China's Talent Shortage: Human Capital Development - Training as an Effective Tool

This was a recent article on the Fiducia Management Consultants which describes the talent shortage that is engulfing China and the ways in which different companies have begun to try and make sure they hold on to their valued talent.

The unabated influx of foreign investment to set up new production facilities as well as to expand existing projects continue to exert a high demand for skilled and talented human capital agent" results inst a very limited pool of talents, be it on the managerial, professional or skilled labour level. The consequential "war for tale in turn-over rates of up to 30 percent and "employees’ life spans” of less than 12 months in specific areas and professions. Under these conditions RETENTION MANAGEMENT is a must and sets in from day one to retain talent within a company. But retaining talent within a growing organisation is only one part of the equation and not enough, considering the sheer volume of demand seen against the acute shortage of skilled talents.

How can this situation be overcome? When we look at the present educational system – generally the tool to remedy the above described imbalance, we find that the system is – at least for the next few years – not in a position to do so because of the following reasons. Firstly the present educational system is mainly based on academic learning thereby providing little practical skills and this accounts for the technical as well as the managerial sector. Although significant efforts are being made by the relevant authorities to change that it will take a number of years to adapt to the quality and numbers demanded, e.g. today we have 20 foreign invested enterprises sharing one MBA graduate. Exacerbating this situation even more is the fact that the local private sector and since recently even the state owned sector are more and more competing for the same skilled talents and we therefore see the situation worsen before it is gradually getting better in the next few years.

A shift to human development - More and more the human resources departments see a shift from the formerly purely recruitment orientated activities to human development activities. Human development meaning the introduction of internal and external training and coaching programmes for staff to develop existing talent within the given human capital base of each company. So with relatively little effort and input an employee’s latent talent can be easily tapped and brought up to higher levels. This improves the human capital potential of the company but also the performance, and – very important for every Chinese employee – also enhances the career development prospects.

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Local Hire

This was a recent article posted by Justin Chan, on the American Chamber of Commerce in the People's Republic of China website. His article goes into detail describing the problems Multinational Companies are having with recruiting local talent.

China’s demand for highly skilled professionals and executives is far outstripping supply, placing a premium on attracting and retaining expatriates. As a result, the spotlight on compensation and benefits (C&B) programs is shining brighter than ever.

As global employment firm Manpower reports in its 2006 white paper The China Talent Paradox, “China lacks a well-established talent pool of mid- and top-level leadership which is hampering the economic growth of Chinese and foreign-invested businesses.” To fill this void, businesses operating in China have long turned to expatriate talent, bringing in management resources from overseas – a trend that will continue in 2007, with expatriate numbers expected to increase. But as businesses become established in China, many are looking at locally hired expatriates and PRC returnees to lower costs, continuing a shift toward localizing compensation packages for expatriates in China.

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Managing Talent is Key in a Challenging Business Environment

This is a recent post by Simon Keeley, who is a senior consultant with Hewitt's Hong Kong office, on the American Chamber of Commerce in the People's Republic of China website. It discusses the problems with retention of Chinese workers and the benefits which might solve the problem.

A recent Hewitt study1 showed a significant number of companies reporting obstacles in their efforts to get the talent they need.

For example, 46% of China participants in the study reported shortages of local leaders. In Malaysia, 26% reported a similar shortage. In Australia, 23% did, and in Singapore, the figure was 17%. Plainly, the problem is far greater in China than elsewhere in the region.

Similarly, the data showed levels of turnover among senior managers and leaders in China to be far
higher than elsewhere in the region. In China, around 43% of senior managers voluntarily left
organizations. No one else comes close to this level: Hong Kong at 13% and Australia at 11% are
the next highest.

At Hewitt, we consider the following three themes will dominate.

• First, the leadership talent gap will persist. This is a global trend. China is not immune.
• Second, companies will need to pay more attention to how they manage benefits in the compensation mix. We believe, in fact, that the effectiveness with which companies deal with this issue can not only better help them manage compensation costs, but also differentiate them in the battle to attract and retain key talent.
  
• Third, HR functions themselves will begin to change, moving away from the administrators they overwhelmingly tend to be today and more towards a role in which they become a key shaper of strategic decisions. This is not a 'nice to have'. In the China environment, it is an imperative.

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Managing, Developing and Retaining Leadership Talent

This is an essay which was posted on the American Chamber of Commerce in the Peoples Republic of China website. It was written by Frank Gallo, PhD, who is the the Beijing Director of the Hewitt Asia Leadership Center. The full article describes the troubles that companies have in retaining and managing local Chinese talent within their companies operating in China.

Managing, developing and retaining key talent is the number one HR issue in China. Companies that do this well have better financial returns than those who do it poorly. This is especially true when trying to find individuals who can lead the organization. Seasoned managerial and leadership talent are scarce in China – so having a defined plan to do this well is imperative.

In a survey of 150 companies in China conducted in the fall of 2005 by Hewitt Associates, 95% of companies indicated that acquiring, retaining and managing leadership talent in China was necessary for successful business in the future. More than half of these companies indicated that this was “critical” and currently a restrictor to growth. Sadly, nearly 75% of surveyed companies said that their companies were not effective at developing leaders. In fact, only 29% of respondents were satisfied with their executive development programs.


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What HR Model Works Best in Shanghai?

This article was a recent post on the China Solved Weblog which discusses the need for Western style companies to adapt to the Chinese way of management and business running.



What HR model works best in Shanghai? It’s a seemingly simple question – the kind that I do great with on my third beer when someone else is buying. But when someone asks you point-blank what really makes China teams successful, it’s a bit of a challenge. It is always so much easier figuring out what other people have just done wrong…


Well, here are a few ideas that I’ve gleaned from people far more intelligent and far more experienced than I am about managing teams in China effectively.
What DOES work in Shanghai HR?

1. Intense, big-picture trainingWhat’s the MISSION? Why is your company doing things this weird, cumbersome way? In general, ex-pat run firms invest more time in each transaction and spend more on infrastructure. You see it as a commitment to quality and long-term value. How do your local staffers see it? Maybe they share your vision – or maybe they think you just don’t get China. Share your vision with them, and keep doing it. Make it part of your orientation policy, your regular training, your performance appraisals and your coaching.
   


2. Highly specific job responsibilities that keep getting biggerYour Chinese team likes structure more than their western counterparts. Be honest – when is the last time YOU looked at a job description for your mid-level, 3 – 5 years-on-the-job managers? ‘Flexible and dynamic’ read well in the promotional literature, but if your manager’s think that they aren’t getting enough guidance then they may feel frustrated and adrift. Everyone likes moving up and making progress – in China you’ll want to make the steps very clear and space them out very regularly.
   


3. Small teams, vested in the future of the companyBeware of STAFF BLOAT – a very big problem in China. Once your team has grown to over 20 people, the dynamic changes drastically. It starts to feel ‘corporate’, which is ok if you have formal plans for career development, performance appraisals and incentive-based compensation plans. If you don’t have those systems in place, large teams can feel chaotic and uncaring. People like family and they like career. If your team has gotten too big to be a family, then you have to make sure that your managers see it as their career.
   


4. Highly engaged managementDon’t send your middle managers off to a team-building weekend while you go play golf. It’s insulting and counterproductive. You may be a numbers-oriented, hard-nosed manager who wants to see results – but if your top managers see you as a cold-hearted interloper who doesn’t care about them or their culture then they will find it very easy to leave. Your managers want you to be more involved. The ball’s in your court.
   


5. Active career managementCoaching, Career Development programs, high-level training, mentoring. This stuff is all expensive in terms of time, money and energy – which means that often is gets pushed down into the “low priority” part of your to-do list. Don’t fall into that trap. In the west, career development is the responsibility of individuals. In China, it is the responsibility of the company.
   

You’ll notice that while some of these tactics are expensive, big salaries aren’t featured on this list. It’s not that you won’t be paying a lot for good people – it’s just that high-pay is more of a threshold issue than a success strategy. Above average salary will help you get people in the door, and weak salaries may force some people to look elsewhere. But high pay alone isn’t going to turn a distracted, unmotivated worker into a superstar – but some of these other factors just might.



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When in China: Be Quick

This was a post on the China Business Blog, by Jeremy Gordon. It discusses the need for quick planning when moving your company to China. Also, a company must have things planned out well in advance.

McKinsey often has clever insights in China. Although not everyone can afford to hire them, they do sometimes share their thoughts with the world. In a recent article, Gordon Orr of their Shanghai office looks at the importance of fast action in developing successful business strategy in China

The article notes that traditional, data-intensive approaches are hard in China, where information may be inaccurate, and quickly outdated, and where decision-making and implementation need to be flexible over time. Orr says:

• “For multinationals in China, strategy development needs to be fluid and adaptive. Companies need to identify when sudden industry “tipping points” will occur and, based on that understanding, stake out quickly a position ahead of the trend in order to maximise market share.”
  

He also notes that foreign companies need back-up, crisis management plans to be in place (in China and at head office) in case of sudden market or regulatory changes. And this is not just to plan for the down-side. He asks “What if China opened up the banking sector to full competition tomorrow?”. Good question! It may be unlikely…but in China, anything is possible.

Orr is also quoted on the same issue in “China CEO”, as saying:

• “The pace of change is so fast [in China]…that, unless it is well articulated as an evolution, the corporate headquarters often find it hard to understand why the company had strategy A in China and now has strategy B”
  

The recommendation is for a “more analytical approach to strategy”, with the potential for rapid action in order to secure market leadership.

To view the entire article at its original location click on the title of this post.

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Corporate (Non) Governance

This was originally a post on the China business Blog,by jeremy Gordon. It explains the risk of doing business in China and getting caught up in the corruption that is notorious with China. it gives specific examples to clarify.

The risks of doing business in China range from intellectual property rights abuses and lack of enforcement of court awards, to fraud and theft (to name a few). I have covered corruption before, but for investors seeking to share in the spoils of China’s economic success story, corporate governance (or lack of it) is also something to watch out for.

Forbes highlights some recent cases:

• Shanghai Electric, a Hong Kong-traded, state-controlled company making power equipment, was suspended after reports of a director taking US$400 million in illegal loans.
  
• Ocean Grand Holding, a Hong Kong-listed chemical company with interests in China, was reported to be missing $100 from its accounts.
  
• Skyworth Digital Holdings, a big television makers, had its founder sentenced to six years in prison for theft of $9 million of company funds.
  
• Guangdong Kelon, the refrigerator maker, reported a loss of around $400 million following fraud investigations into its former Chairman.
  
• Beijing Capital Land, a major developer, lost its chairman after corruption investigations.
  Part of the problem is that many Chinese companies have a very flat management structure (the boss / founder at the top, and everyone else below), and that major shareholders (other than the boss in question) are either unengaged (e.g. state shareholders) or under the direct influence of the boss.

Stephen Green also points to other problems:

• Large amounts of cash from IPOs provide opportunity and incentive for theft (or theft disguised as loans).
  
• Political connections often mean that firms can avoid legal or bankruptcy issues, so they have little incentive to use funds efficiently.
  
• There are no effective institutions to monitor or discipline the legal person shareholders.

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The EU's IP Challenge

This was a posting by Jeremy Gordon on the China Business Blog which he wrote about the ways in which IP scandals trouble nearly every company with operations in China. It is just something that must be dealt with and expected.

Intellectual property rights (IPR) issues must be the thing I am asked about most often in relation to China. So it is no surprise when (as Financial Express reports):

• “Only 9% of 1,000 companies represented by the European Chamber of Commerce in China haven’t been affected by trademark or copyright theft…Violations of copyright and other rules designed to protect inventions and brands from illegal imitation account for as much as 360 billion euros in unlawful trade each year, depriving legitimate business of income, according to the EU. About 70% of counterfeited goods imported into the bloc originate in China, the EU has said.”
  

There is no doubt that IP risk exists for foreign companies in China (more on the US experience can be seen here) and the EU is now considering action on the issue at the WTO. The problem is that, while the laws are in place in China, enforcement is patchy, and companies should ensure they have an IP protection strategy in place (prevention is better than cure), and that they register their IP (trademarks, patents and domain names) in China – early and broadly (and taking into account Chinese translations and variations of foreign names).

To view the entire article at its original location click on the title of this post

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Fast Train to China Manufactoring

This article was posted on the China Business Blog by Jeremy Gordon at the end of 2006. This article discusses the troubles and rewards a company can have moving from its base of operations to somewhere within China.

Hornby is a famous British brand that makes high-quality, model trains and cars. The China-Britain Business Council’s China-Britain Business Review (September, 2006), contained an interesting case study, by Humphrey Keenlyside, on the company’s move to manufacture in China.

According to the article, Hornby found itself facing hard times as competitors moved to China. Having employed around 2,000 people in their UK in the 1970s, this number had fallen to 750 by 1997. Big changes were needed to reverse the decline.

Interestingly, the main reason for the move was not simple cost-cutting (though tooling costs were cut in half) - that was just a means to an end, and the cost reductions allowed the firm to refocus spending on design and quality improvements, and to speed the introduction of new lines. At the same time, specialist design and engineering functions were kept in the UK.

The company decided to build on its relationship with a Hong Kong supplier, and to move
manufacturing to China. This was done by transferring all of their specialist tooling equipment from the UK to Dongguan, in Guangdong. Frank Martin, the CEO, reported that the good relationship with their local partner was critical:

• “Our Chinese partners recognise that if our business grows, then their business will grow. They are not looking to go it alone, because they know that together we can both benefit”
  

As the article points out, Hornby were perhaps lucky to be in a niche market where they had strong control of branding and distribution, and where the potential for piracy was relatively limited. Not all companies are so fortunate on that front – but all can benefit from remembering that, by avoiding the old “same bed, different dreams” issue, a lot of potential partnership problems can be avoided. The Review says:

• “With Chinese manufacturing secure – and with an all-important competitive advantage – the company contemplated a big push into new markets, particularly in Europe and the US”.
  

While other European companies failed under competitive pressures, Hornby was able to make acquisitions – including a liquidated Italian firm (whose tooling was also sent to China). It has now “built up the broadest brand portfolio in the world” in its sector, and thinks that moving to China “was one of the best moves it has ever made”.

To view the entire article at its original location click on the title of this post.

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Big Profits - But Who Should Get Them?

This was a post by Jeremy Gordon on the China Business Blog, at the end of last December. he writes that many American companies in China, and European ones as well, but they also be careful and obey the policies of the government of China.

We already know that foreign businesses in China are profitable, but US companies’ corporate profits were over US$2 billion in the fist half of 2006 – up over 50 percent on the same period in 2005 - according to a report in USA Today (via China Daily) that is based on research from the US Bureau of Economic Analysis.

Foreigners are, of course happy to be making profits, and that it why they planned moves to China in the first place. However, big profits have a political element to them, and many in China have already been questioning the role of foreign investment and have been angered by the selling off of Chinese state assets to big foreign banks and other “strategic” investors – who can see huge profits almost over night. This is partly why Carlyle was blocked from taking control of Xugong, and why ICBC had a Shanghai listing at the same time as the Hong Kong one.

While the debate continues (and after it finishes) I will repeat my advice that foreign firms in China need to watch policy closely, and remain sensitive to local perceptions of their activities and their economic and social impact. A helping hand is likely to be viewed in a different light from a simple grab for some under-valued assets.

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Getting 'Guanxi' Up To Date

In a recent article by Jeremy Gordon of the China Business Blog, Guanxi (connections) has begun to change greatly oer the past decade and will continue to change, rapidly.

“Guanxi” (connections), is an especially mystical Chinese word that, for a long time, has been used by suppliers, officials, pundits (not to forget “chundits”), and others to impress, scare or confuse the hapless foreign businessperson in China. It has been getting quite a lot of press recently, so I thought I would put my oar in and comment.

Literally “guanxi” is a Mandarin Chinese term that describes the complex, inter-dependent relationships that exist between two or more parties. “Guan” means “close together,” and “Xi” means “relationship.” In practice, of course it is a bit more complex. Diligence China provides a good introduction:

• “Guanxi. Technically, it means connections. In mainland China where monetary profit was not always feasible, people developed a semi-formal means of supporting allies and building up a “bank” of obligations owed. It is not always subtle or sublime, though Chinese are so familiar with the idea that there is less need to discuss it directly.”
  

But I also like this one, from James McGregor, author of “One Billion Customers”:

• “Guanxi, the oft-cited Chinese word for relationships or connections, is overrated, temporary, nontransferable, and resides in the hands of the individual who has it. Never, ever put your business in the position where you are dependent on one individual for access to government officials.”
  

In the 15 years I have been doing business in China, the “Guanxi factor” has changed a great deal, just as China and its overall business environment have done - there are no longer carts of cabbages to be found round the back of the China World Hotel in Beijing, there seem to be more cars than bikes, the airports are all new and shiny, hotel rooms have internet connections, government departments have phones that actually get answered, and government policy, regulation and process are all largely transparent.

Now, while guanxi is generally less important to the average businessperson, it is certainly still an important issue to understand and manage. Relationships are important in business everywhere, but they are relatively more important (and complex) in China’s group-based culture.

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The Fight for Staff Retention

This is a recent post by Jeremy Gordon, the writer for the China business Blog. He goes into great detail about studies conducted in China profiling the high employee turnover.

I have already commented that there is a talent squeeze at the top and bottom of the market. Now, a new report by Mercer Management Consulting indicates that retention of staff is becoming a major issue. Mercer’s survey of 114 companies (including many multinationals) in China (as reported by Forbes) found that, compared to last year:

• 42 percent experienced increased turnover for support staff
• 54 percent have experienced higher turnover for professional staff
• Average tenure for employees aged between 25-35 years was 1-2 years in 2005 (3-5 years in 2004)
  

The turnover of staff not only disrupts business, but also increases HR costs significantly – especially for senior hires, as staff replacement costs are 25-50 percent of annual salary (but up to 200 percent for senior staff).

In order to combat this problem, firms are spending plenty on “soft” benefits, but it seems that not enough is being done in many cases, and 44 percent think their employees are dissatisfied with their benefits. The benefits provided include the following:

• 24 percent offer flexible working conditions
• 41 percent provide health and fitness plans
• 26 percent offer mentoring programmes
• 42 percent provide staff with overseas assignments as part of career development plans
• 51 percent offer individual career development plans
• 83 percent of companies provide their employees with health insurance

To view the entire article at its original location click on the title of this post.

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Employment Rules

The article, written by lawyers at Baker & McKenzie provides the following summary of key provisions of the draft employment law, that was completed in December 2006:

• ”Fixed-term contracts. Most companies use fixed-term contracts because of the difficulty of terminating employees in China. The December draft limits their use to two terms before an open-term contract must be signed. In addition, employers have to pay severance to employees if fixed-term contracts expire.”
  
• ”Training bonds. Many companies try to prevent early resignation by employees they have spent time and money training by requiring minimum periods of service and repayment of all or part of training costs in the event of early resignation. The December draft requires that, for this type of agreement to be enforceable, there must be a minimum training time of one month and it must be full-time, off-the-job training. Thus, employers cannot impose training bonds on distant learning courses or internal training.”
• ”Company rules/Codes of Conduct. Company rules and codes of conduct are important instruments in maintaining discipline in the office and compliance with policies. Under the December draft, unions or employee representatives must be consulted prior to implementation. It is unclear what exact procedures must be followed in order for this consultation requirement is satisfied.”
  
• ”Mass lay-offs. Current law does not provide a clear legal basis for mass lay-offs except in extreme circumstances. The December draft allows mass lay-offs but makes these subject to consultations with the union or employee representatives. They will also depend on social selection criteria – for example giving greater protection to employees who are the sole breadwinner in a family. These procedural requirements are triggered if 20 or more employees or 10 per cent or more of the workforce is to be terminated.”

It also points out that, although the provisions do increase the burden on employers in relation to employee rights, there are somewhat toned down compared to the original proposals that were tabled in March and seem to have taken into account some of the feedback that was presented by the business community.

To view the entire article at its original location click on the title of this post.

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FDI:It's a Big Deal in China

Jeremy Gordon, the writer of the China Business Blog, recently wrote this article stating that China is looking for a new kind of Foreign Direct Investment (FDI) from other countries. it differs greatly from the kind of FDI they were looking for in the past.

China still wants foreign direct investment, but it does not view it in the same way it used to. Right now it is all about technology and added-value rather than dollars and cents. And of course, there is the strong desire to protect strategic sectors of the economy, as well as local brands that may have global ambitions. As Andrew Hupert at Diligence China said in response to an earlier post on attitudes to FDI: “The honeymoon’s over, but the marriage is solid”.

Another perspective on this issue (citing Carlyle and Telstra deals), has been written at All Roads Lead to China, and is well worth a read.

The overall message from these stories is that foreign investors should be sensitive to the concerns, and strategic development plans, of the Chinese government and local incumbents. Patience, a low profile, and political due diligence and lobbying, may not suit all big boardroom types, but they are recommended for anyone that wants to buy into the China market in a big way.

To view the entire article at its original location click on the title of this post.

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China Employee Retention: The Social Dimension

This was a recent post by William Dodson, the writer of the "This Is China! Weblog". In it he discusses that the most difficult part of doing business in China is retaining employees who work for your company. he discusses the differences between the Western-style models and the Chinese-style models.

A recent survey by the American Chamber of Commerce in Shanghai showed that employee retention is the most pressing matter for American companies.

One of the most difficult parts of building a business in China as a foreigner is keeping talented people. Finding the people is not difficult: for one, there are a lot of Chinese people (in case you did not know); and then the Chinese in general prize education, so when one plays the numbers game one is bound to find a lot of able bodies that can perform the job more than adequately. At least, they perform to that level with practical training and a fair amount of mentoring.

One aspect of China employee retention Westerners find vexing and time consuming is the social function work serves for Chinese people. The texture of employee relations in Chinese companies is quite different from what we find in America and Northern Europe. In America co-workers are co-workers and there is a demarcation between work and outside-of-work.

American staff leave their co-workers in the office; they do not take their co-workers home with them. Work is work, and home is home. Northern Europeans are much the same, though there is more a tendency than in America for Northern Europeans to go out for a few rounds of beer with co-workers and perhaps for dinner afterward.

Chinese employees have a different expectation of what we in the West call work-life balance; in fact, they have little concept of work-life balance. In general, you do the work until it gets done, and you socialize with friends, family, co-workers and classmates whenever the opportunity arises – which is quite often. There is little use of the idea of work-life balance in China not because there is little balance – as your average American would pre-suppose – so much as there is little differentiation between work and life. Admittedly, the separation is an artificial one, created in England at the start of the industrial revolution and exported to America.

Frankly, the concept of “employee” is only about 120 years old, created because hired hands in England were coming to work drunk - if they came to work at all – and would pop down to the local public house for a few rounds whenever the fancy struck them, which was quite often, it seemed.

To view the entire article at its original location click on the title of this post.

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All In The Family: The China Business Model

William Dodson, writer for the This Is China Weblog, recently wrote an article about the structure of Chinese families, and how that has a spillover effect into the office setting. he explains that foreign managers and CEO's must adjust to this.

A key understanding for Western companies building a business in China is that the Chinese model for all their interactions in life is the family. Relationships are built in concentric circles that begin and end with the family: childhood friends, classmates, co-workers. Those are the circles that define and circumscribe a Chinese life.


In Chinese language elders not an official part of the family are called auntie (aiyi) or uncle (shushu); more senior co-workers may be called elder brother (ge ge) or elder sister (jie jie); while conversely more junior co-workers may be called younger brother (di di) or younger sister (mei mei). The Chinese shorten the appellations first with the family name of their relation and then the title; hence, some Chinese friends call me Wei Ge: Big Brother Wei, because my Chinese family name is Wei (drawn from the sinification of the Western name William – Wei Lian).

The Chinese business model then at its most constructive is a kind of patriarchy or matriarchy in some cases. The wise leader always lends a sense of weight, context, direction and security to the work environment so employees can get on with the work at hand. The Chinese leader creates a caring environment, in which each employee knows his or her place in the organization and has the feeling the work he does counts toward the benefit of the organization as a whole.


The American model, on the other hand, is trust-based; American leaders in an organization imagine that if they direct an individual or group to perform activities the staff will come back to the leader to discuss openly with the leader any issues that require the leader’s input for resolution.


Chinese expect a leader to follow-through with the direction the leader has provided. If the leader does not periodically if not frequently make contact with staff about staff’s progress on an issue, then staff will pre-suppose the activity was not important. The leader’s most effective tool in guiding and managing staff is to create an environment of caring: for the organization’s goals, for the employees, for the employees’ activities.

This means that any Chinese leader – and especially a Western one – has to literally work over-time to create an environment that Chinese workers – especially those in their twenties and very early thirties – feel safe and have the sense their work has meaning.

To view the entire article at its original location click on the title of this post.

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China Business Do's and Don'ts

In a recent article published on Forbes.com, Elisabeth Eaves writes about the ways in which new foreign CEO's can acquaint themselves with Chinese culture. This article gives the rights and wrongs of business deals in china.

Here's what you need to know.

Do Your Research:
Foreign entrepreneurs in the '80s had virtually no information. Today, you could be crushed by a mountain of advice books. How to choose?

American Rachel DeWoskin, author of Foreign Babes in Beijing, a memoir about her five years in the early '90s as a business consultant and soap opera star in China, suggests two. She calls Jonathan Spence's book To Change China: Western Advisers in China "a fabulous business tool and guide," and she also recommends James McGregor's One Billion Customers: Lessons from the Front Lines of Doing Business in China.

Show Some Respect:
Avoid embarrassment--not just your own, but other people's too.

"Saving face" is one of the building blocks of Chinese culture, says Soeren Petersen, regional analyst for Asia at iJet, a travel risk consultancy. In practice, it means avoiding conflict and preserving other people's dignity, he says.

It can come in handy when dealing with anything from standard travel snafus to boardroom negotiations.

Don't Jump In:
The Chinese are comfortable with silences in conversation, says Kenneth Lieberthal, author of numerous books and articles on business in China and a professor at the University of Michigan.

"After you've asked a question, it's worth pausing a little longer than you would with an American," he says. If you rush to fill a silence, you could miss the most interesting thing someone has to say.

Have Your Own Interpreter:
The value of a private interpreter is "not so much to do the interpretation, but to tell you afterward what was mistranslated. I've rarely sat in on a session where I didn't think something was missed," says Lieberthal, a fluent Mandarin speaker.

Prime example: If a Chinese negotiator says the words, "we have to do research on that" at the end of a discussion, you might only get the literal translation. In fact, the expression means "no."
That's Mr. Hu To You:
Given and family names are said in the reverse order from English. So President Hu Jintao is Mr. Hu.

Know Your Superstitions:
Four is bad, eight is good--which is why hotels rarely have a fourth floor.

No Politics At Dinner:
Bringing up Taiwan, Tiananmen Square or the Cultural Revolution is no way to ingratiate yourself. To do that, mention China's 4,000-year history.

Accept Business Cards With Two Hand:
Why? "It’s a little representation of the person you're taking it from, so it should be treated with respect," DeWoskin says. That means no crumpling, dropping or stuffing it hastily in your pocket.

Don't Bow While:
this was once a Chinese tradition, and is still common in neighboring countries, the Chinese have mostly dropped the habit, especially when dealing with Westerners.

Remember All Those Things Your Mother Said:
Certain lessons are universal. Be polite. Eat what you're served--if not in great quantities, at least with enthusiasm, says DeWoskin. "If you treat people with patience and empathy, you'll get farther."

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Labour Supply: Falling Short

This article was posted on the China Business Services Blog by Jeremy Gordon on may 23, 2007. In it he describes the shortcomings of the Chinese labour supply in the years to come.

There are at least 764 million (and counting) reasons to believe that you will be able to find affordable staff for your business in China. As People’s Daily explains:

• “China had employed a total of 764 million people by the end of 2006, an increase of 5.75 million people over the year-end of 2005, and there were 8.47 million registered urban unemployed people with the urban jobless rate of 4.1 percent…according to the 2006 annual labor and social insurance statistical communique released jointly by the Ministry of Labor and Social Security and the National Bureau of Statistics (NBS) on May 18.
  
• …325.6l million people, or 42.6 percent, come from the first industry or agriculture; 192.25 million, or 25.2 percent are from the second industry or the industry; and 246. 14 million people, or 32.2 percent, are from the tertiary sector, or service trade.
  
• ….the average annual salary of workers from urban work units amounts to 21,001 yuan, a rise of 14.4 percent rise over 2005 and, deducting price factors, the actual increase rate was 12.7 percent. The average annual wages of on-job workers in the state-owned enterprises reached 22,112 yuan, that of those working in collective units was 13,014 yuan, and that of those in other units was 20,755 yuan, with an average daily income of 83.66 yuan for urban workers.

But despite the big numbers, it is not so simple. In another article People’s Daily reports that:

• “China has been shifting from an era of excessive labor power to a labor power shortage, with its turning point likely to occur in the 11th Five-Year Plan (2006-2010) period and, to be specific [sic], it could be in 2009.
  
• According to the “China Employment Growth and its Structural Change” released by Cai Fang, director of the Institute of Population and Labor economics under CASS [Chinese Academy of Social Sciences]…China’s current labor supply structure is being shifted from the surplus to the labor power balance, even to the labor force shortage at times.”

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Chinese Partners, Western Firms and the "Hotel California"Effect

In a recent post on the China Economics Blog, this article describes the problem of corruption in the Chinese Central Government which might arise when a foreign company tries to break into the China market.

In recent economic papers by myself and others it has been shown that corruption has a negative affect on FDI (at the country and regional level) as well as damaging reputation effects (and why of course China likes to keep all publicity about corruption levels to a minimum). This is not, of course, much of a surprise although there is the "speed money" theory where high corruption levels act to attract FDI if the investor believes that well placed bribes can speed up certain processes (and may then even result in increases in economic growth).

It is interesting therefore to get a new perspective - that of the advice given by foreign partners to Western investors/partners.

What is particularly interesting is that the "advice" from the local Chinese firms gives us an excellent glimpse into what is really happening on the ground and the perceived levels of corruption from locals.

This is in no way is meant to encourage Western firms to break the law but what is does show is that Western firms who DO stick closely to their perception of what the law is, are at a competitive disadvantage compared to local Chinese firms who may be taking so-called "short-cuts". Local firms are therefore exploiting local knowledge for economic gain and thus making business harder in China that it would be in a corruption free economy.

The other interesting aspect is what could be called the "Hotel California" effect. This is where foreign investment is allowed in with few restrictions, but once there it is made very difficult to leave.

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Consultative Selling and the China Sales Team

This was a recent post on the China Solved Blog which discusses the ways in which Chinese managers would be best utilized in the business world. It goes onto show that a groups of Chinese sales people might be the best approach.

There are many buzzwords flying around the business world, and most of them can be dismissed as over-simplifications, ineffective or just plain silly. One such phrase that sometimes gets thrown around too carelessly is “Consultative Sales” — and it’s a pity because the concept is so important for China-based sales teams.

The China market needs a consultative sales approach because traditional Chinese salespeople are not natural problem solvers, but many potential buyers are in serious need of expert advice. If you manage a sales or marketing team in China, then you should consider training your people to sell less and consult more. It may make a big difference to your bottom line.

Consultative Sales is about taking business problem-solving to a new level. The value-adding salesperson already knows that he has to present his product offering as a solution to a business problem – and not just negotiate based on price.

Let’s take a quick look at the Consultative Selling process, and describe how it applies to the typical Chinese sales team.

1. Analyze the Decision Making Unit to determine how THEY understand their business challenges.
2. Understand the company’s business model.
3. Identify the company and industry ‘business drivers’.
4. Present a creative, effective solution.
5. Follow up to see what worked – and what didn’t.

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