06 August 2007 00:00 [Source: ICB]
Chemical companies continue to expand into China. But for all its promise, bureaucracy, cultural differences and skill shortages can make international migration a human resources nightmare
IT'S NO secret that major US and European petrochemical companies have been falling over themselves to gain a foothold in Asia over the past decade. China in particular has become a firm favorite, boasting double-digit GDP, cheap production and an abundance of low-cost labor.
But migrating is far from simple. Before making the leap to establish a site there, stop and consider the human resources challenges that you will inevitably face.
As a major manufacturing hub and a key part of the global supply chain, it is becoming increasingly tough to take advantage of this thriving market from outside the country's borders. A permanent and very visible presence can therefore prove extremely lucrative, helping to establish a company as a truly global firm.
Western executives who have made the move to China concur that it is not handling bureaucracy that is the biggest headache, but cultural and language differences.
Language is perhaps the most obvious hurdle faced by Western companies, says Grace Cheng, managing partner at global recruitment firm Russell Reynolds Associates, but cultural differences are far harder to grasp. Language can be learned, whereas culture has to be understood.
"Even though people may not understand each others' language, they can still communicate well. It's all about culture," she says. "Chinese culture is full of understatement you really have to understand what people think and not what they say."
With English not widely spoken in China, and most Westerners not particularly well-versed in Chinese characters, eastbound firms plow plenty of time and money into improving communication.
"This is a major issue for a Western firm when investing in a move to China - a lot of Western companies provide their expatriate employees with language training, but not all of them provide cultural training," says Jeff Lu, assistant director, corporate finance team, at UK-based accountancy firm PricewaterhouseCoopers. "This is an essential part of making a success of your business."
But there is plenty of opportunity for misunderstanding, he adds. While Westerners may be versed in debate and discussion, common traits among their Chinese counterparts include discretion and a lack of aggression, often using softer tones and diction. The Chinese are far less direct than people in the West, says Lu, and do their utmost to avoid conflict. While it may be acceptable for a Western employee to share their opinions with their manager, the Chinese are far more reserved. Yet silence could suggest disagreement in some situations.
Although there is an abundance of applicants keen to take advantage of the opportunities and comparatively generous salaries offered by Western firms, finding suitably skilled management can be difficult. Although graduate numbers are soaring, with many well-educated candidates looking for work, filling management roles can prove difficult.
"We have over 5,500 employees in China and recruit more than 95% locally. It can be difficult to find qualified resources," says Priscilla Leung, director of human resources at BASF (China). "The difficulties vary due to China's large geographic spread. In general, there are two main areas: a shortage of professional talents, especially for management and leadership positions, and fierce competition for talent."
Any advantages Western firms used to hold over local private and state-owned firms have all but disappeared. Not only is the market rapidly filling with players, but Chinese firms are aggressively competing for the top talents emerging from colleges and universities.
"In China today there is a huge imbalance between supply and demand for talent," says Cheng. "For the talents it's a sellers market, so for each good candidate they can be holding two or three offers at a time."
At first it was extremely attractive to work for a foreign company, she adds, but the past decade has seen local enterprizes grow more powerful. Today, multinationals can still pay more than Chinese companies but these are increasingly luring talent away, offering even higher compensation, stock options and shareholding opportunities.
Staff retention is also problematic. Where Westerners seek reassurance about job security and hope for longevity, job hopping is common in China as locals flit between rival firms on the promise of slightly improved salaries.
"It's always a challenge to recruit and retain top talents in fast-growing economic areas. This is indeed the case in China, especially in the booming region along the southeast coast, where many global companies are building or expanding businesses at the moment," says Leung.
Ruud Derks, general manager of DSM's Zhangjiakou joint venture (JV), 160km (100 miles) northwest of Beijing, says the company works hard to hold on to employees. DSM is one of the best payers in the city, he says, and also provides pensions and insurance - benefits that some firms still don't offer.
Although not obliged to fill employment quotas, he notes that discrimination is rarely an issue in China. Almost half of his 600-strong workforce is female, and he is also encouraged to employ people with disabilities. The only obligation, he says, is that each year, businesses must hire someone who has completed their national service with the military.
Most multinationals try to transplant their best practice into China and encourage their employees to work as they would in the West. But as many of these procedures and management practices are not part of the Chinese tradition, it can take time for the different nationalities to accept and understand them, notes Derks.
"It's no more difficult moving to China than to any other country, but it can take a while to implement change," he says. "To survive in China you really need to show you are better than your rivals, which means having better management and better technology. In a low-cost region compared with Europe and the US, this can prove expensive and I think it is difficult for some of our Chinese employees to understand why we spend so much on certain things."
Regulations, labor laws and social benefits may vary from those in the West, but culture-wise it is the working relationship that is fundamentally important.
Building relationships at an early stage is of the utmost importance to people in the East, occasionally to the detriment of a project's progress. Generally, priorities are different for Westerners who prefer to start a project at the earliest opportunity and let a relationship develop naturally.
Some firms make their foray into a foreign market by forming a JV with established local firms, easing their transition in to a new country and helping to cut through politics and red tape. This proved particularly useful when there were restrictions on foreign investment before China entered the World Trade Organization in 2001.
In the past, such a partnership had been prone to difficulties, particularly if both parties had different agendas. The Chinese partner may have been looking for capital, technology and management practice, says Cheng, with the foreign player instead looking for a license to operate, and for market share.
Nevertheless, BASF's presence in Nanjing, ExxonMobil's new contract to build a refining and cracker complex in Quanzhou, and Dow Chemical's agreement to build a coal-to-chemical complex in Shaanxi prove that JVs are still extremely popular.
The application process for licenses and permits can be lengthy and unclear, often involving dealings with central, provincial and local governments. Although this has been streamlined in recent years, the process can be far more complex than in Europe or in the US. As some local authorities have little experience dealing with foreign companies, collaboration with a local partner can make the experience a lot easier.
This also provides a valuable opportunity for firms to work closely, blending the knowledge of local and expatriate employees and helping to break down cultural barriers.
These, and a multitude of other barriers, make a company's expansion into Asia, and specifically China, an extremely challenging process. Still, any difficulties are easily offset by the huge potential of the rapidly growing country, which makes it all the more important to move East as quickly as possible.
Moving East? For more information on recruitment, employment law, taxes or insurance, visit these websites:
Mercer Human Resource Consulting: www.tinyurl.com/yqz6ep
People's Republic of China government website: www.tinyurl.com/2hmmyq
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