Auspicious Signs

Published on: Friday, November 30, 2007       Comments (0)       Category: Human Capital, 
Labour-market issues are arguably the biggest concern for companies operating in China. Human-capital risk was identified as one of the biggest threats to operations, alongside regulatory risk, corruption and intellectual property risk, these last two being particular preoccupations of executives at head office.

Executives’ confidence in China remains extremely high — the overall business confidence index value stands at 62 out of a maximum possible score of 100. The index is based on a survey of over 400 executives at firms with operations in China; a quarter of the respondents were based in China and the rest were located at their companies’ headquarters.

Despite our forecast of a gradual softening in economic growth, a majority of respondents (57%) expected economic conditions in China to improve over the next 12 months; 37% believed they would stay the same and just 5% believed that they would worsen.
Respondents were particularly buoyant about prospects for domestic sales. More than three quarters believed that revenue from local sales would increase in the next year. Strikingly, executives based in China were even more upbeat than their counterparts at head office. Sentiment about export growth was also bouncy, with 66% of respondents expecting an increase in revenue from exports.

Demand for staff remained extremely high and competition for the best people was fuelling employee turnover and wage inflation. Although there was widespread confidence that the quality of employee skills would improve over the next 12 months, few executives expected there to be any improvement in labour-market flexibility. Almost two-thirds of respondents identified increasing labour costs as either a major or moderate problem for their businesses over the course of the next year.

Those on the front line were particularly aware of the problem: while 58% of executives based outside China saw rising labour costs as either a major or moderate problem over the next year, the figure rose to 72% for respondents based in China.