(Ed: This is an ongoing series of posts that presents specific items of actionable advice for HR in China. Call it the Top 10 things to do, or not do.)

Over the past year or so I have noticed a small shift in hiring methodologies that involves both the return of expatriate HR Managers, Hiring Managers and HR Directors; and the creation of strong in-house sourcing teams.

This should not come as much of a surprise, given the extent of the talent shortage in China.

But which choice is the best choice? In-house sourcing or out-sourcing?. And if the choice is to outsource, whether to use external 3rd party headhunters, or specific outsourcing firms that run a Recruitment Process Outsourcing (RPO) methodology.

There is no final answer to these questions, but there are factors that you might need to take into account:

1.     What is your current cost per hire, and it is a financial problem for you? External 3rd party suppliers tend to be expensive, but internal sourcing teams take a long time to build capabilities. A good model for this is to take your total annual cost of recruiting, ie. your recruiting department costs, and divide by the total compensation hired by your recruiting department in the same period. If the figure seems to high, by comparison to the typical 33% of annual salary (headhunter model), then you may have an efficiency problem and an external provider might be the answer. If you find it low, retain that team, but check the RPO model which, in theory, can be provided at around 15% of annual salary.
2.    What is the cost of not hiring? This is not the usual question you will hear, and it requires a depth of analysis that is not common in China yet. It needs a qualitative and quantitative analysis of the effect of not hiring another Sales Engineer, or Process Engineer. Actually calculating the sales or profit of a Sales Engineer is not difficult. The real effort is for the line manager and HR to agree which figures represents the best model for the economic loss of not hiring. This is effort that line managers are not likely to make unless HR pushes hard.
3.    How well do you understand the capabilities of your 3rd party hiring partners? If you raise the issue of in-house sourcing versus outsourcing you have to know how the two methodologies stack up against each other. You need to compare what others are doing for you, and compare this with what you can conceivably do yourself.

Note: If you find out that your HR team know little of their external 3rd party recruitment suppliers’ capabilities then you might want to consider the idea that something is awry. Whatever the cause of this information vacuum, it certainly needs to be fixed because you can’t move forward without filling it.
4.    What volume of positions do you expect to have to hire this year?  Higher volumes that spike a lot tend to support the idea of outsourcing the work to a 3rd party recruitment firm. If the volume is likely to be constant for a few years then an external RPO company, or an internal sourcing team, might work better. This assumes you can wait for the internal sourcing team to get up to speed.
5.    What is the profile of the kind of people you need, and are they readily available in the market?. If you are looking for obscure professionals, such as those who have a PhD in advanced silicone chemistry, or Internet Search Specialists with 10 years of SEO experience, you are likely to come up short in China. The option of an in-house hiring team might be the only option if you have already tried out existing 3rd party suppliers. The time taken to build capabilities will deliver serious ROI if you can begin to identify and hire these hard-to-find professionals. Often they are absolutely critical to your business.
6.    How many different locations do you have to cover? Many external players are not sufficiently large to be able to handle 35 2nd Tier cities in China, but at the same time you might not be in a position to handle this either.
7.    What level are the hires at? If it is a low volume of senior hires then a headhunter has to be the first choice, but if your biggest challenge is in finding ‘Cookie Cutter’ positions like newly graduated Chemists or Junior Applications Engineers, then you might want to consider the RPO. It would be hard to justify creating a whole team for this, unless the volume is huge, or there are no external parties sufficiently experienced in your industry to get the job done.
8.    Is this a seasonal issue? New graduate hires are hired during a very regular, specific season but the work peaks at graduation time and then fall off a cliff. Strangely, for this situation, the case for an internal team is strong because the actual hiring period is about 9 months, when you include university liaison visits and pre-graduation hiring fairs.
9.    What is the effect of the economy on your hiring?  If you have a hiring volume that is constant over time, then a drop in economic growth will tend to make the hiring fall too. But does it for you, and how? A significant potential for a sharp economic decline would tend to make the outsourced 3rd party option more viable because the risk of hiring internal HR staff is shifted to the 3rd party.
10.    What is the culture of your organization?  Does your company have a preference for doing things internally, and are there issues with confidentiality of data. If either issue is there, then there is likely to be good reasons why RPO and Search have not been chosen in the past. In these cases you may have to put your ideas aside and go with the flow.

Or prepare for a big fight.