Retention in China: Lack of Talent or Lack of Leadership?

By Hans Stremme, who manages Neumann International’s offices in Shanghai and Hong Kong

As foreign investment unabatedly pours into China, more and more managers find their strategies endangered not by lacking capital or headquarters’ attention, but by not finding enough talent to implement them. IBM China recently admitted having lost up to half of potential business as a result of not finding sufficient staff in some locations.

The severe recruiting problems are often met with amazed disbelief; as Acer’s chairman Stan Shih recently exclaimed, “How can there be a shortage of staff in China; they have over one billion people!”

But shortage is less a question of absolute numbers than of scarce skill-sets across all levels. Attracting, motivating and retaining skilled people consumes far more top-management attention in China than elsewhere, be it in retaining well-trained workers in the manufacturing clusters or leadership talents capable of running global operations. It is estimated that there will be a need for 75,000 internationally experienced managers by 2015, while currently there are no more than 5,000 available in China. 1)

The overly mobile Chinese employee

With China’s GDP showing no real signs of slowdown – 11.4% last year and 10.5% forecast for 2008 – employment trends continue to go up. Growing talent demand faces an education system unable to keep up pace and quality levels, and, more troubling to the long-term, by a population growing old so rapidly that the age pyramid is on its way to being turned upside down. Given this situation, executive search and HR-consulting services from internationally operating consultancies such as Neumann International become crucial in order to find qualified managers.

The effects of this general development are already painfully felt: A recent study showed that organizations that traditionally grew managers over 15 to 20 years found that they have to accelerate the process and produce senior executives in 5 to 7 years of them joining the workforce. This trend is accelerated by the fact that over a span of only 10 years (2000-2010), the population in the leadership age range of 40 to 49 years will drop by more than 20%, resulting in an acute shortage of talented leaders.

Making matters worse, annual staff-turnover rates in industries such as high-tech or chemicals reach over 20% in China. So within these labor markets – which are both undersupplied and highly fluid – the greatest challenge is not recruitment but long-term retention.

Retention essentials


A range of studies on causes of staff turnover have clearly shown that retention management in China must start with offering competitive compensation, including a significant share of performance-based variable pay. Next is providing a well-structured, motivating development and advancement path while not ignoring the need for work/life balance. Ideally, a package of retention tools is tailored according to the employee’s life-stage; as staff member’s attention shifts with advancing age and children’s education, job security and retirement plans can outweigh financial and advancement factors.

These tools are already utilized by a majority of companies, but they have not substantially driven down turnover rates – and most are also very costly for employers. As companies find that their most important asset is quickly becoming their most expensive one, too – local Chinese managers’ pay is indeed catching up with expatriate levels – the focus should be on approaches that are more effective and cost-efficient.

Examples of companies not paying the highest compensation and benefit packages but still achieving a high degree of loyalty and low turnover rate can already be found in the highly competitive labor market of the Yangzi River Delta. While many Western operations see persistent staff churn in spite of top-of-class remuneration, Japanese competitors achieve high employee loyalty through initiatives as cost-efficient as a company soccer team or a staff choir.

As trivial as such efforts might appear, managers cannot afford to ignore them if they are serious about retaining staff and meeting their employees’ expectations. A DaimlerChrysler-sponsored survey found that even among the rather progressive MBA graduates in Shanghai, a strong majority believed that organizations ought to arrange their employees’ spare-time activities.

Retention through caring leadership

It has been established that Chinese companies most successful at retention management, often adopt a ‘caring leadership’ approach to create strong bonding with employees. While MNCs find that more than half of their expatriate managers sent to China fail (often due to leadership styles incompatible with the local environment), leadership by caring and setting an example proves very successful not only in directing, but also motivating the more hierarchically oriented Chinese talents. These winning leaders attract upward oriented staff by placing importance on ethics and integrity while providing visionary direction. At the same time, they nurture a culture of caring for their employees’ overall well-being to build long-term loyalty. Caring leadership can range from providing personalized attention and maximizing learning and development opportunities for individuals, to organizing joint staff travel and spare-time entertainment. Some industry leaders estimate that they spend up to 30% of their time on career guidance of high potentials.

Retention best practice

A well known local company and amongst the top companies in the software outsourcing industry (with a very high staff turnover in the past), has reduced its attrition rate to below 10% by perfecting the art of caring leadership. The company not only provides hard financial benefits through staff stock ownership, but also an all-round employment experience involving continuous learning at its own university, intense development plans for high-performing talents, and a variety of non-work activities on the company’s campuses with their upscale employee apartments.

While company-arranged housing and kindergarten might be reminiscent of the planned economy’s “iron rice bowl”, for many CEOs of successful Chinese companies they present again a very tangible benefit: Top talents paying off large mortgages in second tier cities are less prone to accept the first better-paying offer to relocate to any of the first tier cities.  



Hans Stremme


01B unit, 37F The Center
989 Changle Road
Shanghai 200031, PRC

Tel: +86-21-5407 5599


1) McKinsey & Co


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