By Davy Lau (China Daily)
Updated: 2007-08-29 11:55

China is widely expected to become the world's largest employment market in the future.

Yet although China's working population looks set to grow through 2020, 72 percent of workers are currently employed in the agricultural sector. More critically, only 4 percent of the current working population holds a university qualification.

All of these factors mean that recruiting and retaining top Chinese talent will present major challenges for multinationals operating in China in the years to come.

The good news is that there are 65 million overseas Chinese worldwide. Their roots lie in the mainland and they are keen to bring their own ideas, capital and skills physically into the country. This will alleviate China's executive talent shortage issue to a certain degree.

Related readings:  Employment situation still unstable  Employment promotion law helps financing of SMEs  Nation to create more jobs for zero-employment households  Beijing looking for irregular employment practices

Companies seeking to hire executive talent have four main categories of leader to choose from:

Non-Chinese expatriates: from the headquarters of multinationals, very strong in functional areas, but often lack language skills and cultural awareness or familiarity with local business practices.

Ethnic Chinese from outside the mainland: usually from Hong Kong, Taiwan, Singapore or Southeast Asia. They offer a regional headquarters' perspective, international management expertise and understand the Chinese language and culture, but often cost as much as non-Chinese expatriates.

Chinese mainland returnees: born and raised in China, studied or worked in the US or Europe and then returned to China. They offer international experience, plus language and cultural skills but are in short supply.

Chinese mainland locals: born and raised in China and have never left the country. They are highly integrated, but lack language skills and international exposure. The quality of their leadership is not world-class, but they are learning fast.

Local leaders

Ten years ago all of the executive positions in China were occupied by expatriates. Today, however, many of these senior positions have been localized and the number of ethnic Chinese executives is on the rise. In terms of compensation, the gap between expatriates and locally recruited talent is also closing.

Talented local leaders are acquiring more skills and their earnings are increasing. On the other hand, expatriates, who tend to cost companies two to three times as much as local Chinese due to their relocation expenses, are starting to accept semi-expatriate packages. These two trends are leading to a convergence in overall skills and remuneration levels.

Why do some companies outperform their competitors in China? In many cases the answer lies in how these firms manage their talent.

Successful companies tend to appoint a very strong leader at the top. The best multinational company leaders are usually ethnic Chinese born and raised in Hong Kong, Taiwan or Singapore and bilingual in Chinese and English.

Many received a Western education before joining a multinational. They understand the performance culture of such companies and can motivate their local Chinese staff effectively as a result.

Such leaders also tend to have built up a strong network among other top managers, as well as links to the government.

These chief executives are supported by a team of local or ethnic Chinese recruited for senior management positions. The latter are encouraged to intermingle with senior expatriates and managers at the company's headquarters to promote the exchange of knowledge and experience.

We found that 90 percent of US companies in China have already appointed ethnic Chinese leaders, along with 75 percent of their European counterparts versus only 16.6 percent of Japanese companies, reflecting Japan's unique approach to leadership in general.

In China leaders usually rise to the top by virtue of their knowledge, skills and performance - that is, on personal merit.

In Japan, on the other hand, good leaders are seen as forged by the opportunities, experience and training provided for them by their company.

This attitude explains why Japanese firms in China continue to dispatch Japanese expatriate executives, rather than hiring ethnic Chinese as leaders. It may also account for the falling popularity of Japanese firms in Fortune's recent rankings of most admired companies in China.

Retaining talent

Creating an environment that nurtures talent is the key to recruiting and retaining the right leaders.

Successful firms tend to identify top performers early using systematic, rigorous assessment programs. These companies then offer their best staff a wide range of learning opportunities, as well as an equitable and well-structured reward system. Money is important, so many top multinationals are using higher, performance-driven compensation packages to attract talent.

Usually, capable Chinese executives like to be in the limelight and receive credit for their achievements in public, so this is a key strategy for keeping them on board. Good communications also make talented individuals feel proud to work for their firms and boost loyalty.

The author is a senior consultant with Egon Zehnder International, Shanghai