Why are factories in China struggling to hire?

KNO Global explores the dilemma of labour turnover in China, whilst considering the need for employee retention strategies.

Retention was a problem in the past.

Turnover was a major problem in the past. Many workers had to work long hours, which made them unhappy and led to high turnover rates. The wages were not enough to offset the negative aspects of their jobs, either. There were also safety concerns: some factories did not have proper fire exits or guards on duty while they were open, making it difficult for employees who may have been injured or needed medical attention to get out safely if an accident occurred. In addition to all this, many manufacturing jobs are repetitive and monotonous—this can lead to boredom among workers who don't feel like their talents are being used effectively at their jobs. More factories have moved inland.

The reasons for this move are varied, but the most common are:
  • Labor is cheaper inland.

  • Land is cheaper inland.

  • Utilities are cheaper inland.

  • Transportation (including shipping) is cheaper inland.

  • Raw materials are often cheaper in the provinces than in coastal cities like Shanghai or Guangzhou (which were once known as "China's two Detroit's").

China's population is shrinking.

The population of China is shrinking. And it's not just the rural areas that are feeling the effects of this decline; urban areas, coastal regions and even western provinces are experiencing a downward trend in their total populations as well. The aging population is another problem facing manufacturers in China and one that will only increase over time. As people get older they tend to become less mobile and more dependent on others for support. This means that many factories fear they won't be able to find enough workers to staff their production lines in years to come unless they can attract younger workers into the manufacturing industry now before it's too late.

The coastal areas are becoming more affluent and educated.

As the coastal areas become more affluent and educated, the cost of living is rising. This has led to a rise in the cost of hiring as well. As competition for workers increases, wages will continue to increase until they're too high to be attractive anymore—and that's bad news for factory owners who are trying to compete with each other on price.

The new generation isn't as interested in working in factories.

The traditional factory jobs in China used to be seen as high-status positions, but those days are long gone. As more and more factories close, the new generation is not as interested in working in factories.

Factories aren't prestigious.

While many people think that factory work is boring, it's also true that some people may consider it dangerous or dirty. For example, workers might be exposed to toxic chemicals or suffer from long hours of standing up at their job site. The fact that many factories have moved out of developed areas into less developed provinces doesn't help either—these locations tend not only to be poor but also lack modern infrastructure and social services like public transportation which would make commuting easier for people who live far away from their place of employment (and thus don't want a lengthy commute).

Skills shortages have increased.

Skills shortages have increased.

The skills shortage in China is a problem for many companies, both domestic and foreign. It's a problem for Chinese workers, who can't find jobs even after graduating from college. And it's a problem for foreign workers as well, since their businesses are unable to find enough qualified people to fill positions. In fact, the shortage has become so severe that many companies that produce goods in China are now looking elsewhere—specifically Southeast Asia—to fill the gaps in the labor force here at home.

Competition for workers is fierce.

As a result of this labor shortage, competition for workers is fierce. If a factory wants to hire an experienced worker, they have to offer a higher salary and better benefits than other factories. But even if you can secure the best employees, you may still find yourself struggling to retain them because of the high turnover rate among Chinese employees.

Labor shortages are a reality for many companies in China, but the reasons behind it may be changing.

Labor shortages are a reality for many companies in China, but the reasons behind it may be changing. Retention was a problem in the past, with average tenure of workers at around three years. But more factories have moved inland and inland provinces now comprise half of the country's manufacturing capacity (the other half is on the coast), which means that opportunities for internal migration—and subsequently retention—are increasing. China’s population is also shrinking: In 2013 it dropped by 5 million people, or 0.5%.

In addition to this demographic shift, industries are becoming more affluent and educated in coastal areas and they do not need as many blue collar jobs anymore. The coastal regions will continue to be an important part of China’s economy but companies that want to remain competitive will need to look elsewhere for their workforce needs.

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