China Hiring: 10 Star Signs

This was a recent post on the China Solved Weblog. It discusses the potential signs which may be visible if your company has hired the correct employees for your business.

In China hiring is job number one. But what about the times when you have gone through the process and have actually found someone you think is a strong fit for your company. How can you be sure that they are the right one?.

What are the signs you did a good job in the hiring process and got yourself a Star, or at least a good employee:

1. Stars hit the ground running and things seem to happen quickly. Look for solutions to problems you have been fretting about for some time, and also for problems you never even thought you had.

2. Fitting in comes easily to Stars. If you find have an instinctive level of comfort in the information you are willing to share with a new recruit, like as not you have done a good job in hiring them.

3. Good staff have sufficient understanding of themselves to get over the cultural constraint on having opinions in China. They also know how to express these opinions without alienating everyone on the time. Look for the new staff member speaking up at meetings.

4. Consistency is key. If the candidate at interview says he plays tennis and you see him heading out the door to play tennis you have a greater chance that the stars were not in your eyes when you interviewed him.

5. The candidate had an interesting personality at interview and they still have. And it doesn’t grate on your nerves.

6. You are not having to continue selling them the role after they have joined. This is the case with many candidates in China who take jobs on the basis that there is a 3-month probation period, during which time they can decide if they want to stay, or not. Call them the Unstable Dwarf Stars. True Stars know themselves well and see the fit that the new role has with their career.

7. You just learned a new thing. Even after many years in the business.

8. At interview you identified the new employee’s motivation as a general dissatisfaction with the status quo in his previous company. On the job you can see that he wants to work in a new way.

9. At the very least you have the sense that there is no need to pass judgement on the new employee yet. There are no signs that there is a specific problem. This may be the case if you are busy, and everyone in China is busy.

10. They haven’t complained yet, and there is no hint of a soon-to-be request for a higher salary.

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AdMark China is committed to finding for our customers the best possible talent as quickly as possible. Contact us at info@admarkchina.com or at +86 21 6288 9292.

Retaining Chinese Employees

This was a post on the China Business Review by Sheila Melvin which goes into great detail about what problems may arise in retaining and recruiting Chinese employees for a multinational company.

How do you keep and maintain a stable and qualified workforce?" asked one expatriate general manager, citing his prime concerns for the joint venture he runs. "How can we attract and retain workers with new ideas?"

If these questions are prime concerns for a general manager, they dominate the working lives of human resources (HR) professionals. The three basic tasks of HR managers — recruitment (see Recruiting the Right People), retention, and compensation and benefits (C&B) — are as fundamental in China as anywhere. But HR managers in foreign-invested enterprises (FIEs) in China have had to devise creative ways to carry them out to remain competitive in China's tight market for local managerial talent.

Retention in particular is the lynchpin of a company's HR strategy and is crucial to building an effective workforce and a thriving business. It is vital to short- and long-term stability, efficient day-to-day functioning, and the achievement of long-term goals such as localization — the replacement of expatriates with local Chinese managers.

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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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AdMark China is committed to finding for our clients the best possible talent as quickly as possible. Contact us at info@admarkchina.com or at +86 21 6288 9292.

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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AdMark China is committed to finding for our clients the best possible talent as quickly as possible. Contact us at info@admarkchina.com or at +86 21 6288 9292.

Does Your China Operation Have a Staff Retention Plan?

This article was originally posted on the China Solved Weblog. It describes the ways in which a foreign company operating China ca better retain their employees.

One of the single biggest challenges for China-based managers is building and maintaining a high quality, well-trained staff. Many senior ex-pat managers have found that as soon as they train one of their local staff members, they leave for new positions with the competition - or worse, they try to set up their own competing business.What goes wrong?

Western managers believe that rational people will act in their own self-interest. Furthermore, their collective experience teaches them that the best workers are eventually rewarded with the best compensation and opportunities. Nothing works like success. It’s the Great American Dream.

Chinese managers have a completely different set of experiences and expectations. They haven’t seen anyone climb the corporate ladder – or even retire comfortably after a stable career. The history of free-market economics is too short to see the benefits of cultivating a stable career with a single firm. The Great Chinese Dream is still largely rooted in building a successful self-owned business. Barring that, many Chinese success-stories have involved job-hopping.

So what can an ex-pat manager in Beijing or Shanghai do to retain staff? We have 3 ideas you can start implementing right away:

1) Management Development Program.
Make it formal, and stress career paths. Many young Chinese do not understand the concept of the career ladder. Design a mentoring program where your more experienced managers can coach and develop new hires. MD programs work best when they are not open to all employees. A little exclusivity can go a long way – especially in China.

2) Intrapreneurship.
US hi-techs were faced with a similar problem of “brain-drain” in the late 1980s and 1990s. One of the responses they experimented with was known as “intrapreneuring”, where the company helps key staffers achieve greater autonomy and start their own business units while still cooperating on some level. These can be done in several ways. First, you can actually fund or otherwise support a break-away staffer or group, and negotiate mutually beneficial terms. Another approach is to give special operating unit autonomy to start their own business within the framework of your existing company. Of course you will have to deal with compensation, profit sharing and equity issues. This approach may not suit every situation, and will work much better if the system is put in place BEFORE your key staffers have already bolted with your client list and trademarks.

3) Project management.
Face facts and deal with the problem head on. Sometimes no matter what you do, you will be burdened with the high costs and dislocating effects of high turnover. Pull your head out of the sand and take steps to minimize damage. Try to organize as many tasks as possible into short-term projects that terminate with a de-brief and a set of practical deliverables. Your company only holds on to salesmen for an average of 9 months? Make sure you have a systematic means of capturing their client information. Your low-level HR people leave after 6 months? Assign them projects like compiling a directory of value-added consultants and trainers. These measures should be designed to build up the institutional knowledge at your company, so that you can be effective even if there is high turnover. The more you can systematize the project, the better. Again, consider using bonuses and other incentives to encourage compliance.

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AdMark China is committed to finding for our clients the best possible talent as quickly as possible. Contact us at info@admarkchina.com or at +86 21 6288 9292.

Job Retention for Chinese Managers - Not All About the Money

This was a recent post on the China Solved Weblog which discusses ways in which foreign companies in China can more easily retain their top employees and managers, without necessarily giving them raises.

Managers that have good retention rates for key people are much more concerned about their team’s development and responsibility level than about their compensation. Younger workers and first-time managers are particularly keen to find and hold on to opportunities that let them develop their careers and grow into jobs. Chinese managers and workers consider growth and learning opportunities to be key reasons to stay at a job.

Do you delegate? Do you know how your key people feel about their jobs and their own skill levels? International managers in China need to be more proactive about staff development and career coaching than they would be back home. Just because your Chinese staff isn’t asking about careers doesn’t mean that they don’t have questions.

I’ve noticed 3 commonalities among managers who succeed in holding on to teams:

Responsibility
Senior managers at companies with strong Chinese teams are big on delegation and giving new responsibilities to key staff. This is a major driver for Chinese managers, and can well determine whether or not they accept that new offer from your competitor. Senior managers need to understand how imporant the responsibility issue is, and make sure that their organization has formal and informal systems in place for giving young managers more opportunities. WARNING: Your view on how much you delegate – and how systematically – tends to vary widely from the view of you delagatees, so try to gauge their reactions carefully.

Training & Development
Constant development reinforced with formal training programs is another effective team-builder. Here is where those Management Development and Mentoring programs come into play, if you were considering one. A big part of this is job design, so work with your people to make sure they understand how their performance now shapes their career. Review basic notions of the ‘career ladder’ and discuss potential promotions.

Smaller teams and young organizations seem to be the best learning environments
Young managers appreciate lots of time and feedback from top managers – and clearly this is easier to pull off in a small shop where you have fewer than 20 people. Beyond that, it gets tough. But senior people need to understand that local staff and teams need to be managed a bit more closely than their western counterparts. It’s easy to miss the personal elements of management when you are going full speed in other areas of business, but good team-building skills will benefit your organization for the long-term.

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AdMark China is committed to finding for our clients the best possible talent as quickly as possible. Contact us at info@admarkchina.com or at +86 21 6288 9292.

Hire and Train Based on Behaviors, Not Intentions

This was a recent post on the China Solved Blog which at temps to describe to foreign company heads that hiring and training employees can be very different from that of the United States or Europe.

Imagine you are a film director and you spend 5 days recording the work of key people in your office. You’re making a movie called: “Doing It Right” and you want to catch everyone in your office doing exemplary work. Congratulations – the film is done. Now you have to make the trailer.

Pick 3 scenes from your film for the trailer. Identify 3 examples of people doing things the way you want them to get done.

What are the people doing?
If you said “selling” or “calling a client”, you are describing the activity.If you said, “applying pressure” or “acting likeable”, you are describing a behavior.

Start paying more attention to behaviors when you are hiring and training.
A description is the story.
A behavior is the thought and action of one person in one set of circumstances.

“Attending a meeting” or “writing a report” describe activities. Anyone can perform those tasks. “Trying to persuade others” or “wasting time” are behaviors, and they describe actions in a way that includes the actors’ perspective.

Behaviors indicate what’s really going on in the person’s head. Behaviors and Intentions are often different, but people confuse them all the time.

Hire and manage based on behaviors, not intentions. If your sales team feels that building relationships is the best method but you want a more systematic approach involving schedules, then you don’t have a SKILLS problem. You have a disagreement over behavior. Someone’s behaviors have to change for the outcome to be successful.

Behaviors can be good or bad, and they can be changed. But managers have to identify what behaviors they really want to hire. If you want salesmen who behave aggressively with clients, they are also going to behave that way in the office. Polite, friendly, funny salesmen are great to work with, but they are polite and friendly with customers too.

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AdMark China is committed to finding for our clients the best possible talent as quickly as possible. Contact us at info@admarkchina.com or at +86 21 6288 9292.

Wish for More Wishes When Doing Chinese Hiring

This article was first posted on the China Solved Weblog. It is about a misconception of on the job training. It suggests that companies should focus on hiring better qualified applicants than relying on teaching them what they need to know when they get on the job.

Look for managers who can train other (potential) managers. This not only builds stronger teams, but makes your managers more proficient at a key skill.

What’s that you say? You already have an ‘on the job training’ program? Well, it may be worth investing in a Train the Trainer program to make sure your middle managers aren’t traumatizing your new hires.

Train the Trainer programs divide the world’s knowledge into two categories.

1) Technical skills.
2) Communication skills.

Technical skills are the ability to sell, work the machine, find the inventory, collect the funds, or whatever else is involved in the job itself. You want your new hires to acquire these technical skills as quickly and cheaply as possible, and the easiest way for them to learn to have your experienced workers teach them. 2 problems quickly emerge: Your old workers may not have any interest in training their own replacements. Even if they want to teach the skills in question, they may have not idea how to effectively transmit the information.

Communication or teaching skills are COMPLETELY different from technical skills .This refers to your managers’ abilities to effectively and efficiently transmit their knowledge and successfully teach new people. This is NOT a natural skill or ability for most people, and requires learning and practice.

If you are depending on an “on the job” training program, it is YOUR responsibility to make sure that standards are high and that there is proper feedback. This is a great subject for coaching and relationship building between you and your managers. Discuss training methods, goals, benchmarks and feedback rules so that your entire team is delivering consistent, high-quality training within your organization.

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AdMark China is committed to finding for our clients the best possible talent as quickly as possible. Contact us at info@admarkchina.com or at +86 21 6288 9292.

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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AdMark China is committed to finding for our clients the best possible talent as quickly as possible. Contact us at info@admarkchina.com or at +86 21 6288 9292.

China HR: Training vs. Development

This was a recent post on the China Solved Weblog which describes how to better develop your talent and different to try and get the most out of your employees.

All China managers know about the importance of training. Most international companies have some form of induction training, job skills training and English training – which are very good ways to make sure that entry-level employees and mid-level managers have the skills that they need to do their jobs effectively. But international managers provide answer to 2 other questions:

1) Where is my company’s next group of professional leaders and managers coming from,
2) How do we retain those employees that have been with the company for long enough to have acquired good skills and training?

For international managers in China, these are the 2 biggest challenges we face. Finding qualified managers, and holding on to those employees that we have already trained. Fortunately, both of these challenges may have a single solution. What is this “magic bullet”? A well structured Management Development (MD) Program.

What is a Development Program? It’s is a systematic process to develop managers ‘in-house’, or from among your existing staff. It is similar to TRAINING, but instead of focusing on specific job skills and information we are now focusing on developing a manager’s personality, intellect and leadership skills. A development program will do the following:

Forecast what your company’s future managerial needs are likely to be.
Identify which of your existing staff members and managers have leadership potential.
Allow you to work with company leaders to determine what your company’s leaders should be like in terms of:

• Experience
• Ability
• Education
• Personality
• Goals

It is important to remember that a Management Development (MD) program is a long-term commitment to develop company leaders. “Soft” skills, like leadership, interpersonal communications, teamwork and networking abilities are very important.

What are the benefits of this type of program? First, it will help insure that your company always has enough potential managers to meet its future needs. But a second benefit that may be even more important is that an MD program can help your company retain the high-potential young managers and staff members who can now use their experience to find higher-paying jobs at a competing company.

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AdMark China is committed to finding for our clients the possible talent as quickly as possible. Contact us at info@admarkchina.com or at +86 21 6288 9292.

Hire From The Deep End of the China Talent pool

This was an article posted on the China Solved Weblog which discusses how companies should be hiring and the things which they should be looking for in their new prospective employees.

Success in China will be earned by those companies (and managers) who can effectively hire, train and develop from the vast pool of young and inexperienced graduates (and dare I say it – even those young Chinese that never attended universities) that are ambitious, eager to work and hungry for opportunity.

I have been saying this for a while, but I reconfirmed my belief in hiring from among the “uncarved wood” of the China job market yesterday when I was buying electronics in Shanghai’s Metro City Shopping Center. That’s where I’ve learned most of what I know about Chinese business and management, because it’s the ideal laboratory. Hundreds of shops selling similar – but not identical items – all packed in right next to one another. At first it seemed like an undifferentiated mass of cells in a giant hive – each operating exactly the same way. But after a while, patterns start to emerge – and you can see three archetypical approaches to Chinese business and sales.

Say anything. One-off salesmen and hucksters still abound, and they would say anything to separate me from my cash. I couldn’t get out fast enough.Say nothing. Ignore the customer and do anything rather than engage. These were usually people who weren’t being compensated for success, or didn’t have the training (or mental firepower) to explain their own products.Listen first. Then say the right thing, add value, give good service, and make the sale.

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AdMark China is committed to finding for our clients the best possible talent as quickly as possible. Contact us at info@admarkchina.com or at +86 21 6288 9292.

Firms on the hunt for Accounting and Legal Talent

This article, posted on the China Law Blog by Dan Harris, discusses how all firms are now searching for the talent in China, and it is hard to come by, even for the Chinese companies in China.

The “big four” accounting firms are planning staff increases of 20-30 percent this year – driven by staff shortages, and heavy workloads as companies prepare for the introduction of new accounting standards - according to reports in the FT and other papers. This is how they stack up:

• PWC: Adding 1,500 graduates and 500-700 experienced staff (to its existing 6,450 staff in Hong Kong and mainland China).
• Deloitte: Adding 1,500 new staff by the mid 2007 (to its existing 4,960 staff in the mainland and Hong Kong).
• KPMG: Adding 1,000 graduates and 300 experienced staff (to its 4,500 existing staff)
• Ernst & Young: Adding 800 staff (to its existing staff of 3,500 in mainland China).
  

There is obviously a lot of competition for talent, including from the financial services and corporate sectors, and qualified local staff should have a fruitful year. The second-tier local (and foreign-managed local) firms are also growing strongly, as many mid-sized companies seek an alternative to those mentioned above.

As has been seen in the legal sector it is likely that the big foreign firms will be poaching people from local rivals – perhaps paying top dollar, and ruffling a few feathers in the act. As big firms such as Deloitte and Ernst & Young have already had some bad press recently (see here and here), I would suggest those firms beef up on their PR as well as on their bean-counters. I would not be surprised to find some defensive action being taken by the local industry.

One leading Chinese law firm is already taking some offensive action. Following the recent attack on foreign law firms in Shanghai (see here), The International Herald Tribune reports that King & Wood, China’s biggest law firm (with 450 lawyers), is planning to hire about 100 more lawyers in a direct challenge to foreign competitors.

For all those using accounting and law firms (big and small) in China, be aware of the pressures that are being brought to bear, and make sure that you know what resources are available to you in your (always unexpected) hour of need. Your trusted contact at the firm you usually rely on may not be around forever. For that matter, consider buying your long-suffering and unloved in-house accountant or lawyer a drink some time soon…

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AdMark China is committed to finding for our clients the best possible talent as quickly as possible. Contact us at info@admarkchina.com or at +86 21 6288 9292.

On Choosing Your China Expert

In an article posted on the China Law Blog by Dan Harris, on March 27th, 2007, recruiting and finding so called Chinese experts is allot tougher than you would expect.

Nobody who really knows China claims to be a China expert. Need an attorney to assist in your China company formation? I'm your guy. Need an accountant to handle your Chinese tax issues? I'm your guy. Need a business consultant to help determine the best location for your China manufacturing business? Me. Need consulting on China HR? Me, again. Help with China manufacturing/engineering processes? Hey, count on me for that too. China quality control? Piece of cake. China real estate investing (retail, residential, office, manufacturing, warehouse)? I got you covered. China logistics/shipping/trucking/customs? I know them all. Oh, yeah, I forgot to mention I am also expert on China economics, China history, Chinese psychology, and China sociology. Did I miss anything?

You get the point.

The truly good China experts are at least somewhat specialized, just as is the case in the United States and virtually everywhere else. Anyone who claims to know too much about China almost certainly knows too little.

Before you or anyone seeking to act on your behalf can even begin looking for the right "China expert," there must first be an understanding of the type of expert required. Once you have some idea of the sort of expert needed, you then must, of course, find that expert within the particular China field. I wish I could pass on some big secret as to how to find that particular expert, but unfortunately, I think the best way is through word of mouth. The tough part is getting to the first mouth and making sure it is the right one.

There are countless truly excellent China business experts out there in a whole host of specialties, but there are also many who should be avoided. There is no surefire way to know where to turn, but talking with those people you already know and trust is certainly the best place to start.

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AdMark China is committed to finding for our clients the best possible talent as quickly as possible. Contact us at info@admarkchina.com or at +86 21 6288 9292.

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.

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AdMark China is committed to finding for our clients the best possible talent as quickly as possible. Contact us at info@admarkchina.com or at +86 21 6288 9292.

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.

AdMark China is committed to finding for our clients the best possible talent as quickly as possible. Contact us at info@admarkchina.com or at +86 21 6288 9292.

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.

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

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Does Education = Qualification?

Jeremy Gordon posted a piece on his China Business Blog talking about the real qualifications of young Chinese graduates. he asks is the Chinese graduates really had the knowledge to lead companies.

First off, are these figures on education which were provided by Joe McGeehan, Director of the Centre for Communications Research at Bristol University (speaking at the Chatham House China Communications conference. He reported that in 2005 in China there were (the referenced source was China Education and Research Network):

• Universities: 701
• Polytechnics: 1,091
• Vocational Institutes: 481

Populating these institutions were:

• Students: 23 million in higher education
• Undergraduates: 15,617,800
• Postgraduates: 978,000

So, there are a lot of students with a lot of qualifications…but the question remains: how many of them are qualified, in practical terms, to achieve things in business? A common theme in conversations recently has been the need for qualified people – not just people with qualifications (as an MBA does not necessarily a great manager make). The “war for talent” (and the fight for staff retention) is one that businesses will have to get used to fighting in China.

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

AdMark China is committed to finding for our clients the best possible talent as quickly as possible. Contact us at info@admarkchina.com or at +86 21 6288 9292.

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.

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

AdMark China is committed to finding for our clients the best possible talent as quickly as possible. Contact us at info@admarkchina.com or at +86 21 6288 9292.