Human Resources Issues in the “Tigers” of Asia

Human Resources Issues in the “Tigers” of Asia
By Ames Gross
Spring 1997
Published in International HR Journal.

Introduction

The four "tigers" of Asia -- Hong Kong, South Korea, Singapore and Taiwan -- offer attractive opportunities for western business interests and have demonstrated dramatic growth in recent years, due to their strong economies.

The Asian "tigers" also present distinctive human resources issues, including compensation packages, business cultures, and labor laws, which can be complex, sensitive and quite different than western business practices. Employers must fully understand these issues if they are to successfully pursue the promise of these Asian markets.

Background

Hong Kong is a major business center with relatively low taxes, an economic growth rate of 6 percent annually and easy access by air to other Asian cities. More than 500 banks from 43 countries operate in the territory, its stock market is the eighth largest in the world, and its port the world’s second busiest. There is some uncertainty and apprehension about what will happen as the British colony returns to Chinese control. The Sino-British Joint Declaration on Hong Kong's future created the Basic Law, a constitution that will govern the territory for that period of time. In theory, at least, the capitalist system that has been in place in Hong Kong will remain for another 50 years.

Korea, the United States' seventh largest trading partner, is also the world's largest manufacturer of DRAMS (Direct Random Access Memory chips), the second largest shipbuilder and the fourth largest electronics maker. In just three decades, South Korea transformed itself from a destitute, war-torn agricultural country to a modern industrialized nation on the threshold of joining the Organization of Economic Cooperation and Development (OECD). The Korean economy, with a growth rate of 8.4%, is the world's 12th largest and it continues to expand.

Fundamental changes in the Korean lifestyle have resulted from the country’s rapid economic growth. In little more than 20 years, the percentage of the population living in urban areas nearly doubled, from 41% in 1970 to 78% in 1993. Two-hour traffic jams and cellular phones are now common sights in the country's major cities. Seoul -- the political, financial and cultural center of Korea -- is home to about one quarter of the country's 45 million people. Koreans have also become more affluent. Real household expenditures rose by nearly 47% between 1989-1994, with the largest rise in spending on transport and communications.

Since 1951, Taiwan’s economy has grown 9 percent per year (on average). Moreover, in the last three decades, many multinational enterprises, encouraged by Taiwanese government policies to stimulate foreign investment, have established subsidiaries in the country. The low-paid yet disciplined and educated labor force was able to produce export products inexpensively. Today, many multinationals are competing in the domestic market as well.

Singapore, a small multicultural nation consisting of around three million people, owes much of its economic success to its well-trained workforce and increasing involvement with international trade. Singapore continues to experience healthy economic growth, a stable inflation rate, near full employment, and per capita income that is greater than that of England. There are currently over 100 international trading firms in Singapore. It continues to be one of the world’s most dynamic economies.

There is a shortage of qualified candidates for professional positions in the East Asian tigers. This shortage can make it quite difficult to staff your East Asian office. Once you find qualified personnel, your main challenge will be to keep them. Thus, in all of these countries, the primary human resource issue is retention.

Compensation

Average salary levels for lower-level blue-collar workers in these four countries are similar and are somewhat lower than wages in the U.S., Japan and Germany. For example, in 1995, the minimum wage in Taiwan was US$512 per month. Singapore has no statutory minimum wage. In Korea, most unskilled and semi-skilled workers in manufacturing industries are paid on a piecework basis. The average monthly wage for the manufacturing sector in 1994 was US$1,022. Daily wage rates are also common.

White-collar wages in major urban areas of all four countries are very close to those in the United States. In Korea, salaries for middle managers and professionals typically average between US$1,392 and US$1,671 per month, but vary widely by industry, company, individual performance and seniority. Senior managers and executives earn significantly more -- about US$4,177 to US$5,570. Salaries for professionals and upper-level managers in expensive Hong Kong typically are equal to or higher than those in other major cities around the world. Professional salaries in Hong Kong are also rising faster than the inflation rate.

In Asia, bonuses are a key part of compensation packages. More than 70% of companies in Hong Kong give all employees a bonus equal to about 15% of their annual salary. They also pay other bonuses for such things as good attendance and often provide a Chinese New Year bonus equal to about one month's salary. Similarly, in Korea, nearly all companies provide guaranteed annual bonuses, usually equaling two to six months of salary and paid in four equal installments during the year. Local companies typically provide this benefit indiscriminately to every employee, whereas foreign companies usually base compensation more on individual performance and politics. Profit sharing is also common when a company performs well.

In Singapore, the National Wages Council (NWC) sets standards for annual wage negotiations between workers and their respective employers. Furthermore, Singapore’s flexi-wage concept dictates that employees are rewarded by bonuses instead of wage hikes when the company performs well. Bonuses are commonplace in Singapore in all areas of employment. Employers pay varying bonuses but it is not unusual to see a bonus of two to four months of an employee’s annual salary. There is also a high linkage between wage increases and productivity growth as set forth by the government.

Benefits

Most employees in the four Tigers receive a wide range of benefits and perks in addition to wages and bonuses. Sometimes benefits offered in these countries will exceed those offered by employers in the United States.

Housing, for example, is a key benefit. Due to overpopulation and the traditional practice of large families living together, Korea's cities suffer an acute housing shortage. Land prices have skyrocketed in the big cities, rental rates are high and the cost of owning a home can put a family into debt well into the next generation. Thus, employers often provide free or subsidized housing, mostly for higher-level employees and their families.

Medical benefits are also important. Under Korea’s Medical Insurance Act, employers and employees share an equal portion of the funding for medical benefits. Premiums for health insurance range from 3% to 8% of an employee's wages and are paid directly to a Medical Insurance Society. Large companies often establish their own society that covers only their own employees. In Taiwan, group health insurance programs also are common in multinational companies.

In Hong Kong, although not required to do so, employers are increasingly contributing to health and retirement plans as workers move away from the traditional Chinese practice of providing care within the family. Employers also usually provide private medical plan benefits because government-subsidized hospitals are often of poor quality. Hospitalization benefits are on three levels--for a bed in a ward, or a semi-private or private room. Outpatient benefits usually are based on an employee's rank in an organization. Dental benefits usually are not provided but when they are, they also correspond to rank.

Benefits in Hong Kong also can include subsidized meals or food allowances, free medical treatment, and transportation allowances. Higher-level employees also might receive free housing and subsidized education for their children.

Singapore also offers a number of benefits for employees, ranging from a comprehensive and flexible social security system to coverage for medical expenses. Benefits will vary largely in accordance to one’s stature in an organization. Those in the most senior positions may receive benefits such as cars, club fees, transportation allowances and medical insurance. All employees in Singapore are given at least seven days of paid vacation per year and up to twenty-one days of paid vacation depending the employee’s length of service.

Finally, pension and retirement benefits can be important. Korea’s National Pension Law applies to companies with more than five employees and outlines the minimum benefits that a firm must pay upon an employee’s retirement, death or disability. In this country, most companies traditionally had a retirement age of 55, but a number of companies are raising it to 58 or 60. Retirement usually is at 60 in Hong Kong as well, with benefits paid in a lump sum. Some pension plans exist but they are being phased out.

Recruiting

In all four countries, employers have three basic recruiting options: they can hire individuals educated and trained locally, "returnees" (locals educated and trained abroad who want to return home), or expatriates.

Local Candidates

There are both benefits and drawbacks to hiring local residents. A positive is that they know the language and culture and often have connections to local institutions or government agencies. Also, it is usually less expensive to hire locals than returnees or expatriates because although they may have similar salary requirements, there are no relocation or traditional expatriate "packages.” On the other hand, many locals require extensive training due to their lack of familiarity with western business practices and inability to communicate well in English.

Furthermore, local recruiting has become a difficult process due to a shortage of skilled labor in these four countries. In Hong Kong, qualified professional candidates are spread thin as more foreign businesses establish operations in China and "borrow" from their own human resource offices. Also, some managers and other professionals are leaving because of uncertainty about the transfer of sovereignty. In Singapore, there is a high turnover in technical and engineering fields as a result of a shortage in these positions. In order to combat these shortages the Singapore government has emphasized the technical training offered in colleges and universities.

Many local and foreign companies (in all four countries) recruit local white-collar personnel directly from colleges and universities. However, universities do not fill companies' needs for professionals experienced in management, finance, marketing and human resources even though these institutions are a good source of entry-level staff.

Newspaper advertising is another technique which may be used to recruit local staff. Although it can be relatively inexpensive, newspaper advertising often presents problems. For example, in Hong Kong, in order for readers to understand the ads they must be translated correctly into Cantonese. Also, because of a large backlog of advertising it may be a month or more before an ad is published in some papers. Ads are also likely to bring applications from unqualified candidates. Sorting through such applications can take a lot of time and effort. Additionally, confirming qualifications and checking references once a company identifies potential qualified candidates can be difficult because records often are incomplete and language barriers can hinder communication.

Some foreign businesses hire employees based solely on personal connections. Although this type of hiring is common throughout Asia, a company that uses this method may risk hiring incompetent personnel or persons who are difficult to fire without bruising sensitivities or creating conflicts among other employees.

In addition to finding local candidates through the methods listed above, foreign companies must also recruit these candidates. Although enticing for some, many local employees are hesitant to work for a foreign company and need extra benefits to be convinced to take a job at a foreign company. For example, Koreans generally do not job-hop as frequently as Americans and long-term job security is important to them. Therefore a foreign company must convince its employees that it is in the country for the long-term and is willing to invest time and money in training. To entice employees, foreign companies have also found themselves offering salary and benefits packages better than those provided by local employers. They also must offer other incentives, including opportunities for advancement, perhaps into company management at the firm's headquarters.

Foreign employers also must overcome other disadvantages that Korean managers perceive in working for non-domestic companies. These include an absence of personal relationships with peers and superiors that they would find in a Korean company; a weak reputation or image in the local economy; and sometimes uncertain business prospects. Furthermore, in order to ensure a comfortable working relationship that can withstand the occasional bouts of anti-foreigner sentiment that develop in Korea, creating a "local presence" is key. Many foreign firms do this successfully by including some Koreans in management, designing country-specific policies and procedures, and working to improve the company's local, long-term image.

Because they are so difficult to recruit, international companies often hire away from each other locals who have training or experience in management, human resources, finance or marketing, because of the scarcity of qualified candidates in these fields. Such "poaching" is widespread in Hong Kong, Korea, Singapore and Taiwan. Companies must pay significantly more, either in salary or perks, to get desired individuals to leave their current employers. This practice drives the wages of skilled local workers even higher.

Returnees

Asian returnees might prefer to join a foreign company or joint venture in their native country because of the higher salaries and better career opportunities available to them at home compared with those in the U.S. or Europe. For that reason, foreign companies often look outside the country they are in to recruit Asian "returnees.” A growing number of very qualified Koreans and Taiwanese, particularly from the United States, are returning home to fill management positions.

Familiarity with western business practices as well as the native culture and business environment makes Asian returnees desirable candidates for western companies. A returnee who has studied in the U.S., Canada, Australia or England probably knows English better than do most locals. Also, through relatives or friends, they may be able to find relatively inexpensive housing without much difficulty. Asian returnees over 40 years of age who have been downsized in the west or struggled with U.S. politics also often prove to be good senior managers in their home country.

Expatriates

Skilled, with previous work experience in their home countries or elsewhere, expatriates can also be desirable job candidates. They can be particularly useful to a company just establishing operations in Asia, particularly if they are already familiar with the organization and its business activities.

Expatriates, however, generally require significantly larger compensation packages than locals, including salary, housing benefits, a car, education for their children, medical care, and "hardship" allowances. These perks dramatically increase the cost of hiring expatriates. In Hong Kong, for example, a senior expatriate's compensation package can range from US$200,000 to US$500,000 annually. Furthermore, there is no guarantee that an expatriate can function successfully in the Asian business culture.

Expatriates generally are admitted to the country on a basis of prearranged employment under the control of the Justice and Labor Ministries. Many restrictions may exist on the employment of expatriates. For example, the Korean government tries to restrict employment of expatriates in Korean firms to positions for which no qualified Korean national is available. Thus, most expatriates work either as managers in foreign companies or joint ventures or as highly-skilled specialists in Korean companies. In Hong Kong, companies have no restrictions on the number of foreigners they can employ, but they must obtain visas from the Immigration Department before they can enter the territory. The visas are good for two years and may be renewed only twice.

Business Culture

In order to function successfully in these Asian countries, it is vital to understand their local cultures and how they impact business.

For example, interpersonal relationships are crucial to developing and maintaining smooth business operations in Korea and the other three Tigers. In business, they are the threads of the Asian social fabric and lead to introductions and connections. Cold calling rarely occurs and can lead to disaster.

The level of respect an individual is due is determined by the class, status, age and education of persons with whom they interact. Foreigners should be especially sensitive to these factors. Ignoring status and hierarchy in Korea will damage personal relationships and ruin potential business opportunities. In one case, because the Americans involved did not show a Korean senior executive the proper respect, the Koreans canceled a deal for a product they wanted and needed.

Creating a strong sense of belonging drives and motivates Korean workers. They attach great importance to group harmony and loyalty. At the root of the Korean company is "inwha" -- a concept that incorporates both loyalty by employees and a paternalistic-type concern and behavior by employers toward their workers. The Korean company is more than just a workplace; it is like a second family. Employers try to ensure that the basic needs of an employee's family are met because they feel a sense of responsibility to care for their workers. Employers even act as matchmakers and perform wedding ceremonies for their employees. In turn, employees are expected to dedicate themselves not only to their work but also to the success and well being of their employer.

Employees are indoctrinated in group harmony and loyalty through extensive initial orientation programs that last two to five months and include learning the company song, philosophy, protocols, values and mission. While they also learn practical workplace skills, the training emphasizes the importance of dedication, loyalty and team spirit. Loyalty, teamwork and commitment to the corporate philosophy are the priorities of in-house training. The belief is that a dedicated employee can always learn job skills. Foreign companies should strive to institute similar training programs.

Taiwan presents similar challenges. The Taiwanese, like many Asians, largely adhere to the ethics of Confucius. Preserving face and self-respect permeate actions in the Asian society, including business relationships. It is important to be quiet, modest, and never show emotion in public, as well as to show respect for a person who is older or in a higher position.

In these Asian countries, business decisions usually are made not by individuals, but by a group. It might take longer to reach a decision, but once reached, everyone supports it and shares responsibility for implementing it. Taiwanese and other Asian people tend to communicate differently than Americans, often giving ambiguous answers to questions and avoiding eye contact while talking to each other. Business presentations are formal but restrained and include a seating protocol at meetings for higher-level managers.

Conclusion

All four of the “Asian Tigers” face political uncertainties -- in Hong Kong, the transition from British to Chinese control; in South Korea, a continued military threat from North Korea; in Taiwan, the constant possibility of a direct confrontation with the People's Republic of China; and in Singapore, a highly developed country amongst "jealous" neighbors. Nevertheless, these countries’ strong and growing economies bode well for the future. Western businesses that come to terms with human resources issues in the Asian countries will enhance their prospects for success.