2009: China’s human resources odyssey
McComb, Rebecca
The backbone of any multinational operation is an adequate human resources function. From paying salaries to approving interdepartmental moves, from hiring to firing, the human resources function is integral to the smooth and successful workings of any company.
In China, this system has been difficult to establish. The field of human resources as a whole is still developing and focuses heavily on personnel and administration. As such, it consists mainly of paperwork processing, rather than placement strategy. China’s inefficient educational system and teaching methodology, moreover, have yet to provide the country’s economy with the adequate base of trained professionals it desperately needs to become globally competitive. The dearth of well-educated, trained, and skilled professionals in the recruitment market forces MNCs in China to explore other ways of staffing their growing operations. Companies seeking success in China thus must take the time to understand the characteristics of both the recruitment marketplace and the human resources function.
THE EARLY YEARS
When large numbers of MNCs first entered China in the late 1980s, the human resources function was in its most basic, primarily administrative, form. Because of the Communist cradle-to-grave system of caretaking, human resources was a non-issue. Personnel issues were party-related and heavily dependent upon personal relationships. Though many aspects of the Chinese workplace have changed drastically over the last 20 years, the personnel function in most firms has changed little.
In China, human resources has tended to refer to the execution of essentially two tasks: building a relationship with the relevant government labor bureau, which amends and modifies labor laws as they relate to employees, and administering statesupported benefits-medical, housing, and pension-directly to employees. These often tedious and complicated tasks can range from finding an employee an apartment to doling out baby formula and extra milk powder for pregnant and nursing staff. Strategic concerns that tend to fall by the wayside include decisions on basic hiring; whether to move a talented employee to another department in which he or she would be more effective; career path planning for new employees; or reviews of the company’s global staffing situation to identify where cuts might be logical and cost effective.
The educational system has, until recently, failed to foster strategic thinking. Traditional Chinese education has relied on rote memorization, valuing technical skills over general business skills, and in many cases discourages creativity and new thought. The Cultural Revolution (1966-76), the most damaging period in China’s recent history, brought about a virtual collapse of the educational system by closing schools and universities nationwide.
In 1978, these institutions reopened. But because teachers had also been given a 10-year break, education did not improve significantly until the late 1980s, when international exchanges for both teachers and students became more common. Thus, diplomas and degrees received between 1960 and 1980 represented very little in terms of actual knowledge acquired by the graduateChinese over 40 years of age generally lack the necessary English-language and innovative thinking skills to serve an MNC in a managerial capacity.
Since the late 1980s, many young Chinese have gone abroad for post-secondary education, becoming the potentially qualified staff most MNCs would like to recruit. Indeed, most local Chinese managers of foreign-owned operations are aged 25-40, with the vast majority aged 33-36. Applicants over the age of 40-who were in their teens and twenties during the Cultural Revolution-tend to be overlooked for management positions.
SHIFTING STRATEGIES
In the joint ventures of the early 1980s, the MNC partners usually agreed to hire much of the PRC partners’ local staff. Because most stateowned enterprises were overstaffed, lay-offs were often the first step for most joint-venture human resources departments. Strategic human resources functions were virtually unknown.
In the late 1980s and early 1990s, MNCs began to recognize that more was required in terms of human resources strategy. The first wave of MNC expatriate staff experienced difficulties because few, if any, of them were trained in the language, culture, or history of China. MNCs thus increasingly looked to local Chinese to fill their staffing needs not only because their salary requirements were less onerous than those of expatriates, but also because their knowledge of the business culture enabled them to expedite matters more quickly (see p.34).
But as MNCs turned to the local market, the gap between their staffing requirements and the supply of qualified locals became clear. Between 1990 and 1995, many MNCs began to import human resources managers, usually based at home-country headquarters or in Hong Kong, who consulted with senior expatriates about strategic human resources issues.
These specialists, typically expatriates, managed the demand and supply game every MNC faced in China at this time. However, their work was frustrating and unrewarding, as Chinese ideas of personnel issues did not accord with Western human resources strategies. For instance, Chinese personnel staff were unaccustomed to determining whether someone was qualified for a particular job, since they had been trained to select people based on which university the candidate graduated from or which degree the candidate held. This was partly because qualified applicants were few and far between until 1992. Until then, university graduates were assigned to either government bureaus or local companies for their career. Depending upon the type of enterprise the MNC established in China, MNCs were also assigned staff. Within the last seven years, however, graduates have been allowed to find their own jobs.
In the 1990s, large-scale foreign investment has opened new employment opportunities for the Chinese populace. The demand for qualified local managerial candidates has continued to soar exponentially, while the supply remains small. Recruiting and retaining these valuable employees are daunting tasks that require a precise and informed strategy on the part of the hiring team. Successful strategies might include well-thought-through retention tools such as incentive bonuses, frequent evaluations, pay raises tied to performance, and clear definition of career paths within the company.
LOCALIZATION AT ANY COST
Currently, MNCs’ preferred hiring policy in China is to replace expatriates in management positions with local Chinese. MNCs aggressively pursue such localization policies in part because their headquarters often insist on increasing the number of local hires. Most headquarters tend to consider localization the culturally appropriate way to proceed, regardless of what they might know about China, its educational system, history, people, and business customs. A second reason for aggressive localization is that the local environment seems to require it-a 1998 A.T. Kearney survey found that overseas firms with higher rates of localization tend to have higher profits. Thus, localization appears to be a logical and effective human resources strategy.
But the headquarters’ definition of localization often clashes with what localization means to the expatriates attempting to implement it. They must deal with the shortage of qualified candidates every day, a problem further compounded by staffing challenges such as high turnover, demand for high salaries, and false reference and recommendation letters, degrees, and accreditation.
Many expatriate managers would prefer to localize gradually, not only because of the lack of qualified staff, but also because of the damage that unqualified staff can cause a business. This is especially true for a small or medium-sized business that may not have the resources of a blue-chip company to fall back on. Some expatriates hire what is termed a “local expat” or “local hire,” an expatriate with a background of some degree in Chinese language, culture, or history, and who is committed to a professional life in China but who does not have years of professional experience working for a large corporation. These hires tend to be in their twenties-younger than expatriates sent from home. Many companies employ these people on a project or interim basis to help guide the local staff. Without such an interlocutor, senior expatriates and entry- to middle-level local staff often cannot achieve the business goals set by the head office.
In the years 1992-94, companies were essentially expatriate-heavy. But 1995 saw an expansion in hiring both local expats and Chinese. During the boom hiring years of 1996-97, there was a sudden push to localize as companies began to feel financially burdened by the large number of expatriates on their payrolls. However, some companies have come full circle: having pushed too hard on localization, and paid the price in terms of reduced performance, they now realize the wisdom of keeping a critical number of expatriates on the ground in China.
Nineteen ninety-five also marked a turning point for MNCs in that they began hiring experienced, English-speaking, local human resources managers. This was, in essence, the beginning of true localization: the Chinese human resources manager was charged with finding all staff for the MNC by tapping into his or her local connections and network. While the majority of lowerlevel employees were already PRC nationals, it was not until a local human resources manager was hired that localization could be implemented at higher management levels.
Until the senior expatriate management supported the notion that a local human resources manager was required to find and retain great local staff, the localization policy also could not be integrated into the company’s business plan. In many cases, this policy is working well, and MNCs are finding qualified local staff more easily. Most companies now aim to staff all positions, including the president or CEO of their China operations, with PRC nationals within the next decade.
LOOKING ELSE WHERE IN ASIA
Since many MNCs find that their local staff is not yet experienced enough to assume the most senior positions, they have hired senior managers from the Asia-Pacific region-usually from Hong Kong, Taiwan, or Singapore for linguistic and cultural reasons.
Though these managers from the Asia-Pacific region are heavily recruited either by internal human resources departments or by external professional recruitment firms, those without any China training or the necessary “mentort qualities are no better or no worse than their Western counterparts sent from outside the Asia-Pacific region. The only advantage is that generally these managers speak Mandarin either basically or fluently, which helps them communicate with the local staff. While managers from Asian countries are not necessarily better at building strong relationships with local staff, they usually communicate better with MNC headquarters than do local managers simply because of their years of professional experience abroad and exposure to colleagues of different nationalities.
The costs of employing managers from the Asia-Pacific region and Western expatriates are similar, with the exception of return trips home, which are cheaper for the regionally located manager, and perhaps increased costs of sign-on and sign-off bonuses. There are roughly equal numbers of Western and Asian managers at the moment, with managers coming from Asian countries becoming more popular in the last year or two as companies trim the number of expensive Western expatriates. At the senior level, it seems that local PRC managers are currently fewest in number, because they lack equivalent experience.
KEEPING AHEAD OF THE RECRUITMENT GAME
Today the local candidate pool and the general workforce adapt quickly and easily to hiring teams’ requirements. These requirements vary tremendously, depending upon the company and the position being filled. But the general characteristics MNCs look for in a local managerial candidate include fluent written and verbal English; a minimum of 5-7 years experience in a particular field; a university degree, preferably an MBA; leadership and initiative abilities; creative problem-solving skills; and a professional attitude.
At present there are strong local candidates in managerial fields, including finance, engineering, human resources, and sales. However, because there are fewer qualified candidates than positions available, valuable employees change jobs frequently in order to gain the best benefits, financially and professionally. As a result, MNCs often suffer if their strategy is not one step ahead of the volatile recruitment game.
For instance, companies hiring any local candidate should have retention tools and benefits policies beyond the minimum state-supported benefits (see The CBR, May-June 1998, p.50). These might include incentive bonuses for reaching a specific target, training abroad, and reimbursement of MBA schooling in China on a part-time executive basis. Career-pathing and counseling should be offered and monitored closely from the beginning. It is particularly important in China not to renege on promises made during hiring, not only for obvious ethical reasons but also because of the importance of such promises to retention.
THE NEXT DECADE
The next 10 years of human resources strategy in China promises a continuing shift to reliance on local staff. Though localization is integral to the ultimate success of any MNC in China, regionalization is an interim, or potentially even longer-term, solution for many companies.
In 1999, most large foreign companies are staffing their entry-level positions with young locals, particularly fresh university graduates. Middle management also consists of local staff with several years of experience. In middle management, there might also be one or two local expatriate hires interfacing between middle and upper management levels. Upper management consists of a mix of Western professionals on 3-4 year contracts, Asian managers coming from neighboring Mandarinspeaking economies, and perhaps one or two local high-flyers.
By 2009, the entry and middle-management levels of most MNCs in China will consist entirely of local staff. In the upper level of strategic management, there might be one or two managers from the region and perhaps one or two Western expatriates working on a short-term basis, say for a 3-6 month period. But there will also be several local nationals holding positions at the senior-management table-perhaps even making Asia-Pacific regional decisions for the company.
Copyright U.S.-China Business Council Sep/Oct 1999
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