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China's Evolving Workforce
January 31, 2007 |Estimated reading time: 4 minutes
The Greenline Group (<?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Kent, OH) functions as executive recruiters in the PCB manufacturing, EMS manufacturing and semiconductor manufacturing industries. It also recruits for their supply chain consumables and capital equipment companies. Recently, PCB007 had the opportunity to speak with Mike Thomas, about the group's work in China--where the interconnect industry is experiencing job market "growing pains."
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PCB007: What type of people do you recruit in China?
Mike Thomas: In China we recruit middle, upper-middle, senior level managers and executive level management.
PCB007: What are the main challenges facing companies in China today?
Mike Thomas: Really, from our perspective, there are two major challenges facing Chinese employers: labor shortages and employee turnover.
PCB007: Labor shortages? That seems like an impossibility in a country with so many human resources. When did you first notice labor shortages in China?
Mike Thomas: We saw the first sign in November or December of 2004. This caught most companies by surprise, initially they all told me this was a "temporary problem."
PCB007: What happened to the supposedly endless supply of cheap labor?
Mike Thomas: Believe it or not, one of the key challenges facing management in China is finding and keeping good employees. Just a few years ago our clients would have streams of willing workers showing up at the gates of their factories. Now clients tell me "we advertise for eight openings and have 1 or 2 applicants." When the problem first surfaced the government dismissed the problem as a short-term aberration due to their fast-growing economy. But the government now says the labor shortage problem will likely persist for some time to come. There is one school of thought that says that China's "One Child" policy for the last 25-30 years is partly to blame.
PCB007: What kind of impact has this had on wages for companies in China?
Mike Thomas: The labor shortages are forcing companies to raise wages. This is good news for factory workers in China. Our research shows wages have risen eight to twelve percent this year, with the current annual median salary in 2006 at about $3,300.00 U.S. dollars. Yet wages are rising very dramatically throughout China as shown by the Nation Bureau of Statistics, which stated the average annual income in 2005 was the equivalent of $1,282 in the cities and $398 in the rural areas. Zhang Wang an economist at PekingUniversity told the Beijing-based China Daily that labor costs will rise 30-50 percent in the next three to five years. This translates into wages rising about eight percent per year in the coming years.
PCB007: Wow. That's quite an increase. Do you think that might negatively impact the Chinese manufacturing economy?
Mike Thomas: I'm not sure how negative the impact will be on the overall Chinese manufacturing economy, but it will slow down their migration up the value added manufacturing chain. This in turn could stall the Chinese economic growth.
PCB007: What is the total workforce in China?
Mike Thomas: The total labor force in China today is about 800 million people with the total population exceeding 1.3 billion, yet there skill set does not meet the demand of employers.
PCB007: As a percentage, what is the employee turn over rate in China?
Mike Thomas: We are currently seeing turnover rates running as high as 50 percent. The average is about 35 percent for factory floor employees. The turnover rate for management is running between ten and seventeen percent.
PCB007: How are companies reacting to this new labor climate?
Mike Thomas: We are seeing wages rise. We are also seeing companies looking at locating new operations in cities outside of the primary cities of Beijing, Gaungzhou, Shanghai, and Shenzhen. They're moving to cities like Dalian, Chungzhou, Shenyang and Yantai.
PCB007: Do you see companies leaving China?
Mike Thomas: Yes, companies are locating new operations in other countries, like India or Vietnam. An example of this is Intel's decision to invest $300 million in a semiconductor assembly and test facility in Ho Chi Minh City, Vietnam.
PCB007: What about professional management in China?
Mike Thomas: We are seeing companies paying between 80 and 120 percent of the U.S. cost for experienced management and technical management in China. Wages in this sector have risen in the last year anywhere from eight to fifteen percent. Job hopping for higher pay is rampant in this sector.
PCB007: Welcome to the western world, huh?
Mike Thomas: Yes. It's a case of China developing a middle class that is seeking the highest amount of pay possible for the work its performing.
PCB007: Do you think staffing will be a big concern in the coming years?
Mike Thomas: No, it's a big concern now and will continue to be a big concern for our clients in China.
PCB007: Will the labor shortage force more work back to American and European factories?
Mike Thomas: Yes, but only lower volume work or work on the upper end of the technology curve.
Mike Thomas is an Executive Recruiter with The Greenline Group. From his experience over the past nine years covering the interconnect industry, Mike has developed insight into emerging compensation and hiring trends around the world. He can be reached at: mike@greenlinegroup.net. Web site: www.greenlinegroup.net.