Europeans work with ‘China’s Silicon Valley’ to solve skilled labor shortage

Long considered a paradise on earth among Chinese, Suzhou is emerging as a test case for solving a new national scourge: A shortage of highly skilled Chinese workers possessing the technical know-how, managerial expertise or creative brainpower to keep European-invested enterprises and joint ventures operating at optimum levels of productivity.

About 84 Fortune 500 companies have invested in more than 130 projects in the Suzhou Industrial Park. Qi Zhenlin / for China Daily

Now this small but hugely prosperous city in Jiangsu province, which is just a 25-minute high-speed train ride from Shanghai, thinks it may have found the answer by offering German-style training programs, promoting Sino-European exchanges and building a cluster of foreign-infused university campuses in the heart of its leading industrial park.

"The Suzhou Sino-Singapore Industrial Park (SIP) is one of the best organized in China," says Marcus Wassmuth, a board member of the Shanghai chapter of the European Union Chamber of Commerce in China. "German companies seem to like it a lot. But one of the key factors for its successful future development is the supply of good workers.

"One of our members (there) told me recently that he asked for a machine parts operator but couldn't find anyone skilled," he says.

Suzhou is no secret to German companies looking to set up shop in China - one of its satellite cities, Taicang, boasts the largest cluster of German companies in the country - and the area is now working to diversify beyond its traditional pillar industries, stereotypes and nicknames.

Popular monikers include the "Venice of the East", which domestic tourist bureaus draw from Suzhou's interlaced waterways, stone bridges and ancient gardens, and 'China's Silicon Valley', a tag more recently appended by some foreign media due to the city's strong tech base. Historically, the city has played home to China's flourishing silk industry.

Although both names are perhaps a little overblown, there is no doubt that Suzhou has transformed itself into an economic dynamo in the Yangtze River Delta region in East China in recent decades.

About 84 Fortune 500 companies have invested in more than 130 projects in the SIP since 1993, amounting to about $1.7 billion (1.24 billion euros) per sq km of the park, according to Liu Jie, a publicity official for the Suzhou Industrial Park Administrative Committee (SIPAC).

About 4,000 - about one in four - of the companies operating within the park are not Chinese, but European and American companies account for about 50 percent of its overall investment.

With new infrastructure projects regularly being added, big names like Siemens, Philips, Samsung, Hitachi, Walmart and Carrefour now get to benefit from an overland train station within the SIP linking them directly to Shanghai. Soon, a new bullet train will connect them to Beijing.

"We like to think of it more as Suzhou Innovation Park, especially in the last five or six years," Liu says.

However, much of Suzhou's success was achieved by virtue of its being able to offer what neighboring Shanghai cannot: Significantly cheaper operating costs, a higher standard and slower pace of living, and better access to government officials for small- and medium-sized companies.

"Because Shanghai has so many strong investors, it is getting too big and maybe too greedy," Wassmuth says. "It likes the big boys, whereas in Suzhou, smaller companies seem to get more attention."

Suzhou also has a history of looking overseas for inspiration to tighten ship, with both the SIP, established in 1994, and its rival and precursor, Suzhou New District (SND), borrowing to varying degrees from Singapore's economic model. The SIP has already sent more than 2,000 officials to Singapore to study up on investment promotion and city planning, the first area in China to send people outside the country on such scouting missions.

When Bosch, the world's largest supplier of automobile components, set up shop there in 1999, the 5-year-old park was mostly marshland. Having failed to attract significant levels of overseas investment, however, the SIP was considered an early flop.

Seven years later, Suzhou was producing one-quarter of the world's laptops and welcoming scores of Fortune 500 companies, as it built itself around pillar industries such as automobiles, high technology and machinery.

One of its strengths is managing to successfully cluster industries together to form comprehensive supply chains, one of the keys to keeping big names like Bosch happy.

Now it is bursting at the seams and turning away large-scale projects that fail to meet its green goals, while enlarging its focus to include new higher-added-value targets.

"If you are not in Suzhou now, it is already quite late," says Anja Schupp, project manager of DUSA European Association Suzhou. Originally founded by several German companies, DUSA acts as a forum for foreign companies to communicate with each other about economic, commercial and other issues.

"The SIP is more or less full. What they want now is high-tech development, logistics and R&D offices who bring higher-added value, but who don't pollute the area or take up too much space. The government says, 'We don't want companies who need 5,000 square meters' anymore."

Hence the demand for high-caliber local hires, that is, a new breed of Chinese worker who not only brings the right technical skills to the table, but one who can close the gap between two very different ways of doing business to raise efficiency and productivity.

Such a workforce would also attract more foreign direct investment (FDI) in the face of sharply rising wages - Suzhou recently upwardly revised its minimum wage for the second time in 12 months, in line with an alarming national trend of factory workers ditching their jobs and returning to the countryside - while creating a stronger domestic talent pool to bolster the economy.

The looming question for China is, will foreign companies continue moving here to be closer to the country's growing domestic market, or will they head instead to Southeast Asian countries like Vietnam, where wages are lower?

Wassmuth draws attention to the spiraling cost of locally hired bank managers in Suzhou, whose salaries, he claims, are fast closing in on those of foreign hires on corporate packages. At the same time, Schupp says German companies are increasingly looking to expand into Eastern European countries like Bulgaria that offer less cultural and red tape resistance than China.

"But the pressure is not enough yet to make (our members) think about leaving Suzhou," she adds.

Some point the finger for China's high-level manpower vacuum at the country's education system, which places too much emphasis on rote learning and not enough on time on teaching students how to think outside the box.

Others blame a Chinese style of doing business that pays little attention to detail and adopts a last-minute, rush-job mentality to quality control in order to get product out of the door as quickly and as cheaply as possible.

One of the solutions for Taicang - conveniently located 35 minutes away by car from Shanghai's Hongqiao Airport - has been adopting Germany's duales ausbildungssystem, or dual education system. This mixes three-year apprenticeships in a company with vocational training at a local school or training center, one of which has been set up in Taicang by the German Chamber of Commerce (AHK China) and the local government.

"People in fields such as mechatronics find mostly Germany companies who will pay for the training and go to the center for three years," Schupp says. "The system is working perfectly. Bosch is very active there. They take about 40 percent of the (100-odd) students each year, but now they are building their own training center."

For Richard Zhang, general manager at German auto and textile parts maker Kern Liebers, the first wholly foreign owned company in China, highly skilled Chinese staff are becoming increasingly essential to the success of his Taicang operation.

"We need more and more Chinese management to run the company, not just Germans," says Zhang, whose workforce has grown from nine people in 1993 to 500. "China's auto market is developing so fast that we have shifted from exporting 80 percent of our products to Asia-Pacific (and South Korea), to sending 80 percent to the domestic market."

He says more foreign companies in the area are sending Chinese staff overseas for 3-to-6-month training programs. They return armed not only with new technical skills, but with a better appreciation of the boons of long-term planning, quality control and hygiene in the workplace - issues that raise efficiency and bridge cultural and corporate misunderstandings.

"For me, the most important lesson we can teach our Chinese staff is about the company's long-term vision, about how to develop it," he says.

"Chinese companies are more flexible and dynamic, but they don't have any long-term strategies, whereas Germans move slowly, but they say 'slowly but surely'. We can also see the influence of this on our local government, because they visit Germany every year. Now we have cleaner water, better landscape gardening, and less high-rise buildings."

Not that this kind of coming together happens overnight, he cautions.

"In the beginning, we all laughed at the German way of doing things," he says. "They would need two months to formulate a plan in Germany, then several more months to come here and apply it - a total of six months - whereas a Chinese guy would only need one week. And then their plan would fail.

"They also laughed at us, because our guys would turn up at meetings with one piece of paper, one pencil and a simple idea, whereas they would have a huge memo and a master plan drawn up in detail. Later, we realized that they were right, and that we needed much more detailed plans, and they learned that you have to be more flexible when you come to China to do business.

"They're still fighting every day, because both sides think they are right, but things have already improved a lot," he says. "As I always say, training is a two-way street."

According to Xu Ziyun, deputy director of general planning at the Taicang Reform and Development Bureau, FDI in the city has jumped 93.6 percent over the last five years, with 17 Fortune 500 companies now based there.

"We're in the process of building a new CBD (central business district) to better service foreign high-tech companies here as we embark on our 12th Five-Year Plan (2011-2015)," he says, pointing out of his window at several unfinished constructions below, including a theater shaped like a sunken pyramid and an oval-shaped museum-cum-library. Nearby, a new cluster of domestic and foreign design firms called THE LOFT has been established to service firms' packaging and design needs.

"Our government sends delegations to Europe and America each year to talk to companies that are interested in investing here and learn about urban management," he says, adding that Taicang plans to attract cutting-edge industries like new energy and nano-technology.

In other words, exactly the kind of skill-specific industries that its under-construction training centers will need to start catering to.