond the workforce and extends too many other organisational areas (Roberts 2006). Mckinsey and company estimate that just about 10 percent of job candidates in areas like engineering, accounting and finance have skills that are necessarily required by foreign organisations (Roberts 2006). Whilst 75,000 jobs for managers are expected to arise in the country during the next five years, the country currently has lesser than 5,000 managers with the required skills (Roberts 2006). Observers believe that the impact of shortage of skilled people on the economic growth and performance of companies and the nation as a whole is likely to be far more powerful than other constraints like material or power.

2.3 Talent Management and its Application in China

Multinational corporations in China can benefit in areas concerning employee turnover and improvement of employee retention through the application of contemporary talent management techniques and tools. Organisational managements have over the years constantly tried to develop and adapt in response to workplace changes, right from the days of the industrial revolution and the emergence of labour unions to the demands of automated production, globalisation and outsourcing (Schuler, et al, 2010). Contemporary years are witnessing a global HR movement for attracting and retaining talent (Schuler, et al, 2010). Whilst organisations have in many ways been trying to attract and retain skilled and productive employees for ages, formal talent management processes have emerged only recently (Schuler, et al, 2010). Whilst such practices are now being implemented rigorously by progressive business organisations in the developed economies, they have become extremely relevant in the Chinese environment where an abundance of people is ironically accompanied by shortages in availability of skilled workers and other managerial personnel (Schuler, et al, 2010).

2.3.1 The importance of talent management

Talent management represents the systematic use of appropriate HR strategies, policies and practices for management of the talent challenges faced by business organisations (Lane & Pollner 2008). Such policies and practices in the Chinese context include attraction of the most appropriate talent, careful selection, training and development, fair and sympathetic evaluation and assessment, high quality training and development and alignment of personnel and business objectives (Lane & Pollner 2008). The importance of adopting strong talent management practices for retaining talent assumes great importance in the existing and predicted scenario (Lane & Pollner 2008). Research conducted by the Kenexa Research Institute, conducted in 2007 in six countries, including China reveals that 'policies such as career path programmes, goal development and monitoring, regular feedback sessions with managers, tracking progress have a demonstrable effect on employee execution and motivation' (Talent Management 2008). The report confirms that employees of organisations that focus on talent management are more engaged with their functions and more content with their jobs and organisations (Talent Management 2008)

2.3.2 Vroom's VIE expectancy theory

Vroom's VIE (Valence, Instrumentality and Expectancy) theory of expectancy states that individuals tend to act in specific ways with the expectation that specific acts will lead to particular outcomes, and in line with the attractiveness of such outcomes (Citeman.com 2010). The theory, whilst appearing to be complex, is actually simple and necessitates the comprehension of three relationships, namely (a) the perceived probability by individuals that the making of specific efforts will lead to performance, (b) the extent to which individuals believe that performing at specific levels will result in achievement of specific outcomes and (c) the importance placed by individuals on possible rewards that can be obtained in job execution (Citeman.com 2010).

The intensity of individual motivation to make efforts depends on the intensity with which individuals believe that they can achieve what they are attempting, whether they will be adequately rewarded by their organisations, and whether such rewards will meet their individual objectives (Pitt 2001). The application of the expectancy theory needs the careful consideration of four relevant steps (Pitt 2001). Organisations must firstly assess the perceived outcomes offered by specific jobs to employees (Pitt 2001). These may be (a) positive like income, benefits, stability and security, comradeship, congenial relationships trust, employee benefits, and opportunities to use skills, or (b) negative like weariness, monotony, annoyance, apprehension, inconsiderate management or danger of dismissal (Pitt 2001). Employee perceptions, regardless of actual reality become relevant in such scenarios (Pitt 2001). Organisations must try to assess the attraction to employees of such outcomes and whether employees perceive outcomes with positivity or negativity (Pitt 2001). Individuals who find specific outcomes attractive and view them positively would like to achieve them (Pitt 2001). Managements also need to determine the type of behaviour required of employees to achieve positive outcomes and employees need to clearly and explicitly know what they must do to achieve them (Pitt 2001). It is finally also important to know how employees view their chances of satisfying what is asked of them (Pitt 2001). HR experts feel that appropriate applications of the expectancy theory through the linkage of efforts with performance and rewards can make employees developed a liking for their jobs and consequentially reduce employee attrition and employee turnover (Pitt 2001).

Whilst the expectancy theory certainly has its logical strengths, talent management is a far broader area and retention of talent in skilled jobs in China poses specific challenges like (a) the need for skilled workers to work far away from their farms and homesteads, (b) difficult working and living conditions, (c) inadequate monetary benefits and (d) the emergence of various alternative areas of occupation and work with more attractive attributes with regard to location, remuneration and job content (Changing Minds.org 2010).

2.3.3 Impact on skilled workers

The Kenexa (2007) report on organisations in countries including China states that organisations with progressive talent management cultures have workers with greater pride in their organisations who moreover recommend their organisations to others as good places to work for (Talent Management 2008). Employees with positive perceptions of the talent management practices of their organisations are likely to be confident of the prospects of their organisations (Talent Management 2008). The research revealed that employees who believed in the talent management policies of their firms tended to have more positive perceptions of their managements (Talent Management 2008). Such employees believed that their managers were capable of effectively managing workloads and that their senior managers felt that employees were critical to organisational success and growth (Talent Management 2008). Employees of such companies were likely to experience greater sense of job stability and security, be happy with company training, feel that their performance is fairly assessed and harbour greater feelings of individual achievement (Talent Management 2008).

MNCs in China are working towards retaining talent through the adoption of a range of initiatives (Roberts 2006). Many companies are locating their manufacturing units in interior regions in densely populated areas in order to tap larger workforce pools (Roberts 2006). 'General Motors, Honda, Motorola, and Intel, for instance, have all shifted some manufacturing or research to inland locations in recent years, both to tap lower costs and to open up new markets.' (Roberts 2006) Salaries and rewards are being increased significantly across the line in order to retain talent and reduce job hopping (Roberts 2006). Many organisations are taking pains to ensure better living conditions, better cafeteria food and more attractive career paths for their employees (Roberts 2006). Foxconn, the maker of Apple iPhones in China is experiencing severe criticism for its treatment of its workforce (Rein 2010). It is evident that such organisations will have to make significant investments in HR policies and practices if they are to attract and retain skilled employees (Rein 2010).

The Chinese government is also taking initiatives to improve the content of vocational and technical courses and build a stronger workforce base of skilled workers. It is however very evident that the Chinese economy and the various business organisations, both MNC and local, are facing significant challenges with regard to availability of skilled workers and competent managerial employees. Such trends are also expected to intensify in future.

2.4 Talent Retention tools

Vaiman and Vance (2008) suggest that motivational force can be achieved by extrinsically through monetary incentives or intrinsically through non-monetary incentives.

2.4.1 Monetary rewards and non monetary rewards

Monetary rewards include all types of compensation and benefits (C&B) packages such as salary, performance related payment, deferred compensation plans, social and commercial benefits and etc (Tian 2007). Monetary rewards can satisfy employees' physiological needs and it is an effective tool to retaining talent (Vaiman and Vance 2008). Maslow's Hierarchy of Needs, suggests the physiological needs have to be satisfied before dealing with the higher order needs. This may be the reason why money is still the best reward for the majority of people.

In contrast, non-monetary reward is another essential tool for retaining employees. It can be use to satisfy employees' higher other of needs such as the needs for achievement, affiliation and power (McMlelland 1987). Non-monetary rewards include: training and career development, employer branding, ect. (Tian 2007).

The researcher will consider these retention tools in the Chinese environment below.

2.4.2 Extrinsic motivation

According to a recent survey conducted by Waston Wyatt in China, the number one reason for Chinese talented and skilled workers to leave their current job is to find a better-paid job (Leininger 2004). Therefore, it is extremely important for MNCs to offer a competitive compensation and benefits package, in order to retain the Chinese skilled worker.

The following components are normally included in the packages that MNCs offer to local employees, and therefore they are discussed here in detail. Salary

Salary is the fixed amount of money pay to an employee for work performed and is the largest component in a C&B package. Due to the weak social security in China, Chinese employees tend to place more value on money than Western employee (Jones 1997). Therefore, MNCs need to consider a number of factors when they design the salary level for Chinese employees. For example, the cost of living and level of economic development vary significantly from city to city, so the salary for equivalent positions may vary as well. Leininger (2004) points out that first-tier cities such as Beijing and Shanghai enjoy the highest salary level, followed by second- and third-tier cities. Moreover, the salary level has been increasing at a dramatic rate in China. Since the rapid economic growth, the annual salary growth rate has been risen up to 8 percent in recent years, and the trend is expected to continue in future (Tian 2007).

As a result, it is necessary for MNCs to have a general idea about local compensation level and salary growth rate before designing their own competitive packages. Performance related payment

Performance related payment (i.e. bonus) is the portion of a C&B package that is related to performance. It is very popular and accepted by many MNCs in China.

Many MNCs believe that performance related payment is an effective tool to given an incentive for compensation to meet certain goals such as completion of a specified sales target. In addition, it is able to encourage local employees to be more creative such as: propose a new idea to increase efficiency in the work place ,or improve the quality of the output, etc (Melvin 2001). To an extent, performance related payment helps to attract local employees and keep them help in the company. Deferred compensation plans

Deferred compensation plans are also called ‘golden handcuffs'. They are popular with MNCs in China, and are offered in the form of a contract-related gratuity. For example, If the Chinese employee stays with the company for a contractually specified length of time ( i.e. 2 years), at the end of his/her contract he or she would be given an extra year’s salary as a reward.

Deferred compensation plans are useful in retaining Chinese employees because it provides a financial incentive for talented Chinese employees to remain in the company. Recently, MNCs have begun offering a new version of ‘golden handcuffs' to young talented Chinese employees who would like to get a degree at an overseas university. They offer a full scholarship for these employees and in exchange, the employees have to work for the company for specified length of time after completing their degree (Tian 2007). Social and commercial benefits

Social benefits are mandatory in China they refer to contributions to government-run social insurance schemes, which cover pensions, medical care, unemployment, work injury, child birth and housing, etc. The benefits are borne by both employer and employee. 30 and 40 percent of payroll is paid to the State, of which around 50% is paid by employers. In recent years, Chinese employees are increasingly aware of the importance of social benefits, due to rising costs of housing and medicare in China. , Some MNCs are even willing to pay benefits of more than regulated ratios to retain their employees.

By contrast, commercial benefits refer to the benefits offered by an employer to an employee on a commercial basis. Many MNCs in China provide numerous commercial benefits for their employees such as offering loans at below-market interest rates, monetary assistance with single child family or even payment of wedding. Both social and commercial benefits are reported as useful to inducement to employees to remain in the company (Tian 2007).

2.4.3 Intrinsic motivation

However, monetary rewards are not everything employee wants. Once compensation reaches a certain level, employees are likely to look for higher order of needs such as career development opportunities ( Maslow 1954; McClelland1987).

According to the DDI survey in China 2007, the result shows that the top two reasons for Chinese employee turnover were lack of growth and development opportunities with the current company with 53% of the respondents agreed and better career opportunities elsewhere with 42% of the respondents agreed. The result reflects that Chinese employees have high expectations for rapid advancement (Howard, Liu, Wellins and Williams 2007). Therefore, it is necessary to consider these non-monetary factors that can motivate and retain employees.

As Jones (1997) points out that it is very important to understand Chinese employees' expectations. For most Chinese employees, especially those top performers joining a MNC not only for a high C&B package but also for the opportunity to receive advanced training and learn western business methods. Those top performers are clearly aware of the skill gap between them and their Western counterparts, so they are eager to improve their own knowledge and skills. Additionally, providing training and career opportunities to employees can improve employees' commitment to the company. As Leininger (2004) stated that the heart of retention is long term employee commitment. He divided employees into two different groups. They are 'satisfied' and 'committed' employees. The satisfied' employees can easily be retained by satisfying their monetary incentives while the 'committed' employees tend to stay longer with companies even without monetary incentive. A global research conducted by Waston Wyatt shows that committed employees are more productive and efficient than those whose employees showed low commitment (Leininger 2004).

Therefore, it is important that MNCs recognize the importance of training and development opportunities to their Chinese employees and demonstrate a commitment to training, development and career path development for them. Besides, organizational factors can also influence talent retention such as corporate culture, communication, leadership behavior are able to satisfy employees' needs for affiliation (Chew 2004).

In the Chinese case, the leadership behavior is one of the most important motivation and retention drivers for Chinese employees. For many MNCs, the meaning of a 'good leader' for Chinese people can be far more complicated than what they have seen in their home countries.

Leadership in China has specific connotations. According to the research conducted by Craig Pepples, to achieve success in Chinese environment, foreign leader need a strong leadership style to build a team. Chinese employees respect those leaders who have a strong leadership style. They expect leaders always able to give them instruction to follow. Moreover, Pepples also insists that to be an effective leader, foreigners need to create a culture of teamwork, showing their personal commitment to the employees and care for each individual (Jones 1997). Therefore, Chinese employees are most likely to want to stay and work for an organization if they have a good manager or boss, who recognized individual contribution, and had great company leaderships (Howard, Liu, Wellins and Williams 2007).

These studies above are just a few examples of tools regarding talent retention in the Chinese context. When these retention tools are applied to Chinese employees, MNCs have to rank all the tools in order of importance, and then focus on several areas for motivation and retention talent (Vaiman and Vance, 2008).

2.5 Talent development in the Chinese context

As we have discussed earlier, the number one challenge that MNCs facing when operating in China is the shortage of skilled worker within the Chinese labour pool.

lt is unrealistic to leave everything to the Chinese government itself.

Therefore, to reduce the shortages of skilled workers and their supervisors and managers, MNCs have to make their own contribution to deal with the problems by training and developing their own workers. Although the training and development process is time costly and expensive, it also brings long term benefits for the firms such as long term loyalty of employees, quality improvement, sense of belonging and etc (Leininger 2004).

Jones (1997) emphasizes that although the supply of Chinese “qualified” employee is far from adequate to meet nation’s need, MNCs can develop their existing employees who can help to bridge the gap between the current competencies of employee and desirable in future. He suggested that the existing employees know how the company works. Employees who are ambitious, desire to move on and get advancement have the potential to become highly skilled workers. They are “rough diamonds” for the company. By giving them the opportunity to develop, they can transform to become skilled workers (Jones 1997).

Rothwell (2001) identifies 5 strategies that can be used for narrowing employees’ skill gap. They are: Coaching, Special job assignment, Action learning, Job rotation, University-based programs.

Below the researcher will consider these tools in the Chinese environment

2.5.1 Mentoring and Coaching

Mentoring can be simply defined as a relationship establish between a mentor who is experienced, and a mentee who is not. The mentors use their personal experience, knowledge and skills, and offer advice and guidance to help mentees to develop their knowledge and career progression such as making realistic plans and objectives in order to improve the mentees’ effectiveness and develop their potential.

At the same time, mentees are giving the opportunity to access to the experienced mentors’ mind set, and learn from their views, knowledge and their way to get things done in both formal and informal manner (Kram 1983).

Today, companies are increasingly aware of the importance of mentoring. They recognize that mentoring is not only an effective tool to retain employees, it is also a significant way to ramp up the knowledge and skills of talented employees.

Mentoring supports leadership development, improves succession and organizational commitment. ( Clutterbuck and Megginson 1999). Byrne (1991) categories the different types of mentoring arrangements. He identifies two main categories, they are: Professional (informal) mentoring and Formal mentoring. The Professional mentorship allows the mentor to have freedom on selection of his own mentee. The mentor is given the right to choice mentee based on his personal choice and it is not a compulsory aspect of an organization’s operation (Byrne 1991). The formal mentorship is a compulsory and core component within an organization’s staff training programs. It is used as a systemic policy issue and a standard part of management practice (Byrne 1991).

In the Chinese environment, mentoring will fit into the Chinese culture because Chinese employees have great expect for hierarchy and long serving senior staff in organizations are readily accorded leadership status (Child 1994). Furthermore, Chinese junior employees are eager to receive advice from senior staff. They believe that senior staff who has more experience are more intelligent than themselves. Thus, they are willing to received advice from mentoring. This is because Chinese traditional values have been dominated by Confucian and Confucius theory emphasize that people should respect age. As a result, an age hierarchy is entrenched in Chinese social environment(Child 1994).

Coaching, like mentoring, is a means of developing human resources. Coaching is an activity through which coaches (i.e. an immediate supervisor) work with clients (i.e. employee). It aims to improve skill development, impart knowledge, and inculcate values and behaviors that will help the person being coached with more challenging assignments (Luecke 2004). Coaching is a technique that has shown great promise for employee development. As a study conducted by Olivero(1997), who finds out that an executive’s productivity increased by 22.4 percent after he had an eight weeks of executive coaching.

With respect to coaching in Chinese environment, the success of coaching processes is mainly dependent on the trustful relationship between the coach and the Chinese employees. Jones (1997) indicates that Chinese employees are not brought up to trust easily, due to the metal damage from the “Dark” period (i.e. culture revolution). Moreover, research found that some Chinese employees tend to discriminate against foreigner managers, they are likely to be more trustful to Chinese manager (Jones 1997). Therefore, while using coaching methods, the ideal coach would be a Chinese manager. For foreigner managers, in order to be an effective coach, they must have a strong core value such as trust building.

2.5.2 Special Job assignment

Special Job assignments are structured and planned by an organization’s superior and helps an employee to find his direction for career development, fill the gap between desired and actual skill (Fulmer and Conger, 2004).

Many Chinese talented employees need to improve their competencies and skills, in order to meet MNCs’ requirement and environment. MNCs’ can provide special new task to help staff to develop.

For example, most Chinese employees are lacking in understanding of the western business culture and the parent company’s corporate culture in particular. To overcome these problems, many MNCs offer their talented Chinese employees an overseas assignment, and send them to the corporate headquarters to receive training courses (Tian 2007).

2.5.3 Action learning

Action learning is another training format. The system encourages employees to discover themselves and look for solutions to actual business problems (Neary and O’Grady 2000). The process may pull together a group of high potential employees to study and make recommendations on a pressing topic. For example, an organization superior brings potential talented employees, line managers and HR department together to focus on a particular strategic business issue. It aims to provide opportunities for employees to experience job challenges, obtain organizational knowledge and competence by allowing people to share their experiences and knowledge with others (Rothewll 2002). From these potential talented employees’ perspective of view, they are given the developmental experience which enables these potential leaders to learn from the managers and know something of what is takes to be a general manager. Action learning is a useful tool to develop employees.

However, it may not work in Chinese environment. Since Chinese employees are not use to speak out of their minds or tell others about what are their real thoughts. The reason is because they are aware of the chance to “lose face”. Chinese people are told by their parents that “talk more make more mistakes”. Therefore, MNCs should emphasize honesty and openness.

2.5.4 Job rotation

Job rotation is one type of on the job training. It is a temporary assignment for employees. An employee is allocated to another position for a substantial period of time, then bringing him or her back to the original position. For instance, send a salesman to customer services department. Job rotation encourages high potential individuals to learn from the other part of the business, in order to have the “big picture” thinking (Kur and Bunning, 2002). Job rotation can improve the relations between the employee and their colleagues, also from the organization’s point of view, job rotation is less costly. In recent years, Job rotation practices have been widely accepted by managers, according to a survey conducted by McCall et al (1988), 63 percent of managers in the study agreed that job rotation practices have effectively accelerated their development (Longenecker and Neubert, 2003).

Job rotation can be a suitable tool when in Chinese the environment as Chinese people seek to establish their personal connections at the workplace and demand a harmonic work environment.

2.5.5 University based programmes

We have heard that due to the single-sided education system, MNCs in China are facing difficulty in finding qualified local employees. Thus, some giant MNCs (such as HSBC, Motorola and etc) decided to make investment to the best universities, in order to grow their own talented people.

MNCs can form a partnerships with local universities. For example, they may sponsor lectures, hire student for internships… This can help to establish a company’s reputation and create employment branding. It may also enable MNC to identify potential candidates in their early age and avoid other competitors to hire them (Lane and Pollner 2008). However, the high cost is a drawback, therefore, only big operations in China who have the strong financial capacity will do this successful.

Filling the skills gap by recruiting skilled workers abroad

2.6 Culture

Many academics have argued that basic motivation theories have limitations when applying these theories in China. Child (1994) indicates most of existing theories are based on Western values. In order to determine the effective motivation factors for Chinese employees, it is necessary to concentrate on cultural messages which are realized in social interaction. Hong(2000) argued that Chinese have their own hierarchy of needs based on Eastern culture.

Many Western and multi-national firms underestimate many cultural messages in the Chinese market. For instance, Chinese employees put love issues ( i.e. family) on the highest positions of their life.

Chinese people have unique characteristics of Chinese culture. To achieve success in China, many cultural considerations must be addressed and it is important to understand the Chinese mentality.

2.6.1 Chinese values

In spite of various Chinese philosophies and religions that have shaped Chinese values, Confucianism has probably exerted the greatest influence and Chinese traditional values have been dominated by Confucian thinking (Zheng 1997). Confucius emphasized the individual and the community are closely related in order to achieve humanism and a social order in this world, people show seek virtue as the goal. The key messages of the Confucian morale are self-discipline, social harmony, strong family social collective, and reverence for education which had positive effects on Chinese people (Confucius 1992).

However, in the late 1950s, Mao ZeDong’s (former party chairman) radical socialist ideology and series of political campaigns (i.e. Cultural Revolution) distorted the lives of Chinese people. A strong ‘psychological block’ developed in Chinese society. People began to have a conservative point of view and feeling of suspicion- distrust of others (Bettignies 2007 ; Tan 2007).

2.6.2 “Face” and “Guanxi”

After generations of cultural change most of the Chinese have been influenced by a mixture of values. As a result, two elements that are considered of key importance in the Chinese context are: “face” and “Guanxi”.

In Chinese business culture, face defines a person’s place in his social network and the measure of his social worth. A person’s reputation and social standing rests on saving face. Therefore, “Saving face” is particularly important to Chinese. In order to have harmonic relationships, managers should avoid putting their Chinese employees in “face loss” situations. For example, managers must respect the need for face when disciplining a Chinese employee and never reprimand a Chinese employee publicly. Managers need to use “soft” constructive criticism and indirect methods to get their point across (Graham & Lam 2003).

Another important issue is the concept of “Guanxi”, It is very much like networking in the West, “Guanxi” literally means “relationship”. In the Chinese community, people are closely connected by “Guanxi”.

An important implication of Guanxi for HR is that Chinese employees seek to establish their personal connections in the workplace. They like to maintain a close and harmonic relationship with their colleagues and the employer, while Westerns prefer to separate their work and personal lives (Graham & Lam 2003). By having good relationships with Chinese employees management can motivate employees and gain various benefits for the organization. Tian (2007) mentioned, Chinese employees tend to think that a good relationship with their boss is more important than any benefits or rewards. Thus, harmonious work environment and Interpersonal trust is crucial in achieving business success in China. This is built through “Guanxi” (Graham & Lam 2003).

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