Multinationals Can Build a Lean, Mean Staff on China's Grad Glut

TAIPEI (TheStreet) -- Every multinational corporation that wants to keep up in the world sells to the Chinese or manufactures in China. A billion consumers. Economic growth of at least 7.5%. Yada, yada.

Those MNCs also need to hire good people in China. But according to state media reports and a survey by the Chinese Academy of Social Sciences in December, just three-quarters of 2012 college and university graduates had found work at all. Those reports say too many new grads were out there hunting for the top jobs.

Grads have groused about gluts in their ranks for a decade. In 1999, universities that were once super-competitive relaxed admission rules to accommodate increasing numbers of applicants. Admissions rose 41.2% that year to 1.59 million students, who started to put on the caps and gowns around 2003.

During China's 2012 college entrance exam season, about 9.15 million high school students vied for 6.85 million higher education slots, the country's official Xinhua News Agency said. The number of job-seeking graduates would grow at an average of 3% annually through 2015 period, adding seven million to the talent market.

That means about 25 million city dwellers need jobs, while the market creates just 12 million new positions for them every year, the news agency adds.

If this pool of would-be workers is overflowing, I'd bet my resume that foreign firms get to be pickier, for now, about those they hire, and without major pay increases.

MNCs have offered the most plum jobs in China since the 1990s, with salaries well exceeding Chinese-run private firms. Government jobs remain popular as well, though more for their stability -- little risk of layoff -- than for the package.

Beleaguered job seekers will settle for anything over the national average determined mostly by Chinese firms, while MNC bosses can raise the performance bars at the same time with low risk that someone will walk off the job.

Incidentally, we're talking about salaries of 10,000 yuan ($1,603) per month at the very high end, still less than equivalent jobs in more developed countries. Typically employees, especially entry-level, earn not even half that amount.

To look at this dynamic in another way, consider the opposite trend in Vietnam. Talent is hard to find in much of the country, foreign companies complain. Those in jobs are pressing for higher pay, often by calling wildcat workplace strikes that shut down production until workers and managers work something out.

In China, a widely forecast economic slowdown last year from levels between 9% and 10% over the previous decade should give foreign employers another boost. Chinese officials warned in 2012 of "increasing employment pressure" for graduates because of that slowdown, from more than 9% to around 7.5%.

To get offshore HR directors salivating even more, add to this mix the increasingly high quality of graduates. They're more versed now in specialized, practical fields rather than the theoretical teachings of the past, says Arthur Wang, East China director for the recruitment and HR outsourcing firm Robert Walters China.

In other words, you'll get a person who knows a bunch of computer programs in addition to the core Marxist-Leninist tenets (insert dry wit emoticon here).

In sum, the better the employee, the lower the pay and the happier that headcount is to have the job, the better for productivity and the bottom line.

It's hard to say exactly which employers will make the most of this trend -- meaning worth the attention of investors. But China's two top job-search Web sites, and, drop plenty of well-known company names. A lot of them were looking this week for entry-level workers.

Among the names found on these sites were Chinese search engine Baidu ( BIDU), the Japanese telecom giant Nippon Telegraph and Telephone ( NTT), Walt Disney ( DIS) and Google ( GOOG).

But what happens if the Chinese economy roars back to 9%-10% growth? My guess: rampant restlessness and fast workforce turnover for the same MNCs that can choose the cream today and pay them whatever.

The glut of grads will go on unless universities buck up their admissions bars again. But employees with a year or two of experience can quit more freely than they can now and find more rewarding work at higher pay.

In the middle of the previous decade when I lived in Beijing, I met people who proudly quit jobs in foreign companies after just a few months as they found jobs that could bringing their monthly salaries up by a couple hundred yuan per month. Others bailed to attend graduate school, often at prestigious universities outside China.

Employer loyalty was not a factor that normally came up during talk about job switches -- though a benevolent boss or on-the-job learning motivated some people to hang on for a while. (Arthur Wang at Robert Walters also suggests that MNCs offer more apprenticeships to lock in good employees.)

What my frustrated friends did talk about: inconvenient workplace locations, dull job descriptions and trouble speaking to their superiors in foreign languages.

According to the Chinese Academy of Social Sciences survey as quoted on China's, about two in three 2011 graduates had changed jobs once or twice already, and just 1.6% of those with jobs liked what they were doing.

If MNCs jerk their entry-level people around as the economy improves and they have more choices, expect higher turnover and lower productivity.

At the time of publication the author had no position in any of the stocks mentioned.

Ralph Jennings is on LinkedIn.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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