By
Clarence Kwan, national managing partner, Chinese Services Group, Deloitte & Touche USA LLP
For the various participants in China's financial sector — foreign and domestic, private and public — challenges involving human capital management are set to intensify. China, in line with its WTO accession commitments, is now preparing to fully open its financial sector to foreign investment in January 2007. Building a modern financial system is an exceedingly complex exercise, requiring professionals at every level with advanced technical expertise, knowledge of the wider economy and awareness of their role as part of a truly global system.
Few locations outside New York, London and Hong Kong are rich in these human resources but finding sufficient numbers of skilled financial professionals in China, a country whose pool has already been depleted by years of extraordinary growth, is proving very difficult. What follows is a short exploration of how cascading developments, global to national to sectoral, will shape the human capital dimension of China's quest to build a modern financial system.
Global trends
In a recent study by Deloitte Research, "
It's 2008: Do You Know Where Your Talent Is?," the global human capital challenge is described as being driven by several immense demographic changes. First, the growth of human populations is slowing and the population in many areas, particularly in the OECD countries, is rapidly ageing as a consequence. In Europe and the U.S., the "Baby Boomer" generation will begin retiring in 2008. Europe, in particular, is experiencing falling birth rates and its population is likely to shrink in the coming generation. In Asia, the overall population continues to grow ― e.g. India, Malaysia etc. — but in China the population is ageing rapidly. As a result, China has a deficit of younger/skilled workers despite its enormous population.
New trends in global education are also emerging. In the U.S., Germany and Japan, the percentage of students graduating with a science or engineering degree has fallen to a new low — less than 10 percent. India and China, by contrast, are producing large numbers of graduates in the "hard" sciences but even those numbers are insufficient to meet the demand of their fast-developing economies. The result of these changes has been growing competition for a limited talent pool in most areas of the world. A further issue complicating this picture is that employment itself is no longer static — companies must continually train and develop employees if they are to keep pace with technological change and business innovation.
When McKinsey coined the expression "War for Talent" in 1990s, the focus was very much on attracting and retaining the best talent with hot packages and incentives. Going forward, however, the Deloitte study concludes that companies will need to place much more focus internally. They will need to engage existing talent and stretch its horizons and possibilities. They will also need to find multiple careers within the same organization for people. In short, the focus will be expanded from mere salary to also include:
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Developing talent, not just through traditional training, but especially through on-the-job learning; in addition, allowing employees to "learn to learn."
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Deploying talent in new and exciting ways — especially in terms of fresh or "stretch" assignments.
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Connecting employees so they can learn from both their peers and other professionals whom they might not normally turn to.
By focusing on these fundamentals, the study argues that business leaders should be able to identify talent and develop critical skills within their companies — skills that will allow both employees and companies to reach new levels of performance.
China trends
In the China context, these global trends in human capital management are playing out in particularly challenging ways. China's supply of skilled workers and managers, while increasing steadily, is insufficient to meet exploding demand. In 2003, Chinese tertiary institutions (colleges and universities) accepted 3.8 million new students, up from 1 million in 1996. While encouraging, these figures are still quite modest, especially for a country of 1.3 billion. From the perspective of foreign employers in China, the pool dwindles still further as those lacking appropriate language skills and cultural fluency are removed from the equation.
Historically, foreign companies looking to hire in China enjoyed very substantial advantages when competing for the limited number of skilled applicants. Their great wealth and prestige invariably carried the day. In recent years, however, the establishment of many more foreign invested enterprises (44,000 in 2004 alone) has sharpened competition just as a much greater threat begins to come into focus — the growing number of Chinese companies able to offer competitive salaries and career paths.
Earlier this month, for example, China's State-owned Assets Supervision and Administration Commission (SASAC), which is responsible for the management of large state-owned enterprises, announced that it would compete to hire 25 private sector businessmen to take the reigns at enterprises under its charge. China is aware that the ultimate success of its campaign to restructure its state-owned enterprises will hinge on bringing in better management. China's expanding private sector, responsible for 70 percent of China's job creation since the late 1990s, is also an increasingly tempting choice for young, talented Chinese.
As a consequence of this competition, the salaries of technical and professional staff at multinationals in China have increased 25 percent in the last three years and job hopping has become endemic. Turnover among skilled managers is in the 30-to-40 percent range, versus a global average of 5-to-10 percent. Companies may be tempted to deploy more expatriates, but they are an expensive and therefore short-term solution at best.
Human capital challenges and China’s financial sector
As mentioned earlier, modern financial systems are immensely complex and everything from training programs to compensation models tend to be among the most sophisticated in the marketplace. In addition to financial acumen and technical expertise, the financial industry also demands a high level of international awareness of its employees and extensive knowledge of other sectors of a national economy.
As it prepares for 2007, China has been overhauling its entire financial system, seeking to improve balance sheets at banks, create new oversight institutions and instill international standards throughout the system all at the same time. The result is further pressure on the talent pool. In the banking sector alone, over 60 foreign banks are now competing for talent in China, joining China's four main state-owned commercial banks, 11 nationwide joint-stock banks, 112 municipal commercial banks and to a lesser extant, the thousands of smaller deposit-taking institutions across China. These domestic institutions are in dire need of individuals with an understanding of international standards of corporate governance, risk-based lending and other advanced management subjects.
To compound the situation, China has formed multiple regulatory bodies with a mandate to supervise domestic financial institutions since the mid-1990s — the Chinese Insurance Regulatory Commission (CIRC), the Chinese Banking Regulation Commission (CBRC), and the China Securities Regulation Commission (CSRS). As with the domestic banks, all of these new watchdogs (plus the central bank and the Ministry of Finance) require highly skilled financial professionals and all make huge demands on contiguous pools of talent as well — specialized staff for legal affairs, audit and internal control departments, human resources, budgeting and very significant IT operations.
For the balance sheets of its state-owned banks to improve and for any of this new oversight architecture to function properly, China must also compete to compensate these professionals against the wave of foreign financial institutions expected to enter or expand their activities in China over the next several years. As demand rises ahead of 2007, what are the chances that the supply of financial sector professionals might expand in response? Generally speaking, not good in the short term. Substantial experience, particularly outside China, is already at a premium and gaining it requires time. China's private sector as a whole, while increasing rapidly, is still young and knowledge of best practices in critical areas such as corporate governance is not strong. University-level business programs are expanding throughout China, but despite the enthusiasm of Chinese students, the quality of instruction is very uneven.
Points to ponder
How then are the various participants in China's financial sector to gain an edge in hiring and retaining talent? As the opening of China's financial sector unfolds, foreign financial institutions will likely continue to compete on a salary basis and rely on their status as attractive places to gain Western management experience and know-how. But competing effectively over the long term will eventually mean placing new focus on retention. All participants in the financial system will need to get more serious in three areas that reinforce the idea that they are strongly committed to their Chinese hires:
Institute performance-based compensation and personalized benefit packages
Establish innovative training programs, both within China and abroad
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Enroll employees in executive development programs; regulators can consider shorter-stints with international associations of regulators abroad.
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Foreign players might create on-site training facilities in China.
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Domestic banks need to focus very heavily on risk management training, bring in independent outside trainers to help broaden understanding.
Provide real opportunities for advancement throughout their global organizations:
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Facilitate overseas deployment and promotion; including government-to-government exchanges for regulators.
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Create mentoring programs and work on succession planning; use the time spent by your expatriates in China wisely by focusing their energies on the legacy they will leave behind.
Our own experience: What Deloitte is doing to build a global workforce
Deloitte is obviously not immune to any of the pressures discussed thus far. Indeed, professional service firms in China suffer from one of the highest attrition rates — 25 percent. Globally, Deloitte no longer considers itself to be fighting a "war for talent" but has shifted its focus to developing and promoting skills of in-house talent. China, however, stands out as an exception.
In China, we still see the need to recruit/import talent — locally and globally. Still, our global approach, involving three broad initiatives, serves as a guide to building our China practice and all three elements are therefore being deployed in China's unique national context:
1. Enhancing culture and brand
- Instilling a sense of common purpose and values in our people through shared values education and ethics codes and ethics training.
- Fostering a culture of client service — through training and a variety of client service experiences.
- Reinforcing commitment to brand by encouraging mobility and job opportunities within the organization.
2. Building quality
- Added scale and expertise through mergers ― in China this year, for example.
- Establishing clear set of technical standards that professionals understand they must live up to — standards that are reinforced through e-learning and classroom training.
- Building diverse teams — both in terms of skills and backgrounds. Provides professionals with new insights and perspectives on every engagement. Working becomes learning.
3. Empowering our people: "Develop, deploy, connect."
- Building global career Web site accessible by all employees.
- Creating internal mobility strategy in order to allow for global career experiences. Our GDP program, for example, permits more than 200 Deloitte managers and senior managers to take client service positions abroad any given year. Our China firm has been an eager participant in this global initiative.
- Launched global e-learning infrastructure.
- Focusing on identifying top talent in all member firms — with the idea of developing that talent for both client service and future leadership roles — long-term succession planning.
- Launched global people commitment survey in more than 60 countries — over 80,000 people.
Clarence Kwan is the National Managing Partner of the Chinese Services Group for Deloitte & Touche USA LLP
About the Chinese Services Group
The U.S. Chinese Services Group (CSG) of Deloitte & Touche LLP assists US-based companies investing and operating in China. Whether entering the China market for the first time or seeking to optimize existing operations, the CSG, in collaboration with our China firm, can help you identify an expanding range of opportunities to manufacture, source or sell in China and navigate the associated risks.
The CSG also assists Chinese companies seeking to access U.S. markets — expanding operations, raising capital from public or private sources or acquiring U.S. assets. Our national network of bilingual professionals works closely with colleagues in China to deliver seamless service to globalizing Chinese companies.
About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member firms, and their respective subsidiaries and affiliates. Deloitte Touche Tohmatsu is an organization of member firms around the world devoted to excellence in providing professional services and advice, focused on client service through a global strategy executed locally in nearly 150 countries. With access to the deep intellectual capital of 120,000 people worldwide, Deloitte delivers services in four professional areas — audit, tax, consulting and financial advisory services — and serves more than one-half of the world's largest companies, as well as large national enterprises, public institutions, locally important clients and successful, fast-growing global growth companies. Services are not provided by the Deloitte Touche Tohmatsu Verein, and, for regulatory and other reasons, certain member firms do not provide services in all four professional areas.
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