Preparing for the future recruitment

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All the wholly foreign owned R&D centers with better wages and social welfare grab away all the talent, the Chinese auto industry will find itself in a very difficult position

According to the Association of Automobile Manufacturers in the first half of 2011, the national total vehicle production and sales were 9.156 million and 9.3252 million, a YoY increase of 2.48% and 3.35%. Compared with 32% growth rate in 2010, growth slowed down significantly and dropped by about 29%. To this end the domestic auto market officially transitioned from a period of rapid growth to one of stable development.

In the first half of the year the end of government stimulus and incentives had a big impact on local auto brands. BYD was undoubtedly the brand with the steepest decline: recent semi-annual report shows a net profit of 2.75 billion RMB, YoY down 88.63%.

Beijing-Benz and Mercedes-Benz (China) recently joined powers by integrating sales channels, which play a key role within Daimler. At the same time FAW-Volkswagen also began a large scale clean up in its level-2 dealer network, covering more than 30 cities including Beijing, Shanghai, Guangzhou and Shenzhen. Furthermore they plan to build their own logistics and distribution channels. By looking at this development it becomes clear that Volkswagen is gradually extending its role from products, technology, procurement and management to marketing and sales as well.

As we all know, research and development is the soul and lifeline of the entire automotive industry. In recent years Volkswagen, GM, Toyota and Daimler among other foreign automakers have set up wholly foreign owned R&D centers in China. Through this approach foreign OEMs can benefit both from domestic industrial policies, which aim to ”foster innovation”, and cost advantages by hiring domestic engineers.

Toyota for example will accelerate the pace of product localization in China by strengthening Toyota China’s self-management, autonomous decision-making, localization of personnel development and R&D investment. In total they plan to invest $ 689 million within the next decade, which shows the significance of Chinese operations and a local R&D center for Toyota.

In the next five years Daimler will invest 3 billion euros in China with the aim to establish 2 R&D centers in Beijing and Fujian Daimler-Benz. In addition, the 3 billion euros will be used for network construction, capacity expansion and engine plant construction.

This year state-owned BAIC held job fairs in Stuttgart, Munich and Aachen, Germany job fairs with the purpose to recruit engineers. The same month another major Chinese automaker Dongfeng also went to Munich for recruitment. Before them, SAIC and Geely have done the same ambitiously. Earlier this year state-owned Chang’an set up an R&D center in Detroit, which follows their existing R&D centers in Italy, Japan and the UK.

This is part of an ambitious plan by the Chinese government to transform China into a global brand designer and creator, not just being satisfied assembling the world’s products. But to achieve this goal the local automotive industry needs to attract the right talent: top engineers, educated abroad and experienced managing the international automotive industry. Areas of high importance are vehicle integration, production and assembly technology, mechanical design, automotive electronics, new energy, vehicle engineering, powertrain development and related material sciences.

By doing so Chinese companies try to reverse globalization of European and American automakers, who were beginning to establish local R&D centers, and build up manufactures in low cost countries. But whereas foreign companies strife to lower their costs through globalization, Chinese companies on the contrary will have to cope with greatly increased cost in the short term in order to stay competitive in the long term.

BMW and Porsche are predicting record sales for their cars this year, but are vying to find enough engineers to make them. The shortage may threaten the competitiveness of BMW, Porsche, Volkswagen and Daimler as they expand and boost development of electric vehicles.

Demand for new talent will only increase as BMW, VW’s Audi and Daimler’s Mercedes-Benz fight for the No.1 position in the luxury-car segment. They are trying to counteract this trend by recruiting people outside Germany from growth markets like China and India. They’re also partnering with universities to ensure access to new talent and stepping up in-house training programs to retrain staff on electric-powered vehicles. With high wages and a loose policy, which allows for easy recruiting of foreign engineers within the German automotive industry, Germany seems well prepared for the future.

The Chinese government is trying to use new energy vehicle evelopment to establish the Chinese auto industry as a leading global player. If all the wholly foreign owned R&D centers invested by auto giants from European, American or Japan with better wages and social welfare grab away all the talent, both local and abroad, the Chinese auto industry will find itself in a very difficult position to stay competitive.

This is not unlike the telecommunications industry, where foreign companies such as Nokia-Siemens, Ericsson and Motorola where to quick to grab most talented local engineers, leaving only Huawei as a serious Chinese player.