Executives in Western companies tend to view China as an offshoring destination to manufacture their products or for services operations. Yet they should not lose sight of the increasing demand for quality products and services within the Chinese economy. This demand is growing at an average rate of 10 percent per year, a pace that would be unimaginable in developed countries. The majority of foreign companies purveying consumer goods have managed to position their products in the segment with the highest purchasing power in the Chinese market, which accounts for only 10 percent of all consumers. This is also a business opportunity for services and industry, including hotels, hospitals, and IT service providers. The quality offered by local suppliers is not on par with Western levels, so companies can rush to fill this void and make a handsome profit while doing so.

The largest pool of talent

In the case of IT, regardless of whether the goal in China is to offshore operations or to start up a business to cover the increasing demand, Western companies can squeeze the most from the largest pool of talent on the planet. In 2006, more than 4 million students graduated from Chinese universities, a huge mass of graduates that the job market cannot possibly absorb. This is a new situation in a country where until very recently graduates jumped from job to job in a matter of a few weeks. There are two reasons for this irregularity. First, it is an excessive figure even for the Chinese economy. Secondly, recent graduates’ tendency to look for jobs only in Beijing, Shanghai, and Guangzhou only serves to further aggravate the problem.

What is surprising is that the unemployment rate in the larges cities remains within the range of full employment (around 4.2 percent), which reveals that the surplus of university graduates are working at jobs for which they are overqualified. However, this underemployment and the consequent low salaries are actually advantageous for Western companies, as they have a huge pool of cheap, qualified labor. Even though Chinese university graduates’ level of knowledge is below that of their European or U.S. counterparts, the low salaries allow several qualified workers to be hired instead of just one, at a cost that is still lower in comparison.

Quick learning and flexibility

On the flip side of the coin, the lower level of knowledge among Chinese university graduates is easily reversible in the short term. Some companies claim that the learning curve is quite high. If the sequences of jobs new hires are assigned is well thought out beforehand, Chinese graduates can quickly reach a productivity level close to their Western counterparts. The inexperience of the graduates also has another positive facet: the majority comes directly from the universities, so they have not had the time to pick up the poor operational habits that Western companies tend to suffer from. Chinese workers’ flexibility and adaptability is another point in their favor. Plus, spurred on by stiff competition, the most qualified will further their studies with master’s and doctoral programs abroad.