By Alex Wyatt and Xin Wang
With the world’s second largest economy, China is a rapidly growing force within the global economic community. China has experienced remarkable growth rates averaging 10% for the last three decades, resulting in a strong demand for labor. For instance, total urban employment increased by 115 million from 2001 to 2011. However, as China’s economy continues to develop and the labor force must find ways to meet the demand, the focus needs to be placed on working smarter and not just merely working more.
One of the most apparent areas that could benefit from stronger labor force management in China is the service industry. Take, for example, a well-known coffee house franchise that has been booming in popularity in China. Typically, walking into this coffee shop means instant gratification in the form of a satisfying, quick cup of coffee. In China, going inside usually results in watching two baristas operate one register while your cup of coffee is still waiting to be brewed. But this lack of efficiency isn’t exclusive to one brand – it’s become the norm in most restaurants, coffee shops, and retail in general. The issue stems from the lack of clearly defined roles, expectations and processes. Without structure and set guidelines for who should be performing certain tasks and standards to measure and track how long tasks should take, the operational flow falls apart, resulting in a five minute cup of coffee and a disgruntled customer.
The current mindset in many emerging markets is that the substantial pool of young and low-cost laborers can compensate for the lack of productivity on the job. Due to the relatively low cost of labor, employers immediately turn to hiring more workers to make up for deficiencies in labor output. Rather than investing in labor standards and improving the productivity of individual workers, it is viewed as more cost effective to hire more workers that produce the required productivity as a collective. A paradigm shift is needed soon, however, as data reveals China’s core working age group (ages 15 to 59) will shrink by 29.3 million by 2020. Additionally, as China’s economy has grown, so has the cost of labor. Over the past five years, the average salary has seen a growth rate of over 10% annually. This is a trend that employers should expect to continue in coming years. With this substantial decline in labor supply and rising labor costs, businesses that can successfully manage operational costs and labor productivity will likely come out ahead.
In this new environment, both large and small retail businesses should be taking key steps to ensure that they are correctly managing their labor costs and productivity. These steps include:
Companies in China that focus on workforce management will see some key benefits. First and foremost, a consistent labor standard will ensure that the right people are at the right place doing the right tasks. This in turn drives a high rate of execution, which results in customer satisfaction and continued brand loyalty. The same level of execution across all areas will also mean improved scalability as your business develops and grows. Additionally, as process and roles get further defined, companies often uncover new opportunities to optimize their workforce. This means that while improving execution, companies can also absorb the expected wage growth in China and maintain or reduce their overall labor costs.
China is one of the world’s major economic powers with incredible potential to fulfill. However, as its economy matures and growth rates start to slow down, macroeconomic pressures and demographic changes on its labor force will push businesses to re-evaluate and ultimately, re-adjust their approach to labor management. When companies apply a disciplined approach to improving labor productivity, they will be improving execution, helping their bottom line and driving customer satisfaction. And coffee lovers will be able to get their cup of coffee that much sooner.