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Multinationals find staff retention in China a growing problem

05 September 2006 | By Mark Osborne | Recruitment News

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Mercer Human Resource Consulting has surveyed over 100 companies with operations in China and found that staff turnover is getting worse with the average tenure for 25-35 year olds falling from an average of 3 to 5 years in 2004 to just 1 to 2 years in 2005.

Companies in China are struggling to retain their professional and support staff, and face having to pay higher salaries or excessive recruitment costs, according to the human resource specialists. The survey covered 114 organisations in Greater China. Of the participating companies, 24% were from the high-tech industry, 19% consumer, 14% chemical, 11% pharmaceutical, 8% automotive, and 6% from the service industry. The remaining 18% were from other industries.

"The employment market in China has ignited in recent years, as more multinational organisations set up operations there and local companies expand. Individuals with transferable skills have become a valuable commodity, and companies are battling to keep hold of them," stated Fermin Diez , National Business Leader of Human Capital at Mercer Aus/NZ, "When employees threaten to walk out of the door, many companies respond by thr owing more money at them. While this can sometimes work in the short term, more often than not a competitor is willing to pay just as much."

The survey also found that 83% of organisations offer healthcare and related insurance, while 41% provide health and fitness plans and 24% offer flexible working. Just 21% offer supplementary pension plans - the majority of which are defined contribution - and 10% provide subsidised loans. But results also show that 44% of organisations believe their employees are dissatisfied with the benefits on offer.

Offering staff overseas assignments is deemed the most effective tool for developing employees' careers, although only 42% of organisations provide such opportunities. Individual career development plans, offered by 51% of companies, are also believed to be effective. In contrast, mentorship programmes are considered relatively ineffective and are offered by just a quarter (26%) of companies.

"Attractive pay and benefits and opportunities for career development are rated as the most important factors for attracting and retaining employees. Companies that offer structured overseas assignment programmes and individual career development plans demonstrate a willingness to invest in staff, and this can pay dividends," Diez said.

"High-profile multinational organisations with strong employment brands typically provide more career opportunities and better training and mentoring programmes than many domestic companies in China. Employees tend to be attracted to these organisations because of the prospec ts they offer and the kudos associated with working for them," he added.

According to the survey, organisations report that the average cost of replacing staff at any level is around 25% to 50% of annual salary.
"Many organisations in China underestimate the true cost of replacing staff, particularly at more senior levels," said Diez. "Taking account of all the elements that contribute to turnover cost, like recruitment agency fees, interviewing time, and loss of sales while positions remain unfilled, employers can face bills of over 200% of salary for senior staff," he said.

Copies of Mercer's China Employee Attraction and Retention Survey 2006 are available at

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