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Among the factors determining the success of a foreign venture in China, human resources issues consistently rank high. Indeed, human resources expenditures are one of the most common causes of foreign-invested enterprise (FIE) cost overruns. Specifically, poor retention of local staff tends to rank among the top three problems that foreign companies face in China.

A study by the Hong Kong office of KPMG Peat Marwick found that the average tenure for Chinese mid- to senior-level executives in the PRC is 8-12 months. A 1997 survey of 49 FIEs by Watson Wyatt Worldwide reported an average annual turnover rate of roughly 12 percent in Shanghai and Beijing, and 17 percent in Guangdong Province. Executive-search firm Korn/Ferry International, moreover, has predicted that the need for local executives will increase 400 percent during the next decade. According to some experts, 10 management positions already exist for every qualified Chinese applicant.

This high demand for qualified PRC nationals to assume management posts in FIEs makes it crucial to uncover the reasons why Chinese staff change jobs so frequently. A survey of the career decisions and job attitudes of 80 Chinese managers who earned MBA degrees from the China Europe Management Institute in Beijing (the predecessor of China Europe International Business School [CEIBS]) explored the factors underlying FIEs' high turnover rates.

Catalysts of change

As English-speaking, Chinese MBA graduates, the survey respondents represent an elite group of candidates qualified to fill managerial positions in FIEs. In an atmosphere of such high demand, they also were prime candidates for poaching. With an average age of 38 at the time of the survey, the 72 male and 8 female respondents had spent, on average, 5 years in the workforce since receiving their MBA degrees. Together, they had worked for 173 different companies since graduating from CEIBS, with an average tenure at each firm of 2.4 years. During their five years in the workforce, roughly two-thirds of the respondents had held 1-2 jobs, and one-third had held three or more jobs. The bulk of respondents worked for wholly foreign-owned enterprises (46 percent), followed by State-owned enterprises (20 percent), private companies (16 percent), Sino-foreign joint ventures (14 percent), and the PRC government (4 percent).

Roughly one-third of the surveyed graduates were responsible for nearly two-thirds of the reported job changes. Not surprisingly, the more recent graduates, who had been in the job market for a shorter period of time, had changed jobs less frequently.

In similar studies conducted in the 1980s indicated that the prospect of higher salaries and benefits topped the list of reasons Chinese managers gave for switching jobs. In contrast to their counterparts in the 1980s, the managers participating in the CEIBS survey based their decisions to change jobs not only on salaries, but also on dissatisfaction with their present position, the attractions of the new position, and factors unrelated to the job, such as the desire to be closer to their families or live in a more modern city. The "frequent fliers" in the CEIBS survey--those who had held three or more jobs since receiving their MBA degrees--on average enjoyed neither higher salaries nor greater job satisfaction than former classmates who had remained with the same employer. Frequent fliers earned an average of RMB14,374 ($1,736) per month, while the survey respondents who had remained with one employer earned RMB17,122 ($2,068).

Though more attractive job opportunities and changes in family circumstances lured some otherwise satisfied managers away, dissatisfaction with different aspects of their positions clearly motivated a number of managers to move to other firms (see Table 1). In nearly half of the cases, managers left because of low salaries, a difficult or unfair boss, or unchallenging responsibilities. Roughly half of the respondents said they were influenced by attractions of the new position, including employment with an internationally recognized company, higher salaries, or personal ties with other employees. A greater number of respondents cited "soft" factors, such as job-development opportunities and interpersonal relationships, than "hard" factors, including higher salaries, as key to their employment decisions.

Gauging satisfaction

The examination of respondents' job characteristics and corresponding levels of job satisfaction provided further indication of which managers were likely to remain with their current employer, and which were considering moving elsewhere. Managers intending to stay with their present employer had worked for the same company over a year longer than those who planned to leave their jobs (see Table 2). Managers with an inclination to leave had consistently received fewer of the perks associated with higher status and promotion within the company. For example, among those planning to change jobs, more than half stated that they had not made work-related trips outside China, 90 percent had received no car allowance, and 40 percent had received no housing allowance from their employers. They also were significantly less satisfied with their level of responsibility than respondents who had no plans to leave.

Tuning in to managers' concerns

A competitive salary is necessary to attract staff, but is clearly an insufficient retention tool on its own. Overall job satisfaction rests partly on an FIE's sensitivity to its own supervisory methods and ability to reward managers with greater responsibilities. For example, in an ongoing CEIBS survey of senior PRC managers in FIEs, roughly one-third of the 36 respondents interviewed to date perceive foreign managers to be skeptical of PRC managers' understanding of Western business concepts and practices. Such foreign managers thus appear unwilling to consider PRC managers' ideas, or tend to dismiss alternative opinions quickly.

Communication of a clear promotion path and attention to the quality of interpersonal relations at work are also critical retention tools. Implementing a management system that clearly conveys job expectations and performance standards, and that provides employees with opportunities to assume greater res ponsibilities and participate in company decisionmaking, seems to aid significantly in retention of local employees. Mapping out opportunities for promotion, in particular, may help nurture loyalty.

Despite China-based foreign managers' awareness of the importance of providing opportunities for growth and development in the workplace, the survey revealed that many companies fall short in meeting such needs. Some companies have not developed long-term plans, but this alone cannot explain the low levels of career planning for managers. In fact, many companies have development plans for their Chinese staff that aim to build up sufficient talent to continue localization--especially localization at higher levels of management. But the survey suggests that many of these companies have failed to communicate such career plans to their Chinese managers. Only one-quarter of the Chinese managers intending to leave their jobs were aware of a company career plan for them. Among managers planning to stay with their current employer, more than half knew of a specific career plan. One senior foreign manager in a consulting company that had hired several MBA graduates explained that his firm had an implicit, rather than explicit, policy of reserving more important, sensitive, or confidential projects for managers who spent at least two years with the company. Making such a policy explicit could go a long way toward retaining this firm's Chinese managers.

Case studies from the Hong Kong and Shanghai Banking Corp. (HSBC), a company with a reputation for low levels of staff turnover, offer examples of how close attention to career planning can be a successful means of employee retention. According to a January 1997 Economist Intelligence Unit report on multinationals in China, HSBC has a 10-week training program in Britain for its newly hired trainees, and provides further training in Hong Kong over a 3-year period. Given the investment in each trainee, employee retention is of considerable concern. Wisely, HSBC makes explicit from the outset its fast-track promotion prospects. In particular, the bank emphasizes that it intends to replace the 25-30 Hong Kong general managers in China with trained local staff. In addition, HSBC offers its trainees the opportunity to borrow money for housing at below-market interest rates. The bank keeps salaries competitive, awards a bonus--a percentage of the first-year salary--upon the trainees' return to China, and gives an additional bonus at the end of the first year. This combination of training, clear communication of career prospects, and monetary rewards is likely driving HSBC's low turnover.

Winning ways

The recent slowdowns in China's FDI inflows and economic growth may reduce, to some degree, the problem of turnover. But the effect, if any, will be temporary, since the gap between the supply and demand of human talent is so great. Utilized FDI in 1997 reached a record high of $45.3 billion. Even a 50 percent decline in that amount in 1998 would fail to ease the present shortage of local managerial talent.

Keith Goodall is a lecturer in human resource management and Willem Burgers a professor of strategic management and marketing at the China Europe International Business School (CEIBS) in Shanghai.