Creating an Innovative Talent Pool

Though China’s pool of scientific talent has expanded in recent years, the country must now focus on raising the pool’s quality and using it effectively.by Denis Fred Simon and Cong Cao

Intense international competition and an increased emphasis on innovation as the key to economic and technological leadership has made talent—and its availability, quality, and use—a primary differentiator for countries and companies alike. This helps to explain why over the last decade so much attention has been focused on the training, cultivation, and retention of critical talent around the world.

At the dawn of the twenty-first century, China’s leaders concluded that their economic development strategy, heavily dependent on natural resources, fossil fuels, exports based on cheap labor, and capital investment, was no longer viable or attractive. Recognizing that solving the country’s talent issue is crucial to China’s ability to cope with an intensely competitive international environment and maintain stability at home, they decided to move China toward a “knowledge-based economy.” In this new model, innovation and talent are the primary drivers of economic performance and technological advance. China’s leaders also understand that a knowledge-based economy requires a talent pool composed of high-quality scientists, engineers, and other competent professionals.

Stronger focus on talent

Millions of Chinese students have received degrees in science, engineering, and management since 1999, when undergraduate and graduate enrollments expanded significantly. Government officials have tried to upgrade the existing Chinese science and technology (S&T) workforce and improve research and development (R&D) performance by dispatching many talented individuals overseas for advanced education and research experience to expose them to top international standards of science and technological know-how.

Several developments are driving demand for talent. Exposure to the outside world, particularly Western education and modern technology, appears to have stimulated entrepreneurial activities among many returning Chinese S&T personnel, who seek to convert their newly acquired know-how into new, commercially viable products and services. With government encouragement, multinational corporations (MNCs) are moving up the value chain by upgrading their manufacturing activities and adding substantial R&D capabilities to their China operations. Meanwhile, PRC businesses and officials at all levels seek access to the best and brightest Chinese talent. In fact, the competition for talent in China’s business and research environment is growing fiercer each day.

This new, positive orientation toward talent and high-end knowledge seems to be paying off. The country’s recent progress and future potential can be attributed to the increasing productivity and performance of the nation’s emerging talent. But the question remains: Will there be an adequate pool of qualified, experienced individuals who can take on a leadership role in the research environment to enhance R&D productivity and improve prospects for the commercialization of new knowledge?

Brain drain and other challenges

Despite high demand for S&T talent, close to one-third of Chinese college graduates over the last three years have been unable to find satisfactory employment. Anecdotal evidence indicates that the quality of these graduates may be lower than employers require: Complaints about the shortcomings of the Chinese talent pool are rampant among local and foreign business executives and government research directors. Based on fieldwork in China during the 2006-08 period and extensive interviews with more than 60 enterprise and government officials, China’s talent shortage appears to be the result of four key factors.

First, the numerous overseas study and research initiatives that have occurred in conjunction with China’s open-door policy have created a highly undesirable brain drain (see Table 1). The departure of talent constrains domestic access to the country’s best and brightest human resources, hindering the progress of China’s S&T efforts. Instead of working at Chinese universities or key enterprises, many of China’s top scientists and engineers remain employed in the West.

Second, the effects of the education dislocations that occurred during the Cultural Revolution (1966-76) continue to be felt today, as China’s R&D sector suffers from limited numbers of seasoned specialists and experienced managers. In response, the PRC government has launched extensive campaigns and a set of policy initiatives, including the most recent “Thousand Talent Program,” administrated by the Department of Organization of the Chinese Communist Party (CCP) Central Committee, to recruit back to China large numbers of experienced individuals who can take on leadership roles in China’s S&T system.

Third, the changing demographic composition of the scientific community in terms of age and work experience has started to affect the potential for future progress. China’s population has begun to age, and the percentage of its workforce reaching retirement age will likely surpass the percentage of those in their college-bound years around 2015-17.

Finally, despite improvements in educational quality, most Chinese S&T graduates do not meet the international quality standards demanded by the advanced economy, which increasingly requires more flexible, technologically sophisticated, globally oriented individuals who can work effectively and ethically across borders and cultures. Almost half of the more than 1 million engineering students who graduated in 2008 completed three-year programs and lack the skills and knowledge of graduates from four- or five-year engineering programs at home and abroad. In contrast to the past, the main talent challenge is developing innovative potential, rather than more graduates.

The quality issues among many Chinese college graduates contribute, at least in part, to significant numbers of graduates having difficulty finding jobs related to their training. This raises questions about the value of their education and knowledge. Interestingly, there seems to have been an idealistic expectation among some PRC officials that a quantitative leap in enrollments would yield substantial qualitative improvements across the talent pool. In reality, China has yet to experience the type of scientific or technological leap forward that the highest levels of the PRC government and the CCP view as politically and economically imperative. It will take time for the desired type of sustained, concerted advance in S&T and innovative outcomes to occur, a fact that leaves Beijing increasingly uneasy in a world where innovation and technological advance have become the hallmarks of global leadership in economic, military, and even political terms.

Having a large S&T workforce does not necessarily confer a significant quality improvement in terms of other various metrics associated with S&T progress. Given the size of its population, China still lags behind most developed countries in the number of researchers engaged in R&D activities on a per capita basis. Using this metric, China has a long way to go to catch up with South Korea, Russia, and Singapore. Of China’s 758 million individuals in the labor force aged between 25 and 64 years in 2005, only 6.8 percent had attained a tertiary level of education; across the Organization for Economic Cooperation and Development (OECD) countries, the average is 26 percent—almost four times greater. The dramatic increase in student admissions in China in recent years has not been matched by a corresponding increase in government investment in higher education. As a result, China’s overall investment in education still ranks among the lowest in the world measured by budgetary expenditure on education as a percentage of GDP and on a per capita basis, further complicating the task of improving quality.

Demographic shifts will influence China’s high-end talent pool in S&T and its counterparts around the world in years to come. As an aging society, China will move into a comparatively disadvantageous position vis-à-vis India, which has a younger population. This will likely translate into an edge for India in terms of potential advantages regarding technology progress and economic growth. China must take full advantage of a narrow window of opportunity to create a qualified, highly competent talent pool capable of meeting the country’s S&T goals.

What China can do

China can take several actions to ensure that its talent pool evolves in the right direction. First, it must address the structural obstacles to the training and use of the S&T workforce. This includes filling the gap between classroom education and quickly evolving job requirements, attracting qualified high-end talent to leadership positions, and providing continuous on-the-job training to upgrade the existing workforce’s knowledge.

A key question is whether China can reduce its current excessive concentration of talent within the country’s three technological hubs—Beijing, Shanghai, and Shenzhen, Guangdong. To so do, it must enhance the attractiveness of other regions by creating more highly paid jobs, fostering an environment that offers an attractive lifestyle, and facilitating career growth and providing unique professional development experiences. Despite the government’s efforts to foster more rapid growth and development in western China, a clear trend shows China’s talent base moving in just the opposite direction—primarily to Beijing, Shanghai, and Shenzhen, where talent availability is less of a problem. According to the China Association for Science and Technology, in 2004, 58.6 percent of the country’s S&T human resources were located in eastern China, 23.0 percent in central China, and only 18.4 percent in the western region. One of China’s distinctive attributes is that its second-tier provinces and cities are not necessarily inferior to first-tier coastal regions in S&T development and education. Therefore, more attention should be given to developing local talent and S&T infrastructure in Anhui, Hebei, Liaoning, Shaanxi, Shandong, and Sichuan. Ultimately, these provinces will become important driving forces behind the demand for talented personnel because of their underlying trade and investment strengths.

To remedy some of the present mismatches, the PRC State Council; the ministries of Education, Human Resources and Social Security, and Science and Technology; the People’s Liberation Army; and the Communist Youth League have begun to work together to redirect talent resources to areas of immediate need. They have assisted with placement in rural areas and encouraged graduates to find jobs in small and medium-sized enterprises and move to the central and western regions of the country. Another effort focuses on internships. In February 2009, the State Council announced a three-year internship program to place roughly 1 million students at 2,000 Chinese companies.

Second, China will need to further increase its strategic investments in R&D to absorb more scientists and engineers and raise the sophistication and efficacy of their activities. Given the inefficiencies and frustrations associated with domestic institutions and enterprises, an increasing number of skilled young scientists, engineers, and other professionals have decided to work for foreign-owned businesses and joint ventures in China since about 2004. This internal brain drain to foreign-invested enterprises has begun to hinder the build-up of an indigenous innovation capability. Employees in the domestic talent pool are looking for better, more prestigious career opportunities and work experiences, opening the door for MNCs to outsource more of their operations to China. Though China’s S&T talent gains from working for MNCs and being exposed to international standards and cutting-edge technology, whether they will eventually become the next wave of technological entrepreneurs remains to be seen. Retention and effective use of the current reservoir of scientific, engineering, and managerial human capital are vital for China’s future S&T development.

Third, China needs to more deeply and broadly instill a culture of creativity into its students, S&T workforce, and overall education and R&D environment. The lack of creativity among many Chinese has been attributed to rote learning. Students are seldom encouraged or taught to challenge their teachers, think creatively, take risks, or tolerate failure as a means to progress. Chinese education needs to not only reconfigure the curriculum to accommodate the evolving social, economic, legal, and political environment but also introduce a new pedagogical approach to stimulate more inventive and innovative thinking. Although China has recognized the need to change the educational system to encourage innovative thinking, reform in this area has been slow and uneven.

China’s top priority regarding its talent pool will likely be to lift the professional standards of its S&T workforce. This high-level strategic goal requires long-term commitment and investment, and PRC leaders must take concrete steps now to enhance the chances of realizing China’s innovation goals in the future. Convincing top scientists and engineers who live and work abroad to return can help facilitate this transition. Various provinces and cities across China are sending missions to recruit persons of Chinese ethnic origin to leave university and corporate positions overseas to take on attractive, well-compensated positions back in China. In addition, domestic firms such as Alibaba.com (China) Ltd. are addressing their own talent needs. In December 2008, Alibaba received permission from the PRC Ministry of Human Resources and Social Security to establish its own post-doctoral S&T research center, which will launch 13 research programs and recruit 15 post-doctoral researchers.

What does the future hold?

Even taking into account the multiple challenges that PRC leaders must address in cultivating an effective S&T human resource pool, China’s science, technology, and managerial base clearly constitutes an emerging source of competitive advantage in economic and technological terms. However raw or immature the Chinese talent pool may be, there are good reasons to believe that China is addressing the present set of shortcomings in a concerted, coherent fashion. The question for China and the rest of the world is not if China’s talent will become a source of competitive advantage, but, rather, when and under what conditions. The confluence of forces at work indicates that the global S&T community should not discount China’s potential as an important source of invention and innovation.

The critical missing piece of China’s innovation puzzle, however, seems to lie in better deployment and use of the evolving contingent of S&T talent. The hurdles that must be overcome are as much about workplace environment and performance expectations as they are about macro-strategic issues related to setting the right S&T priorities and providing sufficient funds to ensure a high probability of success.

Some observers have suggested that deep cultural inhibitors stand in the way of establishing a more creative, innovative atmosphere in China. Clearly, culture plays a role to the extent that it helps to shape the operating milieu that represents the face and internal workings of Chinese society. But the more significant underlying shortcomings derive from the still transitional nature of the reforms and incomplete structural changes taking place in the S&T system. In essence, China has yet to fully realize an achievement-oriented set of norms and values that fully defines the framework of performance, compensation, rewards, and incentives. Nor have many Chinese organizations been able to assimilate completely into their own operating environments critically needed notions of personal responsibility and accountability that have long been associated with socio-political and economic advance in the West. These limitations moderate the efficacy of several new policy initiatives and financial investments coming out of Beijing.

The attractiveness of the Chinese high-end talent pool will remain a magnet for bringing China into the mainstream of world scientific and technological activities and knowledge networks. In some cases, key segments of this pool will become the engine behind the formation of emerging pockets of excellence in Chinese S&T. These pockets of excellence will be characterized by a somewhat different set of operating features and principles than the bulk of China’s S&T system. Members of this talent community, large numbers of whom will have spent time abroad, will represent the cutting edge of an emerging wave of Chinese technological entrepreneurs who will help to redefine the operating environment for knowledge creation and innovation in China by bringing into play a number of the key factors frequently associated with successful innovation in the West. Most important, however, this group of high-end talent will be the mechanism through which more foreign collaboration and cooperation occurs. Interested observers of the Chinese S&T scene, therefore, must be able to identify the unique features of these emerging pockets and understand where and how they will appear. Competition for the brainpower that resides in these pockets will become one of the key defining features of the West’s interactions with China over the coming decades and could become the primary vehicle for helping to ensure China’s role as a stakeholder in global S&T affairs.

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Implications for Foreign Companies in China

The competition for talent in China will increase steadily over the coming years. Foreign companies in China must develop an effective pipeline to recruit, train, develop, and retain critical talent resources, especially at the middle and senior leadership levels, that can drive innovative thinking. They must also make an effective talent strategy a key part of business planning. Foreign firms can establish a critical competitive advantage in this area, as Chinese firms and research institutes still lag in establishing a sophisticated approach to talent recruitment and management.

Extensive career planning, so that high-end talent in China have a roadmap of their professional development and job options, will be key to this effort and could help pre-empt premature departures and turnover. In addition, companies must be clearer about performance-based metrics and incentives (soft and hard) so that employees will understand how their work will be evaluated.

To attract talent, foreign firms need to create talent incubators that address some of the weaknesses in the education system within the context of sustained training programs. Foreign firms should also be prepared to develop a global supply chain for talent—relying on an “anytime, anyplace, anywhere” approach to recruitment. The recruitment process might include developing key databases with information on which Chinese are coming out of the education pipeline in science and engineering in the United States and other countries. Companies should also expand internship and co-op programs to prepare fresh graduates for the real work environment and achievement expectations. Finally, companies must pay more attention to creating a locally developed leadership pipeline of globally oriented, innovative individuals so that the transition of China operations from expatriate-driven to locally led goes smoothly (see Developing the Next Generation of Chinese Business Leaders). This will be especially important for foreign firms whose Chinese products and services are fully integrated into a global supply chain.

—Denis Fred Simon and Cong Cao[/box]

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China as a Global Technological Power

Numerous indicators suggest that China is well on its way to becoming an established player in the global innovation system. China has significantly increased its gross expenditure on research and development (R&D), which reached $66 billion in 2008 (compared with $368 billion in the United States in 2007). R&D spending as a percentage of gross domestic product (GDP), which stood at 1.52 percent in 2008, is projected by PRC officials to reach the level of developed economies–around 2.5 percent (2.66 percent for the United States in 2007)–within a decade or so, as stated in the 15-year Medium- to Long-Term Plan for Science and Technology Development (2006-20). Though this may be an overly ambitious projection, investment in R&D has been growing almost twice as fast as the overall economy. This and similar indicators reveal that China no longer sits on the margins of world science and technology (S&T) affairs. The ability to sustain this effort, however, depends heavily on the ability of PRC leaders to spur the sustained development, deployment, and mobilization of high-quality, high-performance scientists, engineers, and R&D professionals who can position China at the cutting edge of global innovation.

China today boasts the world’s largest pool of S&T human resources. According to the PRC Ministry of Science and Technology, China had 3.4 million scientists and engineers, of which 1.9 million full-time equivalents were devoted to R&D activities, at the end of 2008. In addition, China graduates more science and engineering students at the undergraduate and doctoral levels than any other country. Even taking into account the unevenness of quality across the spectrum of Chinese higher education, it is clear that China’s top institutions have the ability to produce graduates that are as well-prepared and technically competent as their Western peers coming out of similar top-tier institutions in the United States and Europe. But, many of these top graduates have chosen to go abroad or work for foreign companies, reducing the amount of top talent available to domestic organizations.

China’s scientific community has become steadily enmeshed in an emerging array of international knowledge-creation networks that dominate international S&T affairs. Though China has yet to become a full-fledged epicenter of technological innovation, its scientists are involved in the production of new scientific knowledge on a global scale. In 2007, Chinese papers accounted for 7.5 percent of the total in journals catalogued by the Science Citation Index (SCI), and, as a whole, Chinese scientists and engineers contributed more than 9.8 percent of the world’s S&T literature. In addition, with Chinese science steadily moving toward the international frontiers of scientific research, more foreign scientists have sought to collaborate with their Chinese colleagues. Between 1996 and 2005, the number of China’s international collaborative papers doubled every 3.81 years, slightly faster than the total number of Chinese papers catalogued by the SCI, which doubled every 3.97 years. China has invested extensively in S&T infrastructure in the past decade or so, and many new state-of-the-art facilities are under construction. These facilities have made China an attractive hub for research, not only providing a foundation for expanded international cooperation but also offering opportunities to produce first-rate achievements that will attract international attention.

The rapid evolution in the quality and size of China’s scientific and engineering talent pool offers possibilities for redefining the R&D world. Chinese participation in the growing array of cross-functional and cross-cultural knowledge networks provides an important learning platform for China’s scientific community. By participating in these vibrant networks of knowledge creation, China’s talent pool has moved up the R&D value chain, bringing China’s S&T capabilities closer to the global S&T frontier.

Not surprisingly, many governments around the world are entering into or expanding S&T relations with China. A good example is the recent US-China agreement to promote the development and application of clean energy technologies. Universities and research centers in Asia, Europe, and North America are rushing to build relationships with Chinese educational and research institutions to facilitate cooperative research and exchanges. In Dalian, Liaoning, for example, the Dalian University of Technology, with the strong encouragement of the municipal S&T bureau, is orchestrating a greenfield R&D center with Pennsylvania State University for generating commercially relevant new energy products and services.

Many multinational corporations (MNCs) have also decided to relocate more of their high-end business operations, including R&D laboratories, to China. The country boasts more than 1,200 foreign R&D centers, according to the PRC Ministry of Commerce. The purpose of these R&D laboratories is not simply to localize technologies generated in MNC home-base headquarters, but to harness local brainpower to undertake genuine R&D activities that could benefit the MNCs’ global and regional competitive standing. Microsoft Research Asia, set up as Microsoft Research China in 1998, illustrates the strategy of MNCs tapping into the Chinese talent pool to support the firm’s overall global growth. Microsoft Research Asia has expanded to employ over 300 researchers and engineers, most hired locally, published 1,500 papers in top international journals and conferences, and achieved many important (albeit incremental in most cases) technological breakthroughs. Technologies from Microsoft Research Asia have not only made it into Microsoft global products but have influenced the broader information technology community: MNCs are considering moving more of their knowledge creation operations to China. Foreign firms have also expanded their collaboration with Chinese institutions of learning on various research fronts.

As Chinese companies expand their operations beyond the physical borders of the People’s Republic, they will extend their overseas technological reach, not only by deploying skilled research personnel but also by hiring host-country scientists and engineers. The acquisition of IBM Corp.’s personal computer business by Lenovo Group Ltd. is an example of a China-based firm securing access to critical knowledge, high-end talent, and advanced management know-how from abroad. Huawei Technologies Co., Ltd., China’s leading telecom firm, is another example of a PRC company that has begun to establish R&D hubs and listening posts around the world to ensure that China remains aware of the most cutting-edge developments in hardware and software. Cross-border merger and acquisition activities involving Chinese MNCs will occur more often, gradually reconfiguring the landscape of international R&D affairs and further altering the already-fluid complexion of the global talent pool. In time, China will be both a supplier and a buyer of talent.

—Denis Fred Simon and Cong Cao[/box]

[author]Denis Fred Simon is professor of International Affairs at Pennsylvania State University, where he also serves as director of the Program on US-China Technology, Economic, and Business Relations. Cong Cao is senior research associate at the Levin Graduate Institute under the State University of New York and director of the Center for Science, Technology, and Innovation in China.[/author]