– China's looming talent shortage

Here is an interesting article on the supply front! Everyone talks about the cost and the prices.. but no one cares about the supply of human resources..

With a huge supply of low-cost workers, mainland China has fast become the world’s manufacturing workshop, supplying everything from textiles to toys to computer chips. Given the country’s millions of university graduates, is it set to become a giant in offshore IT and business process services as well?

New research from the McKinsey Global Institute (MGI) suggests that this outcome is unlikely. (The full report, The Emerging Global Labor Market, is available free of charge online.) The reason: few of China’s vast number of university graduates are capable of working successfully in the services export sector, and the fast-growing domestic economy absorbs most of those who could. Indeed, far from presaging a thriving offshore services sector, our research points to a looming shortage of homegrown talent, with serious implications for the multinationals now in China and for the growing number of Chinese companies with global ambitions.

If China is to avoid this talent crunch and to sustain its economic ascent, it must produce more graduates fit for employment in world-class companies, whether local or foreign. Raising the graduates’ quality will allow the economy to evolve from its present domination by manufacturing and toward a future in which services play the leading role—as they eventually must when any economy develops and matures. The conditions for a flourishing offshore services sector will then surely follow.

The supply paradox
China’s pool of potential talent is enormous. In 2003 China had roughly 8.5 million young professional graduates with up to seven years’ work experience and an additional 97 million people that would qualify for support-staff positions.

Despite this apparently vast supply, multinational companies are finding that few graduates have the necessary skills for service occupations. According to interviews with 83 human-resources professionals involved with hiring local graduates in low-wage countries, fewer than 10 percent of Chinese job candidates, on average, would be suitable for work in a foreign company in the nine occupations we studied: engineers, finance workers, accountants, quantitative analysts, generalists, life science researchers, doctors, nurses, and support staff.

Consider engineers. China has 1.6 million young ones, more than any other country we examined.1 Indeed, 33 percent of the university students in China study engineering,2 compared with 20 percent in Germany and just 4 percent in India. But the main drawback of Chinese applicants for engineering jobs, our interviewees said, is the educational system’s bias toward theory. Compared with engineering graduates in Europe and North America, who work in teams to achieve practical solutions, Chinese students get little practical experience in projects or teamwork. The result of these differences is that China’s pool of young engineers considered suitable for work in multinationals is just 160,000—no larger than the United Kingdom’s. Hence the paradox of shortages amid plenty.

For jobs in the eight other occupations we studied, poor English was the main reason our interviewees gave for rejecting Chinese applicants. Only 3 percent of them can be considered for generalist service positions (those that don’t require a degree in any particular subject). Overall communication style and cultural fit are also difficult hurdles. One Chinese HR professional points out, for example, that Chinese software engineers would find it hard to draw up an information flowchart for an international five-star hotel, not because they don’t understand flowcharts, but because state-run hotels in China—the only ones they know—are so very different.3 Some people argue that a willingness to work long hours will compensate for any deficiencies in the suitability of China’s talent. Although this may hold true to some extent in manufacturing, it is likely to make only a marginal difference in services because of the specific skill deficiencies that come into play.

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