Technological transformation is rapidly changing China’s economy as well as the economies of other developing markets across Asia Pacific. In June 2014, China had 632 million Internet users and a penetration rate of 47 percent, well above Asia’s average of approximately 32 percent and the world’s average of around 40 percent. This rise of digital technology is dramatically altering China’s economy. Although there is still concern that technology may be or is replacing jobs, in reality the opposite is true. Digitalization and greater access to technology provide new opportunities to boost global labor productivity, expand business reach and stimulate collaboration in ways that were previously impossible. A McKinsey Global Institute Survey of more than 4,800 small and medium sized enterprises found that as they adopted Internet technologies, 2.6 jobs were created for every job lost.

The rapid technological transformation in China underscores the need for a workforce with new skill sets. At the same time, demographic trends have the capacity to negatively impact China’s competitiveness, as the size of country’s workforce declines due to an aging population. China’s talent shortage is a growing concern. ManpowerGroup’s 2014 Talent Shortage Survey found that one in three employers in China struggle to fill vacancies and are unable to match labor supply to their business demands.

In response to the looming talent shortage, the Chinese government recently released the six-year Modern Vocational Education Development Strategy which aims to raise the profile of vocational education and help build needed skills to fill exiting skills gaps. The goal is to increase the number of students with modern vocational education from 29.34 million now, to 38.3 million by 2020. The Strategy is a step forward in recalibrating China’s talent ecosystem. To fully realize the potential offered by the digital transformation and address the current talent shortage, employers and educators must collaborate with government to develop talent with skills that match roles transformed or created by technology.

The following steps can help China address the talent shortage and fully maximize technological transformation:

First, new education models must be developed to grow technologically savvy and adaptable talent pools. The slowdown of China’s economy has resulted in more competition for fewer jobs. This has impacted the entire workforce, including previously exempt university graduates 7 million of who struggle to find jobs each year. Clearly there is a disconnect between the talent businesses need and the skills and knowledge educational institutions teach. To bridge this gap and align China’s talent with the skills demanded by new technology, educators should focus on developing soft and hard skills. In addition to being technically savvy, students must develop the capacity to think critically, question assumptions and act quickly – both independently and as part of a team – to develop flexible solutions that meet the needs of business in today’s ever- changing environment.

Secondly, employers and regulators in the region must consider creating opportunities that appeal to ‘digital natives’ and graduates who have harnessed needed technological and digital skills. Otherwise, tempted by better prospects, skilled talent will look abroad for work or to choose not to return to China after completing their education overseas. For decades, the rate of return for Chinese graduates studying abroad has held steady at about 30 percent, while the return rate for Chinese who received their Ph.D.’s in the United States is in the single digits. (NYT) To stop, or at least significantly slow, the economically and socially costly brain-drain, educators, regulators and employers must work together to develop professional opportunities that nurture and value graduates’ talent, outline clear paths for professional growth and development across the landscape of Chinese businesses, scientific institutions and academia.

Finally by working closely with their Human Resource leaders, Chinese business leaders can act to leverage existing digital networks and analyze big data in order to source and attract the right talent. Once the right people are hired, employers must focus on fostering this talent to develop future leaders with the right mix of skills and capabilities. Expanding on-the-job training and professional growth opportunities, encouraging entrepreneurship and innovation and creating modern career development tracks for tech- savvy high-potentials will help employers build a strong talent pipeline. Business must also collaborate with educators and regulators to maximize the potential of high-potential talent. On an individual level, business leaders must act as mentors to share experience and expertise and help build needs kills including the speed and agility talent needs to keep pace with rapid and constant technological transformation.

There is no doubt that digital transformation will continue to drive China’s growth, productivity and innovation. To sustain this process, China’s employers, educators and government must collaborate in order to accelerate changes in the way work is organized and performed, in how talent is developed, and how local opportunities are perceived and utilized. Developing, retaining, attracting and transforming local talent will help China maximize the technological transformation.