China’s HR Challenges

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3 day, 3 city tour on conducting business in China with a focus on managing employees.

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China’s HR Challenges

  1. 1. China’s HR Challenges
  2. 2. Managing Chinese - Relationships Nation Friends Family Company Self
  3. 3. Managing Chinese - The Negative Stereotypes • Strict adherence to hierarchy is still prevalent • Value systems are gradually fixing themselves • Attention to Details is often lacking Work ethic does not encourage pride in work as it does in other countries Leftover mentality of the ‘Iron Rice bowl’ where everything was provided by the State
  4. 4. Managing Chinese - The Negative Stereotypes Being reactive rather than proactive Education system relies heavily on rote memory and less on logical and critical thinking Creativity is stymied in strictly controlled classrooms where the authority of the professor is paramount
  5. 5. Shuanghuan CEO or BMW X5?
  6. 6. Managing Chinese - The Reality China's GDP Growth (RMB Billion) 25,000 20,000 15,000 10,000 5,000 0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
  7. 7. 0 10 20 30 40 50 60 70 80 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 FDI Utilized (USD Billion) Managing Chinese - The Reality 2000 2001 2002 2003 2004 2005 2006 2007
  8. 8. Managing Chinese - The Positive Stereotypes • Incredible ability to organize en mass Pudong, Shanghai 1990 • Strong sense of National Identity and Pride • High level of resiliency and resourcefulness The ability to wake from decades of self-imposed isolation…
  9. 9. Managing Chinese - The Positive Stereotypes Pudong, Shanghai Today …to become one of the world’s most promising economies
  10. 10. Managing Chinese – Solutions • Never accept: “That’s how its done in China” Often used to deflect foreign criticism or excuse improper behavior If it does not make sense then it probably doesn’t belong in your organization • Chinese are capable of accepting and adopting to new behaviors China is in a constant state of flux: it’s not just the economy that is developing Flat Organizations, cooperative working environments, empowering junior and middle management • Adapt your company culture to your China operations There is a reason why your firm is successful and part of that is the company culture Just as your business model needs to be adjusted to regional preferences so too does your management style Not just Foreign Companies introducing new management concepts
  11. 11. HR Trends - Recruitment • The cost of replacing a senior manager can cost a firm twice the annual salary of the position • Localization is increasingly more common • Most severe talent shortages: Leadership / P&L experience Staff Recruitment Methods % Respondents Project management skills 23 Attractive Salary & Benefits Marketing 19 Opportunities for Career Development Sales 7 Meaningful & Creative Work Specialized technical skills 7 Unique Company Culture 3 Company Location Source: Mercer Employee and Attraction Survey
  12. 12. HR Trends - Retention • #1 concern for American companies operating in China is retention of staff • Years of services of 25-35 year olds have dropped on average from 3 to 5 year to 1 to 2 years in 2005 • Key mistakes that foreign companies make: Two-tier payment system Effective Retention Tools Year of Service Glass Ceiling Training and career development Training, Education Reimbursement, Up to 5 years career development, Housing Benefits Work-life balance Exposure to Senior Management, 5 – 10 years Training, Career development, Housing Benefits Retirement Benefits, Medical Benefits, Work/Life Balance, Long- Over 10 Years term incentives, External Recognition Source: Hewitt Associates
  13. 13. Labor Compliance - Employment • Rep Offices are not allowed to sign employment contracts with local employees directly. • Official version of employment contract must be in Chinese • Only two fixed-term contracts allowed • Severance compensation applies for expired contracts that are not renewed • No standard contract form, but should include: Term of contract & probation period Job Title Labor protection and working conditions Compensation Termination Conditions Breach of contract provisions & disciplinary rules, NDA’s, Non-Competes Consult with a Lawyer specialized in the Labor Law
  14. 14. Labor Compliance - Severance Pay • Amount based on the number of years worked with employer • 1 month salary for each full year • In case the employee works less than 6 months, severance pay of ½ month salary • Any period of not less than 6 months but less than 1 year shall be regarded as 1 year • Severance cap: If the monthly wage ≥ 3 x (average monthly wage*) - and - No more than12 years of work (i.e. 12 months severance max) * The average wage of Shanghai, 2008: RMB 2,892/mth (3*2,892=8,676)
  15. 15. Labor Compliance - Termination • Contract terminated by employee / employee does not agree to renew the contract if the employer provides better offer • Contract terminated during probationary period: 1 month / 6 months – 1 year contract 2 months /1-3 year contract 6 months / 3 years and above • Employee breaches contract / commits a civil crime • The employer faces substantial difficulties in business operations • Dramatic change in macroeconomic circumstances • Missing or death of employee Limited situations where severance is not paid for termination
  16. 16. Labor Compliance - Work Hours • Legal Weekly Working Duration: 40 hours Overtime arrangements: Name of Holiday Duration Period • Weekdays: 1.5x normal salary 1 day 1 Jan New Year’s Day • Weekends: 2x normal salary Lunar calendar • National Holidays: 3x normal 3 days Spring Festival 01/01 - 03/01 salary 1 day 4 Apr Tomb-Sweeping Day Overtime during weekdays and weekends can be replaced by time 1 day 1 May Labor Day off during working days Lunar calendar 1 day Dragon Boat Festival 05/05 • Intern/Part Time Employees: 20 hours or Lunar calendar 1 day Mid Autumn Festival less 15/08 • Flexible working hours 3 days 1 Oct – 3 Oct National Day • Retail & Services • Comprehensive working hours • MFG
  17. 17. Labor Compliance - Contributions • For Shanghai Residents Urban Scheme Township Scheme Social Benefits Additional coverage in Company Employee Company Employee each category is available 22% 8% 17% Pension to employees depending 2% 1% 2% Unemployment Fund on individual agreements 12% 2% 5% Medical Coverage reached with employers 0% 0.5% 0% 0.5% Workplace Insurance • For non-Shanghai 0.5% 0% 0.5% Maternity Leave Residents: RMB 216.90 per 7% 7% 7% 7% Public Housing Fund month 44% 18% 32% 7% Total Maximum base 8,676 RMB (~3,800) Minimum base 1,735 RMB (~760)
  18. 18. Labor Compliance - Tax Rate • Full tax amount deducted from Quick Taxable Amount Tax Rate employee’s salary Deduction Less than 500 5% 0 • Employer submits the amount to tax 501 – 2,000 10% 25 bureau 2,001 – 5000 15% 125 • For Local Employees 5,001 – 20,000 20% 375 IIT = [Gross Salary – Social Benefits – 2,000 20,001 – 40,000 25% 1,375 RMB] x Tax Rate – Quick Deduction 40,001 – 60,000 30% 3,375 • For Foreigners liable to tax contributions 60,001 – 80,000 35% 6,375 IIT = [Gross Salary – Allowances – 4,800 80,001 – 100,000 40% 10,375 RMB] x Tax Rate – Quick Deduction Over 100,000 45% 15,375 Tax rate for Foreign and Chinese employees identical nationwide
  19. 19. Labor Compliance - Example Employer’s and Employee’s Share of Social Benefits and ITT Components Example 4,310 Employer's Total Expense Add 1,310 Employer’s Share of Social =44% Benefits Gross Salary 3,000 Employee’s Soc. Benefits Subtract 540 =18% Employee’s Taxes Subtract 23 Net Salary 2,437 Net Salary 0
  20. 20. The Expat – Work Permit & Residence Visa • Qualifications: Established Entity within China Two- year Degree Two-years working experience Reasonably Good Health • Work Permit Process (Shanghai) Apply for Z Visa abroad • (Chief Rep., Legal Rep may apply in China) Health Examination in Shanghai Apply for the Work Permit (1-2 years) Finally the Residence Permit (1-2 years, multi-entry)
  21. 21. The Expat – Tax Liability New Zealand has a Double Taxation Treaty with China
  22. 22. A few last points… • China is not a mystical land of dragons and forbidden cities The Chinese have the same desires and needs as all of us It is possible to understand China and the Chinese, but… • There is no such thing as the “China Expert” The more that you know about China the more questions you will have Even the Chinese cannot grasp, in its entirety, the socioeconomic changes that are occurring within their own country • Foreign Invested Enterprises should not behave like locally owned companies Foreign firms are scrutinized more closely and held to stricter standards Train your staff to understand the difference

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