Publications

Introduction

With over 4 billion people, Asia is home to more than two-thirds of the worlds population. Japan and the East Asian Tigers (Korea, Taiwan, Hong Kong, and Singapore) are well established, developed nations. Asias more recent economic stars, China and India, have received much attention over the past decade. With increased foreign investment, even less developed countries like Vietnam and Thailand are also making some headway and experiencing increased per capita income, life expectancy, and GDP growth.

The chart below outlines the major demographic and economic indicators for some key East Asian countries.

East Asian Demographics (2006)

(CIA World Factbook)

In general, HR and recruiting issues in Asia have become increasingly sophisticated in recent years. More specific labor laws have been implemented and are being enforced throughout the region. Both foreign and domestic companies are vying for the most skilled local candidates. While many Asian HR managers are turning to new recruiting strategies, retention of top candidates has become an equally important issue.

This article will discuss recent HR and recruiting trends in five key Asian countries: China, Japan, Korea, Taiwan, and Singapore.

China

It is no secret that China is the economic giant of Asia. In terms of purchasing power-parity GDP, the Chinese economy is the third largest in world at $10 trillion, falling behind only the US and Japan. In 2006, it received $63 billion in foreign investment, around eight times that received by India. Per capita income, however, varies significantly between locations, averaging about $1,200 in rural areas and $4,000 in coastal cities. 

Compensation trends in China

White-collar wages in China also vary significantly, based on a variety of factors. For example, a local Chinese who has graduated from a good Chinese university and has five years of accounting experience at a state-owned enterprise (SOE) in Shanghai would likely receive a salary of around $6,000 per year. Someone with the same qualifications, who has experience at a foreign-invested enterprise (FIE) instead of an SOE might earn two to three times as much. Headhunting and poaching of top candidates with five years of accounting experience at foreign ventures in China may drive salaries as high as $25,000. Adding an additional five years of experience is likely to bring this individuals salary up to $40,000 plus. Fluent English would likely further increase the salary to $50,000 or $60,000. A returnee with five years of experience working in the West in addition to five years of experience at an FIE in China may command a salary of $80,000 or more. As illustrated, Chinas wages are skyrocketing. 

In the past, foreign expatriates working in China have generally received compensation packages of greater value than those that they would receive in other foreign countries. However, traditional expat benefits packages including expensive housing allowances and education expenses are being reduced in China. Multinationals are recruiting fewer expatriates and replacing them with returnees and locals. In addition, in many instances, China is no longer considered a hardship overseas location. 

Benefits

Chinese labor law mandates contribution to several social benefits plans including healthcare and pensions. Despite this law, the availability of these benefits varies throughout the country. Most Chinese living outside major cities do not have these types of benefits.

The government medical benefit plan requires both corporate and individual contributions. This money is distributed into social pooling and individual accounts for medical expenses. FIEs typically also provide private health insurance plans for their key non-Chinese employees. In 2005, more than 75% of the multinational companies in Beijing and 50% of the companies in Shanghai provided some type of supplementary medical benefits to key employees.

The new Chinese pension system is based on the World Banks Three Pillar Model. The first pillar consists of a government sponsored old-age insurance fund similar to the US Social Security system. All companies, including FIEs, must contribute to this fund for both local and foreign employees. Contribution rates vary between municipalities, but can be as high as 18% of total payroll in larger cities. The second pillar of the pension system is an enterprise annuity scheme. Similar to the 401(k) system in the US, this scheme is voluntary and allows for contributions from individuals and multiple employers. The third pillar consists of individual savings and investment. Many FIEs in China encourage individual savings accounts or set up additional private pension plans for employees. Again, despite these three pension plans, access to these benefits varies throughout the country.

China HR Updates

In late 2006, China announced changes to its personal income tax system. In the past, employees did not have to file with a central tax agency. Employers simply withheld money and submitted directly to the government. Although employers will continue to submit payments to the government, employees will now also be required to submit tax return forms. Filing can be done online or by mail and will be used by the government to cross-check for accuracy and reduce tax fraud. Only those with overseas income, income from multiple sources, or annual salary above 120,000 RMB (about $15,260) will be required to file on their own at this time.
A Chinese Green Card program was initiated recently to make it easier for foreigners to have long-term residence in China. A green card allows for easy passage in and out of China with no visa applications or renewals. At present, the green card program is reserved mostly for foreigners with high-level positions at large companies or those who have family in China. However, it could be expanded to include others in the future. The green card allows for free movement between jobs and cities without applying for residency permits. On one hand, this makes it easier for expats to job-hop in China. On the other hand, HR managers will find that hiring procedures for foreigners with Chinese green cards are less complicated.

Recruiting and Retention in China

FIEs in China often hire a mixture of expatriates (from both Western and other Asian countries), returnees, and locals. Each type has advantages and disadvantages. While expatriates are often the most suitable because of their business or technical knowledge, they also require high compensation packages and may have difficulty relating to the Chinese workforce and culture. Returnees can oftentimes be good substitutes for expats. They are familiar with the Chinese language and culture and oftentimes Western business practices. Sometimes, however, returnees have difficulty relating to the mainland environment on returning to China. Locals, though the least expensive and most familiar with local business practices, are normally not well versed in Western business practices or the English language. It is crucial for companies to find the right combination of executives to make the business successful. It is important to note that most Western companies are now trying to reduce the number of Western expats and replace them with Asian expats (who are often overseas Chinese born outside of China), Chinese returnees, or locals.

Recruiting locally in China is most often done through online jobsites, print newspapers, or campus recruiting. 51Job Weekly has a popular website (www.51job.com) as well as a print publication that is dedicated to job classifieds and publishes local versions in several major Chinese cities. In terms of campus recruiting, Peking University (Beijing), Fudan University (Shanghai), and Tsinghua University (Beijing) are considered to be the top three universities in China for nearly every discipline. Competition for candidates from these schools is fierce.

For the most talented employees, the Chinese job market is very strong and HR managers at FIEs in China must continually develop retention strategies to keep their best employees. These include frequent evaluations and pay reviews, housing benefits, stock options, career development and training programs, as well as the boss/employee relationship, among others.

Japan

Japans economy struggled through the 1990s and early 2000s. Between 2003 and 2004, conditions improved significantly with 2.2% GDP growth. Since 2004, the Japanese economy has continued to grow. With a current GDP of $4.7 trillion, it remains the second largest economy in the world.

An aging population, however, is of growing concern in Japan. A low fertility rate combined with high life expectancy have caused the average age of the population to increase steadily. In 2006, one in five of Japans citizens was aged 65 or older. Within the next 15 years, this number is expected to increase to nearly one in three.

Overview of HR in Japan

Japan has a traditional system of lifetime employment in which employees often work at the same company from graduation until retirement. Termination of full-time employees is still quite difficult. With a struggling economy and increasing labor costs, however, some large companies have moved away from this system, especially in Tokyo and Osaka. Many companies are beginning to hire non-regular employees, such as part-time workers, to replace jobs previously done by full-time employees. The Japanese have coined the phrase freeter (a combination of free and Japanese for part-time worker) to refer to those who are working part-time or not at all, often still living with their parents. 

Under the traditional lifetime employment system, compensation was typically seniority-based. The newer system, adopted by some major Japanese companies and many Western companies in Tokyo and Osaka, involves merit-based pay to encourage productivity and work quality. Resistance to change is strong, however, and some Japanese companies that experimented with merit-based systems have now returned to seniority-based pay.

Benefits in Japan

Salary in Japan is often only about 85% of the total compensation package. Additional benefits in Japan typically include pension contributions, health insurance, unemployment insurance, workers compensation, and child-bearing allowance insurance. Japanese companies sometimes also provide additional subsidized private housing or family allowances.

Japans government health insurance plan provides universal coverage. The total mandatory contribution rate of 8.2% is shared equally by employee and employer. The rapidly aging population, however, has raised fears about the future of the system. As a remedy, the patient co-pay, which was originally set at 10%, has been increased to 30% in recent years. Foreign companies typically also take out private health insurance plans, particularly for expatriate employees, who are not required to participate in the government plan.

The Japanese public pension system includes a basic National Pension Plan, which is universal and provided at a flat rate, and Employee Pension Insurance, which is for regular employees of companies and pays out as a percentage of income. Since 2005, the Japanese government has been reviewing the social security system and discussing the possibility of merging the two funds. It has also discussed cutting retirement benefits by as much as 13% over the next 20 years. Private pension plans for foreign and Japanese executives are somewhat common among FIEs in Japan. Japanese rarely take out their own individual pensions. Unlike 401(k) plans, company pension plans in Japan generally have fixed benefits rather than defined contributions.

Recruiting in Japan

Foreign companies in Japan often find recruiting to be most successful through newspaper and online advertisements (in both English and Japanese), word of mouth, and employment agencies or headhunters. It is often difficult for foreign companies to compete for top graduates with major Japanese companies when recruiting directly from the top Japanese universities such as Tokyo University, Kyoto University, and Waseda University.

Mid-career hires rather than new university graduates are easier targets for foreign companies. Skilled candidates in this category may be overlooked by top Japanese companies, who are still generally less inclined to do mid-career hiring. It is also often easier for foreign companies to recruit non-regular workers such as part-time or temporary workers in Japan. Non-regular workers now make up over 30% of the total Japanese workforce.

Long-term employment stability is a very important issue to Japanese employees. Typically, once Japanese leave domestic companies to work for foreign firms, it is almost impossible for them to return to the Japanese workforce at the same pay level and same capacity in Japanese companies similar to those they left.

Korea

Four decades ago, Korea was a developing country with a GDP equivalent to that of many African nations. From the 1960s to 1990s, Korea developed rapidly and its economy flourished. The Asian financial crisis from 1997 to 1999 hit Korea hard, but since then it has recovered with steady growth averaging around 5% per year. With a GDP over $1 trillion, Korea has a per capita income on par with smaller EU countries such as Spain and Greece.

Korea HR Overview

The Korean labor force of 23.5 million is well educated and highly skilled. Almost 70% are employed in the service sector, and unemployment is low at 3.6% (2006).

The predominant HR issue in Korea over the past two decades has been the prevalence of labor strikes. Unstable labor relations have hurt foreign investment in Korea. Many multinational companies, from Carrefour to General Motors, have experienced serious labor strikes in recent years. In fact, the Institute for Management Development, based in Switzerland, recently ranked Korea last among 61 nations in terms of competitiveness of labor relations. The total work days lost annually to labor disputes in Korea are among the greatest in the developed world.

Korea HR Updates

In June 2006, Korea issued new visa laws for ethnic Koreans wishing to return to Korea for work. This H-2 visa simplifies hiring procedures for ethnic Koreans in certain industries. It allows them to enter and leave the country freely for three years and switch jobs without obtaining a new visa. This makes it easier for companies to recruit Koreans from overseas. Korea has an immigrant population of 600,000, most of which is made up of ethnic Korean returnees.

In 2006, the Korean government also announced plans to change its pension system. Like Japan, Korea has a rapidly aging population, and the government is looking ahead to prevent major pension fund deficits. Between 2010 and 2020, total combined employee/employer contribution rates will increase from the current 9% of earnings to 12-13%. During this time period, post-retirement pension payments will also be reduced from 60% of former salary initially to 50%, and later to 40%.

The Korean healthcare system is also experiencing stress from the countrys aging population. This has led the government to raise health insurance premiums by 6.5% in 2007. Current benefits related to serious illness will also be cut. Currently, employers and employees each deduct 2.2% of average monthly salary to be deposited into the insurance fund.

Recruiting in Korea

Hiring in Korea is often based on relationships, known as Yeon-go. Individuals often rely upon wide networks of family members, friends and school alumni to find employment. Recruitment of college students generally takes place twice a year, once in the spring and once in the fall. College recruiting is popular among FIEs, and competition is stiff among students for positions in top companies, both domestic and foreign. Some of Koreas top universities are Seoul University, Korea University, and Yonsei University.

Despite a strong economy, in 2006 there were approximately 280,000 recent college graduates without jobs in Korea. Many Korean companies have implemented hiring restrictions, put a ceiling on the age of employees they are willing to hire and generally do not consider those who graduated two or three years ago. Unemployed recent college graduates are sometimes good hires for foreign firms in Korea. Foreign companies may offer a better salary, benefits, and opportunity for advancement than local Korean firms. On the other hand, foreign companies may also have higher turnover. As in Japan, the concept of long-term employment is very attractive to Koreans.

Singapore

Singapore is a city-state only about 3.5 times the size of Washington, DC. It has a highly developed market economy with steady growth rates averaging above 5%. The per capita GDP is in the same range as France and the UK. Singapores population of 4.5 million is a diverse mixture of Chinese (76%), Malays (14%), Indians (8%), and others from around the world.

HR Overview

Singapore has well-developed employment laws and HR practices. Because of the large number of foreigners employed in the country, many of Singapores laws are also applicable to foreign workers and its work visa program is carefully regulated. Singapore has over 70 trade unions, but cooperation between unions, the government and corporate management has generally been strong with very few strikes in the past two decades.

Employers in Singapore are required to pay into a Central Provident Fund (CPF) for all employees who are citizens and permanent residents. The CPF began as a pension plan in 1955, but has expanded into a more general social welfare scheme, covering retirement, health care, and housing benefits. Employer contribution rates range from 3.5% to 14% of salary, depending on the employees age and residency status.

The Medisave Scheme, a compulsory savings plan for medical expenses, requires an additional contribution of between 6% and 9% of salary for all employees. Contributions are shared equally by employees and employers.

HR Regulation Updates

In 2007, the Singaporean government began a Personalized Employment Pass program for foreign workers. Prior to this, there were three major options for foreign workers in Singapore: the S Pass for those with minimal education and few specialized skills, the Q Pass for those with some specialized skills and qualifications, and the P Pass for executives, managers, and senior professionals. Each pass also involved a minimum income requirement and was valid only for a single job.

The new employment pass allows foreigners to switch jobs without applying for a new permit and allows the holder to remain in Singapore for up to six months without a job. Those who earn more than $19,000 annually and have held a P Pass for at least two years or a Q Pass for at least five years are eligible.

Recruiting in Singapore

Many multinational companies choose Singapore as their Asian hub and there is constant competition to hire executives. As a result of this competition, companies must focus on acquisition and retention strategies. The demand for HR professionals is currently very strong.

University recruiting can be very effective in Singapore. The National University of Singapore is ranked the 19th best university worldwide. Nanyang Technological University is well known for its science and engineering programs. Classes at both schools are taught in English. Some companies in Singapore also recruit overseas Singaporean graduates who have elected to study in Australia, the UK, or the US.

Because Singapore consists of a single urban area, advertising job openings in local newspapers can be an effective way to recruit both local and expatriate candidates living in Singapore. The Straits Times is the largest newspaper in Singapore and is known for its job classifieds on Fridays and Saturdays. The paper also maintains a well-visited job posting website on the internet (www.st701.com). The largest Chinese-language newspaper in Singapore is Lianhe Zaobao.

When posting job advertisements in Singapore, there are a few special considerations that should be made. First, language requirements should always be stated clearly. Singapore has four official languages: English, Mandarin, Malay, and Tamil. Most people can speak only one or two of the four, and most business jobs are likely to require English or Chinese only. Secondly, it is important to include desired residency status in job postings. Singapore is a multinational city, and many potential candidates may be permanent residents or employment pass holders instead of citizens.

Taiwan

In 2004, Taiwans economy hit a 7-year high GDP growth rate of 6.1%. In 2005, it continued to grow at close to 4%. Final figures for 2006 are likely to be slightly lower, but inflation and unemployment rates remain low. This densely populated island nation (23 million people) has a well-educated, highly motivated workforce of around 10.6 million people.

HR Overview

Taiwans labor regulations and social benefits programs are much more highly developed than those of mainland China. Taiwans National Health Insurance program is a government-backed plan, much like those in Korea and Japan. Employees, employers, and the government all contribute to this program for a total of around 4.5% of average income. Participation is mandatory for all Taiwanese citizens and for foreigners with permanent residency.

Taiwans Labor Insurance Act guarantees retirement, disability, death and unemployment benefits to all workers in Taiwan. It is funded by employees, employers, and the government at a total rate of 5.5% of annual salary. The plan includes foreign employees working in Taiwan. In theory, all companies must participate.

HR Regulation Updates

A year or so ago, a new pension regulation went into effect in Taiwan with the passage of the Labor Protection Act. Under the old pension plan, retirement payments were made in a lump sum and were tied to a single employer. The new system allows for fixed payments over time; pension funds can be received on a monthly basis after reaching the age of 60. Under the new system, pension funds can also be carried from one employer to another throughout an employees career.

Recruiting in Taiwan

Many companies in Taiwan rely heavily upon in-house HR teams to meet their hiring needs, but the use of outside recruiting professionals has become more common during the past few years. HR Managers in high-tech industries have become accustomed to poaching skilled technicians from other companies, due to a shortage in this area. This practice, however, has led to wage inflation and hurt retention.

Companies in Taiwan often attend job fairs at universities or regularly visit campuses to interview students. The National University of Taiwan, located in Taipei, is consistently ranked as the best university in the country. Graduates from National Cheng Kung University tend to favor Taiwanese companies and may be more difficult for foreign companies to recruit from. The National Chengchi University is most noted for its graduate programs, particularly its MBA program.

Conclusion

HR and recruiting in Asia is a dynamic field. In addition to understanding the latest labor laws and industry trends, it is essential for Western HR managers in Asia to understand the people with whom they are dealing. Each Asian country has different values, attitudes, and mindsets. Business norms are unique to each Asia country.

Many Asian cultures place high importance on personal relationships, especially when doing business. In China, for example, cultural insensitivity and a business first attitude are often the greatest handicaps for foreign businesspeople. In Japan, a formal etiquette is extremely important for making a favorable impression. In Southeast Asia, differing religions and cultures are key factors to consider. Understanding the small details as well as the big picture is essential for being successful in HR and recruiting in Asia. 

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