New Developments in Asian Human Resources
By Ames Gross
Fall 2000
Published in SHRM International Focus, a publication of the Society for Human Resources Management

Two years ago, the fallout from the Asian financial crisis that began in mid-1997 was still felt, as many Asian and other world economies were decimated by the crisis. Despite these economic difficulties, Asia has come roaring back in a very short period of time. The crisis is effectively over for most of the Asian economies, with the exception of Thailand, which is well on its way to recovery, and Indonesia, a country whose unstable political situation has undoubtedly affected the speed of its economic recovery.

The International Monetary Fund (IMF) now projects 6.7% and 6.6% annual growth for Asia in 2000 and 2001 respectively, up from 5.9% in 1999 and only 4.1% in 1998. All of the Asian economies, including Thailand and Indonesia, have shown positive growth rates since 1999.

 

Growth Rates in Asia (Measured in Real GDP % Change)

Source: IMF World Economic Outlook, September 2000

Asia’s economic recovery has far-reaching ramifications for human resource managers in Asia. Booming domestic and foreign (export-led) demand has stimulated the business climate, leading to ramped-up production and greater opportunities for business expansion. As such, human resources managers in Asia will face increased staffing and hiring needs. Regional and worldwide business developments, including the expansion of the Internet, the growing importance of women’s rights in labor issues, and new government labor policies also contribute to changes in the overall business and human resources environments in Asia. This report examines recent changes and developments in key Asian economies and new trends in employment, human resources, recruiting, and related issues.

 

Regional HR Issues

Although all Asian countries, their economies, and the HR issues they face differ, several trends are visible throughout the region and serve as an important monitor of the region as a whole. Several of the most important areas are detailed below.

Performance-based pay makes new inroads in Asia

HR managers and executives in Asia are slowly reformulating their compensation strategies to shift from seniority-based compensation systems toward incentive and performance-based pay. In order to maintain competitiveness and stimulate greater productivity among the workforce, many Asian businesses’ compensation schemes increasingly focus on rewarding superior business performance. With this shift in compensation strategy, the region has seen less of an emphasis on fixed or seniority-based compensation.

This shift away from fixed or seniority-based compensation schemes has been gradual, however, movement in this direction is quite clear. Performance-based systems remain the exception, not the rule, in Asia. Several real world examples illustrate this trend. For example, at least one large South Korean chaebol, or conglomerate, is currently reevaluating executive compensation to provide new incentive programs in opposition to the current prevailing sense of entitlement. For the first time in that chaebol’s history, actual business success (i.e. bottom line profits) will be linked directly to compensation. In Indonesia, stockholders have approved a performance-linked management stock option plan for the first time. Similar examples of new performance-based compensation schemes can be found in China, the Philippines, and Hong Kong. Furthermore, surveys show that a growing number of Japanese companies that have historically favored seniority-based pay systems are planning to incorporate performance-based pay in the future (59.7% in 1995, and 72.8% in 1998). In general, individual, team and group performance rewards have been found to be effective in Asia. However, the success of such systems hinges upon the ability of the organization to provide employees a careful explanation of the reward system and to ensure that the criteria are perceived to be fair and unbiased.

Although the trend towards such compensation schemes in Asia lags behind that of the West, variable, performance-based pay will continue to grow and exert influence over Asian compensation schemes in the future. Compensation in the form of stock options, performance bonuses, increased training allowances, and other types will certainly remain, and forward thinking companies that choose to implement such plans will maintain an advantage over their competitors in recruiting and retaining the best employees available.

Executive demand booming; high tech industries dominate hiring in Asia

With the Asian economic crisis effectively over, the demand for executives in Asia is booming, with an increase of over 30% compared to last year. As is the case across the globe, high technology industry organizations are leading the charge. According to a survey by Korn/Ferry International, 29% of highly compensated executives (those with salaries in excess of $150,000/year) hired in the second quarter of 2000 went to high tech industries, an increase from 21% during the same period of 1999. Industrial executives were the next highest in demand, accounting for 19% of executive hiring, while financial services professionals accounted for 15%, a 6% decrease from the same period a year before.

The pattern of executive hiring with respect to function also sheds light on the demand for executive and managerial talent in the region. With respect to hiring by function, general managers were the most sought after group, accounting for 28% of total hiring. Marketing & sales professionals, who filled 19% of new positions, and finance & control officers, who accounted for 16% of new hires, followed as the second and third groups in high demand. Demand for executive talent is expected to remain high throughout the region, as companies battle to attract and retain individuals with the skills necessary for success in today’s global economy.

Top MBA programs expand to Asia

As the demand for executives in Asia grows and local citizens seek high quality executive training, more and more MBA programs have been established throughout Asia. Previously, local schools attempted to fill this need. In recent years, many of the top business schools in the United States have established programs and branch campuses in Asia. The University of Michigan, an early player in Asia, has been teaching MBA classes in Hong Kong in conjunction with a number of local companies since 1991. Still, the University of Michigan is only one of many business schools that have established programs in Asia.

More recently, Harvard Business School set up a research center in Hong Kong, Chicago’s Graduate School of Business launched a two-year MBA program in Singapore, and Northwestern University established part-time programs in conjunction with local schools in both Bangkok and Hong Kong. Northwestern University also maintains a role as part of a joint venture in India, where it participates in an educational development project along with the University of Pennsylvania and local partners. The Indian School of Business will open next year as a full-time, one-year program, with approximately half of the faculty coming from these two prominent US universities.

MBA programs in Mainland China are also burgeoning, although such programs are experiencing mixed results. In 1991, there were only seven MBA programs in China. Today, there are at least 57 programs in 19 provinces and cities, with approximately 9,000 graduate students currently enrolled. In contrast to MBA programs in other parts of Asia, programs in China are often solely Chinese or partnerships with US schools of a lesser reputation, for example, the joint MBA program offered by Shanghai University of Finance & Economics and Webster University of Saint Louis, Missouri. Recently, however, more and more joint and collaborative MBA programs with top Western universities have been established. There is, for example, a joint program between Jiaotong University and the European Union ( China Europe International Business School, or CEIBS), and two Massachusetts Institute of Technology (MIT) programs, with Fudan and Tsinghua Universities.

Although questions remain about the quality of education students receive from these programs, many of which are part-time and rely on faculty flown back and forth from the US campus, these MBA programs are filling a real need for education and knowledge within the Asian executive community. With time, the quality of education in these programs will continue to improve, and Asia’s executives will be able to obtain top-quality business administration training on their home soil.

 

Japan

Unemployment remains a problem as Japan’s economy attempts recovery

After years of stagnation and recession, Japan’s economy finally appears to be growing again. The International Monetary Fund projects economic growth of 1.4% this year and 1.8% growth in 2001, with some analysts presenting a more optimistic picture.

Despite improvement in the overall economic outlook, however, unemployment remains a large problem in Japan. The unemployment rate in March of 2000 hit a record high of 5.2%. Although the unemployment rate has since tempered, to 4.5% in August, it remains quite high when compared to historic figures. Although some Japanese have been fortunate to find new jobs after being laid off, most experience a significant drop in responsibilities and income, with newly reemployed workers in their 50s reporting a 24.3% drop in income between their previous and current jobs. Surveys conducted by the Japanese government show that the number of Japanese who believe their “work situation is satisfactory, without fear of unemployment” has decreased steadily since the mid 1980s, with over half the respondents reporting an “unsatisfactory” work situation in 1999.

 

Source: IMF World Economic Outlook, September 2000 (*projected)

Youth unemployment

Youth unemployment remains a serious, continuing problem, except for those with high-tech, IT, or other technical or computer backgrounds. The unemployment rate for males under 25 has remained at approximately 10% for almost a year, and a recent government survey reported that recruitment of new university and junior college graduates hit a record low in the spring of 2000.

At the same time, young people’s attitudes about employment appear to be changing. There is growing evidence that many young people are seeking jobs that they characterize as “interesting” and do not expect the same type of lifetime relationship with their first employer that their parents once did. Although this connection may be tenuous, part of the youth unemployment problem may be attributed to changes in young people’s desires and expectations about work.

Canadian, European, and US companies are a growing source of employment for young workers in Japan. Long ignored by university graduates, these companies now attract some of the best young recruits, many of whom are interested in positions where they can use their English, enjoy excellent salaries, and be evaluated and promoted fairly based on their individual performance. For the first time, foreign companies in Japan have been able to attract top-notch entry-level professional talent.

Women in the workforce

The Ministry of Labor released a report on working women in March of 2000. Entitled “The Actual Situation of Women at Work,” the paper details the outlook for female university graduates who seek to secure employment. Those surveyed reported that they preferred specialist positions to managerial posts, work that allowed them to hold actual responsibility and gain a sense of achievement, and short-term contracts where their abilities were properly evaluated and rewarded rather than long-term contracts under the traditional lifetime employment scheme. Furthermore, new laws are helping qualified women obtain the professional positions for which they qualify. Although companies may have traditionally steered many female college graduates towards support positions, new anti-discrimination laws prevent companies (at least in theory) from preserving managerial positions solely for men and relegating women to a clerical role.

The report also reported that although the labor force participation rate for women immediately following university graduation is nearly 100%, this rate declines to approximately 55% when these women reach their early 30s. A number of these women leave the workforce to get married and/or to raise families. Although many older women express an interest in returning to the workforce, most believe it impossible, with 72.2% attributing the greatest difficulty to the “age limit” (what would be considered age discrimination in the United States is rampant in Japan).

The role of women in Japanese society continues to evolve. Although some women stop working once they are married, working women in Japan today are more likely to be married than not. However, despite gains in the workplace for working wives, the situation in Japan is still very difficult for working mothers. The desire of women to remain in the workforce after marriage is having a significant impact on Japan’s birthrate. This decreasing birthrate has greatly concerned the Japanese government; it has thus recently attempted try to reverse this trend via various forms of legislation. Legally mandated maternity and/or paternity leave has been lengthened, and couples are now eligible to receive a child-raising subsidy of $47/month for their first and second child and $94/month for each additional child up to the age of 6.

Rise of the “parasite singles”

In addition to delaying childbirth, many young Japanese women are postponing marriage and remaining in their parents’ homes for greater lengths of time. Whereas an unwed woman over the age of 25 would have been pitied the past, it is no longer uncommon for a woman to marry for the first time in her late 20s or even her 30s. The number of women in their late 20s who have never married has risen from 30 percent to approximately 50 percent over the past 15 years. While most young people seem content with this trend, many older Japanese see this paradigm shift as an affront to traditional Japanese values.

Japanese sociologist Masahiro Yamada’s book, “Days of the Parasite Single,” chronicles this phenomenon. The book, which triggered great response when it was first published in 1999, defines “parasite singles” as “unmarried people who live with their parents even after graduation from university, and depend on their parents concerning basic living necessities.” In comparison with other nations, Japan has the highest ratio of single young adults living at home with their parents. Unmarried people aged 20-34 who reside in their parents’ home today total at least 10 million, almost 37% of the 20-34 year old population.

One reason for the rise in the number of “parasite singles,” apart from the benefits of free room and board while living at home, is a cultural tradition whereby women are expected to “retire” from their jobs once they are married or have children. Although this is slowly changing, it remains a cultural norm by and large. Thus, for many women, it is an either/or situation: work and establish a career, or marry, support your husband’s career, stay home and raise children. For young women who have become accustomed to the rewards of a challenging career, not to mention the benefits of being catered to by their parents as opposed to catering to a husband, the traditional role of women no longer holds the same allure.

While it can be argued whether or not the increase of “parasite singles” is good or bad for Japanese society, HR managers in Asia will likely view the trend as positive from a business perspective. With more and more women remaining active in the workforce for longer periods of time, the pool of workers from which HR managers may recruit will grow. Furthermore, English conversation schools and adult education courses, including those programs that teach the computer skills so desperately lacking in Japan, are filled with young women seeking to improve their skills. Such women can be a critical part to a company’s success in Japan.

Lifetime employment system continues to deteriorate

The trend toward abolishing the lifetime employment system continues, with a recent survey showing that only 10% of employers “highly value” the lifetime employment system, while about half claim they do not insist upon it. Statistical analysis, however, does not validate these claims of a paradigm shift. The average length of continuous employment for Japanese workers does not reflect a move away from lifetime employment, with the exception of younger workers, whose job-switching rate is measurably rising. Additionally, several studies have indicated that over 50% of Japan’s companies would prefer to retain the lifetime employment system, “regardless of business results.”

Older workers lack job security

Job insecurity among middle-aged and elderly people is a growing concern. Company restructuring measures and downsizing have resulted in massive job losses among these groups, an unprecedented situation in Japan. Older workers have found themselves in a difficult situation for several reasons. Japan’s employers have recently focused on cutting costs, and decreasing expenses by eliminating expensive older personnel can be tempting. An increasing reliance on technology also renders many older workers’ skills obsolete. Japan does not currently possess legislation that bars age discrimination, but fairly strict laws and societal norms have made it traditionally difficult for employers to dismiss employees. Now, however, older employees who are no longer considered desirable are often encouraged to depart through various means, including transfer to a menial job or lowering of title. The loss in title, prestige, and the like often forces such workers to quit. Older workers who seek reemployment do not face good prospects; recent job postings in a Tokyo unemployment center listed ads for “older” workers in security and taxi driving positions.

Pension system reform

Japan faces a rapidly aging society and shrinking labor force of unparalleled proportions. The government estimates that by the year 2050, 32.3% of Japanese citizens will be over the age of 65, more than double today’s percentage of just over 15%. This shift in workforce distribution will put considerable pressure on Japan’s pension system. In 15 years, Japan will not possess enough workers paying into the system to support those receiving benefits. In 1997, there were 4.4 workers supporting each retiree receiving benefits; by 2020 there will be 2 workers, and by 2050 only 1.5.

In March 2000, the Japanese Diet passed key pension and social security reform legislation aimed to help ease the strains on the system to combat this problem. Under the new laws, the age at which Japanese citizens may begin receiving pension payments will gradually rise from 60 to 65. Unfortunately, a gap remains between the age at which pension payments will begin and the mandatory retirement age of 60, which continues at many firms. Although the law states that firms have the “duty to endeavor” to continue hiring and employing workers between the ages of 60 and 65, this will be a financially insecure period for many workers. Therefore, this provision won’t be phased in until 2018 in order to avoid adversely affecting those workers who are now nearing retirement.

Through the use of other reforms, the government plans to strengthen the pension system by raising contributions for all parties (the government, employers, and employees) while also cutting pension payments to retirees. First, the government raised its share of the pension burden from one-third to one-half, beginning in 2002. Pension premiums will rise to 26.7% in 2025 from their current 17.35%, with employers and employees sharing the burden. Finally, there will be a 20% reduction in the overall lifetime pension benefit under the public pension system, which will be gradually implemented over 20 years. Such increased contributions and reduced benefits are crucial to keep the pension system afloat.

Pension and social security reform will remain a key issue in Japan in the future. With a rapidly aging society and a devastatingly low birth rate, further modifications and flexibility will be needed to keep the Japanese retirement system functional.

Protections for part-time employees

Japanese labor statistics report a countrywide trend towards increased part-time employment. Although part-timers made up less than 20% of the workforce in 1991, they account for fully 26% of workers today. Many part-time and temporary workers are women. However, young men and older workers are a growing part of this workforce.

To protect part-time and temporary workers, Japan recently revised its worker dispatching law. Revisions to the law, which governs the work of temporary employees, came into effect on December 1, 1999. The revisions attempt to strengthen temporary workers’ working conditions while ensuring that such attempts do not undermine the status of regular employees. A company in most circumstances may not use a temporary worker in the same position for more than a year. Grievance provisions have also been strengthened.

Japan’s quest to be an “IT nation”

On September 21, 2000, Prime Minister Yoshiro Mori pledged to make Japan the top nation in information technology within the next five years. Prime Minister Mori recommended a course of action that would include “IT vouchers” to subsidize the cost of computer literacy and Internet courses for Japanese citizens. Although Mori’s specific proposal was quickly dismissed by Japan’s parliament and will not be implemented, the fact that such an ambitious undertaking was even announced indicates the growing emphasis placed on IT issues by Japanese lawmakers and the Japanese public. In fact, shortly after Mori’s announcement was made, Economic Planning Agency chief Taichi Sakaiya said that the government “through other ways, wants to make efforts to boost usage of the Internet.” Although Japan lags behind other “westernized” countries in IT usage and adaptation, it would not be surprising if Japan were able to catch up quickly -- Japan’s history shows that it may indeed surpass today’s IT leaders one day, though Mori’s 5 year deadline seems overly ambitious.

Online Recruiting

Jumping on the information superhighway, several Japanese companies are now attempting to recruit new employees online. Online recruiting saves recruiting fees and can reach a larger audience of potential hires. Some employers have established elaborate recruitment websites for this purpose, with questions aimed at those with special aptitude, training and/or interest in their products or services. “Young thinking” is greatly impacting traditional Japanese recruiting and hiring techniques. Although there have been some glitches along the way and Japan remains far behind the U.S. in this area, Japan’s movement toward online recruiting shows that Japanese organizations are slowly moving in the right direction.

 

China

Economic growth slows; unemployment is a rising problem

In recent years, China’s annual growth rate has dramatically slowed from 9.6% in 1996 to only 7.1% in 1999. There has been some minor improvement; China's economy is projected to expand 7.5% in 2000 and 7.3% in 2001. Still, annual growth under 8% is not sufficient to keep pace with China’s population growth, and unemployment remains a significant problem. State-owned enterprise (SOE) reforms continue to add workers to the unemployment roles, new job creation is negligible, and rising productivity levels mean that fewer workers are needed to accomplish those jobs that remain. Each year, China's unemployment problem is increasing in both its severity and its scope. Although government figures report an official unemployment rate of only 3.1%, most observers believe this figure to be greatly understated. In fact, Asian Development Bank economists estimate that China’s total urban unemployment may be as high as 18 million, or 10% of the workforce, while up to 30% of the rural workforce may be unemployed.

The unemployment problem can be viewed as both positive and negative for foreign-invested businesses in China. From the perspective of the employer, the high unemployment rate may be viewed as a positive sign; those who have gainful employment are far less likely to complain about work conditions while their jobless fellow citizens struggle on meager-to-nonexistent government unemployment benefits. At the same time, however, the large number of unemployed workers affects foreign-invested businesses in numerous negative ways. With such a large number of individuals without employment, government bureaucrats are under increasing pressure to identify opportunities for the mounting numbers of job seekers who stream into urban areas. These bureaucrats, in turn, transfer much of that pressure onto new foreign ventures. In the future, the Chinese government will continue to strongly favor incoming businesses which stress labor-intensive production and services, while existing foreign-invested ventures will be urged to employ additional workers and prevented from firing the inefficient workers they may already employ.

 

Source: Asian Development Bank (Based on Official Government Figures)

Education and training

Improving the quality of the labor force through the development of non-compulsory adult education programs, including middle and upper-level professional training and vocational education, is one strategy to reduce the number of unemployed workers. In addition, increasing the number of available places in universities and mid-level professional schools (as is currently planned) could allow up to 248 million eligible young people between the ages of 16 and 24 to develop their skills for a more competitive labor market. Furthermore, those receiving additional training would remain outside of the labor force, keeping official unemployment rates down during the most difficult years of adjustment. Lastly, the Ministry of Education plans to accelerate the development of vocational and technical schools to aid in the training of those who cannot attend regular colleges and universities.

There are a number of other programs in China that seek to better train China’s workforce and prepare for the challenges of the future. Universities and colleges are expanding their offerings to include a wider range of choice for students entering the highly competitive job market. To give students a broader pool of knowledge, disciplines such as insurance and finance will be taught in tandem. Furthermore, traditional teaching styles and texts are being reevaluated and revamped. For example, Beijing Normal University’s Resources and Environment Department has opened fieldwork courses to students studying geography. At the primary and middle school level, Beijing schools have implemented a new curriculum that aims to develop creativity and critical thinking skills, heretofore ignored under China’s education system. Beijing’s unified entrance exams for senior middle schools are also undergoing reform; the tests will be revamped to put more emphasis on students’ problem solving abilities rather than their memorization skills. Chinese government officials have instituted these reforms in an effort to produce workers better able to meet the challenges of China’s future.

Education reforms have been brought to the countryside as well. Chinese government officials have channeled greater effort and resources into technical programs such as satellite transmissions and computerized networks to enhance the availability of knowledge and training to rural areas. “Distance Learning” is also being utilized to help train teachers in the less-developed western provinces of China. As of May 2000, 240 primary school teachers in Guangxi Zhuang Autonomous Region and Yunnan, Gansu and Shaanxi provinces completed computer-based teaching training programs. Regional inequality has increased significantly in recent years, and programs such as these are crucial to the development of greater education in the poorer western region of the country.

Western-educated students return to China

Over the last twenty years, only approximately one of every three students who studied abroad returned to work in China. To reverse this “brain drain,” the Chinese government initiated a campaign to bring students back to China, and the policy seems to be effective. More and more Chinese living and working abroad are returning home to work, and greater numbers of students say they plan to return home once their studies are complete. A recent survey shows that 21% of students studying abroad plan to go back to China in five years, 37% of the students plan to return in 5 to 10 years and 23% plan to return in ten years. Only 19% of the individuals currently studying abroad are not considering a return to China after finishing their studies. Among the reasons for wanting to return home cited by these “to-be” returnees are: to make a contribution to their home country, to establish their own business in a familiar environment, or due to family reasons. In total, students planning an eventual return to China account for 81% of all Chinese students studying abroad and constitute a desperately needed source of trained and educated mid-level workers. With their western training, bilingual and bicultural abilities and desire to work in China, this virtually untapped pool of future managers represents the greatest source of new candidates for foreign-invested enterprises in China.

Government-mandated compensation increases; salary gap widens

On April 3, 2000, the Ministry of Labor and Social Security issued a regulation that further delineates the compensation associated with overtime and holiday pay. The compensation regulation stipulates that holiday pay will be a minimum of 200% of original salary, while overtime pay must be compensated at 150% of original pay or greater. In addition, Chinese workers will see an increase in their average salary per hour. As the nation’s official holidays have recently increased from seven to ten days per year, the number of workdays per month has decreased to 20.92 days (167.4 hours) and thus corresponding hourly salaries have increased for all workers.

Despite these across-the-board salary increases, there is a growing gap in the distribution of salary wealth between educated and uneducated workers. Most individuals who were raised at the height of the “Cultural Revolution” (1966 to 1976) never received a formal education; during this period the educational system in China was in turmoil and university education was considered bourgeoisie. As a result, workers between the ages of 41 and 45 earn 30% less on average than their younger, better-educated counterparts. Huge wage disparities also exist between rural and developed areas of China; salaries in China’s eastern cities are at least 10 times greater than salaries in the largely undeveloped inland regions of the country.

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