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April 15, 2009

5 Points to Remember Before Hiring Local Staff

Expert advice on building your talent base in China's still competitive talent market

The world economic crisis has accelerated the trend toward localisation of the workforce. Before bringing on those new local managers, however, investors should do some careful planning and preparation. Jackie Wong, General Manager of JW Grace Consulting Co. Ltd and an experienced Human Resources consultant provides some inside advice on hiring the right local staff.

In the early years of China's opening to foreign investment, many international companies who set up operations in China relied on bringing in expatriate managers to fill the mid-level and high-level positions. The reasons were obvious -- it was easier for the header quarters to communicate with expatriates, and managers transferred in from the company's other offices would have a knowledge of the company's business that would make it easier for the investor to transplant their operations into the new market. Also, at that time it was difficult to find qualified local talent for higher level positions.

However, the cost of supporting an expatriate manager has become harder to justify. It is generally estimated that maintaining an expatriate manager in China will cost the employer about three times what the manager's compensation package was in their home country. Also, China's local talent pool developed rapidly over the last decade with many local people having gained overseas educational degrees and experience in managing at international companies. Research from the Association of Executive Search Consultants finds that it costs the company one-third or half the price to hire a local than relying on an expatriate.

With the world economic crisis, many companies are looking to cut costs by reducing their expatriate staffing levels still further. Since the crisis has led many companies to layoff experienced local managers, as well, it has meant an increase in available local talent for those companies still expanding.

Recruiting more qualified local managers may be a winning strategy in 2009 that can help your company grow for years to come. However, bear in mind that China's labour market and regulations are still developing rapidly, so to make sure that you hire the right people and avoid potential problems later, here are some things you might want to keep in mind during the headhunting process.

1.Understand the Labor Law

The central government promulgated the Labor Contract Law of the People's Republic of China (the new labor law) on the first day of 2008, which applies to all employers in the country. The new law requires written employment contracts for all staff, as well as a written employee handbook setting out the basic rules and regulations of employment. Failure to comply with the law can mean stiff penalties for employers, so before drafting employment contracts or employee handbooks, be sure you have gotten professional advice on these issues.

2.Be Prepared

Before hiring, the employer should prepare for the process. There are several things that are essential: First, a clear definition of the company culture and business development strategy, and a related talent development plan. These will help the candidate to understand the company background, and also Second, clear job descriptions and requirements for candidates will help your internal recruiters or outside consultants get started on finding you the right talent.

3.Hiring Through State-run Agencies

Foreign companies operating through representative offices can only hire local staff through government-run agencies like FESCO (Foreign Enterprise Service Corporation) or licenced agencies. While joint ventures and wholly foreign-owned enterprises are not required to use the staffing agencies, many find outsourcing their recruitment, payroll and HR management to these agencies to be time-saving and convenient. Keep in mind, however, that these services could be expensive because beside the recruitment fees, FESCO usually charge a percentage of the employee's salary for the first year.

4.Using Foreign Recruitment Agencies

Since China is now one of the world's largest human capital markets and salaries in many sectors are rapidly approaching par with the developed world, international headhunters are rushing in establish a presence. Big name recruiting agencies can provide Western standard services and their reputations are more familiar to foreign companies. However, these international recruiters may also bring with them higher costs, lack knowledge of local regulations, or have less support from local government agencies than customers of local recruiters may enjoy.

5.Retention of Top Talent

Finally, even in a down market, employers need to emphasise retaining their best talent. Even in 2009 China's employee turn-over rate remains high, and company leaders need to work hard to communicate the message that their team is winning and their company is a good place to be. Regular training programs, opportunities for employee recognition and company activities can help to keep morale high. And, of course, employers should remain aware of the salary scales for positions in their industry to ensure that their compensation programs remain competitive.