2. T
he need for foreign talent in China will not disappear anytime soon, with
expatriate staff continuing to play a key role in the country’s growth,
according to multinational corporations (MNCs) with operations in China.
As the country’s first-tier cities become increasingly livable and expatriates are
more willing to accept longer term or even permanent assignments, MNCs are
seeking strategies to control the costs of their China operations while retaining
key talent. HR professionals looking to align employment practices with corporate
strategy are increasingly exploring the trend of converting people on traditional
expatriate packages to the more cost-effective benefits provided to locally-hired
foreign talent instead – a process known as localisation.
By
Ryan Metz
Pricoa Relocation Services
Renegotiating an employment contract
EXPAT TO
CHINA HIRE
3. 52 FAMILY MATTERS ASK THE EXPERTS
In the late 1990s, localisation was a
common topic regarding expatriate
assignments in China and was defined as
talent transfer – replacing an expatriate
with a local Chinese employee. This was
possible with the maturing of the HR
market as a result of China’s economic
development. At the time, the consensus
was that expatriate populations in the
country would slowly decline as local
talent for management positions began
to catch up. Fast forward to today, when
the demand for skilled and experienced
Chinese managers outstrips supply, with
foreign professionals and expatriates
continuing to fill the gap.
Nevertheless, talk of localisation has
not ceased and expatriate populations
in China continue to grow. These days,
however, localisation is defined as
transitioning an expatriate assignment
to a local China employment contract.
Along with this change of employment
contract, employment terms become
aligned with local conditions, resulting
mostly in changes to salary and eligible
benefits. Moreover, this change of
employment contract means the
expatriate’s contract terms are now
subject to Chinese labour laws, with no
legal obligations to the home country.
costs, make up roughly 10 percent
and 8 percent respectively of the total.
Interestingly, relocation expenses – which
can be viewed as the initial investment to
bring the expatriate to China – account for
only 8 percent of the cost of a three-year
assignment, and that investment is lost
once the expatriate returns home.
Regardingsalary,arecentsurveyconducted
by Hewitt found that “Western top
executive packages averaged USD393,743
while China-hired (localised) foreigners
landed USD331,693.” In addition, the average
pay for top Chinese executives at foreign
companies also averaged over USD300,000
per year. Chinese employees with top-level
talent are increasingly being paid Western
levels of compensation. Clearly, the base
pay gap between expatriate, local-hire
foreigners and top-level local talent in
China is narrowing.
The intangible benefits of an expatriate
hire also translate into real value for a
company and shouldn’t be overlooked
when considering the termination of an
international assignment in China. Foreign
talent improves the consistency of shared
corporate values in a global organisation.
There is improved communication
between China operations and the home
Definition with a
difference
Measureable costs,
intangible benefits
According to the Society of Human
Resources Management, the cost of
hiring an expatriate can easily exceed 400
percent of the cost of a local employee
in a similar role. Companies often cite
housing allowances, international school
support and benefit packages as high-cost
elements of expatriate assignments, and
thus the focus of a localisation strategy. Yet
are these costs really the most expensive
pieces of an expatriate assignment?
Although schooling and housing often
receive much of the attention when
scrutinising expatriate assignment
costs, international tax preparation and
filing fees in the home and host country
easily comprise the largest expense of
an expatriate assignment. The Society of
Human Resources Management estimates
internationaltaxpreparationfeescaneasily
top USD100,000 a year for each expatriate
and, in many cases, exceed the cost of
the assignee’s yearly salary. According to
many companies, housing and schooling
expenses, compared to overall assignment
THESE DAYS LOCALISATION
IS DEFINED AS
TRANSITIONING AN
EXPATRIATE ASSIGNMENT
TO A LOCAL CHINA
EMPLOYMENT CONTRACT
”
5. 54 FAMILY MATTERS ASK THE EXPERTS
country. Moreover, expatriates bring
increased awareness of global strategies to
local operations and improve alignment
of local operations with global strategies.
These intangible benefits are often lost
when expatriate talent returns home and is
replaced with local hires. Expatriates stand
to improve their position of negotiation by
articulating these qualities and strengths
they bring to their organisation.
be indefinite, and Chinese cities becoming
increasingly comfortable for localised
foreigners. Employers often state that
localisation is necessary to keep operating
costs within reason and maintain an edge
in the fiercely competitive Chinese market.
Employers often emphasise expatriate
housing and schools in China as high-cost
items that must be tailored to local terms.
These foreign workers will be faced with
a choice: return home or accept localised
employment terms.
For foreign employees, when negotiating
localised terms with employers, emphasise
the savings and benefits to the company
of placing you on a local contract. The
companywillhaveasignificantsavingsintax
provider fees as the employment contract
will only be in China and responsibility for
tax filing will often become the employee’s
responsibility. HR and line managers
often do not emphasise the savings in no
longer using the international tax provider,
possibly because they do not understand
these high costs. When companies offer
arguments that local employees are
Prepare to negotiate
For an expatriate faced with the prospect
of being localised, the reaction can be
negative. Localisation is often associated
with decreased housing allowances,
restricted international schooling
assistance, loss of employment benefits or
even reduction of salary. The prospect of a
decreased standard of living is difficult for
many to accept.
When discussing localisation with
expatriate employees, companies position
international assignments as extremely
expensive, expatriate assignments meant to
much less expensive then foreign talent,
counter the argument with the intangible
benefits foreign employees provide, such
as improved communication between
home country and local operations. In
focusing on the savings to the company
a local contract provides, the employee
can provide a strong argument to retain
key compensation components such as
salary, housing and school assistance.
Expatriates can reasonably aim to keep
core compensation and benefits relatively
unchanged when transferring from
expatriate to local employee status.
Transitioning from expatriate to locally-
hired foreign employee doesn’t have to
mean a drastic change in living standards.
When negotiating the terms of a local
China contract, researching locally-
hired foreigner employment terms,
understanding hidden cost savings to the
company and articulating your intangible
benefits to the company will help put you
and your family in a strong position to
remain in China and continue to enjoy the
same lifestyle as newly-arrived expatriates.§
