With a population of over 1.3 billion China is home to a deep pool of human capital, but an intensifying war for talent between multinationals could threaten their growth potential in the world's number two economy.
Faced with slowing economic growth and mounting competition from domestic firms, there's a growing need for experienced managers and leaders. However, the pool of candidates with the relevant skill sets is shallow.
"A few years back, it was easier for a leader of a multinational company to come into China and grow a business; now they are facing very strong and fierce local competition. MNCs are looking for leadership that can manage this environment and reinvigorate growth," George Huang, partner-in-charge at executive search firm Heidrick & Struggles' Beijing office and Linda Zhang, partner-in-charge of the Shanghai office, told CNBC.
"However, there's a shortage of talent on that front. It's hard to find a general manager that is acquainted with the local environment and has sufficient experience running a business from end-to-end, which requires a deep understanding of each component of the business from manufacturing to sales to finance to R&D," they continued.
One reason for the dearth of experienced managers is that mid-to-senior-level managers in China are relatively young, compared with their Western counterparts.
"It's a very young market; employees get promoted and become managers very fast. But these new managers don't possess leadership skills," explained Natalia Shuman, senior vice president and general manager, EMEA and APAC regions at Kelly Services.
'Sea turtles' wanted
A decade ago, it was fairly common for multinationals to send a few expatriates to head their China operations. But as companies look to localize, there's an increasing preference for Chinese nationals.
"The vast majority are looking for someone Chinese who is bilingual, can bridge cultural gaps and engender trust," said Richard King, Managing Director, North & Eastern China at PageGroup.
"Sea turtles" – a nickname for Chinese nationals that have spent a few years abroad studying or working, and return as high-skilled talent – are the Holy Grail for international companies, he said.
China sends more students abroad than any country in the world, many of whom continue to work in the country where they study. From 1978 to the end of 2012, more than 2.6 million Chinese studied outside the country, according to official data.
Move to a tier-2 city? No thanks
The shortage of talent is most acute in second and third-tier cities, say recruiters, the next frontier of growth for multinationals.
"Try to convince a bright, talented person to go to second tier or third-tier city," said King.
China's cities are divided into tier categories that reflect their size both geographically and in terms of income. Shanghai and Beijing are grouped in the first tier.
It's also hard to get young graduates into the interior regions of China, noted Shuman.
"We're facing mobility problems. Most prestigious universities are in the large cities, but graduates from such institutions aren't ready to leave," she said.
Part of this is due to the effects the one-child policy introduced in 1979 and relaxed in 2013, she said. Family units are small and many young Chinese prefer remain close to their parents.
"This imbalance in supply and demand requires attention because a lot of MNCs that go into china might not expect this kind of situation," she added.
To be sure, not all multinationals are struggling in the search for talent.
Nandu Nandkishore, who heads Nestlé's Asia business, says the company's strong focus on sourcing and fostering graduate-level talent – many of which move on to become managers – has helped cope with the skills-mismatch in the labor market.
Others are taking matters into their own hands.
U.S. hotel chain Marriott, for instance, has linked up with a number of hospitality schools in China to be part of the training process.
"This is a relatively new industry for China. We've got to grow our associates; they are not just going to walk in. That's why we are a part of the education process," said Simon Cooper, president & managing director for Asia Pacific for Marriott.
"We've connected with 24 vocational schools and universities in China where we have Marriott classrooms. In addition, the Marriott family foundation has put $6 million into an initiative for five years to upgrade hospitality education across the country," he said.