Transcript Recommending a Strategy

Changing Work Force in China
BUSI 3001 SBLC
Week 14, Fall 2014
Charles Mo & Company
December 1, 2014
Changing Workforce in China












The success of the manufacturing model in China is mainly due to its
large pool of cheap and skilled labor.
Chinese Workforce in different time periods:

1949-76

1977-1994

1995

1996-2011

Today
Chinese workforce is more aware and conscientious about their rights
today than in the past
Labor rights under the new Labor Contract Law
Migrant workers are not as available as before
Contention in using trainees as workers
China faces a glut of graduates
Weakness in the workforce
China faces more HR issues
Solutions to HR issues
Turn over rate and salary increases
Demographic shift in one child policy as a result from the
Old manufacturing model

Foreign investment in manufacturing

Foreign firms invested heavily in plants and equipment in China because:







Obedient workforce that can be trained
Return on the investment means big profit due to the cheap and skilled labor. Easily exploited by both local and
foreign manufacturers for almost 3 decades
Hundreds of thousands migrant workers moved to Shen Zhen, Gungzhou, Shanghai, and Beijing
This successful business model was then copied by the American
distributors and wholesalers by-passing the US manufacturing
companies.
Easy to duplicate the business model and undercut the US
manufacturers by going directly to the producers
The old investment in heavy machinery and plant model is replaced by
outsourcing.
Even the manufacturers now embark on toll manufacturing instead of
making the products themselves.
1949-1976 Mao’s suit workforce
Founded in 1949
Chairman Mao forced Chang Kai Shek
to Taiwan but was left with an economy
In financial ruin
Under communism, only the state owns
the land and properties
All jobs and work are assigned by the state
Jobs are life time guaranteed , so called “ job like an iron rice bowl”
Jobs are categorized: party officials, factory workers, civil servants, teachers,
artists, and everyone else lumped into as peasant /farmers
Jobs are assigned according to political background
Political background determines if you can attend college
1976-1995
Xiao Ping’s
reform workforce
Purged twice by Mao, but Deng survived and became the ultimate
leader in China in 1978
Inherited a country fraught with social and institutional woes
Reformed the closed socialistic economy into a modified Socialist
market economy
Opened to foreign investment
Opened up gradually to private industries and private ownership
Changes in workforce are gradual – color, majority of the jobs were still
assigned, low wages, little social safety net
Eventually the reform lead the country to become the second largest
economy in the world
1995 – workforce conditions
Living quarters
Average 4 sq m/person
Compensation
Professor – 800 RMB/month
Cashier – 800 RMB/month
Housing
Government subsidized, 50 RMB/m
Work subsidy
Uniform, shoes, shower, newspaper, summer
cooling subsidy, lunch provided, dinner provided
with O/T
Nap
Lunchtime
Office setup
No cubicles, open space
House allocation
Union determines who gets the houses which
were purchased by the company
Workers behavior
Heavy smokers, occasional heavy drinkers,
obedient
Form of foreign
investment
JV or Coop – partners fought over non essential
arguments. WOFE became popular later
Today’s workforce – 1995 to present
All jobs are filled by supply and demand
Majority of the State owned enterprises are privatized
More sophisticated and more demanding workforce
Worker rights are protected by the new Labor Contract Law
Large pool of workforce increasingly presents opportunities and
competition
At almost 100% literacy rate, the workforce is easy to train
Creation of the INPATS
Chinese workforce is more aware today

In the past, government/companies were used to a quiet workforce






Willingness of workers to uproot their lives and work in coastal cities
Large numbers of migrant workers willing to work for lower wages
Large and cheap labor force to fuel the giant export machine
Workers were displaced during the 1990 reform of state enterprises
Demonstrations were confined to those factories unable to pay wages or severance
Now, employers must contend with assertive demands from the workforce for higher
wages and better working conditions









Competition for skilled labor has intensified
Rise in wage level
Companies willing to share the higher sales and profitability
Labor contract law enacted in 2008 improved worker rights, restriction on using temporary worker,
Raised employees’ expectations and awareness of rights
Labor grievances escalated
Increasingly restless and vocal workforce
Increased employment costs
Wave of labor strikes in 2010 did come as a shock
Labor rights and employee awareness

Labor Contract law in January 2008







Move upstream to higher values added products
Targets factories with poor working conditions
Guarantee contracts for full time employees
Limit the use of temps
Sets minimum standards
Steep cost rise
Protections raised employees expectations and awareness





Empowered employees to file grievances
Sharp increase in cases
The haves and the have nots is widening
Took to the streets
Wave of strikes in 2010


Honda strikes, suicides at Hong Hai Presision also known as Foxxcom
China is still a good place for manufacturing
Migrant workers are not as available as in the past

Migrant workers are staying home and get jobs





Workers have choice now
More employment opportunities inland
2009- 22.5% reduction in migrant workers working in Pearl River Delta
Government survey –working home migrant workers in 2009 increased by
8.2%
Coping with reduced flow of labor




Find workers locally
Setting up local training and recruitment centers
Raising minimum wages
Pushing companies to improve working conditions
Contention in using trainees by employers




To keep costs down: hire a large number of trainee workers
The practice is legal and trainee workers are paid less than the
minimum wage
Part of the complaints in last year’s Honda strike was trainee
workers.
Honda’s May 2010 strike:



Crippled the Japanese auto maker’s car production for 10 days
Demanding pay raise and better treatment
30% workforce was trainees
Honda offers Chinese strikers a 24% pay boost
China Faces a Glut of Graduates
China faces glut of graduates
WSJ 4-29-09 P 14




21.5 m university students were enrolled in 2008.
1/3 of the 2007 5.6 m university graduates, were unemployed
Finding jobs for the 2009’s 6.1 m graduates became top national
priority
University debts may be a bubble in the making





Government ordered universities to expand 30% per yr in 1998
Financing is a cinch
More students, more tuition
Universities are now crippled with debts
Resulting poorly qualified students, diploma mills


A student graduated with a computer science degree from a Chinese
traditional medicine university with no history of teaching computer
sciences
Universities tend to provide popular subjects such finance, English, trading
courses instead of engineering courses
China faces glut of graduates
WSJ 4-29-09 P 14



Chinese basic education is excellent that resulted in almost 100%
literacy rate. Even the poor farmers can be trained into the best machine
operators/technicians.
75 elite universities were lavishly funded by the central government
Beneath the elite are 2,100 other universities.





Vast majority undergraduate students
Almost all are saddled with unserviceable debts
In Anhui, 50 universities owe $1.2 b
In Guangdong, the wealthier government spend $30 m to bailout universities
Estimated 100b were spent in this expansion, but government told the universities
to borrow
China faces glut of graduates
WSJ 4-29-09 P 14

Debts need to be paid off


No significant alumni donation
Slash costs and lure more students






Teachers salary cut
Delay equipment purchase
Increase classroom size
Change to popular programs like, English, tourism, government, journalism and law
Not focus or expansion for training program for technical job
Example: NJ University





Student enrollment expanded 11 fold to 17,000
Library volume increased by half
Faculty staff increased 20% to 1200
Interest payment at one time totaled 60m and tuition is 30 m
Half of the university city is used for education, the other half for other
commercial uses such as golf course.
1977
7
8
End of
cultural
revolution.
May 16,
1966. Class
Struggle,
Red Guards,
Gang of Four,
D
e
n
g
a
s
s
u
m
e
p
o
w
er
270,000
students
enrolled in
Universities
E
R
ef
or
m
7
9
8 81
0
First batch of
graduates
1999
2001
After Asian financial
crisis
Ave 30% of
senior did
not sign an
employmen
t contract
2006
2007
2008
Unemplo
yment
rate
4.1%
exclude
unemplo
yed
college
grads
3 m high school
graduates enrolled
into college
First 250,000
graduates
4.95 m
college
graduate
s
5.2 m
college
graduate
s
5.6 m
college
graduate
s
Weakness in today’s workforce








Lack of management skills
Unwillingness to take responsibility
Unsure about the ethical issues
Too much rumors
Weak middle management
Eager to change jobs
Unwilling to work harder
Acquired all the bad habits
Companies have more HR issues than before

China’s Economic Reform resulted in an unprecedented economic growth.








Prior to the reform, enterprises are state owned
College graduates are allocated to enterprises for work
Jobs are life time, iron rice bowl jobs, subsidized housing, job securities
After the reform, MNCs entered the country and private companies sprung up
Workers can hop from company to company
Attracted by higher wages elsewhere
Demand for talent workers becomes a top issue for most MNCs
HR issues facing the MNCs:





Acute shortage of talent workers
High attrition rate
MNCs struggle to attract talented and skilled workers
Higher cost to attract and retain workers
Need to train the new college grades because less than 10% are up to the job
Companies solutions

Short term “buying” the talent approach



Throwing more money
Inflating the title
Long term “developing” strategy





Salary and bonus
Benefits packages
Training
Career development
Two way communication
Turnover rate/minimum wage increase % in Asia
Macau
Hong Kong China
Taiwan
Japan
2%
3.4%
4.2%
4.25%
4.5%
Ave. Raises 8%
4.5%
6%
4%
2.3%
Turnover
Source: China Daily 2012
Compensation Trend – salary increase in China
Salary increase
Salary increase
Salary increase
2010
2011
2012
6.9%
8.3%
12%
2013
2014
2015
2016
2017
2002
2003
2004
2005
2006
2007
2008
2009
8%
8%
8%
10%
8%
8%
4%
4%
1995
1996
1997
1998
1999
2000
2001
15%
15%
12%
12%
12%
10%
8%
Corporate culture to attract and retain employees

Build brand





Value proposition to customers
Emphasizing quality control
Global leader
World class organization
Employment image



Employee sense of connection to company
Commitment to the company
Employee engagement
Some companies now are developing the next generation leaders in
China in the changing global market

Build a scalable and sustainable workforce




Developing future leaders




Include process that practices that contributes to development of future
leaders
The concept of developing future leader is not new
Rapid growth and ever changing nature of business in China makes it a
tough challenge to the most experienced EXPAT manager.
Train the Chinese managers leadership skills
Overseas rotation
Intra China rotation for high potential employees
Shorter EXPAT assignments


Allows high potential employees and future global leaders to gain a
deeper understanding of China
Leaves the company better equipped to deal with ever changing global
market
In Beijing, One-Child Policy’s Is Modified








Family planning policy, is the population control policy of the
People's Republic of China.
Sometimes the policy is misunderstood as the policy allows many
exceptions
rural families can have a second child if the first child is a girl or is
disabled,
ethnic minorities are exempt.
Families where both parents are the only children are also allowed
to have two children
Residents of the Special Administrative Regions of Hong Kong
and Macau, and foreigners living in China are also exempt from
the policy
In 2007, approximately 35.9% of China's population was subject to
a one-child restriction
In November 2013, the Chinese government further relaxed the
policy by allowing families to have two children if one of the
parents is an only child.