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back to index backGLOBALtalk July,  2007


The War for Talent in China and India

Due in large to the impact of globalization, China and India have transformed into veritable economic superpowers in recent years, and it's estimated that by 2050 they will house the world's first and third largest economies respectively. But how do these two nations stand up against each in the quest for global economic dominance?

The War for Talent in China and India
It's no secret that China and India have transformed into economic powerhouses in recent years, and it's estimated that by 2050 they will have the world's first and third largest economies, respectively. But how do the dynamics of these two markets compare to each other in the quest for economic growth?

China and India house two of the world's largest populations, providing them with enormous potential in the global economy; however there are significant differences between their workforces. One of India's greatest advantages lies in the fact that it has the largest English-speaking population in the world after the US, making it an obvious choice for the global sourcing strategies of leading multinationals. However, at 90 percent, literacy levels in China are considerably higher than in India, which currently stands at 60 percent. Despite this, India ranks ahead of China in terms of indicators such as quality of management, education and availability of skilled labor and engineers. These key differences play a huge role in determining who will lead the way on the global economic stage.

There are many areas, however, in which both markets are similar. A strong internally-driven growth model and efficient laws have been major growth levers in the Indian market, while flexibility in employment laws and increasing investment in infrastructure has led to growth in China. Head of Hewitt's Talent and Organization Consulting Analytics practice in Asia, Nishchae Suri comments, "Both governments are creating an environment in which it is becoming easier for international businesses to set up shop."

Economic growth reflects this. China's economy has experienced tremendous growth for more than 15 years, expanding by an average of 10.1 percent since 1991. Similarly, India, which is Asia's third largest economy, continues to strengthen with the second fastest rate of growth (8.5 percent) among the 20 largest economies in the world.

The Changing Face of China and India's Talent Markets
Many changes have been brought about by the new global landscape. Most significantly, both economies have moved away from a labor-supply market to a labor-demand market. This has placed companies in previously uncharted waters, in which individuals are in a privileged position and organizations need to establish their credentials as they woo potential employees. Subsequently, a battle to attract and retain top talent and high-potential employees has begun.

Other HR implications brought on by the war for talent include leadership and career management issues, as well as rewards and performance concerns. Stella Hou, Head of Hewitt Hong Kong, says, "Identifying the leaders of tomorrow, developing skills at all levels and strengthening managerial capability are key challenges for many CEOs in both China and India. There is also a growing need for companies to assert performance management measures to remain competitive."

Performance and Rewards in China and India
Hewitt research, including last year's Performance and Reward Trends in India and China Study, has also highlighted the need for more meaningful rewards programs in both China and India and a clearer alignment with performance. "A stronger focus on total rewards would strengthen the attraction and retention power of companies in India," agrees Suri.

The study shows that both China and India are moving towards greater performance orientation. Hou asserts, "The pay-for-performance link in these markets is becoming stronger. While in India, outstanding performers receive approximately double the salary increase earned by average performers, in China the ratio is 1:8."

Currently, the most widely used performance management system in both countries is a target-based evaluation. Executed through annual reviews, 99 percent of study respondents in India and 89 percent in China said they link performance ratings to salary increases.

Many companies in India are also increasingly looking at variable pay to attract talent. As Suri notes, "Variable pay increases a company's level of competitiveness and supports a more performance-oriented working culture. It also increases the earning potential for employees."

However, companies face many challenges in implementing effective variable pay programs, most notably poor communication of their objectives and measures to employees. Companies must communicate their programs clearly if they are to motivate employees to better perform.

There is also a need for more competitive pay positioning while maintaining a strong focus on career development and capability building in both China and India. Hou comments, "In any growth economy you will have a multitude of new competitors entering the market, which makes current compensation systems obsolete. To stay competitive, companies need to invest in training and development programs and compensate their talent with new industry standards in mind."

Suri adds, "Though external competitiveness of pay is important, not all employees are on the lookout for a higher salary. As such, many organizations are focusing on building a strong performance culture that nurtures employees in order to ensure they remain with the company. Ideally, organizations should encourage and assist employees to develop new skills regardless of their band or level, strengthen managerial capability, design high-potential programs for key talent and identify a strong pipeline of leaders capable of driving the future success of the company."  

According to Hewitt's Asia-Pacific Salary Increase Survey 2006-07, salary increases in both China and India have increased steadily since 2002 but are anticipated to stabilize and decrease marginally as companies gain a better understanding of their market. Hou comments, "Both China and India have enjoyed two decades of economic growth and development. As the talent pool continues to expand in both countries, salaries will inevitably stabilize."

Benefits in China and India
Employer-sponsored supplementary benefits are becoming increasingly important in China. Hou elaborates, "Many companies now offer aggressive business-linked benefits such as cash rewards, a 13th month salary, fixed allowances and bonus plans, and are usually provided on top of mandatory benefits. They often include pensions, medical plans, and housing allowances. However, sometimes companies even stretch so far as to include long-term incentives such as stocks. Usually part of a total rewards package, supplementary benefits not only enhance employee security, but also give China a competitive edge."

Suri adds, "Benefits are a key component in any rewards strategy. However, in India they have traditionally been treated simply as a means to reduce the cost of tax for employees. But since the introduction of the Fringe Benefits Tax, they have lost their value to a degree. As a result, companies are increasingly providing benefits that are of value to the entire workforce and drive desired behavior, while ensuring optimum return of investment for the business."

Employee Turnover
According to Hewitt's Attrition & Retention in Asia Pacific Study, turnover rates in China and India are high at 20 percent and 15 percent, respectively. The challenges associated with the changing nature of work require a skilled, knowledgeable and talented workforce. Ideally, employees should be adaptive, flexible and motivated. However, in order to inspire high performance, organizations must understand what truly motivates their top talent. Once key motivators have been identified, organizations can then uncover gaps or improvement opportunities and act on them.

The days of lifelong employment are long gone, and as more and more people cite personal reasons during exit interviews, it's become all too clear that employers need to motivate their top talent more effectively. As Suri says, "If companies want to combat attrition in high-performers, they need to take steps to identify, develop, motivate and retain their top talent. This is true throughout Asia, not just in China and India."

The Battle of Asia's Economic Superpowers
A world of opportunity has opened up for talent in the high growth economies of China and India. Despite these positive attributes, both markets are plagued with attrition. Currently, rewards are being used as a strategic lever to attract, engage and retain employees, and the cost of talent has put pressures on productivity in both markets. Data indicates a trend towards pay-for-performance in both China and India and, subsequently, organizations need to re-align current talent strategies. Hou asserts, "Although the immediate future will pose talent-shortage problems for employers, the future looks bright as globalization drives further economic activity." Suri adds, "The projected economic growth of India and China is going to make overcoming these key HR issues even more challenging in the future."

Source: Hewitt Quarterly Asia Pacific newsletter - GAI


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