Finding the best balance of local and international expertise is key to doing business in China. But there are also tax, geographical and cultural issues to be aware of when staffing your Chinese operations…
Western companies in search of their pot of gold have been heading to China for decades. After the financial crisis of 2008 the country’s appeal only heightened, as businesses impacted by events in the West sought to capitalise on China’s continuing growth and prosperity.
Today, despite the challenges China faces as it rebalances the economy, the potential rewards for UK companies willing to take the leap are still significant. Here we examine some of the issues around employment and how to hire for success in China.
Hiring for success in China
Understanding the challenges and costs of staffing your operations in China is crucial if you’re to make the right first steps into the country.
Striking the right balance between local and international knowledge in the workforce will be particularly important for those aware of the benefits of blending Western and Eastern cultures. Among the key questions to ask are: how to attract and retain this talent? Do you hire locally or bring in expats? How do you ensure expats hit the ground running? How do you integrate local expertise and global experience?
There is no ‘one size fits all’ solution to these questions – it’s entirely dependent on your business needs – but being aware of some of the challenges and potential costs involved may help you in your decision-making process.
China is a vast country. Some provinces and cities are as large as European countries, so business practices and consumer attitudes can differ widely. It is therefore important to hire staff with local knowledge – although this can have its own challenges.
Staff turnover can be high. While there are highly trained employees in places like Beijing and Shanghai, the glut of companies running their operations from these top-tier cities means that competition for workers is fierce. Another turnover issue is that many workers who migrate from other parts of China don’t tend to stay in their jobs for long, often returning home to their families or seeking opportunities in fast-growing regional cities nearer home.
In response to this – as well as growing competition and higher costs in the more established economic centres – some companies are relocating their main business hub or factory to China's less well-known second-tier cities. These businesses can attract employees who live relatively close by and don’t want to migrate large distances for employment, reducing staff turnover issues.
Bridging the talent gap
While second-tier cities can offer better access to staff due to less competition, there may be a smaller pool of candidates to choose from, especially for middle management and more senior positions. Employees in regional cities may also not be used to working for foreign companies.
As David Sun, CEO of China-based Home Inns & Hotels Management Inc, points out in our recent book, The Thoughts of Chairmen Now: “…the problem in smaller cities will be finding local people with suitable education.”
To help counter these issues, some businesses choose to set up in China's sector hubs that are home to potential recruits with industry-specific experience. Others have relocated to university towns where they can recruit high-calibre graduates who they can professionally train and develop themselves – as some Chinese companies are also doing.
Wang Xianrong, Chairwoman of C&D Corporation in China, another business leader featured in The Thoughts of Chairmen Now, says: “It is very difficult to recruit the high-level people… so we prefer to develop our own people.”
Corporate culture clash
One of the greatest challenges for foreign companies in China in developing staff is breaking the ‘culture of silence’ – something we wrote about in our recent post How China’s management style differs from the West. For businesses to succeed it is important to educate people to think critically and communicate their thoughts openly, but this can be difficult in an environment where communication is indirect and respect for hierarchy paramount.
As David Sun says: “The biggest challenge for a fast-growing company is finding people with the right mindset and talent and finding enough of them… The lack of new initiatives and entrepreneurial spirit is a potential threat.”
Bringing UK talent to China
On the flipside to hiring local people, there is often a strong case for sending home-grown employees to work in China: after all, they understand your business, can promote and develop your corporate culture, and have a proven track record at home.
Every business will resource its employee population differently. It is essential, however, to find the right mix of staff – who know the local environment and understand your operations. Engaging with key stakeholders will help this integration.
A well-designed assignment to China can also be tax-efficient, taking advantage of tax-free allowances and benefits to control costs. This is particularly important with long-term executive expat assignments, which often result in higher upfront costs – but where the return on investment justifies the expense. Short-term assignments, on the other hand, can incentivise more junior employees and deepen their knowledge of your international operations.
Keeping up to date with changes in tax law is essential to help your employees manage their personal financial affairs, while flexibility with payroll arrangements will ensure that they do not have earnings tied up in China at the end of their assignment.
In order to come to the right decision between hiring locally or sending UK talent to China, you need to understand the implications of the choices that you will make. It’s something our China Britain Services Group helps UK businesses with when they are expanding into China or other new territories, and we recommend speaking to a professional adviser to help you fully understand the implications and costs of mobilising employees overseas, and how to structure international assignments to meet your business objectives.
Image: © Rama Knight