Seminar recordings and other resources from the Spring 2017 China Sourcing Summit

Global Sources hosts a China Sourcing Conference twice a year at their China Sourcing Fairs in April and October.  I have the honor of speaking at their events.  In case you didn’t have a chance to attend, in this blog post, I’ll share the seminar recordings and related resources.

Where to find the conference notes & video recordings?

Event Topic Recording/ Related Videos
Global Sourcing Trade Show (HK) China Sourcing 2017: Best practices & common mistakes https://www.youtube.com/watch?v=ppFv9SjzrAg

If you liked the seminar, you may also enjoy the following:

  • China Sourcing Academy A great resource for professional training.  I am honored to be one of the online instructors at the academy.
  • The Essential Reference Guide to China Sourcing (available on Amazon) or learn more about my book here.

 

FAQ: How to ensure the seller is not a scam?

Search SupplierBlacklist.com

A Corporate Assessment (CA) report can provide viability into the stability, assets & reputation of a target company.

Red Flag Assessment (RFA): Risk, Scams & Fraud exposure on a given transaction/deal when buying from a Chinese company.

 

FAQ: How to find a reputable sourcing agency?

Option A: If your project is ongoing and you could benefit from having a team working full-time on your behalf in China, then check out PassageMaker as they set up and manage virtual sourcing teams and production lines.

Option B: If your project is one-off or you don’t need full time support, please check out my list of endorsed service providers for QC, Logistics, Sourcing Agents, Engineering, Consulting and much more at www.SourcingServiceCenter.com .

 

FAQ: Where to find an English speaking lawyer in China?

www.AsiaBridgeLaw.com  Affordable, Professional, English-speaking legal & business advisory services. I am on their board of advisors and recommend them with confidence for:

  • IP Registration

  • Bilingual Contracts

  • Dispute Resolution (including Loss Recovery)

  • Business Advisory Services

  • General Legal Counsel

 

If you have additional questions about China sourcing, feel free to contact me at your convenience and I will do my best to assist you.   Looking forward to being of service and wish you successful China Sourcing.

Best Regards,

Mike

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If the information was helpful to you, please consider returning the favor in any of the following ways:

  • Share this email with a co-worker or business associate.
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PassageMaker’s Founder Interviewed by the Financial Times

PassageMaker’s founder (Mike Bellamy) was interviewed by the Financial Times about his professional and personal life in a special segment on how East intersects with West.

Visit www.FT.com for the full article entitled “A foot in both cultures”. Below are some highlights.

 

Blackbox assembly in China explained using Mike’s desk as a case study.

Multicultural Business and Family

The American founder of PassageMaker, a sourcing company that acts as a go-between for midsized western companies that supply retailers from factories in China, laughs when he describes how his teenage daughter symbolises this cultural ambidexterity. She picks “the eyeball out of a fish-head with chopsticks with one hand while helping herself to mashed potatoes” with the other.

Blackbox Assembly Explained

…while everyone wants the China price – ie the low costs associated with sourcing from the country’s factories – clients are just as concerned about being copied by suppliers who quickly become competitors. “We are a buyer-appointed firewall. Buyers don’t want the sub-suppliers to see too far up the supply chain,” he says.

The process used to manufacture his exercise bike-enabled desk is a case in point. Its steel legs are made by one manufacturer, the plastic table-top at another. The unit is then assembled at a factory owned by PassageMaker and shipped directly to Amazon – without even the middleman client in the US seeing the finished product.

The manufacturer of the steel legs could have been used to make the whole product but breaking up the process allows the company to protect its intellectual property. The company’s shift a few years ago from a sole focus on sourcing to protecting IP – what Mr Bellamy dubs a “black box” approach to manufacturing “to give clients a physical infrastructure to protect their IP when the IP laws don’t”

Small town USA to Shenzhen China: Learning the language

He first moved to Asia in 1993 and has been a resident of Shenzhen, southern China since 1999. Mr Bellamy jokes that more people live in his apartment building in Shenzhen than in the small Upstate NY town where he grew up. Studying Chinese was not easy. Back in the 90’s, his roommate, a Chinese engineering student, returned to their hostel with a second-hand television. “He said, ‘This is how you turn it on’,” Mr Bellamy says. “I thought, I have to learn this language otherwise people will think I am stupid.” Mr Bellamy now reads, writes and speaks Chinese.

Mike Bellamy received his double degrees in diplomacy and economics at the American University in Washington DC and later received an MBA from the University of South Carolina.  As part of his program, he took a year of graduate level courses at the Harbin Institute of Technology in north-east China and at the University of International Business and Economics in Beijing.

 

Starting PassageMaker: Honest business in a corrupt system

In 2002, he founded PassageMaker with two employees; the company would later grow to over 200 employees.

Mr Bellamy jokes that he has sourced everything from church pews and sex toys to iPod accessories. Today, the company sources $200m worth of products for clients in the US, Europe and Australia.

Unlike many large supply-chain companies in Asia, PassageMaker does not ask for a commission from the factory supplying the product as well as from the buyers. “Our compensation is 100 per cent from the clients. As soon as you take a percentage from the supplier, there’s a conflict of interest,” he says.

If this sounds like the business equivalent of being a Boy Scout in China, it is probably because Mr Bellamy’s mission for his company is based on the Rotary Club’s guiding principles. On the walls of his company’s Shenzhen offices are questions employees are supposed to ask themselves as they do business, taken from Rotary’s Four-Way Test. “Is it fair to all concerned?” and “Will it build goodwill and better friendship?” are two of the maxims on its website and walls.

 

Visit www.FT.com for the full article.

China Sourcing at Trade Shows – Top Q&A, Tutorials and Resources

Are you looking to start your China Sourcing at Trade Shows?

With the April 2017 trade show season in China/HK just around the corner, I thought it would make an interesting blog post to share with you the resources offered to the people I met at a October 2016 trade show. I hope you find it useful as you get you ready for the 2017 buying season & doing some China sourcing at trade shows! Don’t forget to attend this year’s conference on China sourcing if you are in Hong Kong come April!

 

Where to find the conference notes & video recordings?

Event Topic Recording/ Related Videos
Global Sources Trade Show (HK) How to Protect Business Secrets and Intellectual Property Covered in this video playlist.
Global Sources Trade Show (HK) How to Manage China Sourcing Projects from Afar Entire seminar + Q&A at https://www.youtube.com/watch?v=bjhnX98LfNk&feature=youtu.be
FBA Seminar (HK) Moving from supplier’s design to your design IP protection, Engineering and Vendor Selection covered here.
Austrian Chamber of Commerce (Guangzhou) Workshop: Advanced Supply Chain Tactics Similar content at https://www.youtube.com/playlist?list=PL_04teO1jjt7dusC4OrYhwoXaHP3jJSEt

 

International Sourcing Expo (Melbourne) Keynote Speech: “Sourcing in Asia Today: Effective and affordable strategies for overcoming challenges old and new” Entire seminar + Q&A at https://www.youtube.com/watch?v=_x0zPGeKV-Y      Recorded in HK.

 

If you like my China Sourcing Seminars, you may also enjoy the following:

China Sourcing Academy  A great resource for professional training.  I am honored to be one of the online instructors at the academy.

www.ChinaSourcingInfo.org   My blog for small and medium sized buyers.

http://www.psschina.com/china-business-blog/ My blog for large buyers.

The Essential Reference Guide to China Sourcing (available on Amazon) or learn more about my book here.

Where to find professional and affordable help for China sourcing?

Here is my full list of endorsed service providers as mentioned in the seminars.  QC, Logistics, Sourcing Agents, Contract Manufacturers…

 

How to ensure the seller is not a scam? (3 recommended tools)

Search www.SupplierBlacklist.com

A Corporate Assessment (CA) report can provide viability into the stability, assets & reputation of a target company.

Red Flag Assessment (RFA): Risk, Scams & Fraud exposure on a given transaction/deal when buying from a Chinese company.

Now a word from our sister company:

www.AsiaBridgeLaw.com  Affordable, Professional, English-speaking legal & business advisory services.

I am on their board of advisors and recommend them with confidence for:

  • IP Registration
  • Bilingual Contracts
  • Dispute Resolution (including Loss Recovery)
  • Business Advisory Services
  • General Legal Counsel

 

Sorry for the long post but I wanted to give you as many resources as I could think of to help get you ready for the 2017 buying season! If you have additional questions about China sourcing, feel free to contact me at your convenience and I will do my best to assist you.

Looking forward to being of service and wish you successful China Sourcing.

Best Regards,

Mike Bellamy (LinkedIn Profile)

Celebrating 20 years in Asia!

Return the favor:

If the information was helpful to you, please consider returning the favor in any of the following ways:

Share this info with a co-worker or business associate.

Subscribe to my YouTube channel, hit the “like it” button and post some comments.

Visit www.PSSChina.com for a look at how my company may be of service to you.

Your support is greatly appreciated!

 

China Compensation Benchmark: A Survey of Salary, Taxes & Benefits

Last time we took a look at some of the best practices for hiring staff in China your factory should be following, and in my final blog today I want to share a a survey of salaries, taxes and benefits for Shenzhen, Guangdong and Hunan to give you a bit of an inside look at compensation benchmarks in China.

The following blog is based on excerpts from the whitepaper entitled “Foreign Manufacturer’s Ultimate Guide to Hiring, Training, Managing & Firing Staff in China” which can be downloaded in its entirety right here!

China Compensation Structures

Let’s cut to the chase, at the end of the day, salary plays a big role in employee happiness. It’s not just the amount of salary, but also the perception that they are being paid a fair wage is important to staff in China.

So an employer needs to monitor the labor market to make sure the salaries offered to candidates are suitable to attract the level of talent desired. The costs of housing, annual inflation rates and even the nations GDP all impact staff salary expectations. While inflation and GDP figures are fairly easy to find and monitor in China, wages/housing/spending power varies greatly from area to area within China.

To help with your benchmarking, this blog post offers the following:

  • Typical Compensation Structure for the 6 Typical Employees in Shenzhen
  • Pros/Cons of various locations in S. China from corporate and employee perspectives

Typical Compensation Structure for the 6 Typical Employees in Shenzhen

chinas mandatory benefits

Pros/Cons of various locations in S. China from corporate and employee perspectives

For your reference, here is a study our team conducted to help make decision about where to locate our new assembly center when our long-term lease in the Buji district of Shenzhen was up for negotiation in 2015.

Other location in current district (Buji) of Shenzhen Other district in Shenzhen (LongGang District) Oher city in Guangdong Province (Dongguan City) Other city in Guangdong Province (Huizhou City) Other city in other Province (Hunan Province, Hengyang City) Remarks
1. Paper-work: Cost / time / workload to adjust our business licenses and other key documents if the WFOE is moved (low vs medium vs high) low medium high high high
2A. Rents (Estimated % change) 0% 0% -30% -30% -86%
2B. Rental Trends. What is the estimated annual increase for each location using the historic increases over past 5 years to estimate the next 5 years? 11% 11% 10% 12% below 7%
3A. Labor Rates (Estimated % change) 0% 0% -26% -33% -44%
3B. Labor Rate Trends. What is the estimated annual increase for each location using the historic increases over past 5 years to estimate the next 5 years? 11.40% 11.40% 8.59% 9.60% 11.77% Hard to predict the future as Gov’t can change the minimum wage levels on short notice. As the economy is slowing down, we are hoping the min wage increases will not be as drastic in the next few years. This is a national rather than regional issue.
4. Utility Costs (Estimate of % change for power and water) 0% 0% 0% 0% 0% Utilities are roughly the same across all industrialized parts of S. China.
5. Ease of recruiting factory workers about the same, perhaps a bit easier to recruit if we have easier transportation and living conditions. about the same, perhaps a bit easier to recruit if we have easier transportation and living conditions. a bit easier a bit easier easier For this line item we are referring to workers on a production line. Outside of SZ it gets harder to find technical skills, experienced managers and/or English skills.
6. Ease of recruiting skilled office workers and managers easy easy a bit harder a bit harder much harder For this line item we are referring to workers on a production line. Outside of SZ it gets harder to find technical skills, experienced managers and/or English skills.
7. Landlord Relations depends on location depends on location depends on location depends on location depends on location
8. Tax incentives from local government 0% 0% 0% 0% should be available, however need to further check with local government Tax incentives unlikely to play a major role in the decision making process for our industry and any tax incentives that are offered usually expire within a few years.
9. Estimated cost per square meter to buy (rather than rent) factory space: How has this # changed over past 5 years and what is the estimate for future based on past 5 years? 6000-8000 Yuan /sqm   Going up 20% each year 6000-8000 Yuan /sqm   Going up 20% each year 4000-5000 Yuan /sqm Going up 15% each year 3000-3500 Yuan /sqm Going up 15% each year 1000-2000 Yuan /sqm Going up 8-10% each year
10. Environment (quality of life, access to transport, food, shopping…) for employees it depends on which industrial park chosen, some are good, some are not good. it depends on which industrial park chosen, some are good, some are not good. it depends on which industrial park chosen, some are good, some are not good. it depends on which industrial park chosen, some are good, some are not good. it depends on which industrial park chosen, some are good, some are not good. There is large variation among options in any given area.
11. Cost of Living Very High High Medium Medium-Low Low

 

That concludes post no. 8 out of 8 in my ‘hiring in China’ series. I sincerely hope that you found this series of value and please feel free to share your thoughts if there is anything else that you’d like to add to this post, or if you have any questions please reach out to me by leaving me a comment below.

 

Forget These Best Practices for Hiring Staff in China at Your Peril

This series of 8 blog posts is designed to offer both a general framework for how to structure your dealings with the employees in China (both Chinese and Foreign) as well as provide practical tools, tips and best practices for your day-to-day interactions with staff…

Last time we took a look at China labor laws and how you should go about managing your expectations about labor disputes, and this time around I’m going to introduce some of the best practices for hiring staff in China your factory should be following!

The following blog is based on excerpts from the whitepaper entitled “Foreign Manufacturer’s Ultimate Guide to Hiring, Training, Managing & Firing Staff in China”which can be downloaded in its entirety right here!

Labor Contracts in China

In addition to the usual items you would find in a labor contract back home, extra emphasis should be put on the following items in a China labor contract:

  1. Jurisdiction & Enforceability

Many companies make the mistake of having a labor contract between the Chinese employee and the parent company in HK or overseas rather than directly between the Chinese employee and the WFOE.

Even if you put the jurisdiction of that contract in China, it won’t be binding because the WFOE is not a signatory to the document. The WFOE can also get hit with penalties for illegally hiring staff who don’t have a contract.

  1. NNN

If the staff will have access to any sensitive information, you’ll want to make sure your contract has good terms for non-disclosure, non-complete & non-circumvention.

  1. Penalties

It’s fairly rare in the West to have pre-agreed penalties in a labor contract. But in the West there is a mature legal system and the law of the land provides employers with certain protection. In China, if you and the employee pre-agree on reasonable penalties for breaking certain aspects of the labor contract, you will be happy to learn that the courts will generally enforce those penalties. The key is “reasonable” penalty. If you say the employee needs to pay 1 million USD if they go an work for a competitor within 2 years of termination of employment, that wouldn’t be considered “reasonable”.

  1. Due Diligence

Fake job experience. Fake diplomas. Even fake identities!

Those items are much more common in China than in the West. So do your due diligence on new employees and make sure that the employee is signing the contract with their real name and real identification card.

When onboarding new staff or trying to retain current staff, here are some tips to help ensure a smooth relationship: 

Tips to Help Ensure a Smooth Relationship

  1. Grass is greener right here

If your company is paying wages, OT and/or bonuses above or equal to industry averages, share the data with your staff. Show staff they are better off staying with you!

  1. Don’t make staff beg

Salaries should be paid on time with clear documentation of hours worked and vacation days left.

  1. No side jobs

You are legal responsible for the actions of your staff during work hours. For example, there is a case where an employee of a company was running an online taobao store during office hours. That Taobao store sold fake medicine. The police penalized both the employee and the employer even though the employer was not aware, let along supporting these activities. So monitor the actions of your staff and make it clear from day 1 in the labor contract that moonlighting is not allowed. You also want to confirm the employee has officially left his/her old job.

  1. Pay close attention during probation

Once the probation period is up, it’s difficult and expensive to let staff go. So make sure you found a winner before you end the probation period.

That concludes post no. 7 out of 8 in my ‘hiring in China’ series. Stay tuned for the final post which shares a survey of salaries, taxes and benefits for Shenzhen, Guangdong and Hunan to give you a bit of an inside look at compensation benchmarks in China.

China Labor Laws & Enforcement: What Happens During a Labor Dispute

China Labor Laws How to Handle Labor Disputes and Stay Out of Court

Last time we took a look at everything employers need to know about work visas for their foreign staff in China, and this time around I’m going to share some insights into China labor laws and how you should go about managing your expectations about labor disputes.

The following blog is based on excerpts from the whitepaper entitled “Foreign Manufacturer’s Ultimate Guide to Hiring, Training, Managing & Firing Staff in China”which can be downloaded in its entirety right here!

Manage your expectations about the labor bureau and labor disputes in China

China is very business friendly in many ways. There are tax incentives to welcome foreign investment, the Intellectual Property system has come a long way and the rule of law is finally taking hold.

But don’t forget for one second that China is still a communist country. The employer-employee norms and laws from back home don’t apply in China.

Example 1: China IS communist

On the surface it may come as a surprise that China doesn’t allow unions- in the Western sense of the word. Until that day comes when you have a strike at your factory and you suddenly realize the labor bureau is in effect a kind of union boss for every worker in all industries in all parts of China. That can be a good or bad thing, depending on your position.

Example 2: The law is clear- Interpretation isn’t

China Labor Laws Enforcement What Happens During a Labor Dispute_

As foreign investors, factory owners and business people, we tend to rely on the written law to guide our decision making. If you initiate a layoff and the law says the amount of severance owed is X, you probably think you are doing your staff a favor by giving X + 10% as goodwill. But then your staff reports you to the labor bureau and the bureau holds a “consultation” with the involved parties and recommends X + 20%. So you seek clarification in the local court where the judge awards X + 25%!

The two scenarios above don’t happen to everybody but they do happen. Consider yourself warned.

And don’t forget to manage your expectations about these 2 labor issues in China:

  1. The employee turnover rate is much higher in China than in the West. As a foreign employer in China, you need to strive to find ways to not only reduce turnover but efficiently train new staff when turnover eventually takes place.
  1. Managing a multi-cultural team is a challenge. Language, distance, culture…you name it. Challenges but not roadblocks when handled properly.

That concludes post no. 6 out of 8 in my ‘hiring in China’ series. Stay tuned for the next post in the series where we’ll take a look at the HR best practices your factory would do well to remember!

Attn. Manufacturers! Work Visas for Foreign Staff in China Explained

 

Last time we took a look at how to handle compensation claims in China  so that it’s a win-win for both parties involved, and this time around I’m going to explain the essentials behind work visas for foreign staff in China!

The following blog is based on excerpts from the whitepaper entitled “Foreign Manufacturer’s Ultimate Guide to Hiring, Training, Managing & Firing Staff in China” which can be downloaded in its entirety right here!

Employer-Employee Relationships: Foreign staff in China

Work visa

If you are a legitimate company (with a licensed operation in China) and have a legitimate need for foreign staff to be based on your China facilities, you should have no problem securing work visas for you international staff.

But you will run into problems if you do the following:

  • “sell” work visas to foreigners who aren’t actually working in your business
  • Under declare the China salaries of your foreign staff to avoid tax.
  • Have staff working under a tourist or business visa rather than work visa.

The first two items are obvious “no-no’s” and should be avoided, but what if you have international staff in your office for short term project work? Here are some guidelines:

  • Unless they are friends and family visiting China on non-business related activities, there is no reason to have foreigners with tourist visas in your office for more than a few hours.
  • Some foreign employers think that the China visa is the responsibility of the foreign staff and they don’t ask their staff for proof of work visa. Trust me, if you have foreign staff working in your office without visas, you both will have a lot of trouble once discovered. Your company may be put on a blacklist and you will be unable to hire any legit foreign staff for years to come.
  • You are crazy to give anybody on a tourist visa any trappings of employment, such as but not limited to:
  • Business cards with your China address
  • A work station in your office
  • Employment contract
  • Local currency compensation

And don’t think you can hide the visa status of your foreign staff from co-workers and authorities. I know plenty of cases of disgruntled local staff running to the labor bureau to turn the foreign employer in.

  • Overseas clients and business associates are welcome to come to China. Every year it gets easier and easier to arrange a business visa. If you are from the USA, you can get a 10 year multi-entry visa and come and go as you please, staying for fairly long trips if needed. But if you stay longer than 90 days in China, that’s considered working here and you should get a work visa.
  • About once per year, at a random time, professional and friendly (unless they were informed of a violation in advance) representatives from the local police unit or industrial affairs office will stop by your office to take a look around. They are looking for two things:
  1. Are the foreigners with registered work visas actually working at this location?
  2. Are there any foreigners without work visa working at this location?

Additional concerns about Work Visas for Foreign Staff in China

The last thing you want is to be in compliance with the laws, but staff get nervous during the audit and say the wrong things causing unnecessary confusion. To avoid this, I recommend not only staying in compliance, but also having a plan to explain how you are in compliance if audited.

For example, there should be a representative (and a backup) in the office who represents the company when there is a visa audit. This representative, it may be the front desk receptionist or even a senior manager, who the representative is isn’t as important as what they do. They should keep a list of all foreign staff based in the facility, along with copies of the passports/visas. If staff with work visas are out of the office, the representative should be able to explain why. Telling the truth is fine. For example, Mike is on a business trip to Beijing, he’ll be back in 2 days.

If you have foreigners in the office who are not on work visas, the representative should be able to explain why. Once again, the truth is the best option. Explain that the person is from HQ doing training, or explain how it’s a customer. But if this person is sitting at “their desk” with Chinese business cards and a coffee mug with a year’s stains on it…you may have some explaining to do!

Arranging a work visa for foreign staff in China

Work Visas for Foreign Staff in China

The last thing you want is to be in compliance with the laws, but staff get nervous during the audit and say the wrong things causing unnecessary confusion. To avoid this, I recommend not only staying in compliance, but also having a plan to explain how you are in compliance if audited.

For example, there should be a representative (and a backup) in the office who represents the company when there is a visa audit. This representative, it may be the front desk receptionist or even a senior manager, who the representative is isn’t as important as what they do. They should keep a list of all foreign staff based in the facility, along with copies of the passports/visas. If staff with work visas are out of the office, the representative should be able to explain why. Telling the truth is fine. For example, Mike is on a business trip to Beijing, he’ll be back in 2 days.

If you have foreigners in the office who are not on work visas, the representative should be able to explain why. Once again, the truth is the best option. Explain that the person is from HQ doing training, or explain how it’s a customer. But if this person is sitting at “their desk” with Chinese business cards and a coffee mug with a year’s stains on it…you may have some explaining to do!

Arranging a work visa for foreign staff in China

Lack of transparency regarding work visas for foreign staff in China

There is no written rule made public that states how many foreign staff can be employed by one company at one time. But I am certain each local government has some kind of unwritten rule. For example, a business with X million RMB in revenue should have no more than Y foreigners. For every foreign staff there should be X times as many Chinese. If you cross this unwritten line, you will find it hard to get working visas for staff and unless you are friends with the officials, you will never know for sure why.

But as long as you follow these written regulations, you should have no problem arranging work visas for foreign staff in China:

  • Obviously you need to be a registered business in good standing to hire staff, foreign or local for that matter.
  • The staff you wish to hire from overseas must have at least 2 years of highly relevant work experience. You can’t easily hire a young person to be your marketing manager if he graduated with a teaching degree in the USA and has since then been based in China tutoring children!
  • The job can’t easily be filled by a local Chinese person. For example, I had some difficulties hiring American sales staff because the local authorities felt there were plenty of English speaking Chinese. But my Spanish speaking candidates for the S. American marketing manager job were warmly welcome!

Security of business secrets when hiring foreign staff

Foreign owners sometimes put too much trust into their foreign hires. Don’t foster an “us vs them” attitude around the office. Apply the same level of control over sensitive information with foreign staff as you would with local staff. That means signing NNN agreements and monitoring staff closely.

Culture Clash when hiring foreign staff

Culture Clashes when Hiring in China

In the past 5 years the number of foreigners in China has grown exponentially. I no longer recruit from overseas because I can find goods staff right here in China. But I rarely hire anybody who has less than 2 years living experience in China because the risk of culture class is just too great. It’s a real drain on my business to train up a foreigner only to have them leave China because they don’t like the pollution or have trouble with the food. By year number 2, most people will know if they are making a China career or just passing through.

Speaking of culture, when selecting a point person to lead your team in China, don’t assume that Chinese language or even ethnicity equates to Chinese business understanding. I know of more than one major N. American company that has pulled junior staff out of departments like accounting and marketing and tapped them to be the point person on major sourcing projects simply because they were Chinese-American.

I know of countless exchange students from Asia who went to the US and EU to study English, history, and even music only to be plucked out of the universities to join a Western company as their sourcing team leader. I don’t know of one success story from all of those examples. Every time the project failed because the Chinese person assigned was hired because his or her only qualification was being Chinese or at least looking Chinese. In reality, an understanding of negotiation, logistics, and engineering and, especially, sourcing experience would be far more important criteria when selecting a sourcing project leader. Language and ethnicity should be far down the list of priority skill sets.

In addition, don’t assume that all ethnic Chinese, even those with business backgrounds, are automatically able to do business successfully in mainland China. I have seen numerous overseas Chinese (Asian Americans, Taiwanese, Singaporean, and especially Cantonese (Hong Kong) complicate the employee-employer relationship because their cultural baggage alienated members of the team.

I’m sure what I am about to say is not politely correct, but it seems that a lot of overseas Chinese have a superiority complex and look down on their cousins in the Mainland as being a bit backward and unsophisticated. On the other hand, a certain amount of up and coming mainland Chinese have an inferiority complex and may take issue with being “bossed around” by an overseas Chinese (especially those from HK and Taiwan) while they would look at the same directives coming from a European or American as just part of the job.

I would be crazy to say that the language and cultural understanding that an overseas Chinese brings to the table as a project manager is not of value. But I firmly believe that ethnicity alone is not the best criterion for selecting a project manager. Focus on the whole package when picking a team leader.

That concludes post no. 5 out of 8 in my ‘hiring in China’ series. Stay tuned for the next post in the series where we’ll take a look at what really happens during a labor dispute!

How to Handle Compensation Claims in China

 

Last time we took a look at what foreign manufacturers need to know about China’s mandatory benefits, and this time around I’m going to walk you through how to handle compensation claims in China  so that it’s a win-win for both parties involved.

The following blog is based on excerpts from the whitepaper entitled “Foreign Manufacturer’s Ultimate Guide to Hiring, Training, Managing & Firing Staff in China” which can be downloaded in its entirety right here!

How to handle compensation claims in China

Early on in my career when I set up my WFOE I realized that HR issues would be a challenge so I allocated a big chunk of payroll to hiring a top notch HR manager. You would think that having a professional HR manager would be enough to ensure that your HR policies and contracts would be kept up to date and that the company would stay out of trouble. I went so far as to explain to the HR manager that I know there will be gray areas, but error on the side of caution even if it costs more than operating in the gray.

I realized the HR manager was engaged in activities in violation of her contract, such as moonlighting on side projects and perhaps taking bribes. I terminated her employment. Despite a gracious severance package which was well beyond my legal obligations to her, the employee took things personal and wanted to create as much drama as possible. She reported me to the labor bureau and tax authorities for so-called contract violations and tax avoidance. Here claim was that our company didn’t pay our full contributions to local government for mandatory benefits and that salaries were under declared in order to avoid tax. The craziest aspect of the case was that during her time with our company, she was the very person responsible for ensuring our company was compliant with those very issues!

Long story short, I learned that our company, under the guidance of that very HR manager, had indeed been slightly under declaring tax and not paying full benefits in accordance with current regulations. As these regulations were recently changed and as the vast majority of businesses in China were way worse in their non-compliance, the local authorities were reasonable toward my company. After a diplomatic negotiation we settled on a one-time penalty of less than 10,000 USD and our company to this day retains our “top class local tax payer” status and “model employer” recognition with the labor bureau.

How to use an HR lawyer to protect yourself in China

Compensation claims in China Time to lawyer up

Here are the 4 valuable lessons I learned:

  1. The company will be held responsible for the mistakes of its employees.
  1. If you do face an audit, having a written HR policy is so much better than having no written HR manual. Without a written manual, the auditors will assume you are not compliant in all areas!
  1. HR managers are expensive. HR Lawyers are not.   These days I actual save money and have a better compliance by NOT hiring an expensive HR manager. I hire a HR manager with reasonable experience at a reasonable salary package, then I spend a few 1000 USD once every year to have an HR lawyer do a full audit of my contracts, rules, SOP’s, templates…everything.

Here is some quick math for your reference:

20,000 RMB : “Top notch” HR manager monthly salary

10,000 RMB: “Solid” HR manager monthly salary

24,000 RMB: Full HR audit by a Top Notch lawyer. Once per year.

10K savings X 12 months = 120,000 minus 24,000 for the lawyer = 96,000 RMB in savings per year. That’s 480,000 RMB (about 75,000 USD!) in savings over the past 5 years.

  1. China’s HR rules and regulations are constantly being changed or updated. The annual review by a reliable 3rd party is essential.

That concludes post no. 4 out of 8 in my ‘hiring in China’ series. Stay tuned for the next post in the series where I’ll explain the situation behind work visas for foreign staff in China!

What Manufacturers Need to Know About China’s Mandatory Benefits

 

Last time I walked you through how to legally fire staff in China and prevent costly lawsuits, and this time around we are going to take a look at what foreign manufacturers need to know about China’s mandatory benefits.

The following blog is based on excerpts from the whitepaper entitled “Foreign Manufacturer’s Ultimate Guide to Hiring, Training, Managing & Firing Staff in China” which can be downloaded in its entirety right here!

What Foreign Manufacturers Need to Know About China’s Mandatory Benefits:

  1. They are substantial.
  2. Mandatory benefits and the interpretation/enforcement of the rules by local authorities varies from province to province , city to city and even district to district!
  3. In general, the interpretation/enforcement is getting stricter each year and so are the fines for non-compliance.

Compensation Structures in China

For your reference, let’s take two typical employees in China and offer a breakdown of the expected benefits based on their salary. One column is for a mid-level office worker and the other column is for a typical factory worker making minimum wage.

Compensation structures in China

That concludes post no. 3 out of 8 in my ‘hiring in China’ series. Stay tuned for the next post in the series to find out how foreign employers can protect themselves in China.

Hiring in China? Pro Tips to Save You Time, Money and Legal Issues!

First off, I’d like to extend a warm welcome to everyone joining me for my ‘Hiring in China’ series.

This series of 8 blog posts is designed to offer both a general framework for how to structure your dealings with the employees in China (both Chinese and Foreign) as well as provide practical tools, tips and best practices for your day-to-day interactions with staff…

What the reader can expect to gain from the series

We will cover how to build a stable relationship, how to structuring effective labor contracts and even how to create mechanisms for monitoring the relationship and monitoring compliance with the labor contracts.

My goal in writing this material is to offer an affordable and effective way to protect the foreign employer while being fair to the employees. This is not a guide on how to outsmart your employees. 

How the series is organized

Blog #1: Hiring in China? Pro Tips to Save You Time, Money and Legal Issues!

Blog #2: How to Legally Fire Staff in China and Prevent Costly Lawsuits

Blog #3: What Foreign Manufacturers Need to Know About China’s Mandatory Benefits

Blog #4: How to Handle Compensation Claims in China

Blog #5: Attn. Manufacturers! Work Visas for Foreign Staff in China Explained

Blog #6: China Labor Laws & Enforcement: What Really Happens During a Labor Dispute

Blog #7: Forget These HR Best Practices at Your Factory’s Peril

Blog #8: China Compensation Benchmark: A Survey of Salary, Taxes & Benefits (Shenzhen/GuangDong/Hunan)

The following blog is based on excerpts from the whitepaper entitled “Foreign Manufacturer’s Ultimate Guide to Hiring, Training, Managing & Firing Staff in China” which can be downloaded in its entirety right here!

Recruitment (Blue Collar)

Finding Staff in China

Hiring in China Recruitment issues

Most of the points in this section are applicable to the recruitment of both factory and office workers, but there are some special considerations when recruiting factory staff.

Gone are the days that I remember so fondly, when we just hung a hand-written “We’re interviewing” sign on the factory front gate and there would be a long line of highly qualified candidates willing to start work on the factory floor for minimum wage.

At the risk of oversimplifying the situation, the reasons it’s harder to find factory labor on short notice now than 10 years ago is two-fold:

  • Thanks to the one child policy, there just aren’t as many 20 year olds looking for a job.
  • The rural interior of China is developing rapidly. Workers finally have job opportunities back home. So there is less of a need to travel 1000 miles to a factory on the coast and only come home to see the kids at Chinese New Year.

Finding “good” (meaning affordable, stable & loyal) office staff has always been a constant challenge in China. But these days, finding “good” factory staff is a real challenge too.

If your labor force is blue collar, you may want to apply the same tips and strategies found in the whitepaper for hiring/retaining white collar labor to the blue collar workers in your shop. Additionally, you may also want to consider the following special tactics for recruiting blue collar labor:

  • Give a bonus for existing staff who introduce new staff. But have clear rules about hiring family members and beware of cliques on the factory floor.
  • Send a recruitment team to the interior and offer special support with the transportation to the new job site.
  • Find ways to make it easy for staff to get back home for Chinese new year. For example, staggering production so staff can leave early/late and come back early/late.
  • Keep an eye out for factories closing near your factory. This is a great place to find new staff!
  • Build an internship/work-study program with local trade associations and colleges to train and recruit new staff.
  • Pay above minimum wage and offer meaningful benefits.

Recruitment (White Collar)

Tips for finding & interviewing good candidates

Hiring in China Pro Tips to Save You Time Money and Legal Issues

I love the saying “if you don’t know what you are looking for, every road will take you there”. In this case it means that if you don’t have a well-defined description of the candidate you are looking for, you will most likely end up hiring somebody that isn’t the perfect fit for the job.

The challenge isn’t finding a candidate, the challenge is finding the right candidate from the tsunami of resumes you will receive. So the first step is to build a description of the ideal candidate covering the core details like:

Job Title:

Pick titles that are accurate based on local standards

In the West, because the typical office has a lot less people than in China, it is common for staff to have multiple titles and perform multiple roles. We don’t put a lot of stress on the job titles. For example, the CEO of a small company may be doing the same jobs as maintenance staff at a large company!   We tend to throw around the terms “manager, director, supervisor” indiscriminately.

It’s very much the opposite in China. Staff take their job titles very seriously. Because even small companies in China can have 1000 employee, the term “manager” really means something. When recruiting in China, be sure you are using the right job title. When in doubt, use a title a rank or 2 lower than you would back home.

Job Description:

The job description is very important, especially when you consider that foreign employers and local staff may have different perceptions of what a given job title entails.   Be specific. Is this a desk job or do you expect them on the factory floor managing things? Is there a lot of travel involved?

Reporting Structure:

It’s in your best interest to let candidates know upfront how many people they will manage and to whom do they report? This is especially important if there are international teams on the project.

In the West we would assume that if somebody makes it to the top rungs of the corporate ladder, they would know how to lead a team. Not always the case in China. I have come across some great candidates (on paper) for top positions in my company who were actually terrible at managing teams. The reason is that they always had an assistant or a Vice GM to handle communications and they focused on strategy from behind a desk.

Age Targets:

In some countries is may be considered age discrimination to state a target age for the candidates. But in China it is quite common. So go ahead and state it in your job advert and use it as a tool for narrowing down the pool.

Experience:

When asking about experience, set targets for both the # of years and type of experience.

Be very specific. For example, “Engineer” is not good enough. A garbage man could be considered a “Sanitation Engineer”. So it would be better to say “Looking for a Mechanical Engineer who has at least 5 years’ experience in a toy factory working with CNC machines.”

Salary Targets:

I’m usually in a rush to hire new staff, so for me, time is of the essence and stating the target salary helps cut to the chase. But many recruiters are hesitant to state their salary targets on the job description, instead preferring that the candidates list their expected salary when they apply. Unless you are a professional recruiter in China and really understand the labor market it may be hard for you to judge if the expected salary as listed by the applicant is on par with their experience.

This can lead to a lot of headaches because some candidates will lowball their expected salaries in order to get the job and get through the trial period. Then they ask for big raise. If the raise is not given, then become deadweight around the office. But because they passed the trial period it’s hard to fire them due to the severance pay issues in China. I go so far as the put the salary caps for years 1, 2 & 3 in the job advert and state them during the interview, so the candidate can’t say later “oh, I didn’t know there wouldn’t be a 15% raise after 18 months.”

Stating the target salary in the job advert avoids those issues. And you can always adjust the target salary if you aren’t getting the type of candidates you desire.

Job Location:

Unless you are looking for a very unique skill set, most likely your search can remain location. And if you make it a nation-wide search you will be overwhelmed with too many resumes and waste a lot of money/time setting up face to face interviews. China has 300 cities with populations of over 1 million people. So pretty much anywhere you go in developed China, there is a large pool of local candidates in that same province, same city and perhaps even same neighborhood!

So be clear about the location of the job on your advert. Don’t state “City/Province”. State “Address, District, City, Province.” The added advantage for your recruitment process is that candidates will often be willing to work for a slightly lower wage target if they can stay close to their family. So try to fill the job locally when possible.

That concludes post no. 1 out of 8 in my ‘hiring in China’ series. Stay tuned for the next post in the series to find out how to legally fire staff in China and prevent costly lawsuits!