Is the Expat Job Market Shrinking?

By Arjun Nayar

As China’s economy continues to surge forward and domestic employment markets continue to grow, what is the outlook for the hundreds of thousands of expatriates who are based here and for those abroad who view China as a potential employment destination? The effect of the 2008 financial crisis, localisation policies and changing job requirements are shaping the way foreigners seek employment in the Middle Kingdom.

In 2009, The New York Times published ‘Shut Out at Home, Americans Seek Opportunity in China’. The article extolled the employment prospects in Beijing and Shanghai for young foreigners faced with growing unemployment at home, but the thesis was met with disagreement from expats already entrenched in the local business environment.

The suggestion that language skills were secondary to having a foreign degree drew criticisms from commenters, including one who noted, “This article is a few years late. The window has closed…These days, in the aftermath of the financial crisis, and in the midst of a ‘triumphant’ China, many of my former colleagues and people within my business network who are foreign (and that includes Hong Kong people and Singaporeans) remain jobless because no one can justify their higher rates of pay and subsequent existence in any China-based operation.”

The decades following reform and opening were the golden years of employment for foreigners, but over the past 10 years, the direction of the job market has become increasingly insular. More Chinese students are studying at universities overseas, then returning home for work with their degrees and international expertise in tow. Slowly foreigners seem to be getting phased out of the market.

The window has closed…these days, in the aftermath of the financial crisis...many of my former colleagues and people within my business network...remain jobless.

“Opportunities for expats are getting harder and harder,” says Chris Preston, Associate Director of Michael Page International in Shanghai. “I think it’s been a culmination of 10 years of localisation, but the financial crisis probably caused a bit of an acceleration.”

In 2009, a survey conducted by PricewaterhouseCoopers' International Assignment Services highlighting international mobility trends in Asia showed that as China experienced the effects of the financial crisis, reduction of expat packages became an increasingly prevalent method of cost cutting for many international companies. Around 50 per cent implemented expatriate localisation measures, often using tactics like reducing the duration of long-term contracts with their employees or just opting not to re-sign with employees nearing the end of their contract.

But, as the Chinese employment markets showed signs of recovery in late 2009, the tide changed. “There was a reverse wave as soon as the economy started showing signs of growth, especially here in China,” explains Eric Dieny, Executive Vice President of DHR International Asia. “By the middle of 2010, things were back to normal. Companies started to bring expatriates back or started to hire again.”

Dieny believes that China’s switch from an export-based economy to one powered by domestic growth has been the major driver for localisation by international companies since the mid-1990s. “[In the beginning] they just wanted people who were good at executing decisions. They didn’t really need sophisticated strategy thinking here on the ground in China. Today the growth engine is no longer exports – it is the domestic market. This has become very clear in the last two years,” he says.

For many export orientated companies in China, their decision to turn their business priorities inward was triggered by the high visibility of domestic growth in China during the global financial crisis. The trend was not just limited to Chinese-based companies – international corporations also shifted their investment to a growing Asia, and more specifically China, to prop up sagging sales in their more traditional markets in the United States and Europe.

“There have been large numbers of companies moving here to set up new businesses or expanding existing operations in order to gain greater market share,” says Emma Charnock, Regional Director of Hays in Hong Kong and China.

Experts in recruiting fields note that the shift toward a domestic focus has led to a change in employment dynamics. As hiring native Chinese speakers becomes necessary for entry into second- and third-tier cities, localisation has become an HR buzzword for multinational companies. While many locals who have polished their skills in developed cities like Shanghai, Shenzhen and Beijing are taking their talents inland as markets expand west through the Mainland, there are still large populations staying on in the coast’s major metropolises and moving up the corporate ladder, replacing expats at every rung.

For some foreign companies that are well established in the Chinese market, the move towards localisation is nothing new. Large multi-nationals with an existing focus on development and expansion within the Chinese market have been growing local talent for sometime. “If you look at industries where big companies have been here for a long time and developed lots of talent – and the obvious ones would be Proctor & Gamble, Unilever, Coca Cola and L’Oreal – they have massive graduate intakes every year of local Chinese, and these companies have developed that talent for years and years. I can’t think of any junior to mid-management expats working in those companies. It’s all localised,” Preston says.

The extent to which a company can implement localisation is highly dependant on their size and configuration. Larger MNCs can support a high level of localisation because they have market-tested company infrastructures and are backed by institutional knowledge and experience, which enables them to accept a high volume of local hires. Conversely, smaller, less experienced firms may be more tentative with their implementation of localisation measures.

Although localisation is the prevailing policy for junior positions in big companies, the demand for foreign talent at executive level is still present. In part, this is the result of China’s economic growth outpacing the development of local talent, even in the established companies that have been around for decades.

“At the top level the game is different. What you need are executives who not only make decisions, but also implement decisions,” says Dieny. “What you want from a top executive is the ability to take the company forward to the next step. That’s an area where the Chinese don’t have much experience as yet. They’re very good at playing second or third roles, where they are still learning and following.” But that trend too will change. The growth and development of local talent as a key part of the role of many executives here in China, and in years to come the face of the top decision makers will skew increasingly local.

But if they have never touched Asia, if they have never done any business in Asia, if they’re completely new, then we generally think they have no chance.

Despite the trend towards localisation, there is still room in the growing market for expats, but the expectations are evolving. In addition to facing competition from developing local talent, expats are expected to have a well-rounded ability to operate within the domestic Chinese market. Instead of leading their co-workers, foreigners are increasingly required to fit in and assimilate fully into the environment.

“Just 10 or 20 years ago, an expat with strong industrial experience or technical skill-sets could easily secure a senior position at a MNC in China,” says Charnock. “However the market is full of choice now, with more and more foreign candidates speaking Mandarin and possessing a better understanding of Chinese culture and local people behaviour. As a result, language skills and culture adaptability definitely becomes a selection preference.”

Most experts agree that Mandarin fluency practically guarantees otherwise qualified foreigners job placement in the market, but for those who are still floundering with the language building blocks, there will be difficulties ahead. According to Preston, positions available to non-Mandarin speaking expats have become both more limited and more specialised, especially for those who seek an alternative to the English teaching position. “The number of available jobs to non-Mandarin speaking expats has significantly decreased to what it was five years ago,” he explained.

While language is one of the core skills for the entry- and mid-level jobs, the main emphasis for executive level is on the candidate’s overall understanding of the Chinese market and their ability to create growth, both locally and internationally.

As the supply-demand imbalance in local talent is rectified over time, the consensus seems to be that employment opportunities for expats will become increasingly more specialised, most likely in niche or highly technical positions.

“The window is closing rapidly for people who have never had any exposure to China,” Dieny explains. “Sometimes we are in touch with executives from Europe or the US who want to come here because they think the economy is growing and that that should give them opportunities. But if they have never touched Asia, if they have never done any business in Asia, if they’re completely new, then we generally think they have no chance.”