A common thread runs through the concerns of chiefs of multinationals in China.

It's neither cultural conflict or regional disparities; nor regulatory hurdles or lack of potential.

It's people, specifically, talent. And how to find and hold on to them.

In a survey of 150 companies conducted in the fall of 2005 by Hewitt Associates, 95 per cent indicated that acquiring, retaining and managing leadership talent in China was necessary for success. More than half said it was a "critical" aspect of business and currently restricting growth.

Another survey of about 100 companies in China, mainly multinationals, by HR consultancy Mercer, shows 54 per cent say the turnover rate of their operation unit rose in 2005 and 42 per cent of the companies acknowledge there is a similar trend in supporting units such as finance and human resources.

According to Mercer, the overall turnover rate in 2005 was 12.8 per cent. For high-tech companies, it was 13.2 per cent and for the pharmaceutical industry, it was as high as 17.6 per cent.

While companies fight for talents to staff their rapidly growing China business, employee retention has become a key factor in the world's fastest-growing major economy

With China's economy almost doubling in the past five years and expected to maintain about 10 per cent annual growth this year and the next, almost every company is in dire need of more hands on board and employees face abundant opportunities and temptation to leave.

The reasons for moving on are manifold.

It could be a change in the work atmosphere as with Jane Liu, who worked in Intel China for nine years and decided to call it quits in September.

During the previous few months, she had seen almost her whole team leave: the director as well as colleagues in Shanghai, Beijing and Shenzhen so she was suddenly faced with quite a few new faces from different corporate cultures.

In other cases, it could be a team moving en masse, as with Dell the world's second-largest PC maker which lost six key executives in the Asia Pacific region in one month: the vice-presidents in charge of sales and marketing, and services, Dell China President, and directors in Dell Japan.

All of them crossed over to Chinese competitor Lenovo Group, interestingly, the world's third-biggest PC maker.

James Guo, president of Shenzhen-based ZDL Executive Search Co one of the top 10 headhunting firms in China says a major reason for the high turnover rate among some large multinationals, which have been very successful in China in the past, is a change in their market positions.

"Both Intel and Dell do not enjoy the same dominant position as before, so employees are concerned about the future or are worried about lay-offs," says Guo.

Intel has been steadily yielding ground to arch-rival AMD in providing new solutions such as 64-bit computing for enterprise customers and dual-core microprocessors.

In the past four years, AMD has won the endorsement of all major computer makers in China and its market share rose from only a fraction in 2002 to 25 per cent.

HR management

"A company should limit the employee turnover to a manageable degree, say 5 to 8 per cent a year," says Joyce Ma, vice-president of HR and organization with the telecom equipment giant Ericsson's China unit.

Ma started her career as a government official in the early 1980s, has worked at talent management positions at General Electric and Rebook; and has been with Ericsson for about a decade.

The period from the mid-1990s to 2000 marked the first wave of a high turnover rate for multinationals, when at least 10 per cent of employees left each year, she says.

"At that time, young people were anxious for quick career growth, which was not often possible by staying in just one company. So job switches became a shortcut."

When the first wave mainly happened in large multinationals, they set in place systems to keep people and adapted their organization and management to market changes, so the volatility is now low.

In contrast, the current second turnover wave is being felt mainly in fast-changing sectors and small and medium-sized enterprises (SMEs).

"How to keep good people is really a challenge for French SMEs in China," says Florence Gomez, director general of the French Chamber of Commerce and Industry in Beijing, which is compounded by the rising costs of acquiring talents amid a shortage.

This year alone, as many as 1,000 French SMEs came to China; and while they are satisfied with the growth, they are more concerned about talent retention, because they usually have a dozen or so employees which makes it difficult to implement a well-organized system to manage staff.

A similar situation is facing Norbert Heckmann, managing director of German electronic component maker Wurth Electronic, who comes thrice a year to China where business is growing at least 50 per cent annually.

The US$10 million China business is mainly driven by a dozen Chinese sales people and building a stable and long-term relationship with them is critical, especially in an industry where employees shift to competitors easily.

The losses from a high turnover rate are also very significant. According to US financial management consultancy Watson Wyatt, the tangible loss in North America is as high as 60 per cent of the annual salary of the employees leaving.

When some employees leave a company, they go with customer contacts or even confidential information, so the direct losses can be fatal to many SMEs.

Ericsson's Ma points out that indirect losses such as advertising and recruitment costs as well as low company morale are also quite severe for companies without a well-structured organization.

So what can be done to keep employees?

While some companies offer higher pay, Watson Wyatt suggests a performance-based mechanism to reward best-performing employees and retain them.

Salaries of employees at multinationals have been growing at an annual average of 7 to 8 per cent in the past year and Watson Wyatt estimates the trend will continue at least this year and the next.

Ericsson's Ma says corporate culture and contact with employees is a sustained model to retain key staffs.

Every year, Ericsson China identifies 20 employees and works out detailed plans to help them grow, so that they can both help the company develop and share its achievement.

Whenever an employee leaves, Ma and her team talk with that person face-to-face to find out his or her concerns and improve the HR system, if necessary.

Not surprisingly, Ericsson China has managed to maintain a turnover rate of around 8 per cent in the past years.

John Meijs, China Project HR Director with the Dutch chemical company DSM, says his company also has a programme to tailor career paths for key employees between 28 and 30 years old.

"At the end of the day, you cannot buy people and we should provide all our employees with the best opportunities," says Meijs.

(China Daily 12/25/2006 page1)