In China, Foreign Firms Battle Locals for Top Workers

In China, Foreign Firms Battle Locals for Top Workers

As More Chinese Job Seekers Look to Domestic Firms, Foreign Players Ramp Up Perks

KATHY CHU

Dec. 12, 2013 1:04 p.m. ET

Chinese companies are looking increase their appeal to China’s job seekers by improving pay and benefits—and it’s working. Alan Pang of Aon Hewitt tells Kathy Chu why China’s job seekers increasingly prefer domestic employers to Western ones.HONG KONG—Yajing Wen is the sort of Chinese worker that foreign companies like to hire. The U.K.-educated engineer received her master’s degree in March and set out to look for a position with the relatively high pay and flexible working hours that many Chinese believe foreign firms offer.

But in July, she took a job with a Chinese company.

Ms. Wen, 35 years old, cites job security as one reason. “Normally, Chinese companies won’t fire people unless they have big problems,” she said. “But foreign companies have a limited number of staff in China, so if you’re not very useful, they’ve got some better person to replace you.”

Western companies have long been the top choice for China’s job seekers because of their more competitive salaries, training and travel opportunities. But in China’s slowing economy, many foreign companies now face fierce competition from domestic companies offering more stability and, increasingly, more pay.

Last year, 47% of China’s workers said they preferred to work at a domestic company, compared with 24% that preferred a foreign firm, according to a survey by CEB, a membership group for Western and Asian multinational companies. That is a flip from five years ago, when 9% preferred a domestic firm and 42% a foreign company. CEB’s latest survey covered 16,500 people.

“There’s been a long-standing foreign employer premium that’s now gone,” in China, said Brad Adams, head of Asia research for CEB.

That has led some Western companies, such as Procter & Gamble Co. PG -1.96% andGeneral Electric Co. GE +0.19% , to ramp up perks such as travel and benefits. GE says it has raised its entry-level salaries in China around 3% to 5% in recent years. W.R. GraceGRA -0.70% & Co., a specialty-chemicals company, has raised employee salaries an average of 8.5% in China this year, to compete with domestic companies and other Western corporations.

Some Western companies in China are also taking the “radical” step of reviewing their pay every quarter, rather than once a year, to stay a step ahead of local companies, said Richard Parnell, chief executive, Asia Pacific, of recruiting firm Robert Walters.

Chinese companies also are competing for high-profile foreign executives. Hugo Barra,Google Inc. GOOG -0.44% ‘s head of Android product management, joined Chinese phone maker Xiaomi Inc. this year. Huawei Technologies Co. snagged executives from the West, including Ericsson‘s ERIC -1.72% C.T. Johnson, Nokia Corp.’s NOK1V.HE -1.93% Colin Giles and former U.K. Chief Information Officer John Suffolk.

For foreign companies in China, the stiff competition translates into higher costs and more work to retain employees. American companies cite rising labor costs and the slowing economy as their top business challenges in China, according to the American Chamber of Commerce in Beijing.

Domestic companies are also becoming more sophisticated in the way they recruit, from a Chinese steel company touting its expansion into financial and real-estate investments overseas, to a state-owned telecom wooing parents as well as students, according to consulting firm Aon Hewitt.

“The telecom company understands that because these are only children, they will turn to their parents for the final decision,” said Alan Pang, Aon Hewitt’s head of talent for greater China.

When Huawei needed to fill entry-level positions for college graduates in southern China this year, the technology company offered a starting salary of 10,000 yuan, or roughly $1,600, a month. Sandy Shen, a Gartner analyst, estimates that entry-level salaries for professionals in the technology industry run between 3,000 yuan to 6,000 yuan. Huawei said it pays higher salaries in the southern boomtowns of Shenzhen and Guangzhou because of higher living costs.

Nigel Knight, a managing partner at Ernst & Young, said the advisory firm has seen “a trickle, not a flood” of workers leave the company in recent years to join domestic enterprises. In some cases, the workers have left because they expect faster growth or potential for promotion at domestic companies, said Mr. Knight. Multinationals he consults with are dealing with the same issue, he said.

At a job fair in November at Renmin University in Beijing, the longest lines were in front of China’s state-owned enterprises. Several job candidates said they were interested in the Chinese companies because they believed they would be able to get a hukou, or household registration permit, which would entitle them to social services in the city. China uses the hukou system to keep rural migrants from flooding into cities.

Overall, “foreign companies are more professional, but they usually don’t provide hukou,” said Lin Kai, a Renmin University graduate who attended the job fair.