VZCZCXRO9910
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #2384/01 3420807
ZNR UUUUU ZZH
R 080807Z DEC 06
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 5555
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEHC/USDOL WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 02 GUANGZHOU 032384 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS USTR 
USPACOM FOR FPA 
 
E.O. 12958: N/A 
TAGS: ELAB ECON ETRD EINV CH
 
SUBJECT: Hewitt Associates Survey on Expat Hiring: Number of Expats 
Expected to Continue to Grow 
 
 
¶1.  (U) Summary: Among the recent conclusions of a Hewitt Associates 
study of Expatriate Hiring and Returnee Wages and Benefits released 
December 7 were: 
-- An expected increase in the number of expats from 150,000 to over 
200,000 within a few years; as business opportunities for foreign 
firms grow, so too will the number of expats as there are not enough 
local Chinese to meet the demand for managers; 
-- The mix of expats hired is changing as well, with many of them 
now hired locally here in China and this has an impact on benefits 
packages; 
- Unrealistic expectations by management for rapid development of 
the next generation of business leaders.  In most places it takes 
12-15 years or more to develop good managers and corporate leaders; 
it is not really possible to telescope that into 5-7 years, without 
some costs, especially if that means promoting inexperienced people; 
and 
-- The competition for managers will escalate as an increasing 
number of Chinese firms themselves begin to go global. 
End Summary. 
 
¶2.  (U) At an AmCham-hosted luncheon on December 7, Hewitt 
Associates reviewed its latest Expatriate Hiring and Returnee Wages 
and Benefits Survey, the largest survey done in China on this topic 
with 133 - mostly large - multinational companies participating. 
 
Number of Expats Increasing 
--------------------------- 
 
¶3.  (U) Despite continuing plans to localize their China-based 
workforces, companies have been increasing the numbers of expatriate 
employees - from 70,000 in 2002 to more than 150,000 in 2006.  More 
than 50% of the companies surveyed expect the numbers of expatriates 
in their companies and in China to grow and that within a few years, 
there will be over 200,000 expats.  The reason is simple: MNCs 
continue to flood into China and establish their headquarters or 
functional centers, such as R&D, logistics, and procurement centers, 
primarily in Shanghai and Beijing, with a smaller number in Shenzhen 
and Guangzhou.  The expectation is that as business opportunities 
grow, so too will the number of available managerial positions and 
there simply are not enough local Chinese with managerial experience 
to meet the demand.  IBM, for example, will move its global 
procurement center to Shenzhen and will need 3,000 employees, many 
of whom will be expatriates, especially in the beginning.  At the 
same time, the banking sector in China will open in December 2006, 
per China's commitments under the WTO.  Some foreign banks have just 
established a China presence to take advantage of the opening and 
others, such as Citigroup, are increasing their country coverage by 
purchasing parts of Chinese banks (Citigroup bought into the 
Guangdong Development Bank).  Some of these banks are reportedly 
seeking as many as 1,000 banking specialists in what is already a 
very tight market for trained employees with such skills.  For now, 
the banks - and insurers - are busy poaching one another's staff. 
 
Problems in the Search for Managers 
----------------------------------- 
 
¶4.  (U) MNCs are also moving to China to establish their 
Asia/Pacific regional headquarter offices, adding further strains in 
the hunt for local talent.  If it is difficult to find trained local 
talent for the China market, it is even more difficult to find local 
people trained for regional operations.   To compensate for the 
talent shortfall, companies hire expatriates and returnees.  In its 
study Hewitt looks at traditional western expatriates as well as 
expatriates from Hong Kong, Taiwan, other Asia, Chinese returnees, 
and expatriates hired inside China. 
 
¶5.  (U) There is a changing mix of expat hires in China from earlier 
years.  There is an increasing trend to hire expats already residing 
in China (47%) with only 24% of expat hires coming under the 
traditional model.  Chinese returnees are another major source of 
hires with foreign experience.  In a recent informal study in a 
German university, one-third of the graduate students were from 
China.  Of these, the majority said they would return immediately to 
China from German upon graduation.  The bulk of the remainder said 
they would return to China after working in Germany for several 
years to gain experience. 
 
Wither the Benefits Package 
--------------------------- 
 
¶6.  (U) While salary trends are up, the localization trend has 
 
GUANGZHOU 00032384  002 OF 002 
 
 
increasingly manifested itself by localizing benefits packages, in 
part due to the increase in China-hire expatriates.  The 
localization of benefits, with the diminution or loss of hardship 
benefits, premium pay in favor of performance pay, tax assistance, 
etc., has further increased the turnover of China-based expats in 
search of contracts still containing these benefits.  Hewitt cited 
increased pressure on managers to deliver high rates of profit 
(often unrealistic goals of 30% growth per year) also leading to 
high turnover.  Turnover of senior expat managers is a high 8.3%, 
and that of mid-level managers is 5.4%, much higher than the 3% norm 
in the United States.  Local Chinese staff turnover remains 
extremely high at 13-14%. 
 
Training Corporate Leaders 
-------------------------- 
 
¶7.  (U) The huge growth in the market cannot be supplied by China 
alone, so the need for expatriates will continue to grow.  At the 
same time, fewer expatriates are hired as the top managers.  A much 
higher percentage is now made up of middle managers and specialists. 
 Hewitt stressed that the China market will be short of local talent 
for the next 15-20 years at least, leaving much room for expatriate 
hires.  Among the key challenges are: 
 
- Demand beyond supply. 
- An increase up the value chain (of employee costs). 
- Voluntary turnover at record highs. 
- Expatriate and local talent shortages. 
- The question of developing leadership or purchasing it at a 
premium in the marketplace. 
- Significant wage inflation. 
- Shortened leadership development times. 
- Unrealistic expectations by management for rapid development of 
the next generation of business leaders.  In most places it takes 
12-15 years or more to develop good managers and corporate leaders; 
it is not really possible to telescope that into 5-7 years, without 
some costs, especially if that means promoting inexperienced people 
 
 
¶8.  (U) Hewitt offered no solution, but explained that its survey 
only highlighted the dilemma.  The leadership shortfall requires 
that companies understand their management and leadership needs, 
have a plan for leadership development, implement a robust 
evaluation and analysis review system, and identify individual 
development needs in a targeted manner.  Despite criticism that the 
majority of China's single-child family children have a 
prince/princess mentality and an over-inflated sense of worth that 
is encouraging rapid turnover, these people could well price 
themselves out of the market.  Hewitt said that talented people are 
in every population and it is critical to locate and develop that 
talent. 
 
China Too Will Need Managers as It Goes Global 
--------------------------------------------- - 
 
¶9.  (U) Hewitt noted that this survey is focused on MNCs and not on 
Chinese companies; however it admitted receiving an increased number 
of inquiries from Chinese companies who face similar problems. 
These problems will escalate as an increasing number of Chinese 
firms themselves begin to go global. 
 
GOLDBERG