Sun Rising in the East – How to Approach the
WED, FEB 27 2:00 PM AUGUSTA Concurrent Session: Sales & Marketing Track Sun Rising in the East – How to Approach the Chinese Staffing Market Speakers: Jas Chong, Founder, Ascent Human Capital Consulting John Nurthen, Executive Director, International Development, Staffing Industry Analysts © 2013 Crain Communications Inc Agenda China overview • • Economy Society and Culture Doing business in China The Chinese Staffing Market • • • Legal Issues Market Landscape Risks & Opportunities © 2012by Crain © 2013 CrainCommunications Communications Inc Inc © 2012by Crain © 2013 CrainCommunications Communications Inc Inc China Overtaking the US 1999 Steel consumption Mobile phones Net foreign assets Exports Manufacturing output Patents granted Retail sales Imports Fortune 500 Firms GDP at PPP Stockmarket capitalization Consumer spending Defence spending 2012 2025 1999 2001 2003 2007 2010 2010 2014 2014 2016 2016 2020 2023 2025 Source: The Economist Estimates © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Impending Chinese Ascendancy 2050 GDP Forecast (USD Trillion) 60 50 40 30 20 10 Germany France UK Indonesia Mexico Japan Russia Brazil India USA China 0 Source: Goldman Sachs Global ECS Research © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Introduction to China Officially the People’s Republic of China (‘PRC’) • ‘Mainland China’ World’s most populous country and second largest by land area • 55 Ethnic minority groups 4,000 years of civilization • Numerous historical incarnations Communist State since 1949 © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Economy GDP $7.318bn • • • • 9% growth in 2013 GDP per capita: $5,445 World’s fastest growing economy since 1978 State owned enterprises (‘SOE’s) are responsible for 50% of all goods and services • The government makes no secret of its support for state-owned enterprises. Foreign companies should not expect a level playing field Labour Force: • • Diversity by Province Agriculture Manufacturing Services Unemployment Ratio: 4% © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Chinese Employment by Sector 90% 80% 70% 60% Primary Sector 50% 40% Tertiary Sector 30% 20% Secondary Sector 10% 0 1952 2011 Source: National Bureau of Statistics of China © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Five Year Plan 12th Five Year Plan (2011–2015) is currently being implemented and includes strategies to: • Rebalance the economy between coastal cities and rural areas • Modernize the agricultural sector • Encourage innovative research and development • Develop greater resource efficiency and focus on environmental impacts and conservation • Create a better infrastructure • Generate greater openness to attract foreign investments especially in high tech areas • Deliver continual economic growth and curb inflation © 2012by Crain © 2013 CrainCommunications Communications Inc Inc China is Big! Province Guangdong Population Comparable-sized Country 104.3m Mexico Shandong 95.8m Philippines Henan 94.0m Sichuan Province Population Comparable-sized Country Shanxi 35.7m Algeria Guizhou 34.8m Canada Vietnam Chongqing 28.9m Malaysia 80.4m Germany Jilin 27.5m Venezuela Jiangsu 78.7m Iran Gansu 25.6m Saudi Arabia Hebei 71.9m Thailand Inner Mongolia 24.7m North Korea Hunan 65.7m France Shanghai 23.0m Mozambique Anhui 59.5m UK Xinjiang 21.8m Australia Hubei 57.2m Italy Beijing 12.9m Cameroon Zhejiang 54.4m Myanmar Tianjin 12.9m Senegal Guangxi 46.0m Spain Hainan 8.7m Sweden Yunnan 45.0m Ukraine Hong Kong 7.0m Bulgaria Jiangxi 44.6m Colombia Qinghai 6.3m Paraguay Liaoning 43.8m Tanzania Ningxia 6.2m Papua New Guinea Heilongjian 38.3m Argentina Tibet 3.0m Mongolia Shaanxi 37.3m Kenya Macao 0.5m Solomon Islands Fujian 36.9m Poland TOTAL 1,316.5m Source: When China Rules the World, Martin Jacques – 2010 Census © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Chinese Society & Culture Endemic corruption • • Key focus under Xi Zinping’s leadership The most severe financial crimes carry the death penalty Human rights abuses and political freedom restricted • Heavy restrictions on the Internet, the press, freedom of assembly, reproductive rights, and freedom of religion Lack of respect for intellectual property rights © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Chinese Society & Culture 292 living languages! • Standard Chinese (Putonghua) is the official spoken language • Simplified Chinese (Hanzi) is the official written language • Autonomous regions such as Mongolia and Tibet have their own official languages • English is taught from aged 10 and is a required subject for those attending University © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Communism Communist Party is the only party in the PRC • • • • Communism equated to liberation and nationalism Unitary government and centralized state, military and media No free elections “Socialism with Chinese characteristics” • Enduring traditions and values maintained • • Important reform towards market economy since 1980’s with ownership of private businesses permitted Government popularity • Public support for the government is among the highest in the world • 86% of Chinese express satisfaction with their nation's economy © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Influence of Kong Tse (Confucius) Once the core of the political and social system, the philosophy still has an impact on Chinese society despite Mao’s efforts to kill it off • • • • • • • Belief in humane authority, practical humanity and ritual harmony Benevolent leadership with government selected on achievement and ability, not heredity Belief in hierarchy and the proper order of social relationships, especially within the family Filial piety, obedience, loyalty and righteousness Collectivism over individualism Importance of education and scholarship Small government and limited taxation © 2012by Crain © 2013 CrainCommunications Communications Inc Inc The Art of War Ancient Chinese military treatise attributed to Sun Tse • • • Strategy and implementation for success Influence on business tactics and legal strategy, not just military thinking Situation, Timing, Landscape, Advantage, People (天时地利人) © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Highly Educated Workforce Science PISA Score Reading PISA Score Math PISA Score China (Shanghai) 575 China (Shanghai) 556 China (Shanghai) 600 Hong Kong 549 Hong Kong 533 Singapore 562 Singapore 542 Singapore 526 Hong Kong 555 Japan 539 Japan 520 Japan 529 Australia 527 Australia 515 Netherlands 526 Netherlands 522 Netherlands 508 Australia 514 Germany 520 Germany 497 Germany 513 UK 514 France 496 AVERAGE 497 USA 502 USA 500 France 497 AVERAGE 501 UK 494 UK 492 France 498 AVERAGE 494 USA 487 Source: OECD PISA Survey in Educational Attainment 2009 © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Agenda China overview • • Economy Society and Culture Doing business in China The Chinese Staffing Market • • • Legal Issues Market Landscape Risks & Opportunities © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Ease of Doing Business Australia 15 Japan 20 Mexico 53 Regional Average (East Asia & Pacific) 86 China 91 Russian Federation 120 Brazil 126 India 132 1 183 Source: Doing Business Project, The World Bank © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Risks in Offshore Provision Direct rendering of recruitment services from offshore without a legal entity creates risk • Permanent Establishment (‘PE’) risk from Tax Bureau • Pursuant to taxation agreements between China and most countries, the furnishing of services, including consultancy services, by a foreign company through employees or other personnel, where such activities continue (for the same or a connected project) within China for a period or periods aggregating more than 6 months within any 12 month period will create a PE • Foreign company’s business operation in China without legal presence (AIC and other government authorities) © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Forms of Doing Business Wholly-Foreign Owned Enterprise (WFOE’s) Level of involvement in China’s economic and legal system correlates to the range of activities and degree of control and degree of risk Joint Venture Establishing a Representative office © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Representative Office No separate legal person status Lawful activities: Indirect business activities such as: • • • Conducting research and gathering market information Promoting the business and products of the parent company Facilitating contracts, transactions and relationships Prohibited activities: • • • • Conducting any direct business activities Entering into contracts with customers Issuing bills or invoices Collecting or receiving payments in local currency There are no capitalization requirements © 2012by Crain © 2013 CrainCommunications Communications Inc Inc JV’s and WFOE’s Joint Ventures come in two forms • • Cooperative JV Equity JV Establishment of JVs or WFOEs subject to Catalogue for the Guidance of Foreign Investment Industries (Effective from Jan 30, 2012) • • • • • Subject to distinct, but similar laws and regulations Limited, specific business scope Documents submitted to MOFCOM/local counterpart for approval Parties must file for business license from SAIC Once licensed, the FIE exists as an independent legal entity with limited liability © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Economic and Technological Development Zones Special areas where foreign direct investment is encouraged • • • Currently over 120 national Development Zones throughout China Better infrastructure/more environmentally friendly Hubs for multinational firms Top five Zones (ranked by MOFCOM) • • • • • Tianjin Economic-Technological Development Area Suzhou Industrial Park (Jiangsu) Guangzhou Economic & Technological Development Zone (Guangdong) Kunshan Economic and Technological Development Zone (Jiangsu) Qingdao Economic and Technological Development Zone (Shandong) Also Provincial and Municipal Level Development Zones © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Getting Paid The primary risk of doing business in China is the difficulty of collecting full payment on time • “Contempt for the intangible” Government fundamentally hostile to payments made by Chinese companies to foreign service providers • Rules are unclear and all foreign payments deemed suspicious You can repatriate up to 90% of profits • A portion (at least 10% for WFOEs) must be placed in a reserve account © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Business Taxes Enterprise Income Tax: 25% • Preferential rate of 20% for qualified enterprises with “small profits” Business Tax for services: 5% for staffing services • or Value Added Tax for products: 3% or 17% • New harmonisation initiative in Shanghai sets VAT for staffing at 6% Withholding Tax for Capital Gain: 10% • Imposed on dividends paid to a nonresident company unless rate is reduced under a tax treaty © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Income Tax and Social Payments Progressive income tax system from 3% to 45% • Top rate for those earning RMB 80,000 (approx $12,810) Complex social payments varying by Province/City and calculated depending on the average local monthly wage • • • • • • Pension (usually 8% for employers) Basic Medical Insurance (typically between 7% to 12% for employers) Work-related injury insurance (usually 0.5% to 2% for employers) Unemployment Insurance (between 1% and 2% for employers) Maternity Insurance (between 0.5% - 1% for employers) Housing Provident Fund (at least 5% for employers) © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Contract Law in China Chinese Courts do respect contract law • • • • Most principles under international law are applicable Proper execution is important including company seal/chop Chinese party will normally insist on local PRC law Normally, only actual damages will be awarded by Courts for losses (other than death or personal injury) Contract negotiations take longer • Focus on building the relationship, not just getting a signed contract • Eating and drinking are part of the negotiation process! • Involve a lawyer © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Labor Unions All-China Federation of Trade Unions (ACFTU) is the sole national trade union in China • 31 regional federations and 10 national unions making it the largest union in the world • Responsible for over 1.4 billion collective agreements covering 2.4 billion enterprises and 185 million workers • Aims to enforce collective bargaining at any Fortune 500 companies in China • The only legal trade union in China – any other set up is illegal • Less government control in recent years allowing ACFTU to better represent workers’ interests • Labour disputes and strikes now more common © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Agenda China overview • • Economy Society and Culture Doing business in China The Chinese Staffing Market • • • Legal Issues Market Landscape Risks & Opportunities © 2012by Crain © 2013 CrainCommunications Communications Inc Inc The Chinese Staffing Market Chinese staffing market revenue = $4.8 billion in 2012 • 18% larger than the New Zealand staffing market • Market grew by +14% in 2012 • Staffing Industry Analysts forecast growth of +14% in 2013 Largest Staffing Firms Company 1 CIIC 2 Fesco 3 Fesco/Adecco Source: Staffing Industry Analysts’ estimates © 2012by Crain © 2013 CrainCommunications Communications Inc Inc The Chinese Staffing Market Blue Collar • Mainly migrant workers from rural cities • • The era of low wages is ending as wages demands are rising • • Subject to very low wages and harsh working conditions Union more active in protecting workers Changing ambitions of youth towards white collar work White Collar • • Rising level of education to feed demand for white collar roles Lack of good managerial skills compounded by high attrition rates • • • Low level of job loyalty Currently, the most challenging issue Attrition above 20% in most industries (and above 30% in recruitment industry) © 2012by Crain © 2013 CrainCommunications Communications Inc Inc The Chinese Staffing Market Temporary staffing is mostly quasi-outsourcing/payrolling • Third of workforce on temporary contracts • Referred to as ‘dispatch’ • Foreign companies cannot directly hire workers • Licensing by Province • Brokers source labour in villages and charge a commission to agencies © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Labor Contract Law Staffing companies must employ temporary workers on two-year fixed contracts • Early termination requires compensation • One month’s salary after six months, two month’s salary after one year • Minimum salary must be paid between assignments Assignments must be ‘temporary’ in nature Capital requirement of RMB 500,000 (approx €60,000) Internal agencies not allowed No fees charged to workers • But common practice in the manufacturing sector © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Proposed Revisions to Labor Contract Law Draft amendment to Labor Contract Law announced to counter abuse and tighten loopholes to come into effect in July 2013 • Capital requirements increased to RMB 2,000,000 (approx €240,000) • Temporary workers to enjoy payments, including all welfare and benefits, equal to permanent counterparts • “Dispatched workers” can only be employed in positions which are temporary, auxiliary or substituting in nature • Temporary work should last no longer than six months • Local governments in Shanghai and Guangdong have issued regulations or draft regulations of their own © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Other Employment Law Issues Minimum Wage varies considerably by region • Minimum hourly and monthly rates revised every 2 years Normal 5 day working week • • • Standard working time is 40 hours per week Three National Holidays (one week each) Parental leave Firing costs = 91 weeks of wages* Discrimination • • Prohibited on the basis of ethnicity, gender or religion No discrimination on the basis of sexuality or gender identity *Source: World Bank (The cost of advanced notice requirements, severance payments, and penalties due when terminating a redundant worker, expressed in weekly wages) © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Other Employment Law Issues Independent Contractors • • • • Very limited concept of independent contractors and not typically practiced Legally difficult to set up as independent contractor Risk of intellectual property infringement by independent contractors Risk of being sued for employment when hiring independent contractors Intellectual Property Law • • Law established since 1979 but enforcement has been difficult Low awareness and local protection meant that infringement is common and punishment not equivalent to loss © 2012by Crain © 2013 CrainCommunications Communications Inc Inc MSP/VMS in Asia Program Count by Country Rest of World 1363 Source: Staffing Industry Analysts – VMS/MSP Landscape Report 2012 © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Risks (危机） Setting up your Chinese office is not easy Competition from State Owned Enterprises and local operators who evade the law Evolving legislative environment Getting paid and getting your money out of China Complex legal and tax environment with wide regional variations Corruption Shrinking cost advantage of low wages © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Opportunities （危机） High growth economy with excellent long term potential Continuing evolution of economy from manufacturing to services Economic reform may lead to the adoption of more Western business practices and more democratic government Support from government on key industries Better regulation will benefit foreign companies and limit competition from local non-complying companies © 2012by Crain © 2013 CrainCommunications Communications Inc Inc Any Questions? © 2012by Crain © 2013 CrainCommunications Communications Inc Inc
© Copyright 2024