Recruiting in China

China National Petroleum Corp (CNPC), the country's largest oil and gas producer, plans to cut 5 percent of its workforce over the next three years due to soaring labor costs.

CNPC General Manager Jiang Jiemin announced the planned job cuts at a recent annual meeting of company executives in Yan'an, Shaanxi province.

Analysts said the job cuts would be an effective way for CNPC to control its costs.

According to CNPC statistics, its staff totaled 1.67 million last year, so the move would result in a job cut of 80,000 people.

CNPC's job-cut plan came after it saw a large fall in earnings this year. The company's listed arm PetroChina's first-quarter profit fell 31.5 percent, as refining losses and windfall taxes cut its earnings from record crude prices.

CNPC earlier said it would cut office costs and spending on entertainment and travel by at least 10 percent this year.

It will not approve rental or purchase of luxury cars or construction of new buildings or hotels. It will also limit spending on parties and ceremonies and cut back on meetings and overseas trips.

According to China Petroleum and Chemical Industry Association (CPCIA), in the first half of the year, refineries under CNPC and Sinopec incurred 57.1 billion yuan ($8.37 billion) of losses, 47.9 percent more than a year earlier.

The country's largest refiner Sinopec earlier said its net profit for the first half would decrease by over half, as the gap between high crude prices on the international market and the relatively low prices of refined oil products domestically has put its refining business deeply in the red.

The government in June raised the prices of gasoline and diesel by 1,000 yuan per ton. But analysts said the move could not put domestic refiners back in the black.

According to Liu Gu, an analyst with Guotai Jun'an Securities in Shenzhen, Sinopec would suffer 101 billion yuan in refining losses for the full year. As for PetroChina, which has a lower refining capacity than Sinopec, the loss would be around 80 billion yuan for the full year.

Last year, CNPC lost 36.2 billion yuan in its oil refining and processing businesses, according to company statistics.

In 2007, CNPC spent about 100 billion yuan on oil prospecting and another 32.2 billion yuan on oil refining projects in a bid to ensure domestic supplies.

Last year, CNPC processed 120 million tons of crude oil, an increase of around 6 million tons over the previous year.

More companies in China expect to increase headcount this quarter, bucking a downward trend in other Asian markets, a new Hudson survey has revealed. Despite the fall in hiring expectations, however, employers have no plans to lower salaries for new hires.

In a report released Thursday, human resource consultancy Hudson said its survey recorded falls in hiring expectations among employers in Hong Kong and Japan in the third quarter of 2008. The report surveyed over 2,600 key employment decision makers from multinational organizations in all major industry sectors in China, Hong Kong, Singapore and Japan.

Some 42 percent of Hong Kong respondents expected to bring in new hires this quarter, down from 57 percent in the previous quarter. In Japan, this number dropped from 55 percent to 46 percent.

In Singapore, 43 percent of those polled expected to see increased hiring this quarter, compared to 49 percent in the previous quarter.

However, hiring expectations rose in China as 55 percent of respondents indicated plans to increase headcount, up from 52 percent in the last quarter.

The Hudson report also noted that China's banking sector has not been badly affected by the U.S. subprime fallout, and the Chinese economy remains buoyant in the lead up to the Olympics.

Salaries remain untouched
Despite the bleak economic environment, Hudson noted, the majority of companies said they were unable to negotiate lower salaries for new hires, and salary inflation remained an issue for employers.

China's employers were the least likely to be able to negotiate lower salaries, with just 8 percent reporting success in doing so, the study found.

Hong Kong had the highest proportion of respondents negotiating lower salaries, but at 13 percent, the figure was still low, said Hudson.

In Singapore, just 10 percent of respondents were able to negotiate reductions in salaries.

Mike Game, CEO of Hudson Asia, said in a press statement: "There is still a shortage of talent in many areas and employers have little scope for reducing salaries for new hires."

Meanwhile, the high staff turnover experienced by employers in the last few years did not show any significant improvements, with only a third of respondents reporting a drop in turnover rates.

In China, 29 percent of respondents reported a reduction in turnover over the last year, suggesting that employees were still confident about finding new jobs, Hudson reported. The response was the same in Hong Kong.

In Singapore, 34 percent of respondents indicated a fall in turnover over the past year. At 39 percent, Japan had the highest turnover rate among respondents from the four economies, the Hudson study found.

IBM (NYSE: IBM), the IT giant that has been making money with utmost concentration in China, now finds that it is facing a fierce combat with archrival Microsoft Corporation (Nasdaq: MSFT), which is attracting talents from the former with higher wages. Also gone are customers IBM has gained after years of hard work.

Interestingly, software tycoon Microsoft seldom had face- to-face conflicts with IBM in the past when it has been caring its own businesses. However, a headhunting war has broken out between both sides in the Chinese market. The targets they are scrambling for are mostly project managers or consultants with rich customer resources.

A middle-level manager of IBM, who earns CNY 40,000 a month, will get more than CNY 60,000 when he choose to work for Microsoft. At a party of old-time colleagues, an IBM employee finds out that his former partners are still project managers or consultants. The difference is that they have hunted new jobs at Microsoft.

IBM's project consultants need to directly talk with customers, communicating information on setup, maintenance, and usage of complex system framework, as well as equipment. The customer resources are what Microsoft is greatly interested, because the market has stable revenue sources, and produces huge profits, and fewer price wars.

Selling operating system and office software will still be pillar businesses of Microsoft, but it is not enough for the software titan in the Internet era. Internet services are Microsoft's focus in the future. The company will shift from personal applications to business software, a territory of other three magnates, namely, IBM, SAP, and Oracle Corporation (Nasdaq: ORCL).

Microsoft's enterprise application platform debuted the American market in March 2008. When related products appeared at the release conference in Beijing on March 13, the company organized a super large lecture with 7,000 attendants in Beijing Workers' Indoor Arena.

An analyst points out that Microsoft needs to pay attention to two affairs in the post-Gates era: the acquisition of Yahoo Inc., and the development in the enterprise software market.

So, Microsoft chooses to seize archrival's talent resources. But, the snatch has not covered all the divisions of IBM. An in-service IBM consultant tells reporters that the company's consultants are working for four business lines including software, hardware, research, and service, while Microsoft only shows interest in software and research.

China Southern Airlines Co., the nation's largest carrier, will cut the pay of Chairman Liu Shaoyong and other executives by 10 percent from this month to help offset jet-fuel costs that have almost doubled in a year.

The move is part of a plan to save 1.3 billion yuan ($191 million) this year by cutting operating costs and infrastructure investments, the Guangzhou-based carrier said in an e-mailed statement last night.

China Southern, Air China Ltd. and China Eastern Airlines Corp. have raised surcharges and trimmed capacity to cope with rising fuel prices and slower travel growth. Higher fuel costs will boost China Southern's operating costs by 1.9 billion yuan this year, it said.

``The salary cuts are a symbolic move to show the management's efforts to reduce costs,'' said Yu Jianjun, an analyst at Huatai Securities Co. ``The carriers will do everything they can as jet-fuel prices have run out of control.''

Liu was paid 751,000 yuan ($110,000) last year, including pension contributions, according to the company's annual report. Tony Tyler, chief executive officer of Cathay Pacific Airways Ltd., got a total of HK$11 million ($1.4 million), including benefits and bonuses.

Qantas Airways Ltd. CEO Geoffrey Dixon said today Australia's largest airline will freeze executive pay and cut about 20 percent of management and head office support jobs to curb expenses. Qantas also said it will cut 1,500 jobs.

``It's rare for Chinese company officials to cut their own pay,'' Yu said. ``It's a clear gesture saying they're trying their best to cut costs.''

Surcharges

China Southern rose 8.7 percent to 8.16 yuan in Shanghai and fell 1.9 percent to HK$3.18 in Hong Kong. Both stocks have plunged more than 68 percent this year, amid concerns that rising fuel prices may damp earnings.

Jet fuel last year accounted for 35 percent of operating costs at China Southern and China Eastern. Fuel was 36 percent of Air China's costs.

China Southern raised surcharges on domestic flights as much as 50 percent on July 1 to help cover higher fuel prices. It also increased its levies on flights to Southeast Asia and other short-haul overseas destinations.

The Chinese government raised fuel prices 25 percent last month as part of a wider plan aimed at cutting energy consumption and cooling the nation's economy. Chinese carriers buy fuel for domestic services at a subsidized rate. They pay international market prices for overseas routes.

Jet kerosene traded at $166.15 a barrel in Singapore yesterday, down from a record $181.85 a barrel on July 3.

Ericsson AB, the world's largest maker of wireless networks, may report its steepest profit drop in more than three years on costs to cut 4,000 employees and waning demand for phones at the handset venture with Sony Corp.

Net income in the second quarter fell 56 percent to 2.82 billion kronor ($472 million), according to the median estimate of 15 analysts surveyed by Bloomberg. Sales at the Stockholm- based company, which reports tomorrow, probably rose 1 percent to 48.1 billion kronor, the least in more than four years.

Chief Executive Officer Carl-Henric Svanberg, who has presided over three straight quarters of falling profit, cut revenue forecasts twice last year because of a slump in North American and European consumer spending. Sony Ericsson Mobile Communications Ltd., the handset venture with Sony, said on July 18 that second-quarter net income was almost wiped out.

``The uncertainties continue to be regarding growth, competition in the industry, and pressure on profit margins,'' said Jan Dworsky, an analyst at Handelsbanken Capital Markets in Stockholm. ``The global network market will be flat going forward, with limited growth next year, and competitive pressures will weigh on profit margins this year and next.''

Ericsson forecast in February that demand for wireless and fixed-line telephone networks used by Telecom Italia SpA, Telefonica SA and other customers will be ``flattish'' this year, and announced plans to trim 1,000 jobs in Sweden and probably three times as many abroad.

`Troubled Portfolio'

WestLB analyst Thomas Langer in Dusseldorf, who cut his rating on Ericsson to ``hold'' from ``buy'' on July 15, estimates the company booked about 800 million kronor in restructuring charges at its network unit. Ericsson spokesman Fredrik Hallstan declined to comment on the coming earnings report.

Sony Ericsson said on July 18 it aims to cut annual costs by 300 million euros ($474 million) and said the handset market will remain ``challenging'' this year. Net income fell to 6 million euros from 220 million euros a year earlier and sales dropped 9.4 percent to 2.82 billion euros, the venture said.

``We expect Sony Ericsson's troubled portfolio to lose money through the second half, in contrast to market expectations for a substantial fourth-quarter recovery,'' London-based Goldman Sachs analyst Tim Boddy said in a July 16 note. He rates Ericsson ``neutral.''

The phone venture contributed more than 20 percent of Ericsson's operating profit in the first quarter, and Ericsson received a 2.2 billion-krona dividend from the company in the period. Svanberg is chairman of the joint venture.

Missed Twice

Svanberg saved Ericsson from the brink of bankruptcy after he took over in April 2003. He accelerated cost reductions started by his predecessor, Kurt Hellstroem. Between the end of 2000 and early 2004, Ericsson cut more than half its workforce. The company had 75,000 workers at the end of the first quarter.

Earnings have met or exceeded analysts' estimates twice in the past four quarters and missed them twice.

The company reports at 7:30 a.m., followed by a press conference at 9 a.m. Chief Financial Officer Hans Vestberg will speak also. He took over in October from Karl-Henrik Sundstroem, who stepped down in October after Ericsson cut earnings targets.

Ericsson fell as much as 1.4 kronor, or 1.9 percent, to 70.9 kronor in Stockholm, and traded at 71.1 kronor at 9:41 a.m. in the Swedish capital. Before today, Ericsson lost 4.7 percent this year, compared with a 23 percent drop for the Dow Jones Europe Technology Index of 22 companies. Alcatel-Lucent SA, the largest supplier of telecommunications equipment, has lost 24 percent.

Job Cuts

Paris-based Alcatel-Lucent posted a fifth straight quarterly loss on April 30 on costs to cut jobs and lowered its full-year sales forecast. Alcatel SA bought Lucent Technologies Inc. in November 2006 and plans to cut 16,500 jobs.

About 50 percent of commercial wireless broadband operators use Ericsson technology, according to the company. Ericsson's largest source of sales is China, which contributed 7 percent of total sales in the first quarter, followed by India and the U.S.

``It's a tough environment,'' said Dresdner Kleinwort Group Ltd. analyst Janardan Menon in London. ``Most of the revenue upside is coming in emerging markets, where price and margin pressure is even more aggressive than in Europe or the U.S.''

Svanberg, who was paid 15.2 million kronor in fixed salary last year, has organized Ericsson into three main divisions: networks, professional services and multimedia.

We view multimedia and its products, with the exception of mobile platforms, merely as an enabler for networks and profession services,'' Stockholm-based Nordea analyst Mats Bergstroem said in a July 16 report titled ``A Bumpy Ride.'' ``Mobile broadband and network expansion will continue to drive demand.'' He advises investors buy Ericsson shares.

EMPLOYERS on the Chinese mainland are facing the highest salary inflation in Asia due to the country's rising demand for professionals, according to a human resources report released in Shanghai yesterday.

Hudson Recruitment, a Nasdaq-listed headhunting firm, asked more than 2,600 multinational organizations on the Chinese mainland, Hong Kong, Japan and Singapore about their hiring intentions over the next three months.

Of the 708 respondents from the mainland, only 8 percent of employers said they could negotiate lower salaries for new managerial hires, the lowest proportion in Asia.

In Singapore, about 10 percent said they were able to negotiate. The figure was 11 percent in Japan and 13 percent in Hong Kong.

"The lowest figure in Asia indicates that employers have little scope to negotiate lower new hire salaries and salary inflation is the most prevalent issue for them," said Angie Eagan, Hudson's general manager in Shanghai.

"The Chinese mainland is still a talent-short market, the ongoing competition for strong candidates means that employers are not able to effectively combat the increases in asking salaries for new hires," Eagan said.

The mainland is the only region in Asia surveyed which reported an increased hiring expectation. The survey reported that about 55 percent employers were planning to add to their headcount in the next three months, compared with the 52 percent in the second quarter this year.

Expansion in the retail, tourism and hospitality segments and the approaching Beijing Olympics was driving the growth, analysts said.

Chinese employers are still suffering from the highest turnover rates, with 71 percent respondents in mainland and Hong Kong reporting an equal or even higher turnover rate over the past year.

Survey respondents said performance-related bonuses, training and development programs as well as substantial pay increases were the most effective measures companies could take to retain staff.