Recruiting in China

LUPA (Leadership of Open Source University Promotion Alliance), a Chinese open source software community, plans to initiate a training project for the country's computer and software graduates as low-cost open source software development is gaining popularity in the current financial crisis.

The project, which is scheduled to start next February, will provide 100,000 job opportunities for computer and software graduates nationwide, said Zhang Jianhua, chairman of LUPA.

Under the program, college graduates will receive training on open source technologies for 3 to 6 months, which will cost less than 100 yuan ($14.60). If they pass the government-organized examinations, they will get a transitional position in enterprises in development zones where they will receive further training under the guidance of skilled employees.

"Graduates will get salaries which are relatively lower than official employees. The money will come from the government, social funds and enterprises, but details are still under discussion," Zhang said.

After the transitional stage, graduates can choose to stay or find new jobs elsewhere or even to start their own business.

The graduates will mainly come from the 100 member universities and colleges of LUPA such as Tsinghua University and Peking University.

Currently, more than 30 State-level hi-tech development zones where software firms are clustered, have participated in the project and the figure is expected to reach 54 next February.

According to the 2009 blue book of the Chinese Academy of Social Sciences, one million college graduates are likely to fail to find jobs by the end of 2008. Besides, about 5.92 million new graduates will enter the job-hunting market in 2009.

"The financial crisis is exerting great pressure on college graduates who are looking for jobs," said Zhang. "However, opportunities are emerging for computer and software major graduates because open source software is becoming more popular for their low cost, especially among small and medium-sized enterprises."

According to Gartner, an information technology research and advisory firm, open source software has been applied in 85 percent of enterprises worldwide.

In the next 12 months, it will grow to cover all enterprises and by around 2012, open source technology will be adopted in 80 percent of commercial software.

"The project is especially well-received in vocational colleges," said Zhang. More than 300,000 graduates have registered for the project so far, he said.

The National People's Congress (NPC) should introduce a new legislation that makes it a crime for business owners to flee without paying workers, a senior Guangdong official said on Tuesday.

Liu Youjun, deputy director of the provincial labor and social security department, said his proposal will be officially submitted to the NPC at next year's session.

In Dongguan, a major manufacturing base in Guangdong, 117 firms closed down in September and October.

In each case, the owners fled, leaving more than 20,000 people without wages, the Hong Kong-based Takungpao reported yesterday.

Local governments and taxpayers were left to pick up the bill, it said.

There is currently no criminal law covering this sort of behavior, Liu said.

Labor and social security departments can issue administrative punishments to business owners, such as preventing them from investing in the future, but they are not enough to stop unscrupulous operators from re-offending, he said.

The only effective solution is to introduce a law that makes it a crime for company bosses to flee their failing businesses, he said.

Meanwhile, Liu Bingquan, director of Guangdong's small and medium enterprise bureau, told NPC deputies on a visit to Guangzhou yesterday that in the first 10 months of the year, 15,661 local SMEs either closed down, suspended their operations or moved away.

In some parts of Guangzhou, local government teams have even been set up to monitor suspect firms to ensure their owners do not flee, he said.

However, not all company chiefs are on the verge of fleeing.

Harley Seyedin, president of the American Chamber of Commerce (AmCham) in South China, told China Daily: "Multinational firms don't behave like that.

"They want to expand their businesses in China, and many will be hiring more people next year."

A recent study conducted by AmCham found that most of its 1,300 member companies in South China had decided to shift the focus of their business from America and Europe to China.

"The Chinese market is getting stronger compared with the Western market," Seyedin said.

"So firms are hiring more people, rather than laying them off."

I wanted to take a few minutes to lift our thinking out of the chaos and calamitous scenarios bombarding us in the news today to revisit and expand on one of our earlier podcasts by my cohort Kent Kedl on the topic “Why China Matters.”

In that podcast, Kent encouraged us to keep our eye on the ball with respect to China — in terms of what it can contribute to both our top and bottom lines. He also warned us to keep our attention on China’s ability and increasing interest to invest in the West.

As many of you no doubt have heard, there are a range of scenarios being bantered around about a Chinese auto company buying GM. While I think there are many hurdles to this scenario, even its possibility should grab our attention. China will continue to increase its standing in the world economy and thus affect our business, negatively or positively, whether we like it or not. Therefore, it has to remain on our strategic radar.

In this podcast I wanted to give you some perspective on the “talk on the streets” from companies and observers actively playing in China’s market in order to get a read on their views of the opportunities and challenges facing western firms doing business there. I’ll also touch on the tactics and initiatives being considered as a response. These insights are assimilated from a range of sources, including our own Technomic team, our many clients (who comprise both large and small/medium sized firms both sourcing and selling in China), from local Chinese businessmen, as well as from our friends at AmCham-Shanghai.

First let me acknowledge that all is not rosy in China either. Most firms are planning for lower growth (though you will note they do use the term “growth”) and, as you would expect, they see recession in Europe and the U.S. Credit is tight and the market for public offering of equity is very difficult. China’s stock market has also tumbled. Competition is becoming even fiercer with resultant price/margin pressure.

This margin pressure extends throughout the whole supply chain. So local management see as the keys to success a major focus on cash and cutting costs while trying to maintain and even develop their human capital, attempting to keep morale up. They are looking to be more innovative and to excel in their supply chains. We continually hear the buzz words, “get lean,” “best practice” and “China is the best place to be.”

Digging deeper

Let’s probe a couple of these areas a little more deeply and identify some specific measures and initiatives being implemented by those companies taking a more proactive position in these tough times.

Supply chain excellence remains a central theme with a focus on inventory reduction, scrap/waste elimination, capacity rationalization and better/smarter purchasing. As mentioned, credit risk management is a high priority as is the preservation of cash. One thing the Chinese businessman has taught me over the years is that “cash is king,” or emperor as the case may be.

Importantly, and a central point I want to get across, is the continued emphasis on growth. China, despite some slowdown, still offers attractive possibilities to expand the top line, even in this world recession. To achieve this, companies are trying to get smarter in their commercial strategies, selecting high value/high margin projects, targeting higher growth industries and especially import substitution (perhaps a warning here for those of you feeling comfortable with your export channels into China’s marketplace). Additionally, they are maximizing access to global and regional accounts, trying to exert as much account leverage and influence as they can.

The central theme here is proactivity. In these turbulent market conditions, disruptive strategies can be very effective, especially if your competition is distracted by such mundane things as survival.

Let me also address a question that I hear constantly these days: Is manufacturing leaving China? I know how to say the word “no” in about 10 languages, so consider it said. Now, is China’s manufacturing profile changing? Absolutely! We see some attrition where manufacturing is very people intensive, has low margin and is highly polluting. The government seems content to let this type of manufacturing either survive on its own, or migrate to other Asian countries like Vietnam. We are seeing little abatement in manufacturing FDI coming into China.

Look what at China offers manufacturers:

A strong and deepening supply chain and infrastructure
A major and continually growing domestic market in addition to export potential
Large volume scale and its benefits to cost competitiveness
An ample workforce that can be trained and empowered
Significant latent productivity to be gained by further process improvements
A very supportive pro-business government
Talk to Westerners who have dealt with government, employees and unions in Vietnam, India or other developing southeast Asian nations. This may open your eyes to the positive things China offers.

As we have repeated over the past year, China remains a strategic market for a dual-strategy approach: tapping the local market while developing secure and competitive sourcing for both domestic and international markets. And to quell the rumors of China’s impending demise that I see reported in the U.S. media, note the following:

According to the “2009 Economic Blue Paper” released Dec. 2 by the Chinese Academy of Social Science, a central government think tank, China’s GDP is expected to grow 9.8 percent or so this year and should be able to be maintained at a growth rate of some 9.3 percent in 2009. The minimum GDP growth rate for 2009 as set by the government is 8 percent. Anything lower than this is not acceptable to the government, whose top priority is to maintain social stability. So I can imagine that the Chinese government will do whatever is possible to accomplish this “break-even” growth rate for 2009. The government has both the will and the means to make this happen, and we have seen no hesitation in the past for them to take action.
If you like mind boggling numbers, note this one: Pledged investment by the central government for 2009/2010 is RMB 4 trillion! My calculator doesn’t have so many decimal places, but I reckon that’s almost $580 billion. Local governments are committing substantial funds, as well, which could significantly increase or even exceed this already massive figure. The central government even earmarked almost $15 billion for investment projects for the 4th quarter of 2008 to pad GDP a bit. As the Summer Olympics this year showed us, China can do things on a mind-boggling scale.
The EIU forecasts that by 2030 China will have over one billion middle- or upper-class consumers and be second only to the U.S. in economic output.
So, yes, China will have its struggles, but it ain’t going anywhere.

Finally, let me leave you with a few take-aways in terms of actions you might consider with respect to China as you review your 2009 strategy:

A clear theme among our client base is “smart growth.” This means being aggressive but more pointed in your projects and target markets/customers. To be effective, you must have current and accurate intelligence on your marketplace.
Manufacturing efficiencies are there to be had. Explore lean strategies and bring your best practices to China. Even if you are working with third-party vendors, in the right buyer-supplier relationship, you can effectively transfer process knowledge to key partners to help them improve their competitiveness.
Re-think your supply chain from start to finish. The recent dynamics in global markets have changed the landscape of sourcing costs and moving product around. Look at ways to optimize your supply chain and use it as an offensive weapon. You can exploit the strain your supply chain partners are feeling to develop a more efficient process and a more competitive supply structure. You may find, like the Detroit Three, as our auto companies are now called, that they are open to about any conditions in order to get “bailed out” of their present circumstances.
Lastly, chaos is the breeding ground for disruptive strategies. Look at going forward or backward in your supply chain in order to add value and enhance control. Consider an aggressive acquisition. There are many cost-effective assets to be had in China if you know how to find and cultivate them. A strategic move here could alter the playing field in your market, both in China and internationally. With the lull in market demand and the difficulties in going IPO, you may find that there are more friendly targets out there among Chinese manufacturers than there have been in the last couple of years when many of these same companies were demanding 20-30 times earnings for a piece of the action.
I hope these insights from the front lines have been helpful and that you will consider some of the actions I suggested. It is interesting to note that when the Chinese use the word for crisis (wei ji), it is a joining together of two words: “danger” and “opportunity.” Let’s not forget the second part of this meaning for crisis as we battle this economic environment.

http://www.technomicasia.com/blog/2008/12/15/why-china-matters-part-2/

By Chupsie Medina
INQUIRER.net

Filed Under: Marketing, Economy and Business and Finance
“What’s in store for me in 2009?”

With the current global economic downturn, “not a day passes without me receiving a call or two from owners of small and medium-scale businesses asking the question,” says marketing consultant Herbert Sancianco.

In the midst of all the talk about the Philippine economy likely to be hit next year by the recession bug that has already whipped the First World, and lately, even such big emerging economies like China, owners of small and medium-scale enterprises (SMEs) have not been having fitful sleep these past weeks.

For many of them, the threat of closing shop is all the more real.

As president of Market Bridges Philippines Inc., a medium-sized marketing services company that also gives advice mainly to SMEs and startup businesses, Sancianco knows only too well how any turbulence in the local economy could affect next month’s payroll.

“I have had to face the question of whether my business needed to be shuttered up twice,” he says.

The first time was during the Asian crisis when Market Bridges was barely four years old; and the second was in 2004 when there was too much political noise negatively affecting business, Sancianco says.

“The word now is survival,” he says. “And the key to surviving these days is how well you are able to review and reinvent your business,” Sancianco says. He should know, having actually been through the wringer twice, and seeing others hurdle such challenges.

“Understand your problem,” he says. “Then figure out what could be the right solution.”

Every SME owner must be able to get a good grasp of what his customer is up against in the coming months, the 52-year-old marketing consultant says. If the business can afford to get professional help, a good solid survey would immensely help.

Otherwise, simple and inexpensive backyard surveys that can extract unbiased views as well as suggestions would be very helpful. “Just don’t ask your friends for their opinion,” Sancianco warns. “Talk to your customers — know what they’re looking for and what they’re not looking for,” he adds.

There are also some basic tenets that need to be re-remembered. For example, if you’re in the retail business, customer service is key. Presentation is also very important, says Sancianco. Many businessmen, with the passing of time, tend to relax their watch on these important marketing principles.

On the housekeeping side, a review of how lean and mean your operations is, and acting accordingly either by slashing operating costs or downsizing human resources, is a very real option. Reviewing the central management system is also important if the business is bent on getting that second wind.

The other important key to survival is being able to reinvent the business. A change in the business’ operating environment resulting from the economic slowdown should challenge businessmen to find new opportunities or products to replace otherwise compromised sources of income.

Using the basic information derived from your survey, decide on which new direction the business would pursue. Again, Sancianco says, it makes sense to consult a professional who would be able to validate and even financially quantify the feasibility of any new venture.

“A third party will always have the vantage view of someone looking in and assessing the situation with open eyes,” he says.

At this point, creativity is highly valued. An example, says Sancianco, is the birth of the beverage C2, a product that the Gokongwei business empire introduced some years ago that successfully ate into the market of carbonated drinks.

“Many businesses are also not using the Internet as much as they should,” Sancianco says. It does not cost much to sign up with Yahoo Small Business, and yet the rewards can be so much more.

Some new entrepreneurs who find they do not have the right skills to run a business should set aside time for a diploma or even a certificate course from any reputable business school.

For many family-owned businesses, on the other hand, now is the time to give really serious thought to professionalizing their management.

“Many owners find that their children have grown up and away from the family business, and there is no one with the youthful energy to follow through on expansion plans,” Sancianco says.

Hiring competent people who can do the job would free the owner precious time that could be used to study how to bring the business to a higher level, thereby avoiding stagnation.

Lastly, Sancianco says, it does not help to put in more prayers and hope that this global crisis will be kinder to Filipinos.

In parting, Sancianco reminds us that hard times will only happen to people who lose their vision. Even before times get tough, it is best to be prepared.

Optimizing your workforce's salary structure
By CHRIS DEVONSHIRE-ELLIS

In an increasingly competitive market for skilled labor, foreign-invested companies are restructuring their salary packages as a means of hiring and retaining quality staff. We outline the fundamental components of salary in China and introduce some of the structures being used by companies to increase retention and motivation levels in their staff. We also introduce the relatively new concept of outsourcing of payroll management services in China-a business that is becoming more popular as the operations of foreign-invested enterprises in China become more diversified and complex.

Compensating your employees

Presumably because of its simplicity, a large number of employers still compensate their staff using the most straightforward salary package available to full-time workers in China-a fixed monthly salary with no extra incentives or tax-optimization strategy. Each month, mandatory social security contributions are deducted from each Chinese employee's gross salary and individual income tax (IIT) levied on the balance. These contributions do not apply to foreigners. The employer is then required to make social security contributions on behalf of employees as well. Usually mandatory employer contributions total about 40-50 percent of an employee's base salary. There are a lot of factors contributing to the exact proportion; these are examined in the accompanying article Social Security in China.

Annual bonuses

Many foreign-invested companies in China pay annual bonuses to staff. Sometimes these will be a pre-determined, fixed amount known as the 13th or 14th month salary. Other times they will take the form of individual or corporate performance bonuses. These kinds of bonus perform two main roles:

1. They provide staff with extra income. Bonuses are often paid before the Chinese Spring Festival, when local staff will traditionally spend more money than in an average month.

2. The Chinese tax system offers a special treatment for payment of annual bonuses. Once a year, a lump-sum payment to staff can be divided by 12 to derive the taxable percentage for payment of IIT. For employees, this can work out to be more tax-efficient than receiving a flat salary throughout the year. Here is an example:

An employee based in Dalian receives a monthly salary of 10,000 yuan, giving them an annual salary of 120,000 yuan. After deduction of mandatory social security, assuming it is an amount of 1,687 yuan, their monthly income is 8,313 yuan. A further deduction of 2,000 yuan gives a total on which to base their taxable income each month. According to IIT calculation rules, their monthly tax burden will be 888 yuan. Therefore, in the absence of any kind of bonus, their annual tax burden will be 10,656 yuan.

But if that employee receives a flat monthly salary of 9,000 yuan with an annual bonus of 12,000 yuan while still totaling an annual salary of 120,000 yuan, every month their taxable income will be calculated by subtracting the social security contribution of 1,687 yuan and the deduction of 2,000 yuan. Therefore their monthly tax burden will only be 688 yuan. This annualizes to 8,256 yuan. They will also have another IIT payment to make on their annual bonus. This will be calculated by dividing 12,000 yuan by 12, which equals 1,000 yuan. The percentage of tax payable on this annual bonus is set by referring to the monthly taxable bracket for employees earning 1,000 yuan, or 10 percent. After taking deductions into account, their tax burden is 1,175 yuan, and the total IIT contribution for the year will therefore be 9,431 yuan.

As you can see, by paying an annual bonus on top of a lower flat monthly salary the tax burden for the employee is reduced. In the example above, the amount of the reduction is 1,225 yuan, or 11.5 percent of the original tax burden. The company should balance this tax advantage with the downside-employees may leave the company immediately after receiving a large bonus. It is no coincidence that March is the peak time for job-hopping in China, and a large exodus around this time can cause operational problems in the following months.

Employers should note that this one-time annual bonus could be made up of several components: fixed bonus, individual bonus and corporate performance bonus. The critical factor is that the amount is reported to the tax bureau in one lump sum, and therefore it should be paid in the same month to receive this special treatment. Some companies combine a modest fixed bonus with an additional performance bonus. The individual bonus can be set high for employees that the company would like to retain and make lower for poor performers.

It is important to bear in mind that details of bonuses paid to employees should be kept confidential. This is one key reason why outsourcing of payroll is becoming increasingly popular. Using this method, it is possible to restrict details relating to salaries and bonuses for senior employees to only the human resources (HR) manager. Some organizations even prefer to base their HR manager abroad, liaising with a professional third party provider to ensure maximum control and confidentiality over the process.

The outlook provided by both employers and legal recruitment agencies is not so positive for legal job seekers in China. Unlike in the past few years, when employment opportunities for legal professionals was plentiful, 2009 will see a continuing reduction in legal recruiting opportunities as the global economy slows.

“Except for a few newcomers to the market from the US and the UK, existing foreign and even local law firms will continue cost-cutting measures to avoid redundancies and trim their teams in China to the right size,” said Xia, founder and managing director of DaCare Legal Career.

According to Xia, a wait-and-see mentality will characterise the job market, at least for the first quarter of 2009. Capital markets and real estate attorneys will either be let go or redeployed to working on M&A or even FDI deals. Attorneys in the M&A and private equity practice areas should not worry too much about losing jobs, although PricewaterhouseCoopers’ latest report has revealed that the number of M&A deals in the Mainland have almost halved compared to the same period in 2007. The safest practice areas are expected to include employment, litigation, distressed assets, restructuring and bankruptcy.

A managing partner of a well-established international firm in Beijing, who did not wish to be identified, confirmed Xia’s prediction. He noted that a number of international firms in China have laid off legal staff in the past few months and around 80% of the international law firms here are currently experiencing a relatively quite time.

One of the reasons for the rising number of job casualties was the aggressive expansion of some firms who hired a large number of lawyers from local law firms earlier this year. Many leading local firms told ALB that they would slow down on recruitment plans, but would not stop taking on good talent.

Nevertheless, there remains some good news for employers with a budget and partners who are looking to move.

“Some clients are taking advantage of this special market situation to upgrade their team so with the same budget they can now put a better team together,” said Xia. “Another interesting phenomenon is that partner search, contrary to common understanding, is thought to become more active, especially for those who carry a book of business.”

The in-house side will also see a similar pattern and outlook. The financial crisis will trickle along the ‘food chain’, slowing down many industries including auto, shipping and hi-tech. Some in-house openings will become available, especially for mid- to senior-level counsels with a high degree of independence. The market will further concentrate on hiring more local talent, partly as a cost reduction effort, partly for being more effective.

One uncertainty, though, is to what extent multinational companies will turn to the China market for a solution when their home markets are experiencing serious trouble. “It’s very likely that many MNCs will come to this market, as a better option. General counsel will need to be better prepared for more hands-on work when application for headcount in 2009 will be frustrating and excruciating,” said Xia.

In the light of salary trends in 2009, it will be unrealistic to expect any salary hike. Xia suggested that job candidates will set their eyes more on guaranteed payment, rather on ‘target bonus’ or long-term incentives where the company performance part of salaries is a big question mark.

“Candidates will be more cautious when switching jobs, though some will actively look for a change if they are in a precarious industry,” Xia said.