China's macroeconomic reforms and the resulting skilled labour shortage: An analysis of white-collar...

CHINA’S MACROECONOMIC REFORMS AND THE RESULTING SKILLED LABOUR SHORTAGE

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Martyn J. Hill

CHINA’S MACROECONOMIC REFORMS AND THE

RESULTING SKILLED LABOUR SHORTAGE:

AN ANALYSIS OF WHITE-COLLAR TURNOVER INTENTIONS

BY

MARTYN JAMES HILL

B.BUS (INTERNATIONAL BUSINESS)

A Thesis Submitted in Partial Fulfilment of the Requirements for the Award of

Bachelor of Business with Honours at the Faculty of Business, Edith Cowan

University.

Date of Submission: March 2011


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ACKNOWLEDGEMENTS

I would like to express my appreciation and gratitude to those who have supported me

on my academic journey over this past year. First of all I would like to thank my

partner Lisa-Jane Prins for her on-going love, support and encouragement throughout

the development of my thesis. Secondly, this project would not have been possible

without the guidance of my mentors Dr. Ian Austin and Dr. Stephen Grainger. Their

knowledge and passion for Asian business inspired me to undertake further research

into this field and to subsequently enrol into the honours program. I am extremely

grateful for the long hours, support, consultation, inspiration and guidance that my

supervisors have provided.

I am very grateful to those at the West Australian Chinese Chamber of Commerce

(WACCC) who provided invaluable opportunities to network with Chinese business

owners, managers and gain valuable insight into China’s business practices, culture

and way of life. I would also like to acknowledge the anonymous participants who

participated in the one-on-one interviews; your insight into China’s turbulent white-

collar labour environment was invaluable.

A special mention to Ruveen Dias and Luke Blatch for countless hours spent

discussing potential ideas over cups of coffee and volunteering to edit my thesis

multiple times. I cannot thank you all enough.

Martyn Hill

Edith Cowan University

March 2011


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Martyn J. Hill

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Introduction

China has been in the global spotlight since the reopening of its borders to international

trade in the 1970’s; investors consider it to be a premier investment opportunity with

1.3 billion potential consumers. Multinational companies, such as Volkswagen, IBM,

Microsoft, McDonalds and others, have actively sought to expand into this market

(Hays, 2008). Today China is a member of the World Trade Organisation (WTO,

2005) and its economy now ranks second in the world with GDP of $8.789 trillion (US

Dollars) in 2009. The United States is ranked first and Japan third (Hamlin & Li,

2010). China is being carefully watched by investors and businesses alike, however

new problems have arisen which need further investigation and research (Hartman,

Feisel & Schober, 2010; CIA, 2010).

As a result of China’s rapid economic growth, infrastructure, technology, transport and

domestic business culture have been unable to keep up with the pace of development.

For anyone visiting China, this is evident immediately: congested roads, tangled

powerlines and constant construction. However, one of the most prominent issues in

China that is not immediately obvious is the transitions taking place in the workplace

as a result of thirty years of rapid economic development.

China is facing a widespread labour shortage of skilled white-collar employees as a

result of a change in business culture, situational factors, and the rising cost of living in

China’s first tier cities (Hongyi, 2010). Skilled white-collar employees are those

individuals who hold upper management positions and are employed in a range of

professions from finance, telecommunications, manufacturing and management

positions.

Prior to the late 1970’s, Chinese employees were guaranteed lifetime employment with

an organisation. This ended when the government implemented reforms to increase the

efficiency of State-Owned Enterprises (SOE) with low productivity and high resource

wastage, displacing hundreds of thousands of employees with no skills outside of the


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organisation they were committed to for life. These skilled employees due to the

turbulent business environment are now prone to job mobility and this is hindering an

organisation’s ability to cut costs, increase efficiency, and ensure a competitive

advantage over rival firms (Debare, 2007).

A study by McKinsey (1998), an international consulting firm, proposed that

organisations find it difficult to recruit and retain talented employees in the

increasingly competitive labour market in 1998. Since this publication an increasing

number of publications have began to highlight the growing shortage that is developing

amongst China’s white-collar labour market (Frase, 2007: Gross & Heinhold, 2005:

Chambers, 1998). From an organisational perspective this is a significant problem in

terms of an organisation’s bottom-line. White-collar employees on the other hand, are

being exposed to an abundance of choice and are capitalising on the competitive

salaries and packages offered by organisations hoping to snare a talented white-collar

employee.

Labour turnover costs an organisation in a number of ways:

Replacement and retraining costs – which can range from 25 – 150 percent of

an employees base salary (this includes; advertising, interviews, time, lost

productivity, reduced or lost business, lost expertise). The greater the value of a

lost employee the greater the replacement cost.

A loss of company knowledge – in most cases senior level white-collar

employees have detailed knowledge about processes, current projects, past

history and customer bases. When the employee leaves an organisation it loses

a valuable resource.

Turnover Spiral – when an employee leaves the relationships developed with

co-workers and subordinates and the guanxi established may cause other

employees to follow. This is not uncommon in China, especially since Guanxi

plays such a significant role in day-to-day business life. If a well-connected

senior employee leaves for another organisation it could cost an organisation

other talented employees who often seek employment at the same place

(Grainger, 2007).


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Martyn J. Hill

Workplace stress – over 80 percent of white-collar employees in first tier cities

in China such as Beijing, Shanghai and Shenzhen are reported to have

unhealthy levels of stress brought on by high levels of turnover, rising housing

prices, increasing costs of living and crowded transportation (China Daily,

2009a; 2009b). Workplace stress can cause absenteeism, workplace accidents,

errors in judgement, loss of focus and legal action. Workplace stress costs an

average organisation 45 percent of its after tax-profits, with research suggesting

that between 60-90 percent of medical costs are attributed to workplace stress

(Hongyi, 2010).

From a human resources perspective it is far easier and more economical for an

organisation to have strategies in place to retain skilled white-collar employees rather

than hire and train new employees. The questions then must be asked: What do

organisations do to retain these employees? How is this impacting on organisational

strategy? These are some of the questions top-level managers are asking themselves.

Questions that this research will examine.

Theoretical Framework

This thesis will utilise Ingmar Bjorkman’s (1999, 2005, 2008, 2010) extensive work on

human resource management to examine how the increasing levels of labour turnover

are affecting China’s white-collar population. Bjorkman’s work is internationally

utilised by other theorists in the fields of international business, human resource

management and culture studies. Hartman, Feisel & Schober (2010) and Collings &

Mellahi (2009) are two examples of theorists that have used Bjorkman’s work. This

thesis will use the articles ‘The strategic role of HR in MNC subsidiaries in China

between 1999 and 2006’ (2009), and ‘The management of human resources in

Chinese-Western joint ventures’ (1999), and other research conducted by Bjorkman as

the theoretical framework.

In addition, the work of Jinglian Wu (2005), a Chinese economist with significant

global recognition will be used to assist in understanding the historical patterns and

data related to China’s turbulent history. His book ‘Understanding and Interpreting

Chinese Economic Reform’ (2005) will be used to explain the transitions of economic

models and the change in business operations.


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The material developed by Bjorkman and Wu anchors this project’s research into

China’s human resource management challenges and what organisations can do to

manage these. Further, the interviews conducted by this researcher allows Chinese

organisations to identify the human resource management paradigm necessary to retain

their talented white-collar employees. This in turn will create flow-on benefits for the

Chinese economy, in the form of increased productivity and the effectiveness of

retention programs.

Statement of the Problem

This study examines the white-collar labour market in China to gain a new perspective

of the growing skilled labour shortage that pose staffing challenges for multinational

and local businesses alike. The aim is to address the areas of recruitment, retention and

remuneration to improve productivity and efficiency in the Chinese workplace.

This research explores the multiple factors that contribute to labour turnover amongst

skilled white-collar employees in China. Specifically the research will:

1. Investigate the impact of labour turnover on organisational performance.

2. Evaluate the trend of job mobility and its implications for the Chinese labour

environment.

3. Evaluate the role of organisations in minimising labour turnover and effective

retention strategies.

4. Investigate strategies adopted by organisations to minimise work related stress

and associated health risks.

5. Develop strategies to reduce the incidences of labour turnover and improve the

efficiency of organisations and satisfaction of employees operating in white-

collar positions in China.

Purpose of the Study

The purpose of this study is to gain an understanding of the reasons behind skilled

white-collar labour turnover in China. Investigating what it is that successful

organisations are doing to retain their talented employees and at an individual level

focus on the motivations of those leaving. This research into China’s turbulent labour

environment aims to add to the currently sparse body of literature on this topic within

the international business academic community.


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Significance of the Study

The research conducted will have both theoretical and practical significance. By

gaining a greater understanding of labour turnover causation in Chinese workplaces,

organisations can implement strategies to retain white-collar employees and create

strategic advantage. Through identifying and explaining the variables that influence

labour turnover, managers and academics can use this knowledge to improve white-

collar retention and educate senior management on how to create a sustainable

advantage in China’s turbulent labour market.

Little research has been undertaken to explore organisational retention methods or the

motivations of the skilled Chinese white-collar employee voluntarily leaving their

organisation. Through investigating the causes of voluntary turnover and effective

retention strategies, organisations will be in a position to enhance productivity,

efficiency and reduce overall business costs. The theoretical model proposed in this

project will advance labour turnover theory and can serve as a framework for

organisations in developing strategic advantage, lowering turnover rates and increase

loyalty to the organisation (Bjorkman, 1999: 2008: Wu, 2005).

Research Questions

The literature review (chapter two) conducted into turnover rates in Chinese businesses

led to the development of a number of questions that this research will attempt to

discover the answers to:

How do organisations manage the labour shortage amongst Chinese senior

managers?

o How do organisations manage the trend of ‘Job Hopping’?

o How does guanxi affect the labour shortage and the strategy of the

organisation?

o What long term strategies or partnerships are in place to minimise

turnover and encourage job attraction?

What do the ‘best’ organisations do to retain talented employees?

o What strategies are most effective?

o What are common shortfalls of organisations in retaining their valued

staff?


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What do employees look for when choosing to work with an organisation or

leave the organisation they are at?

o What factors influence their loyalty?

o How are employees using the fierce competition for talented staff to

develop their resumes for career advancement over traditional long-term

employment?

What are organisations doing to reduce work related stress?

o What are the best organisations doing?

o How effective, and what are the strategies being implemented if any?

Assumptions and Limitations

There are several assumptions for the purposes of this study:

1. Labour turnover is an unavoidable cost of doing business.

2. Participants interviewed would be forthright and truthful in their answers and

experiences.

3. Participants would provide direct and sincere responses/elaboration allowing a

more accurate overall description of the problem.

4. The participants have operated in China so that they can provide and portray a

greater understanding of the business practices and experience within that

nation.

5. No preconceptions or preconceived notions will be used by the researcher while

performing this study.

Limitations identified during the course of the research:

1. One major limitation of this project is that the researcher has never lived

permanently or worked in China. This does, however, eliminate possible

personal bias in the study.

2. Time constraints were limiting as under the honours program the researcher

has only a year to complete this research, imposing practical restraints on

the level of empirical research.

3. The researcher’s resources were limited due to financial constraints limiting

data access to commercial data and personal contacts.


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Organisation of Study

The write-up of this thesis will follow the following structure:

Chapter One - Introduction

This chapter (1) has provided an introduction into the research undertaken by the

researcher into the labour shortage amongst white-collar employees. This included the

purpose of the study, its significance, assumptions, limitations and a definition of

terms.

Chapter Two – Literature Review and Methodology

Chapter Two (2) provides an overview of the literature regarding labour turnover in

China, the emerging crisis, white-collar research and cultural variables that affect

labour. Furthermore, this chapter outlines the methodology and data collection

methods that this study uses.

Chapter 3 – Background into Labour Turnover

This Chapter (3) will provide background into the issue of labour turnover, sourcing its

roots in the turmoil of the Mao’s China (1943-1976) and the transition into a market

economy under Deng Xiaoping (1978-1992). This will allow the reader to develop a

clear understanding of what has shaped modern white-collar values.

Chapter 4 – Modern Crisis, Old Fears

Chapter (4) will address voluntary turnover analysing the intentions and motivations of

employees leaving an organisation. This will cover a number of factors from

situational, personal and work-related reasons and discuss the overall trend of white-

collar employees in the Chinese business environment with reference to organisational

case studies.

Chapter 5 – Discussion of Results and Recommendations

This chapter (5) will focus on the organisational impact of labour turnover and what

organisations are doing to retain their talented staff citing successful examples to

illustrate the changing retention strategies. Interview responses will be used

throughout. Findings will be compared against the research questions. Their


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relationship to previous literature and their implications for the employee and the

organisation will be discussed.

Based upon the research conducted a set of recommendations will be presented for

consideration. These can be used in an organisational context to improve the retention

of employees and assist in preventing labour turnover.

Definition of Terms

Blue Collar - are manual labourers who occupy a variety of occupations such as

manufacturing, mining, construction or mechanical work.

Guanxi – is a powerful social force, a bi-lateral individual relationship developed

through the continual exchange of favours.

Involuntary Turnover – is when the employee has no power over the termination of

their employment can be through death, organisational bankruptcy, termination or

illness for example.

Mianzi – is the Chinese phrase that translates as ‘saving face’ or described as one’s

self-respect or dignity.

Voluntary Turnover – Voluntary turnover is when the employee terminates their own

employment due to push factors such as lack of interest in the job or pull factors like

better pay and work conditions.

Western - For the purposes of this paper, Western refers to Australian management

practices unless otherwise stated.

White Collar – Defined as those whose job entails upper management or clerical

duties and occupy a range of positions from sales and marketing, customer interaction

and retail.


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Chapter 2

Review of the Literature

Labour Turnover

A review of the literature regarding the Chinese labour environment points to the same

conclusion; that employers are facing a severe shortage of talented employees (Liu &

Roos, 2006). McKinsey, an international management and consulting firm, reported

that employers face a ‘war for talents’ and find it difficult to recruit and retain talented

employees in the increasingly competitive labour market (Chambers, 1998). In

particular, skilled ‘white-collar’ employees have an abundance of choice: where they

want to work, type of work environment, and the benefits they will receive. The

following sections will review the literature on the white-collar business environment

and what organisations are doing to retain increasingly mobile staff.

Robbins, Judge Millet & Waters-Marsh (2008) define labour turnover as “ voluntary

and involuntary permanent withdrawal from an organisation”. The literature describes

involuntary turnover as incidents where the employee has no choice in their

termination, which can be caused by death, organisational termination, sickness or

other extreme incidences that cause their job or organisation to no longer exist (Loess,

Miller & Yoskowitz, 2008). Voluntary turnover is when the employee terminates their

own employment due to push factors such as lack of interest in the job, or pull factors

like better pay and work conditions (Allen, Weeks & Moffitt, 2005; Winterton, 2004).

This paper will focus solely on the voluntary movement of employees.

The literature presents two competing views as to whether or not labour turnover poses

a challenge to organizations. The first perspective views turnover as problematic

towards businesses, affecting the quality of products or services, causing replacement

and recruitment costs for the lost employee and reducing productivity and efficiency

(Carbery, Garavan, O'Brien & McDonnell, 2003; Johnson, 1981). This perspective

views employees as a valuable resource, which needs to be properly managed in order

to achieve competitive advantage and effectively utilise an organisation’s resources

(Rothwell, 1982). The McKinsey study (1998), using data from 400 companies and


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6,000 executives, found that executive talent has been the most undermanaged

corporate asset for the past two decades:

Companies that manage their physical and financial assets with rigor

and sophistication have not made their people a priority in the same

way. Only 23 percent of some 6,000 executives surveyed strongly

agree that their companies attract highly talented people and just 10

percent that they retain almost all their high performers (Chambers,

1998).

The literature, which analyses the negative impact of employee turnover on an

organisation, also refers to an organisations inability to retain talented employees.

Organisations have to spend considerable resources replacing a lost employee, as much

as three times an employee’s salary in recruitment and development costs. The

remaining employees have to pick up the work of the lost employee causing emotional

distress, loss of productivity and organisational commitment (Loess et. al, 2008). Many

studies have suggested that managers should adopt more strategic recruitment and

retention practices in order to gain a competitive advantage instead of seeing human

resources as a ‘soft’ and non-measurable practice (U.S Office of Personnel

Management, 1999).

The second perspective suggests that some labour turnover can be beneficial to

organisations. Without turnover the threat of organisational stagnation develops,

whereby no new opportunities for recruitment or promotion arise and those employees

who were rewarded for being loyal to the company develop similar cognitive processes

and become increasingly resistant to change (Aronoff & Ward, 1990). Turnover allows

an organisation to hire employees who bring new skills, abilities and contacts with

them and often work harder to please their new managers. Further, turnover allows

organisations to restructure their departments and as a result are more efficient and

flexible (McPheat, 2009).

The reforms in China when lifelong employment practices in State Owned Enterprises

(SOE’s) transitioned to more efficient modes of operation and resulted in the

retrenching of thousands of staff across China. The employees in SOE were highly


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inefficient and had little incentive to be innovative or creative unless instructed.

Factories often hired more employees than needed, due to government bureaucracy

employers were forced to create unnecessary positions and there was often not enough

work for all (Sensenbrenner, 1996). The economic burden this imposed upon the

country could no longer be sustained and resulted in Deng Xiaoping’s reforms.

Dalton & Todor (1979) conducted a study into the positive aspects of labour turnover,

in obvious contrast to popular literature finding that low turnover can act counter-

productively to an organisation’s efficiency. Dalton and Todor suggest that mobility is

important not just for the organisation but for the employee in adopting new skills and

independence, some employees, strategically plan their career mobility as

“organisational stepping stones” to gain a perceived notion of success or personal

fulfilment (Dalton & Todor, 1979, p. 229).

Therefore, some turnover is obviously necessary and desirable in order to promote

change and flexibility within an organisation; however in China’s business climate

today turnover rates are excessively high (Source, Chap 4 ref). Rising employee

turnover rates are one of the most significant factors affecting productivity and

competitiveness where those factors are the basis for organisational advantage.

Changes in Business Climate

Since the opening of it’s borders to international trade, China has become one of the

fastest growing economies of the past two decades, averaging 10 percent or greater

GDP growth and attracting hundreds of billions of dollars in foreign direct investment

(CIA, 2010; AmCham, 2008). However, companies looking to establish themselves in

China have never found it to be ‘smooth sailing’ particularly companies brave enough

to enter China in the ‘first wave’ which were subjected to restrictions on entry modes

(Volkswagen is a prime example. See: March, 2009)

Decades after the first wave of foreign investment in China, organisational challenges

again threaten business operations; the United States is the biggest country investor in

China and it finds it difficult to generate the growth needed due to human resource

issues (Ma & Trigo, 2008: Holley, 2006). In China competition is stiff for skilled

management-level employees and turnover rates are more than 25 percent greater than


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the global average (source chap 4), this suggesting a serious labour shortage in

organisations and compounds the competitive levels in the labour market.

Labour Shortage

A number of publications on the Chinese labour market suggest that organisations face

a number of issues in retaining senior management (Hartman, Feisel & Schober, 2010:

Gross & Heinhold, 2005). A study conducted by Pacific Bridge Incorporated, a human

resources and recruitment firm in Asia found that the quality of talent in the Chinese

labour market has improved significantly, however, there is still a very large shortage

of experienced senior managers (Hartman, Feisel & Schober, 2010). Many of the

companies who operate in China, including second and third generation companies, are

reporting to have increasing human resource problems as they expand and as the need

for management talent and professional skills grows. A publication by the American

Chamber of Commerce reported that difficulty retaining, attracting and developing the

talents and skills of staff was the top operating issue in 2007 (AmCham, 2008).

According to estimates published in the American Chinese Chamber of Commerce

annual business publication (2008), of the 4.16 million graduates in 2006, 1.24 million

lack the specific skills required for today’s job market. The American Chamber of

Commerce suggests that characteristics of the Chinese education system are

contributing to the lack of qualified talent, even after efforts by the Chinese

government to increase standards and the significant investment schools have received.

Graduates have little work experience and only theoretical knowledge of the business

world.

At a senior management level, talented staff are being poached by Multinational

Enterprises (MNE) who have more money or are able to offer better remuneration

packages than State Owned Enterprises. MNE’s have traditionally sourced their

employees from their home country but are now attempting to hire local managers and

overseas Chinese to fill senior management positions with employees that have

significant management and international experience for lower cost (Bjorkman & Lu,

1999).


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Although many publications describe the business climate, especially various host

country chambers of commerce, there is very little information pertaining to what

organisations are doing about this issue or prescribing a model for how to best manage

the labour crisis in China (Sainsbury, 2011; AmCham, 2008; Haipei, 2006; Ross,

2006). An issue that is described as the number one operational challenge in China

requires significantly more research in order to aid firms to operate more efficiently

and profitably. In addition, there are a number of drivers that influence labour turnover

and impact upon organisational performance, which will be discussed in the following

sections.

Global Convergence of Practices

Globalisation has been the driver for the convergence of management practices across

the world as countries become increasingly interconnected. Globalisation as described

by Stone (2008) is the process of integrating the world into a single unified society

through a combination of social, economic, technological, socio-cultural and political

forces. This phenomenon has lead organisations to develop competitive strategies

which focus on improving internal processes and increase organisational performance

in the global marketplace, especially in emerging economies such as China (Wright,

Filatotchev, Hoskisson, & Peng, 2005). This global dependency has resulted in

companies adopting the ‘best’ practices to be competitive with the international market

and as a result having similar business operations to their competition.

Evidence from China suggests that Western firms tend to implement

human resource management practices that are more similar to the

parent company than that of the local Chinese firms (Bjorkman & Lu,

1999)

MNE’s challenged perceptions that China required unique operating approaches and

performance standards. Instead, these organisations focused on implementing top

global processes and adapting them for local conditions where necessary, ensuring that

all processes were strategically linked with the organisations’ global objectives. As

competition in China intensifies managers in domestic and MNE will rapidly adapt

their practices in-line with the ‘best’ and most ‘successful’ organisations. An article by

McKinsey (2007) stated that as competition grows more products produced in China


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will become global products and industrial processes developed in China will become

global processes. In addition, the development of a Chinese talent pool will be critical

across all business functions and closely linked to the strategy and success of an

organisation (Hexter & Woetzel, 2007).

Guanxi

Guanxi is one of the most overlooked and underappreciated cultural traits of Chinese

culture, and plays a large part in business. It is a concept that infringes on day-to-day

life and is the Chinese way of “getting things done”. The Chinese word guanxi

combines two characters meaning “gate/pass” and “to connect” which means the

establishment of a connection between independent individuals to enable a bilateral

flow of personal or social transactions (Ambler & Witzel, 2004).

Guanxi is so important that some suggest that individuals cannot get anything done

without it, especially in the business sense (Ambler & Witzel, 2004). Most success

stories in China involve the development and cultivation of the social networking of

guanxi. Companies like IBM China and Shanghai Volkswagen have dedicated years to

developing good guanxi so that organisations can gain access to numerous

opportunities otherwise inaccessible without guanxi. It is a crucial concept in China

(Grainger, 2007).

Skilled employees in China have "many incentives to change employer," and

employees tend to be more loyal to their managers rather than companies (Ma & Trigo,

2008). This is largely due to the concept of guanxi, if a manager leaves an organisation

it is likely that the network of employees close to that employee will follow. Guanxi

also infringes upon hiring practices, where it is not an uncommon practice for an

employee to be hired to a position they are not suited to because of guanxi and their

connection to someone high in the organisation or Chinese government.

One of the biggest challenges for organisations looking to retrench staff is again

guanxi, terminating an incompetent employee may prove to be a bigger hindrance to

operations than the employee initially was. The case study ‘Guanxi at the Roaring

Dragon Hotel’ found in the literature detailed a hotel chain in China that was taken

over by a western firm (Grainger, 2007). The hotel’s first act of operation was to


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improve efficiency by retrenching unsatisfactory employees. Unfortunately one of

those employees happened to be the son of a local government official. Within a week

the hotel chain’s business plummeted as the local community boycotted the hotel. The

cost of the management ignoring guanxi was a loss of significant business.

White-Collar Business Environment

Skilled white-collar employees have become a crucial element in Chinese society and

will be the focus of this research in order to understand the changing business culture

and the transition of individual behaviour. For the purposes of this research, “skilled

white-collar” employees are defined as those whose job entails upper management or

clerical duties and occupy a range of positions from sales and marketing, customer

interaction and retail (Mills & Jacoby, 2002). This also includes managers and

employees with international experience and vital business skills. This is in contrast to

the term “blue-collar” by American writer Upton Sinclair (first coined in his 1906 book

The Jungle), which categorises these individuals as manual labourers in occupations

such as manufacturing, mining, construction or mechanical work.

In China an ‘Iron Rice Bowl’ employment scheme in the 1970’s guaranteed lifetime

employment with a company as security for the employee. The system was slowly

dismantled when widespread government reforms initiated a transition away from

Mao’s communist economic model to Deng’s socialist market economy that led to

downsizing. Thousands of employees with experience in only one work role and

organisation were now expected to fend for themselves (Ketter, 2008).

Modern China is a significantly different place. Job-hopping has become an

increasingly common practice especially since skilled white-collar employees came to

realise that they are a valuable commodity to organisations (Gross & Heinhold, 2005).

Job mobility may be a norm in Western society but this is a phenomenal change in

cultural behaviour that has emerged during the past few decades. Experts say that

today’s trend of job mobility has its roots in the Chinese economic reforms and

widespread downsizing which shattered the many people’s expectations of lifetime

employment (DeBare, 2007).


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White-collar employees are being subjected to an abundance of choice in where they

want to work, what conditions they receive and additional benefits, however

organizations are finding it difficult to retain their talented staff. Some senior

management executives are leaving their positions in foreign firms in China and

switching to local firms that offer growth prospects, greater opportunities for

advancement and increased compensation (Gross & Heinhold, 2005). Chinese

employees are taking advantage of the opportunities competition provides.

Watson Wyatt's WorkChina 2003 survey, a China-wide employee opinion survey of

more than 60 companies and nearly 10,000 employees from a complete range of

positions, was designed to analyse the attitudes of Chinese workers about a range of

issues. The study found that 38 percent of the Chinese employees surveyed believed

that they might leave their current job in the next several years (Leininger, 2004). From

this survey it found that the key reasons employees were leaving their jobs were to

follow better career opportunities, training and development, and of course better pay.

Understanding that retaining talented senior managers in China is the key to

outperforming competitors is one part of the puzzle. The other is to understand just

what to do and how to retain them. China has required a specific approach to the

retention of talented employees especially since the culture differs significantly to

Western society (Collings & Mellahi, 2009). There are both financial and non-

monetary compensation packages that employees can receive in China.

Non-Monetary Compensation

Bjorkman and Lu (1999) conducted a study in Beijing amongst senior executives and

found that career development programs are one of the top concerns of managers and

one of the key non-financial tools to retain employees. Career development is a

concern on many modern Chinese employees’ minds; self-advancement is not only a

status symbol but provides personal fulfilment (Melvin, 2001). Providing such

activities within an organisation shows the executive/s they have value to the company.

Human resource managers argue that it is better to promote talented employees early

and provide support rather than run the risk that the employee becomes restless (Davis,

1992). Some companies may not be able to compete on purely financial means and


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non-monetary compensation may be the most economical method to retain staff. This

paper will look at how real world applications differ from published methods of

retention and evaluate the effectiveness.

Financial Compensation

There are a number of financial compensation packages offered to senior white-collar

employees in China, and this is often the most popular method. Many companies

believe that offering substantial fiduciary rewards at their employees will retain them,

and keep them loyal. This may work for some, but not all. Employees have a number

of wants and needs ranging from social acceptance, status, to have families and so

fourth, much of which can be borrowed from Maslow’s Hierarchy of Needs, a theory

that attempts to explain the behavioural needs of an individual (Maslow, 1943; Stone,

2008). Maslow’s Hierarchy of Needs theory proposes that individuals are at different

levels on a theoretical “pyramid of needs” ranging from physiological, safety,

love/belonging, esteem and self-actualisation. Monetary compensation may not be

suited to individuals who have attained security and higher levels of fulfilment and

may prefer compensation in forms of recognition, greater challenge or diversity in their

work or a sense of belonging.

There are a number of financial compensation packages used to retain staff; the two

listed below are the most prominent in Western firms and to a growing extent, Chinese

firms:

1. Salary: salary packages are the initial form or basis of an employee taking a position

with a company, they adhere to the legal requirements for that country and for senior

management in Western countries this is usually quite an expensive package (Nance-

Nash, 2003). From the literature, Chinese salary packages vary from province to

province and are set either on local market value or by a generalised pay structure

based on tier or priority level cities (Melvin, 2001). There is significant pay ambiguity

in regards to the pay structure in China, but due to western influence trends are slowly

seeing a rise in individualised salary.

2. Bonuses: Some companies provide additional benefits for employees in order to

retain their valuable staff and to give a sense of recognition. These bonuses can include

travel packages, club memberships, and rewards for achieving sales targets or


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discounts at particular stores. These provide additional motivation for staff, a form of

thanks for high performance and encourage loyalty (Melvin, 2001). This is a popular

western compensation practice, however can become difficult with the Chinese cultural

trait ‘mianzi’ or ‘saving face’ (Hartman, Feisel & Schober, 2010). Chinese employees

traditionally do not like being singled out as better than others or not as good as a

particular employee. There is little literature referring to bonuses in Chinese

workplaces as this is a new and somewhat rare trend save for western firms. This is an

area that requires further research but is beyond the scope of this thesis.

Health Risk and Performance

From a human resource management perspective the factors in China such as increased

housing prices, congested transportation, poor infrastructure, chronic pollution and

high levels of job stress are taking a toll on skilled white-collar employees. Regardless

of the retention strategies being utilised 80 percent of white-collar employees believe

that farmers are better off than they are, and are seeking to relocate further inland to

second-tier cities (Hongyi, 2010; China Daily, 2009a; Shanghai Daily, 2009).

Occupational health and safety, a critical human resource function in Western firms

used to ensure the safety and wellbeing of an organisation’s employees is somewhat

lacking in China. Statistics from the White book on the health condition of China’s

urban white-collar workers indicates that 76 percent of white-collar employees in

China’s major cities are over-fatigued and more worrying still is the fact that less than

3 percent of white-collar employees can be considered “healthy” (Dahong, 2009). The

publication was a joint research project by the Chinese Medical Doctor Association,

the Chinese Hospital Association, the Beijing Heath Security Association and was

based on the examination of nearly 3 million physical samples from across Beijing and

Shanghai.

The findings found two key categories of health problems; metabolic disorders and

sub-health problems such as fatigue, insomnia and psychological disorders. The sub-

health problems were directly related to the long-term pressures of work, the fast paced

day-to-day life and environmental stresses such as rising housing prices (Dahong,

2009). The agencies involved in the research stressed the importance of a healthy diet,

exercise, time management, recreational activities and urged white-collar employees to

consider adjusting their lifestyle to be both physically and mentally healthy.


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Figure 1 – Employee Stress Survey

(Source: China Daily, 2009b)

A study by Asian Interface-Holden found the majority of white-collar employees in

Shanghai are sacrificing meals for what they believe to be important work (Shanghai

Daily, 2009). The survey of 30,000 white-collar employees from around People's

Square, Zhongshan Park, Shanghai Railway Station and Pudong's Lujiazui area found

that 50 percent of white-collar employees skip breakfast and have digestive problems

attributed to time constraints (Shanghai Daily, 2009). The growing health risks are one

of the main reasons white-collar employees are seeking to relocate inland and envy the

lifestyle of farmers who at least manage three meals a day (See Chapter 4).

Employee health risks triggered by stress have implications for an organisations

performance such as increased absenteeism, sick leave, work related illnesses, legal

ramifications, loss of productivity and efficiency, increased injury rate and the

increased risk of mistakes, all of which can be prevented if the human resource

function is properly utilised. This research will look at what organisations are doing to

ease the stresses on employees and how this can create a sustainable competitive

advantage.


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Gaps in the Research

This review of the literature reveals that turnover in China is a significant problem,

especially amongst senior white-collar employees. Organisations faced with a shortage

of talented top management incur a loss of competitive advantage, loss of efficiency

and significant costs in replacing the vacating employee. This literature review has

found that further research is needed into the retention methods of companies in China,

both Western and local Chinese businesses to analyse the ‘best’ methods of retaining

staff, especially in the face of poaching from Multi-National Enterprises.

Further study is also required into the mind-set of Chinese nationals who are

experiencing this boom in opportunity. As discussed experienced white-collar Chinese

nationals are faced with fierce competition to be recruited, and it would prove valuable

to this paper’s research to conduct a study into what attracts these employees to

companies in China.

Furthermore, high levels of workplace stress in China’s first tier cities is causing a

wave of health problems that is affecting organisational performance and is linked

directly to the high turnover rate amongst white-collar employees. The publications on

health problems amongst white-collar employees although informative, present little

information as to what organisations are doing to minimise the burden upon their

valuable senior managers.

As one of the key challenges to business operations, this area of research, the turnover

and retention of staff in China cannot be ignored. This paper will aim to test the

proposed model, and analyse the data received to best provide an answer the ‘war for

talent’ in one of the worlds most rapidly developing markets.


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CChhaapptteerr 33 Changes in China’s Macroeconomic Environment and

Business Culture

‘When our thousands of Chinese students abroad return home, you will see how China

will transform itself’. Deng Xiaoping

Introduction

In order to understand the behaviours and attitudes of the modern day skilled white-

collar employee, background has to be given on the contextual influences which have

shaped Chinese business culture. The most notable influences in the past 50 years,

include the Cultural Revolution, and the differing approaches to reforms that Chinese

leaders Mao Zedong and Deng Xiaoping undertook. Whist the two men held the same

ideal of making China a great and powerful nation that rivals Western countries, they

sought to achieve this aim through two completely different policy models. This period

of China’s history has greatly shaped today’s modern managers, and the links between

past and present China are intertwined with the reforms undertaken in previously

turbulent periods.

Background (Pre-Cultural Revolution)

Following years of civil war, foreign occupation, invasion, widespread chaos and

corruption, Mao Zedong (1893-1976) took advantage of the fragile state of the

nationalist Chiang Kai-shek government and declared himself leader. In 1949 Mao

took power over mainland China as Chiang Kai-shek’s government went into exile on

Taiwan. This signalled an end to what Mao called the ‘Century of Humiliation’, a

period which described the subjugation China suffered under Imperial foreign powers,

both Western and Japanese (Degen, 2009). Due to the long period of national

humiliation Chinese leaders and the public had a strong desire to catch up and surpass

Western developed countries as quickly as possible (Wu, 2005). Following an

economic model based on Russia’s Soviet-Marxist Model, Mao’s new government

implemented a series of 5-year economic plans aimed at rebuilding China. As part of

his broader political-economic ideology Mao also initiated one of the biggest Cultural

Revolutions in China’s long history (Degen, 2009; Lynch, 2004; Wu, 2005).


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Soon after establishing control Mao’s government closed their doors to contact with all

nations, isolating the mainland population from the rest of the world (Suka, 2001). This

action was a retaliation against the West following the outbreak of the Korean War in

1950 and the trade blockade of China by the United States of America and its allies (as

a result of China’s support of North Korea, in direct opposition to the U.S). In order to

control the transition into the Soviet model of economic development the government

monopolised the foreign trade system which controlled imports and exports according

to mandatory plans assigned by the State Planning Commission (Wu, 2005 p292.).

Mao believed that this strategy, the removal of what he perceived to be detrimental

foreign influence, would be beneficial for China’s development and economic

progress. In reality, China’s isolation from the world hindered its ability to incorporate

benefits gained from global economic developments (Crane, 1999).

The first of the 5-year plans implemented by Chairman Mao to reform the country

focused on realigning the economy towards internal needs and developing stability.

During this first five-year plan, all privately owned enterprises were taken over by the

government and the entire economy came under the direct control of the state through

State-Owned Enterprises (SOE). In order to achieve this the government applied a

number of financial pressures and inducements to convince the owners of private firms

to sell them to the state or convert them into joint ventures under government control.

By 1956 approximately 67.5 percent of all modern industrial enterprises were state

owned, and 32.5 percent were under public-private partnerships (Worden, Savada &

Dolan, 1988).

The second five-year plan (1958 - 1962), also known as ‘The Great Leap Forward’

aimed to accelerate economic development in agriculture and industrial production

through implementing socialist economic theory (Degen, 2009). China’s historians

now see the ‘Great Leap Forward’ as a monumental failure as vital resources were

diverted into unproductive projects (Harms, 1996). Such was the calamity that between

20 to 30 million people died due to food shortages caused by the agricultural sector

mismanagement.


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Further, Crane (1999) highlights that China’s isolation from the world during this time

stagnated its development with the United States and the Soviet Union clearly

establishing themselves as the premier global powers and leaving China sidelined and

bereft of any real influence beyond its borders.

The Overseas Chinese: The Mass Exodus of Talent

Due to Mao’s policies, which resulted in a complete collapse in national productivity

and international connectivity, China saw a mass exodus of much needed human

capital. Due to the political climate and mass starvation under Mao’s government huge

numbers of Chinese migrated abroad (Cai, 2006; Laurence & Cartier, 2003). Most of

the Chinese who went abroad intended to return to China, and were motivated to earn

money to provide for their families who were often left behind. During this period of

‘closed-borders’ and restricted movement due to internal passports (Hukou) those who

decided to travel overseas were risking their lives attempting to flee.

Many of these ‘Overseas Chinese’ who made it abroad to countries such as America,

Malaysia, Australia and neighbouring countries were found to be extremely competent

entrepreneurs. The Chinese abroad formed strong bonds with other Chinese who had

also fled their homeland and this formed the basis for a strong overseas network that

would later be a powerful tool to be utilised by modern China. The overseas Chinese

phenomena showed clearly, even before Deng Xiaoping’s mainland China’s reforms,

that when provided with sound governance frameworks Chinese skilled and unskilled

labour would excel.

Deng Xiaoping: Governance and Economic Reforms

Following the monumental failure of the ‘Great Leap Forward’, Mao Zedong, fearing

the prospect of losing his place at the political stage initiated the Cultural Revolution in

1966. This revolution created ten years of confusion and repression as Mao attempted

to purge all ‘capitalist influences’ and restore the ideological purity of the Communist

Party. This revolution was an extremely catastrophic decade for China, as its industrial

capabilities and cultural heritage was emancipated, and the country descended into

political turmoil (Degen, 2009; Lynch 2004).


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During the later half of the Cultural Revolution, the gaps in industry, technology and

management between China and the industrialised world became even more apparent.

Mao realising that it would be impossible to achieve industrialisation due to a sustained

period of self-seclusion, began fostering improved relations with the United States

(Wu, 2005). President Richard Nixon made a historic visit to China in 1972, signalling

improved relations between these two countries. This relationship with the U.S.

allowed China to import machinery, mining equipment and chemicals in order to

complete a number of large-scale infrastructure projects and develop industry.

In 1976, following Mao’s death a power struggle ensued with Deng Xiaoping

emerging victorious and advocating a more mixed socialist market economy (Lynch,

2004). The complete failure of the Cultural Revolution provided Deng with the

legitimacy to enact sweeping economic reforms which have opened up the country to

the world and enabled it to become the fastest developing economy in the world

(Sainsbury, 2011).

Deng’s Socialist Reform – Capitalism with China Characteristics

Deng Xiaoping inherited a country in poverty and ruins. His government openly

acknowledged this state of affairs and embarked on a mammoth process of structural

economic reform and business reform. The huge transition away from Mao’s model of

doing business saw millions of state employees displaced and plays a large part in

understanding the context of modern day business managers and understanding the

behaviours and attitudes present in the modern day workforce.

Prior to Deng’s reforms Chinese workplaces functioned as an ‘Iron Rice Bowl’ (tie fan

wan) system which provided lifetime employment and treated jobs as a welfare benefit.

The Iron Rice Bowl saw heavy control by the government at all levels of business

operations from the strategy of the organisation, to what was being produced, human

resource functions and an egalitarian pay structure (Braun & Warner, 2002). This

system functioned based on the Soviet-planned economic model which assigned

production targets which all SOE’s were required to achieve (See 3.4.1 on the

historical human resource function).


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Xiaoping realised that for China to become competitive internationally it had to

improve its internal operations, fix the problem of wasteful and inefficient SOE’s and

free up the labour market to become more competitive. SOE’s had numerous

operational challenges such as:

An excessively concentrated decision-making chain.

Lack of motivation and initiative amongst workers and managers.

Heavy government intervention in business.

Lack of resources to upgrade facilities and technology.

High debt and unregulated government lending

Social burden due to overcrowding and poor staffing by the government.

(Wu, 2005 p.142)

The Chinese government believed that a focus on opening the economy up to the world

and creating a motivated and ambitious labour force would address these problems.

SEZ and FDI

In the early 1980’s China looked to its neighbours for a model to promote FDI in

China. The Asian countries, Hong Kong, Singapore, South Korea and Taiwan,

otherwise known as the Four Asian Tigers, provided a perfect model to receive FDI

(Wu, p298). The Four Asian Tigers are highly developed economies that recorded

double digit growth rates from the 1960’s to the 1990’s. The rapid growth of these

nations was largely attributed to the high savings and reinvestment rates as well as

being an export orientated economy (Chia, Egri, Ralston, Fu, Kuo, Lee, Li & Moon,

2007). These nations chose to discourage domestic consumption in exchange for a

focus on exporting goods to developed nations, primarily the United States and

Europe.

Lessons learnt by China from the Four Asian Tigers experienced was that the

utilisation of an abundance of cheap labour provided an initial competitive advantage

that through exploiting human capital a nation could become a production centre for

the West and develop Special Economic Zones that encourage FDI. The FDI received

facilitated the transfer of technologies, management techniques and resources

otherwise inaccessible to the economies of these nations (Liu, 2005). The Asian Tigers

went from being Third World to First World countries in a matter of four decades


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(Fogel, 2005). China seeing the benefits and rapid development of the Four Asian

Tigers sought to emulate their success and establish its own SEZ’s.

In the early 1980’s China began establishing SEZ’s in a few coastal cities. Deng

realised that because of the vast area that China covered implementing a widespread

reform process across the country to open it to the world would be impractical.

Therefore, with experience learned from the Four Asian Tigers and other countries the

Chinese leadership exploited the advantages gained from SEZ’s such as Shenzhen,

Zhuhai and Xiamen (Wu, 2005). These coastal cities were close to a number of

overseas Chinese populations located in Hong Kong, Macao and Taiwan and allowed

China to attract foreign capital, technology and develop export-orientated industries

(Liu, 2005; Sarel, 1996).

In the mid 1980’s, the success of these SEZ’s saw 14 more coastal port cities added to

the list including Shanghai and Guangzhou. Once established the Chinese government

went about promoting the rapid development of local economies through FDI. In order

to facilitate technology and capital transfer to organisations in China, foreign investors

were initially limited to Chinese-foreign equity joint ventures, or Chinese-foreign

contractual joint ventures. This allowed Chinese organisations to learn and adopt

foreign technology, knowledge and skills (Liu, 2005). The opening up of these coastal

regions promoted rapid growth, increases in foreign trade and attracted significant

foreign investment. The gross value of industrial output in the first four SEZ's alone

jumped from RMB 5.5 billion in 1985 to RMB 49.5 billion in 1990 which equated to

an increase of eight times in only five years (Wu, 2005, p.297).

China from 1978 onwards when Deng began his reforms recorded an average real GDP

growth of 9 percent and spiked as high as 14.2 percent in December 1992 (See

Appendix 3). The GDP growth recorded by China rivalled that of its neighbours, the

Four Asian Tigers, that as a group averaged 7-8 percent growth for 15 years (Khan &

Hu, 1997). In seeking to explain this phenomenal growth the International Monetary

Fund (IMF, 2004) conducted research that found China’s economy was being driven

by a sharp sustained increase in employee productivity. Capital accumulation such as

foreign investment, the development of factories, technology and communication was

overshadowed in the 1990’s as China’s productivity gains accounted for 42 percent of


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China’s growth (IMF, 2004). The SEZ’s provided the crucial role in this growth

projection as the testing grounds for reform, allowing China to experiment with

economic systems, management styles and technologies all the while accumulating

experience amongst its growing number of urban professionals (Wu, 2005: Liu 2005).

At the same time urban professionals were rapidly modernising as joint ventures

transferred foreign skills and practices to the Chinese employee, who until recently

were unaccustomed to performance related bonuses and the practice of human resource

management. White-collar numbers began to rapidly accelerate during this period of

SEZ driven economic prosperity as joint ventures created new jobs, new infrastructure

projects and provided new-found wealth. The words of Deng Xiaoping perfectly

captured the spirit of the times and the transformation of the Chinese employee: “to get

rich is glorious” (Roberts & Balfour, 2006). The previous political constraints that had

hindered the Chinese peoples entrepreneurial spirit was removed.

Privatisation

Privatisation began in the early 1980’s starting with small-scale reforms through

policies aimed at promoting the development of privately owned business. These

policies involved the decentralisation of government control, allowing greater freedom

to local provinces and businesses to experiment with their economic growth in

conjunction with the SEZ established. In addition the previous model of economic

development that involved the heavy reliance on SOE’s had began to be dismantled in

response to Deng’s reforms.

The Central Committee of the Communist Party of China (CCCPC) lifted the ban on

the individual business and legalised the private sector. Opposition of these reforms,

those who still clung to the planned economic system were told by Deng’s government

that there was to be “no discussion for three years” thus allowing the private sector to

develop, experiment and learn under the protection of the government (Wu, 2005).

Entrepreneurs, historically seen as less than desirable under Confucian tradition, were

considered to be at the bottom of the social ladder as they possessed no status and no

job security (Kristof & Wudunn, 1994). With increasing wealth this perception would

change very rapidly in the early 1990’s as more entrepreneurs developed national and

then eventually international-scale enterprises.


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The emergence of private industry began to pick up pace and simultaneously alleviated

local employment1, and was granted the consent, support and encouragement from

local government (Wu, 2005). Seeing the success of their Chinese countrymen, others

sought to establish their own private enterprises putting pressure on the government to

alter polices to accommodate for further expansion of the non-state sector. The 1990’s

saw the phenomenal development of private enterprises in response to market demand,

huge economic growth fuelled by the private sector and a decreasing reliance on SOE’s

which were inefficient, unproductive and unstainable if China wanted to compete

globally (Wu, 2005; Braun & Warner, 2002). These reforms have led to both a rapid

expansion in China’s wealth and a number of severe social problems such as

widespread corruption and inflationary pressures.

Kristof & Wudunn (1994) in their first-hand observations of China’s development

could not believe the rate in which peasants transformed their status from wealthy to

poor. Interestingly, many Chinese employees were working at their own private

enterprises while still being employed by SOE’s, earning money that was considered to

be in a legally grey area. This enabled a Chinese employee to double or quadruple their

income while still receiving state benefits and housing (Kristof & Wudunn, 1994).

In 1992 following a surge in privatisation China’s non-state sector surpassed its state

sector in the share of GDP for the first time (Brandt & Rawski, 2008). The success and

sustained growth of the private sector saw the need for a significant reform to

inefficient SOE’s to transition to more efficient modes of business (See section on

Mass Labour Displacement). Despite Deng Xiaoping’s death in 1997, his successors

continue to reform SOE’s, and their numbers had decreased by 48 percent in favour of

the private sector by 2002 (Brandt & Rawski, 2008; Wu, 2005, p.199; IMF, 2004).

By 2005, China’s economy had moved towards even greater privatisation with reforms

to the banking sector (abolishing the Mao era excessive lending to SOE’s), the

dismantlement of much of the Mao era welfare system, and the ascension to the World

Trade Organisation in 2001. WTO membership has significantly help China improve

its business with its trade partners by providing a forum for settling disputes, trade

1 Local unemployment was high following the Cultural Revolution as educated youth’s sent to rural provinces to

work returned to cities.


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disagreements and improve general standards across industry (IMF, 2004). China’s

continued economic growth this century is creating new challenges for it and its

trading partners to manage and the success or otherwise of this process will do much to

determine future global prosperity (See Appendix 2).

Mass Labour Displacement

As previously stated, China’s pursuit towards rapid economic growth required the

nation to transition towards more efficient mode of business operations. A survey by

the State Assets Management Administration reported that, while the numbers of

SOE’s had been reduced, the state-owned sector still has considerable influence with

300,000 SOE’s. Small and medium sized SOE’s were predominately under the control

of local and county governments, while large SOE’s were under the direct control of

the government. Small-medium SOE’s accounted for 95 percent of the total number of

SOE’s (Cao, Qian & Weingast, 1999).

The mid-1990’s saw poor financial performance of the SOE sector which was largely

attributed to the social welfare obligations which SOE’s provided to its employees

under the Iron Rice Bowl employment system. The system provided significant

welfare benefits to the employees of a company such as enterprise housing, enterprise-

medical services and employment that was guaranteed for life. Labour turnover was

restricted and any inter-organisation transfers were usually due to the request of

superiors rather than personal advancement.

To prevent employees from changing employers all welfare benefits were non-

transferable to the new organisation. In addition transferring to another unit or

employer was made difficult by the lengthy appeal process and tied up in bureaucratic

procedures (Whyte, 1984). Further, the benefit of changing employer was minimal as a

national wage scale standardised payments across occupations. As a result, SOE’s were

filled with an abundance of employees who were being paid the same amount

regardless of how productive they were.

The State Commission for Restructuring estimated that approximately half the work

force consisted of surplus employees, unnecessarily putting strain on organisations and

reinforcing just how inefficient SOE’s were (Wu, 2005). As a result of the additional


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costs of doing business SOE’s proved financially unviable. In 1997, in order to

streamline the workforce and improve SOE operations the Chinese government

launched a policy of labour retrenchment, the first of its kind in the history of Chinese

labour.

Between 1998 and 2002 approximately 26 million workers were laid off from their

place of employment creating a major social problem (Armitage, 2003). Those who

were retrenched generally consisted of the low skilled, the middle aged, and the elderly

who would have the most difficulty finding reemployment (Wu, 2005; Davis, 1992).

At the same time, those who survived being retrenched from SOE’s had their welfare

benefits stripped away and were forced to rely on their own skills to provide for their

families.

This mass retrenchment of employees resulted in unrest, public demonstrations and the

appearance of public labour markets consisting of large groups of unemployed

individuals selling themselves for work. Government bodies established to assist

employees in finding employment were extremely overburdened with requests, and

even with good guanxi it was difficult to gain employment (Haipei, 2006).

While the reforms took place in SOE’s, Deng initiated several policies, which aimed to

transition the labour market into a more competitive, mobile and productive capitalist

model. The policies implemented aimed to encourage employers and employees to

view firm transfers more favourably and a number of impediments to mobility were

lifted. As a result companies were given greater freedom in their hiring and in their

ability to diverge from national pay scales largely through a move to individual

performance rewards (Davis, 1992).

Barriers to mobility still remained in many Chinese organisations as employers often

denied firm transfers of any professional and technical staff who were cited as being

‘crucial to a firms operations’ (Wu, 2005: Davis, 1992). There was an initial tendency

to hoard talent in organisations through bureaucracy by blocking applications to

transfer. The introduction of performance rewards led to a transition to more

competitive and attractive salaries to retain employees.


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During the early 2000’s, economic reforms initiated by Deng that encouraged private

enterprises, individual rewards and removed a number of barriers to mobility saw

increasing numbers of Chinese changing employers. The policy of one job for life was

over. The turbulent and unpredictable periods of China history have nurtured a new

breed of entrepreneurs, people who no longer draw a salary from the government and

survive on their own initiative (Kristof & Wudunn, 1994).

These first signs of job mobility would eventually create the contemporary

environment in which skilled labour today moves with rapid frequency towards new

opportunities. For China-based organisations this poses a series of challenges and this

is the focus of this study.

Deng and Education: A Transition to Mass Tertiary Education and Advanced

Human Capital

Following the first wave of privatisation Deng Xiaoping realised that in order to

transform China and catch up to the world the government needed to promote

international education. Knowledge flows through education are economically

important as it facilitates innovation, gives greater access to knowledge, and in relation

to China reduces the inequality between the level of Western and Asian knowledge

(Oettl & Agrawal, 2008). This knowledge was greatly needed to assist in large-scale

infrastructure projects, reforms to the banking sector, understanding market economies

and learning Western managerial techniques to efficiently do business.

The first education reforms in the 1980’s created opportunities for rural Chinese

labourers to leave their manual roles and work their way up into jobs of higher

responsibility in China’s urban cities. A generation later higher education has become

critical to acquiring a well paying skilled white-collar role (Davis, 1992).

Deng’s focus on education, and China’s Confucius heritage, saw many parents

spending their recently accumulated wealth on better education for their children, most

commonly their sons, to provide them with the tools to be successful and escape the

hard manual labour roles that their parents had to endure. It was during this time that

China saw a rapid urbanisation of farm workers who saw the coastal cities as an

opportunity to improve their standard of living (See Appendix 3). China during this

period of reform needed an educated population to drive the innovation and growth of

the economy. Realising that China was lacking intellectual capital following its


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seclusion from the world it embarked on a series of reforms that would transform

China’s working class. These reforms promoted foreign investment in education, the

establishment of more technical colleges and universities, partnerships with foreign

universities and encouraged organisations to promote and reward qualifications

(Degen, 2009; Kristof & Wudunn, 1994; Davis, 1992).

A common trend for Chinese students was to be sent to study abroad in countries such

as America, Australia, Germany or Britain in order to learn the business and

management skills of that country to apply to organisations once they returned.

However, the labour turnover problem has not been solved by this action, the events of

the Cultural Revolution has left those in their 50’s and 60’s without the skills and

experience necessary to occupy senior management positions (Davis, 1992).

Furthermore, the education reforms aimed at promoting the development of talented

students to occupy these roles cannot meet the demand quickly enough to fill these

positions.

Educated and internationally experienced Chinese are valuable to domestic

organisations, however, more jobs are being created in China than can be filled.

Currently there is insufficient graduates with both international experience and the

technical capabilities to fulfil the needs of both FDI and Chinese enterprise needs. This

has established what has occurred in most developed nations: a war for talent.


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Figure 2 – The Iron Rice Bowl and Post-Reform Model

Pre-reform Model Post-reform Model

State Ownership Diffused Ownership

Resource Constrained Market Driven

Technical Criteria Locative Efficiency

Economic Cadres Professional Managers

“Iron Rice Bowl” Labour Market

Jobs for Life Employment Contracts

Work Assignment Job Choice

Personnel Administration Human Resource Management

Egalitarian Pay and Perks Performance-Related Rewards

Enterprise-based Training Outside Courses

Company Flats Rented Housing Market

In-House Social Services External Social Provision

Free Medical Care Contributory Medical Insurance

Central Trade Union Role Weaker Union Influence

High Institutional Dependency Low Institutional Dependency

Source: Braun & Warner, 2002


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Conclusion of Chapter

The traumatic events of the ‘Great Leap Forward’ and the ‘Cultural Revolution’ are

still deeply etched into the behavioural patterns of contemporary China. Deng

Xiaoping’s reforms that followed have seen an improvement in working conditions,

facilitated the rapid accumulation of wealth amongst its urban population and allowed

the country to reinvest in infrastructure projects.

The Chinese economy was restructured using the model provided by the Four Asian

Tigers, including the establishment of SEZ’s to promote foreign investment and an

emphasis on export-driven production. These SEZ acted as major hubs for

international economic exchange providing tax breaks and incentives for foreigners

which in turn facilitated the transfer of vital technologies, managerial techniques and

organisational practices. These have been crucial to China becoming a global

economic power.

Chinese SOE’s underwent considerable transformation and from a human resource

management perspective the reforms of the 1980’s and the 1990’s saw a significant

change in the way organisations see human capital. Competitive labour markets were

established allowing organisations to compete for the best talent and incentives were

introduced to encourage individual performance such as bonuses and greater reward

for education and training. Deng’s reforms have provided many opportunities for

Chinese employees to improve their position through accumulating wealth through

private enterprise, increasing opportunities for education and the ability to study

abroad in Western universities.

This phenomenal growth has however come at a price. Deng’s reforms to the labour

market have ultimately created a work force that frequently change employers in

pursuit of greater wealth or for personal career development. This has created a skilled

labour shortage to the detriment of international and domestic firms. What can China

do to combat this labour paradox without hindering its economic progress? What are

employers doing to retain their best talent, those who within the blink of an eye, who

will willingly accept better offers from headhunters? The next chapter will look at this

growing problem and what the most successful organisations are doing to retain their

talent.


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CChhaapptteerr 44 Modern China’s Labour Shortage

Talent has become a precious resource fought over by competitors in what has become

a global war for talent” Chambers, 1999

China’s economic development over the past two decades has seen the nation

undertake considerable infrastructure projects, consistently record double-digit growth

and has raised the nation’s level of wealth. This economic prosperity has created

demand for skilled white-collar employees to manage this growth. A demand that far

exceeds the current supply of skilled senior management. This is the topic that will be

explored in this chapter (4).

A significant by-product of this new demand is the growing difficulty organisations

face with the rise in employee mobility. The new market conditions created by Deng

Xiaoping’s reforms have created managers who are leveraging this shortage in skilled

staff for their own benefit. This chapter will discuss the issue of labour turnover in

modern China and its impact upon business with reference to some of the interviews

conducted during this thesis’ research (See Chapter 5 for Discussion and

Recommendations).

Labour Turnover Defined

Talent management has become one of the key strategic issues facing organisations in

the twenty first century (Collings & Mellahi, 2009: Gross & Heinhold, 2005:

Bjorkman & Lu, 1999). The term talent management as a human resource function

encompasses a wide range of organisational functions such as remuneration, retention,

performance rewards, personal development and training. Growing literature suggests

that there is a significant link between successful talent management systems and

superior firm performance (Bjorkman & Lu, 1999).

The McKinsey report (1998, previously referred to) attributes the phenomena of skilled

labour shortages to three qualitative reasons: the first being that the more complex an

economy, the greater the need for experienced talent with global expertise,


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technological fluency, entrepreneurial skills and the ability to manage dispersed

resources and organisations.

The emergence of large Chinese export orientated multinationals has seen the same

organisations experience a significant shortage in talented labour. The rapid growth of

small to medium enterprises has created fierce competition for skilled white-collar

talent (Wu, 2005). Deng’s revision of enterprise law to allow private business

ownership encouraged the development of small to medium enterprises that provided

services and products the market demanded. This deviation from Mao’s rigid planned

development model encouraged entrepreneurship and economic gains but drew vital

talent from larger organisations.

Academics describe the concept of labour turnover as the total movement of people in

and out of a company, and acknowledge that it is an important feature of a labour

market (Davis, 2005; Hartmann, Feisel & Schober, 2010). While high levels of

employee turnover indicate serious problems within a company, low turnover can be

considered equally dangerous because without new talent an organisations’ ability to

think innovatively can be compromised. Statistics published by the Organisation for

Economic Co-Operation and Development (OECD) suggests that between 10-15

percent of employees quit their jobs each year (Excluding China) (OECD, 2004).

While employees leaving an organisation may seem like a problem, some turnover is

obviously necessary. When an employee leaves an organisation employers

immediately begin to think of the costs related to replacing that employee such as the

time to hire, retrain and the delays associated. What many organisations fail to realise

is that less than 5 percent turnover is considered unhealthy (Aronoff & Ward, 1990).

Completely eliminating turnover within an organisation eliminates the ability of an

organisation to attract new talent and the thinking of employees tends to become

homogeneous. Turnover allows the organisation to hire new employees with different

skills, views and promotes critical thinking and innovation; factors vital to being

competitive in the modern business environment (Bjorkman & Lu, 1999). So how do

organisations strike a balance with their labour turnover? To best understand this

phenomena and the core contributing factors this section of the thesis will look at the


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Martyn J. Hill

types of labour turnover, the effects of high and low turnover, and the implications for

both organisations and employees.

Types of Labour Turnover

Employee turnover is a much-studied discipline: research on employee turnover dates

back to March and Simons pioneering studies in 1958. Modern theorists such as

Bjorkman, Wu and Davies (2010, 2005, 1999) attribute labour turnover as the biggest

managerial problem facing 21st century organisations (Chambers, 1998). A typical

organisation’s human resource function strictly monitors employee movements both in

and out of the company. In highly competitive industries and amongst senior

management the loss of a talented managerial level employee can be a considerable

blow to the efficiency and productivity of an organisation.

Labour turnover can be grouped into two categories: voluntary and involuntary

turnover. Voluntary turnover can be defined as employment terminated by the

employee that can be for a number of reasons such as lack of job satisfaction or being

headhunted by another organisation. Involuntary turnover involves the employee

unwillingly leaving the company due to unforseen (and often difficult to predict)

reasons such as illness, death, moving overseas or employer-initiated termination.

Organisations can predict voluntary turnover as the causes are generally found within

the company such as environmental issues like stress, work conditions and

management conflicts. Due to the scope of this topic turnover will refer to voluntary

turnover.

Largely due to the influence of globalisation, countries, companies and individuals

have far more interaction than ever before. This increase in competition has created a

business environment where firms must increasingly be innovative and utilise human

capital as a strategic advantage to survive (Hartmann, Feisel & Schober, 2010). This is

especially the case in the services or financial sectors where the employee is a valuable

commodity. These white-collar employees have to be properly managed and retained

in order to promote efficiency and productivity gains. Managers are increasingly

recognising that employees are major contributors to the success of an organisation and

through managing voluntary turnover properly this success can be further emulated in

the future (Stovel & Bontis, 2002; Stone, 2008).


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Voluntary turnover often results in the departing employee leaving for a rival firm.

This leaves the organisation with the dilemma of hiring and retraining a new employee

and the prospect of a rival organisation gaining advantage from the lost employee’s

skills and ‘knowledge capital’. The loss of a skilled white-collar manager can greatly

hinder the competitiveness of an organisation as the average replacement cost of a

senior manager can be upwards of 3-5 times their annual salary (Stone, 2008). Many

companies fail to plan for the sudden departure of a senior employee and the longer the

organisation takes to replace the lost talent, the greater the loss in competitive

advantage (Davis, 2005; Chambers, 1998). Organisations need to ensure preventative

measures are in place to retain vital talent or at the very least have a contingency plan

in place to minimise the time taken to replace that employee.

Voluntary turnover can be further classified into two distinct categories that impact the

company either positively or negatively. The first known as functional turnover

observes poor performers opting to leave the organisation while the higher achievers

and skilled talent maintains their employment. However, it is often the valuable

employees that are lost either through dissatisfaction or rival poaching. Dysfunctional

turnover occurs when talented employees leave and the poor performing employees

remain. This situation damages the organisation through decreased innovation, delayed

services, lethargic implementation of new programs, and reduced productivity. This

scenario can negatively affect the best organisations which if unable to retain the right

employees will be unable to succeed (Stovel & Bontis, 2002; Abassi & Hollman,

2000).

China’s Modern Labour Paradox

China is experiencing an acute skilled labour shortage that appears contradictory due to

its population of 1.3 billion. There is a severe demand for qualified managers as the

older generation that would normally be working in executive level positions are

without the necessary skills or expertise as a result of their experiences during the

Cultural Revolution2. According to research (Chambers, 2008) less than 10 percent of

all graduates (3.1 million students) from colleges across China are qualified to work

2 During this period, education was severely hindered as schools were inundated with Communist propaganda and eventually closed for several years. Leaving much of China’s now senior population lacking a proper education.


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for a foreign-invested company. The majority of Chinese employees have low levels of

English language fluency and, coming from SOE’s with traditional values, have not

had insights into Western systems and culture (Manpower, 2006). Due to the lack of

trained and capable employees organisations are facing a severe skilled labour shortage

amongst white-collar positions, especially amongst managerial and executive

positions.

Managers are the individuals who delegate tasks, oversee production, ensure targets are

met and are responsible for ensuring the success of a given project. Without managers

organisations cannot possibly run efficiently. Research has suggested that two in five

organisations find it difficult to fill senior management positions in China (Davis,

1992). This scarcity in management talent means that an organisation unable to keep

this crucial resource will have difficulty maintaining a competitive advantage due to

inflated wage costs, retraining and recruitment costs and efficiency losses.

The loss of competitive advantage due to labour turnover is not a problem isolated to

one country: it has become a global phenomenon. China for many years experienced a

long period of lifetime employment, guaranteed security, and close to zero voluntary

labour turnover prior to Deng’s economic reforms. As stated in Chapter 3 SOE’s were

inefficient and the reforms of the 1980’s/1990’s actively promoted turnover at the

individual level in order to create competition and develop efficiency. The high GDP

growth that China recorded was driven by the efficiency gains created within Chinese

organisations, this is turn contributed to the current skilled labour shortage (a concept

that could not be comprehended by policy-makers of the time) (Davis, 1992).

The Deng reforms promoted the development of personal small-medium enterprises

(SME's) which effectively recognised opportunities in the market. These SME's

developed to cater for the market demand that was unmet by the planned SOE sector.

While this was extremely successful in regards to developing China’s industry and

raising individual wealth, it drew talented employees away from larger organisations.

The problem of China’s labour shortage has become a paradox. In order to promote a

transition towards a more efficient model of economic development steps were taken

such as; allowing freedom to choose employers, organisations were given greater


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freedom with their hiring practices, creating competitive markets, and, encouraging the

mobility of individuals. As a direct result of these reforms, modern turnover rates are

as high as 20 percent in some organisations as individuals capitalise on the shortage of

skilled talent and compete for the better-paid jobs (Han, 2008; Gross, 1998). Nearly

one third, or 32 percent of organisations in China surveyed in a study published in the

China Youth Daily said they planned to increase salaries by at least 20 percent to

attract and retain much needed talent (Xinhua, 2008, Roberts, 2008). While pay rates

continue to rise, turnover rates are the highest in Asia, in fact twice that in Japan.

Key Indicators

To better grasp just how dire the skilled labour shortage situation is in China this

chapter will discuss a number of factors that highlight this increasing problem, and

how any quick-fix solution/s to this problem will not provide long-term benefit. The

indicators that will be discussed are: rising costs (inflation), environmental conditions

and rising wages.

Rising Costs

China’s economic development and success over the last few decades has taken the

world by surprise and recording growth rates consistently in the double digits (See

Appendix 4). However, a by-product of economic success, inflation, has begun to

affect China’s competitiveness. Food and property prices have been the two main

drivers of China’s inflation. In 2010, China’s growth reached 9.8 percent in the fourth

quarter while inflation rose to 4.6 percent despite policy-makers efforts to slow it down

(IMF, 2004). China’s inflationary rate is beginning to pose a worry for organisations

operating in China who are faced with the prospect of increased costs, whilst

employees are faced with the prospect of life being increasingly expensive in the

already expensive urban cities (Liu & McDonald, 2005) (See Appendix 7 on the Big

Mac Theory).

China’s coastal cities geared for economic development such as Shanghai, Beijing and

Guangzhou that initially welcomed Western business and investment have become

unaffordable for some businesses and individuals (Frase, 2007). The costs associated

with doing business in these coastal metropolises have driven many foreign and

domestic businesses inland. A survey by the American Chamber of Commerce in


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China found that half of its 900 members planned to shift investments inland in the

next few years to minimise costs (Financial Review, 2011; Xinhua, 2010; AmCham,

2005).

Environmental Conditions & Employee Relations

Another by-product of China’s economic success has been the increasingly polluted

environment. China is home to sixteen of the twenty most polluted cities in the world

and is facing numerous environmental challenges that will impact the sustainability of

its growth and its ability to retain talented employees in its coastal cities. Further, from

a human resource management perspective the increased housing prices, congested

transportation, poor infrastructure, high levels of pollution and high levels of job stress

are taking a toll on white-collar employees (Frase, 2007). Regardless of the retention

strategies being utilised 80 percent of skilled white-collar employees believe that

farmers are better off than they are, and are seeking to relocate further inland to

second-tier cities (Hongyi, 2010; Shanghai Daily, 2009).

Occupational health and safety, a critical human resource function in Western firms

used to ensure the safety and wellbeing of an organisation’s employees, is lacking in

China. Statistics from the White book on the health condition of China’s urban white-

collar workers indicates that 76 percent of white-collar employees in China’s major

cities are over-fatigued and more worrying still less than 3 percent of white-collar

employees can be considered “healthy” (Dahong, 2009). The white book (2009) was a

joint research project by the Chinese Medical Doctor Association, the Chinese Hospital

Association and the Beijing Heath Security Association, and was based on the

examinations of nearly 3 million physical samples from across Beijing and Shanghai.

The findings found two key categories of health problems; metabolic disorders and

sub-health problems such as fatigue, insomnia and psychological disorders. The sub-

health problems were directly related to the long-term pressures of work, the fast pace

of day-to-day life and environmental stresses (Dahong, 2009). The agencies involved

in the research stressed the importance of a healthy diet, exercise, time management,

recreational activities and urged white-collar employees to consider adjusting their

lifestyle to be both physically and mentally healthy.


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A study by Asian Interface-Holden (2005) found the majority of skilled white-collar

employees in Shanghai are sacrificing meals for what they believe to be important

work. The survey of 30,000 skilled white-collar employees from around People's

Square, Zhongshan Park, Shanghai Railway Station and Pudong's Lujiazui area found

that 50 percent of white-collar employees skip breakfast and have digestive problems

attributed to time constraints (Shanghai Daily, 2009). Employee health risks triggered

by stress have implications for an organisations performance, such as increased

absenteeism, sick leave, work related illnesses, legal ramifications, loss of productivity

and efficiency, increased injury rate and the increased risk of mistakes. All of the

above can be prevented if the human resource function is properly utilised.

Population Relocation

China is currently facing a mass population relocation on two fronts; the farmers

leaving their land in favour of the more urbanised coastal cities to pursue wealth and a

better life, and the urban business persons who are relocating inland due to pollution,

congestion and the stresses of living in overcrowded cities. Much of China’s 1.3 billion

population reside in China’s large coastal metropolises. Many of China’s executives

cite wanting to leave the metropolises due to the poor quality of the water, gridlocked

roads, congested public transport, pollution and the high cost of living (Frase, 2007)

(See Appendix 5 & 6). The environmental issues have caused many white-collar

employees to flee the large cities in favour of second-tier cities further inland.

Many employees who initially traded in their life in the city for one further inland have

found that it has significantly impacted their life, and often returned to the city they

vacated despite congestion and pollution in order to receive basic amenities and

services. A manager who worked in inland China stated during an interview:

The difference between inland and coastal China is phenomenal, on one side you

have wealth, pollution and skyscrapers and on the other a lack of any core

service. I moved to escape the congestion but I’d trade it back in an instant for a

gym membership (Interviewee #01, 2010).

Employees expressed dissatisfaction with the environmental conditions currently

offered in the coastal cities, but still want to enjoy non-monetary incentives such as


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club memberships. However, these benefits are not currently available to them in they

choose to relocate to inland cities. (Elaborated further in Chapter 5 on Remuneration

and Retention strategies).

Reasons

By analysing the indicators of labour turnover and the contributing factors an

understanding of the key impact upon organisations can be discussed. Organisations

consider it a critical business imperative to attract, motivate, and retain key talent in

China. Labour turnover presents a considerable management challenge to

organisations. Hiring and retaining skilled senior management gives an organisation

considerable advantage over its rivals. But what are the most common reasons

employees decide to leave? The key indicators mentioned earlier (See: Rising Costs,

Environmental Conditions and Employee Relations & Wages) highlight this crisis and

the areas it is affecting most but the motivations for leaving are not always clear.

Abassi and Hollman (2000), notable labour turnover theorists highlight the five core

reasons for employees leaving an organisation are due to poor hiring practices, the type

of managerial style, lack of employee recognition, lack of competitive compensation

systems and toxic work environments. Recommendations and further elaboration of

these points will be discussed later in Chapter Five.

Impact on Organisations

A 2006 study by The Conference Board on global CEO challenges indicates that 28.3

percent of Asian CEO's consider the current lack of managerial talent as the greatest

concern (Speth & Doeringer, 2008). While academics such as Igmar Bjorkman (1999),

Davies (1992) and Wu (2005) have highlighted the growing need to address this issue

the problem has not gone away. The ramifications of labour turnover amongst senior

management pose a considerable threat to the competitiveness of China’s industry,

stability and efficiency.

The “War for Talent”, an article published by McKinsey to highlight the growing

labour shortage in America, highlighted the fact that this issue was not isolated to just

one country (Chambers, 1999). Turnover can be found in virtually every country from

Australia, America and the UK to developing countries. While the percentages of

turnover vary from country to country it is evident that turnover has risen dramatically


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in recent years (Speth & Doeringer, 2008; Chambers, 1998). Many argue that labour

turnover is a by-product of employee choice during times of economic prosperity. The

recent 2007 financial crisis highlighted this, as voluntary turnover slowed due to white

collar managers putting aside their career ambitions such as skill development, career

progression and recognition in favour of remaining employed (Collings & Mellahi,

2009). Now that business confidence is again growing managers are anticipating the

turnover crisis to resume.

What is considered a “healthy” level of labour turnover in China is difficult to

establish. Voluntary labour turnover varies from industry to industry and the job type,

organisational structure, work conditions and benefits play a huge part in establishing

this figure (Speth & Doeringer, 2008). However the long-term goals of China’s

organisations is to achieve a rate of 1 percent voluntary turnover or less annually.

Current research by Hewitt Associates (Speth & Doeringer, 2008) places the average

overall labour turnover at 9 percent per year amongst first year employees and 12

percent respectively. A considerable target especially since some organisations have

turnover as high as 20 percent.

The shortage of employees in China with necessary international experience is

stretched very thin. For the employees who possess these skills this gives them an

abundance of choice in where they want to work and the types of remuneration

packages they can establish for themselves by pitting rival organisations against one

another. For organisations on the other hand, if this problem is not properly managed it

could spell disaster. This section will discuss the effects of voluntary turnover on an

organisation.

Turnover Spiral

While the movements of employees in and out of a company voluntarily is nothing to

become immediately distraught by, high levels at the extreme ends of the scale can

have considerable impact on an organisation resulting in critical interruptions of HR

operations and a considerable loss of efficiency. Turnover spiral is a dangerous

workplace problem, which continually worsens the longer it is left unchecked. It China

this problem has the potential to be twice as dangerous than in Western countries. Why

is this so? Turnover spirals operate through an employee voluntarily leaving a


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company (due to any number of reasons) and as a result other employees follow (either

for the same reason or unrelated).

When left unchecked it can create a negative work culture and exacerbate the problem

causing high turnover rates and low productivity. Further, in Chinese organisations the

concept of guanxi (the working relationship between two individuals) can further

worsen the situation. If a senior manager with good guanxi (well-connected, high level

of influence) leaves the organisation employees will often follow that manager to the

rival organisation. Interviewee #6 said that employees are far more loyal to their

manager than to the organisation itself (Interview #6, 2010). In this instance the

organisation needs to look at what the reasons were for leaving and how to retain those

well-connected employees to prevent a worsening of the situation. Below is a model

for the self-reinforcing cycle of negative labour turnover, as described by Sheila

Rothwell:

Figure 3: Negative Self-Reinforcing Nature of Labour Turnover

High Labour Turnover

Crisis Selection Procedures

Hasty Training

Supervisory Pressure

Management Pressure

Low Morale and Instability


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Figure 4: Positive Self-Reinforcing Nature of Labour Turnover

As these two models suggest, turnover can spiral both positively and negatively. As

Figure 3 suggests negative turnover spirals can severely damage an organisation as

over time poor rehiring methodology and poor training contributes to the problem as

managers scramble to get anyone to occupy the repeatedly vacant position. A negative

work culture can develop where employees have poor morale and low job satisfaction

and be more likely to leave the organisation. Alternatively, turnover spirals can be

positive in nature. Organisations with strong hiring practices, training, management

support and strong communication functions can create an environment of self-

reinforcing retention (See Figure 4). In the case of China, it is likely that negative

turnover spirals are occurring in Chinese organisations due to the severe shortage of

talented white-collar employees and senior management.

Interviewee #5 said that a number of his senior management colleagues were

dissatisfied with their jobs because staff came and went at an alarming rate. In his

organisation some employees were barely there six months before moving on to

another organisation that paid more than his small business could afford. The concept

of guanxi played a big role also, staff had little loyalty to the organisation as senior

management was frequently leaving, and those that did not leave with the manager

were dissatisfied with their job and less productivity.

Low Labour Turnover

Careful Selection and Induction

Better Quality Training

Supervisor Support

Scope for Management Planning and

Communication

Job Stability and Satisfaction


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Any loss of productivity poses a vital blow, especially amongst the service industries,

which rely on intellectual capital rather than manual labour (manufacturing industries).

Organisations in this modern economy cannot afford to waste valuable resources hiring

and retraining staff, which they could otherwise effectively retain with the correct

practices. Losing management talent loses internal company knowledge that can (and

usually does) go to a rival organisation threatening the competitiveness and

productivity of a company.

For Employees

Employees, especially at the senior management level are not complaining about the

shortage (unless they are the ones tasked with the responsibility of re-hiring and

managing a short-staffed organisation). For the typical employee this shortage has

given those with the desired qualifications, experience and talent the ability to fast

track their careers, change profession, negotiate for better pay, conditions, bonuses and

greater security. Unlike China’s labour conditions of the 1950’s employees have the

freedom to leave if they are dissatisfied with an organisation as there are many big

companies, multinationals and even small-medium enterprises who can offer equally

competitive salaries.

Now that employees have experienced better conditions, choice, and the ability to

provide a better life for themselves and their families. Organisations and government

policy-makers will have a difficult time restricting high labour turnover with sudden

policy or regulatory changes. The only effective method to control and minimise this

issue is for long-term oriented models for retaining employees (which will be

discussed in the next chapter).


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Conclusion

In conclusion, the considerable shortage of talented labour has been attributed to the

lasting effects of the Cultural Revolution that left many Chinese who would now be

occupying senior management positions without the skills, education or ability to

occupy these positions. Reforms encouraging privatisation led to huge economic gains

due to the development of SME's. However, these new enterprises drew talent away

from the large MNE's, further worsening the labour shortage. No immediate remedy to

this problem is foreseeable, as the number of university graduates each year does not

meet the demand.

Conditions in China are further escalating the situation with environmental and stress-

related problems being cited as one of the main reasons white-collar employees change

profession or leave their jobs. The rapid development of coastal cities has caused

significant pollution and congestion which many white-collar employees have grown

increasingly dissatisfied with. Second-tier cities further inland are now becoming the

headquarters to a number of organisations relocating due to the rising costs of doing

business. Inland China is experiencing the same boom conditions as the early coastal

cities did in the 1960’s and 70’s.

Labour turnover is a problem facing the entire country, affecting the competitiveness

of its industries, the efficiency of its organisations and the country’s ability to innovate.

With such high turnover rates, double that of Japan, China is wasting resources hiring

and training new staff, costing organisations money and productivity in the process. In

this age of globalisation, that loss of efficiency can be the difference in securing a

competitive advantage in such competitive global markets. This is a problem that has

been around in Western countries for decades but the magnitude of this crisis in China

could be detrimental to China’s stability and growth. The labour shortage facing

China’s organisations is an issue that policy-makers have to take seriously if they want

to ensure the sustainability of their economic success.


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CChhaapptteerr 55 Considerations & Results

Result Summary

To develop this thesis a number of one-on-one interviews were conducted to gain a

greater understanding of the issue of labour turnover in Chinese organisations. In total

there were 9 interviewees who provided their perspective on labour turnover and

discussed their own experiences in regards to this phenomenon. The interviews were

conducted over the period of November 15, 2010 to December 30, 2010. Those

interviewed came from varied skilled white-collar professions and were between the

ages of 25-55, had experience across a number of industries, and backgrounds in

various human resource functions such as managing staff and hiring processes.

Collectively the interviewees were able to provide valuable insights into the

motivations for skilled white-collar turnover.

The data gained from the one-on-one interviews can be segmented into four key areas:

recruitment and selection practices, guanxi, education and relocation and

environmental stresses. From these four areas the data gained will be analysed with

reference to notable international human resource theorists and a number of

recommendations will be developed based upon feedback gained during the interviews.

Recruitment and Selection

Recruitment is the process of attracting individuals on a timely basis, in sufficient

numbers, and with appropriate qualifications, developing their interest in an

organisation and encouraging them to apply for jobs within it (Crawford, 2004). This

function had traditionally been the responsibility of the Chinese government which

controlled all aspects of business operations under the planned economic model it used

in the 1950’s and 60’s. Since Deng Xiaoping’s reforms, China’s modern human

resource management role has undergone considerable change and organisations have

begun to recognise the significant advantage created (Dickie & Dickie, 2005). These

practices, which Western countries have been utilising for decades, have been crucial

to developing sustainable advantages and promoting productivity gains amongst

industries which are often highly competitive.


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The value of the skilled white-collar employee in China has grown phenomenally in

recent years. This is the result of the significant skills shortage created by decades

(1940’s – 1970’s) of social unrest, economic reforms and a lack of educated senior

Chinese. In Western organisations senior managers are often in their late forties to

early sixties. In China there is now a considerable shortage of this type of senior

management talent to fill crucial positions, and as such organisations have had to

headhunt talented managers from overseas or attract Chinese expatriates who fled

throughout Asia during the Cultural Revolution (often at a considerably higher cost

than local Chinese) (Collings & Mellahi, 2009; Bjorkman, 1999).

Interviewee #4 stated that organisations were “worried about high levels of talented

white collar turnover” and were radically implementing new techniques to encourage

skilled employees to apply for a position at their organisation. Discussions revealed

that Western human resource practices were being quickly adopted to address this

labour shortage. Chinese organisations emulated the successful practices of MNE’s and

wholly-owned foreign enterprises operating in China who were offering improved

remuneration packages and benefits (Interviewee #3, #8, #9, 2010).

Chinese organisations core source of recruitment are the internal and external labour

markets. These same organisations are developing and promoting internal employees

up the workplace hierarchy to fill senior positions. This method of promotion has

become the primary way of filling a vacancy, as organisations want to minimise the

costs associated with advertising or headhunting to fill the position (i.e. in Australia

internal recruitment is commonplace) (Dickie & Dickie, 2005). The selection pools for

internal labour can be divided into two distinct pools: current staff within the

organisation, and staff from other branches across China who can be transferred in.

From the interviews it was clear that internal promotions were the most favoured form

of position recruitment in Chinese workplaces. Jobs were only advertised externally if

the position could not be filled from within the organisation. However, data on what

actual percentage of management-level employees are internally promoted is difficult

to obtain in China.


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Organisations, which have no other option but to recruit externally, have a number of

strategies available to them, which include:

(1) Advertisements in local newspapers, which are the largest source of

employment information.

(2) Referrals, where management or employees are offered incentives to hire a

friend or family member to fill a position.

(3) Recruitment Agencies. These organisations can save a company

considerable time in looking for talented staff.

(4) The internet is gaining considerable penetration of the Chinese employment

recruitment mainland.

As highlighted in chapter three this is a considerable break from the past practices.

The transition from a completely government controlled human resource function to a

more continuous, adaptable and “best fit” model have been attributed to the

considerable labour shortage present in China. As a result management practices have

become more strategic to attract the best talent to both improve the operations of their

own organisation and outperform competitors. Interviewees stated that managers held

the tough task of trying to retain talented staff (from poaching, dissatisfaction) and

training new employees. Due to the state of the current workforce, highly skilled

white-collar employees can afford to choose their employers rather than being selected

by them.

Chinese organisations have realised that recruitment and selection practices are crucial

in influencing the bottom-line through managing job mobility and productivity. For

example, higher turnover will result in the higher costs associated with recruiting and

retraining new employees.

Guanxi

Guanxi is a Chinese cultural trait, which penetrates all aspects of daily life, the concept

of guanxi refers to the establishment of a connection between two individuals to enable


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a bilateral flow of personal favours or social transactions (Ambler & Witzel, 2004).

Guanxi is a delicate concept that is often difficult for outsiders to grasp. Relationships

and building guanxi does not develop like in Western countries, it requires constant

work. Yeung and Tung (1996) describe the process as “reciprocal back scratching”.

The continual exchange of favours amongst two individuals that strengthens the nature

of the relationship and level of trust. Guanxi relationships have historically been a way

for individuals to gain or achieve something outside of typical processes, thus opening

doors otherwise unavailable without guanxi.

This cultural concept is still as present today as it was under Deng or Mao. In white-

collar management professions guanxi is a useful relationship tool that can be used to

get things done, influence subordinates, or obtain resources otherwise outside of the

organisations grasp (Grainger, 2007; Yeung & Tung, 1996). For example, one of the

interviewees’ parents owned a small but successful marketing and sales company with

a strong client base. A senior manager was approached by a rival firm, which offered a

better remuneration package, which he took and subsequently left the organisation.

The loss of this manager dealt a severe blow to the performance of this previously

successful organisation for three main reasons:

Management level employees are costly to replace – the replacement costs of a

senior manager are up to three times the cost of their annual salary.

Guanxi networks – due to the strength of this managers’ guanxi in the

organisation, other employees were inclined to follow the manager to the rival

organisation as their loyalty was with him and not the organisation itself.

Knowledge loss - a competitive advantage was lost when the manager (and

subordinates) left the organisation. These employees have knowledge about the

organisations operations and have been extensively trained.

Interviewee #5 believed that guanxi had less of an affect in Western organisations

based in China. His observation was that relationships were considerably formal and

distanced when compared to the intimacy of a Chinese guanxi relationship. Individuals

that were motivated by self-achievement and wealth had largely replaced the strong

guanxi relationships typical of Chinese organisations. He further elaborated that the


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organisation failed to achieve its potential by capitalising on these relationships

through developing a sterile work environment. This is not the picture in all companies

across China, but illustrates just how important the guanxi networks are in China, and

how crucial they can be to an organisations success.

Job mobility trends

Of the interviews conducted 8 of the 9 interviewees stated that they had changed jobs

more than three times in their lifetimes, with one interviewee discussing that he had

relocated to other companies upwards of eight times. This represents a considerable

change in the typical Chinese attitude to job mobility where previous employment was

for-life and willingly leaving an organisation for career advancement, money or due to

lack of fulfilment was unheard of. This small sample highlights the severity of the

labour turnover crisis effecting managers. Employees are increasingly on the move and

this research seeks to understand the motivations for job mobility in order to combat its

effects.

Organisations biggest management challenge is how to retain their skilled white-collar

employees. Job mobility is a relatively new phenomenon for the Chinese government

to address and with such a large population it appears to be quite the paradox.

However, due to a significant shortage in skilled talent to occupy senior management

and white-collar roles the currently employed managers are being headhunted or are

themselves capitalising on this shortage. From the interviews conducted a number of

reasons were established as to why employees decide to willingly leave an

organisation:

Better pay and remuneration

Career advancement (or lack of)

Dissatisfaction with employees/managers or the organisation

Rising costs associated with China’s coastal cities

Health concerns

Loyalty to a manager who also transferred

Nonmonetary perks – Club memberships or work social events

Work culture


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There are two key factors in modern China why employees are choosing to leave their

places of employment for elsewhere. The first of which, was the economic reforms

themselves under Deng who promoted job mobility in order to encourage competition

and efficiency. The second contributing factor was the shortage itself. Following the

turbulence of Mao’s era those employees who should currently be occupying senior

management positions are ineligible for the role due to their lack of education and

experience. As a result of Mao’s policies a whole generation of employees lack the

advances management skills currently needed in corporate China. Those employees

who are currently employed in skilled white collar roles today are using this shortage

of skilled labour as leverage to improve work conditions, better training, greater pay or

nonmonetary bonuses like subsidised housing or club memberships.

Relocation and Environmental Stresses

The living and working conditions in Chinese coastal cities were cited by 88 percent of

respondents as the main motivator for changing jobs. China’s coastal cities are filled

fraught with congested roads, pollution, rising costs of living and increasing numbers

of environmental stresses. According to the White Paper on the Health of the Chinese

Worker, high-income white-collar employees are actually biologically ten years older

than their medical age-based biological health (Medeiros, 2010). The Beijing Health

Protection Association has deemed Chinese white collar employees sub-healthy with

statistics stating that eighty percent of employees do not eat and sleep regularly.

When questioned about eating and sleeping habits, the researcher found that most of

the interviewees (8 of 9) frequently skipped meals in order to complete work that they

deemed more important. Interviewee #4 (2010) stated: “Chinese organisations aren’t

what they used to be, the hours are longer and there is pressure to perform and to be

efficient“. The workload and pressures of organisations in China are taking a physical

and mental toll on the employees who as a result are experiencing a range of

preventable health issues.


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Figure 5 – White Collar Stresses

The pressures of performing in China are so great that many employees skip sleep in

favour of work, feel isolated or lonely, and lack a feeling of accomplishment and

achievement in their lives. These are dangerous behaviour that not only affect the

performance of the organisation but can also affect other employees indirectly. A tired

employee is more prone to make mistakes or costly errors, which could be detrimental

to both the company or a colleague. Interviewee #5 noted that these unnecessary

mistakes cause additional work for the organisation that exacerbates the level of stress

and workload already present within the organisation. In addition to the workload,

many of the interviewees explained that many did not have a healthy outlet for their

stress.

Interviewees explained that due to the rising costs of properties, food, electricity and

transport, the average skilled white-collar employee had little money spare to spend on

“relaxing” or “exercising” (Interviewee # 2, 4, 7 & 8). Research has shown that those

employees who work long hours and are over fatigued need to develop what is called a

“work-life balance” (Mayo Institute, 2010). Work-life balance is the process of


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balancing the demands of a career and the employee’s personal life. It consists of

finding ways to manage time, eating and sleeping healthy, adapting work hours to suit

an employee’s personal schedule and to “leave their work at the office” and enjoy

personal time (For more information see Mayo Clinic, 2010). When asked about work

life balance three of the respondents had never heard of the concept, and four others

said they had little to no personal time outside of work commitments.

Interviewee #6 (2010) stated:

Work-life balance? There’s no balance in my life, my job is demanding and

requires my full attention all of the time. Long hours, frequent travel and lots

of paper work. The time I have to myself I spend sleeping. When I am

working on a project food, sleep, and family are secondary until the job is

done.

The higher employees go in the skilled white-collar management hierarchy the more

stressful and overworked Chinese employees appear to be, raising considerable health

concerns (as published in the White Paper). China’s high level of stress is affecting

employees’ performance and is unsustainable. This illustrates why some employees are

opting to leave these coastal cities in favour for jobs further inland (People Daily,

2010; Xinhua, 2010).

China’s Talent Exodus

The numbers of employees and organisations seeking to relocate out of China’s coastal

cities has been increasingly growing as workplace pressures and the cost of living

rises. The number one stress on white-collar employees was the significant cost of

buying a house (China Daily, 2009b). The price of a house in China is approximately

8.3 times that of the typical Chinese family income, well above the reasonable scope of

three to six times (Xinhua, 2010). As a result close to 85 percent of families and white-

collar employees cannot afford to buy a house. Interviewee #9 said that: “many

graduates would rather buy their own apartment over renting but the price of even a

small one bedroom apartment is just unaffordable for most”. The costs of housing and

land do not just affect the employee but organisations have also felt the side effects of

China’s phenomenal economic growth. The cost of land rental has risen between 5-10

percent and 139 Fortune 500 companies have already relocated further inland to cut

their operating costs (Xinhua, 2010).


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Figure 6 – Second and Third Tier Cities Growth Stages

The above figure illustrates the development of the second and third tier cities in China that

are receiving considerable economic stimulus from organisations seeking to cut their costs.

Although interviewees agree that these next tier cities lack many basic services and

amenities they allow organisations to take advantage of:

Cheaper rent

Cheaper labour costs

Cheaper energy costs

Faster city development

Decreased chance of employees leaving for a competitor

Employees more are more loyal

Less congestion and pollution.

However the disadvantages are a deterrent for many employees and organisations from

relocating. Some common dissatisfaction included:

Less qualified and skilled employees

Lack of amenities and basic services

Underdeveloped transport and infrastructure


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Distance – from airports, ports, major hubs and government offices.

Employees would not be looking to relocate to second and third tier cities if favourable

conditions were being provided to them by the organisations to which they work for. Many

of the interviewees (2010) suggested that subsidies on housing or vehicles be provided to

assist valuable white-collar employees in reducing first-tier pressures. However, this loss of

talent represents a considerable blow for organisations in places like Shanghai and Beijing

who are losing valuable human resources, competitive advantage and knowledge capital.


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Recommendations

A number of recommendations on how to prevent or respond to the issue of labour

turnover were derived from the interviewees as a part of this research project. The

interviewee’s ideas on how labour turnover should be managed and their personal

experiences in successful workplaces were combined with credible academic

publications to provide a comprehensive list of recommendations.

For China, this unexpected increase in mobility, both within domestic and international

organisations, has caused a labour shortage in skilled white-collar roles and at the

senior management level. This present skills gap continues to have a profound effect

on China’s competitive advantage (Grossman, 2010).

School Programs

In order to combat the shortage of skilled white-collar employees, China implemented

a series of educational reforms under Deng Xiaoping to ensure that the next generation

of white-collar business people would have the skills to successfully manage at the

senior level. This initiative involved sending waves of Chinese student’s abroad to

study in foreign universities and business schools. This strategy continues to be

successful and has enabled China to rapidly modernise its population’s skills, albeit

currently in insufficient numbers. In this modern economy intellectual capital has

become a core factor of business underlying the nations ability to innovate and remain

competitive (Degen, 2009; Wu, 2005). Employees with knowledge capital have

become highly valuable and a commodity which China is putting a strong emphasis on

developing.

However, the numbers of Chinese students sent abroad to study and those that return to

occupy vacant positions in Chinese organisations are disproportionate. More jobs are

being created than can be filled at the skilled white-collar and senior management level

(Xinhua, 2010).

University/Organisational Partnerships

A number of Western organisations have entered into partnerships with universities to

sponsor particular disciplines relevant to the organisation. This strategy has a number


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of benefits including securing talent direct from universities and increasing the

reputation and exposure of the company. Through graduate programs the organisation

gives graduates a pathway directly into their organisation to which they can train and

internally promote deserving skilled graduates to fill the vacant senior management

roles. Interviews suggest that few Chinese organisations offer similar pathways directly

into their workplace (Interview #2).

Interviewees suggested that similar graduate programs are needed within Chinese

organisations to develop basic skills, get a feel for the organisation, and gain much-

needed experience. Due to the competitive nature of the white-collar industry

performing internship work with a large company can give the graduate the advantage

over his or her peers and ignite a loyalty to a particular organisation even before being

hired. This is a successful strategy in Western firms, and one increasingly being

utilised by leading Chinese enterprises.

Remuneration packages (Non-monetary)

A surprising recommendation during the interviews was to establish non-monetary

remuneration. Due to the rising costs of living, transport, food and the considerable

stress senior managers are under, non-monetary packages are a successful way of

showing employees that an organisation recognises their needs. Modern white-collar

employees are becoming increasingly knowledgeable about the benefits and incentives

that companies can offer to stand out from competitors (See Appendix 8). Non-

monetary compensation can come in a number of forms such as vouchers, subsidies,

and vehicles to club memberships and health care. Non-monetary packages are often

highly sought after and supplement an employees pay. For example, providing a club

membership can provide an outlet for the skilled white-collar employee to relax after

work, and builds rapport between the employee and their employer.

Work Culture

Research has shown that creating a positive work environment fosters a culture of

innovation and creativity, two key factors crucial to developing a sustainable

competitive advantage. Multinationals have realised the benefits of developing such a

work culture, companies like Google, IBM and Apple. The presence of guanxi means


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that the departure of a talented individual creates several problems: losing the

employee who had intellectual capital and knowledge of the business, losing the

loyalty of other employees, and the loss of business and clients.

Work Life Balance

Ninety percent of Chinese white-collar employees are suffering from an overload of

stress and environmental pressures, in particular those working in the rapidly

urbanising cities of Beijing, Shanghai and Shenzhen (People’s Daily, 2010a). Interview

#4 (2010) stated that the main reason he often changed employers while working in

Shanghai was due to work related stress. Many of the reasons for this stress include

heavy workloads, fierce job competition, rising rental and property costs, congested

and inefficient transportation and the cost of education (People’s Daily, 2010b).

So how does a Chinese business provide ‘work life balance’? A number of means have

been identified:

Provide employees with memberships to local clubs, gyms and sporting

complexes as a non-monetary package.

Flexi-hours which allow employees to determine the best daily work schedule

to achieve the highest level of productivity.

Building collective collegiality through business dinners and functions paid for

by the organisation.

Three interview respondents (#3, #4 & #8) stated that achieving a harmonious balance

between work and personal life was essential. This increasing recognition of the

importance of work-life balance amongst China’s white-collar employees is an area

worthy of further research beyond the scope of this thesis.

Career development

Through providing a greater avenue for career development and promotion, either

horizontally or vertically across the organisation, skilled white-collar employees can

gain a sense of achievement and self worth. This could be achieved through providing

job rotation, a strategy that Japanese firms are well known for. Job rotation allows an

employee to experience various aspects of a particular organisation and allows the

employees “to collectively work towards a common goal with shared experience and


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limited specialisation” (Stone; 2008; Chew & Horwitz, 2004). It is believed that job

rotation promotes innovation and loyalty through greater comprehension of the

organisations divisions and strategy.

Conclusions

The following conclusions were derived from the literature review and interviews:

1. Human resource practices in China have undergone significant change that has

largely contributed to the current skilled labour shortage. The push for

prosperity through reform generally contributed to China’s recent economic

success, however, looser regulations enabled employees to change employer in

the pursuit of wealth.

2. The turbulence of the Mao era of economic planning left a considerable gap in

education amongst the demographic (50-65) who would currently be occupying

senior white-collar management roles. As a result more jobs are being created

than can be filled by skilled and experienced graduates.

3. Many Chinese organisations are adopting Western human resource

management strategies in order to better recruit, develop and retain talented

staff. Chinese enterprises are looking at HRM models around the globe for the

most efficient and are slowly implementing and adapting models to suit their

unique labour environment.

4. The war for talent is showing no signs of relenting. Organisations are fiercely

competing for skilled white-collar employees across all types of industry.

Organisations have realised the benefits of skilled employees developing and

sustaining a competitive advantage over rival firms.

5. For the Chinese employee there is no better time to be a skilled white-collar

employee. Due to the severe shortage of such talent, employees are able to put

the pressure on organisations to provide improved work conditions and

benefits. An abundance of senior management jobs are promoting mobility and

employees are capitalising on the generous packages being offered.

6. The rising cost of living in China’s first tier cities has created an exodus of

talent further inland. Accepting reductions in pay in order to take advantage of

the decreased stress, pollution and cost of living, employees and organisations

are creating a second-tier development boom.


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7. A significant number of white-collar employees are sub-healthy, an issue that

needs to be urgently addressed. Health concerns, fatigue and lack of exercise

will have adverse affects on an organisations’ productivity, efficiency and in

the long term the sustainability of its competitiveness.

8. Much of China’s future sustainability and growth must be underpinned by

continual reform to its infant human resource practices in order to address these

significant problems. Lack of skilled talent, high job stress, low job satisfaction

and low productivity must all be tackled by senior management and human

resource management professionals to ensure that China’s growth benefits

employees.

While the above-mentioned recommendations have been discussed as possible

remedies for this crisis, the effectiveness of these actions relies heavily on

environmental, political and social factors.

Implications for Further Research

The researcher suggests that further examination beyond the scope of this thesis could

be targeted towards the relationship between employer and the employee in Chinese

organisations.

Further evaluation of the role of Western retention strategies, (i.e. effectiveness of non-

monetary bonuses, perceived trends, workplace dissatisfaction due to wage imbalances

between local and expatriate managers) is currently underway within Chinese

organisations with an international investment focus.

There is further scope (at a PhD level) for an observational study into the life of a

senior skilled white-collar employee over the course of their daily duties to observe the

various stresses they experience. This would be further enhanced through gaining

extensive personal testimony across various organisations and industries.


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List of Interviews

1 Interview #01. Taiwan-Based Manager. 24/11/2010.

2 Interview #02. Chinese-Australia White-Collar Graduate. 24/11/2010.

3. Interview #03. Chinese Small Business Manager. 07/12/2010.

4 Interview #04. Chinese management consultant. 13/12/2010.

5. Interview #05. Perth-Based Senior White-Collar Manager. 16/12/2010.

6. Interview #06. Chinese Business Manager. 16/12/2010.

7. Interview #07. Human Resource Manager. 24/12/2010.

8. Interview #08. Chinese Graduate Marketing Consultant. 24/12/2010.

9. Interview #09. Senior Project Manager. 28/12/2010.

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Appendices

Appendix 1 – Share of SOE in Industrial Sector

Appendix 2 – Australia’s Merchandise Export Destinations


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Appendix 3 – China Urbanisation Rate

Appendix 4 - China’s Industry Contributions to GDP Growth


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Appendix 5 – The Price of Housing in China and Abroad

Appendix 6 – The Average Housing Price in China


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Appendix 7 – Big Mac Theory

Appendix 8 – Prevalence of Employee Benefit Programs by MNE’s

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