Top HR Challenges in China

Since a greatly increased number of businesses is expanding their operations to China or is trying to look for opportunities on how to open a new business in China, an issue that poses the biggest challenge for such companies is how to find employees in such a distinct country with so many different legal and organizational policies when it comes to recruitment.

Understanding the Chinese market and how to set up a business requires not only a huge financial investment but what is even more difficult to achieve, the understanding of the Chinese commercial scene.

The unique HR challenges that international companies encounter while trying to set up a business in such a rapidly expanding market as China can be categorized into 3 main groups:

• Legal struggles

•Understanding of the Chinese market and culture

•HR Administration

From the legal perspective, challenges that can be observed stem from issues as the labor contracts that must be fully in Chinese or for example high standard of following the tough and changing law regulations.

When we think about the understanding of Chinese culture, the ethics and etiquette, social interactions, and expectations in the workplace, they all pose a challenge for an international company that wants to set up business in the Chinese culture.

Labor cost and recruitment of qualified employees for the long term in China seem to be one of the biggest challenges for foreign companies, which embarks on a shortage of skilled workers.

What’s more, the policies of recruitment are changing so rapidly and are different from city to city in China which makes it really challenging to follow for a company without a specialized team to do that.

The main challenges associated with developing effective HR services in China are all mainly connected to recruiting qualified employees with the right skills required by foreign companies and finding ways on how to retain them in the company for a longer period.

The common skills that all the international companies seek in such employees focus on the understanding of the international market while at the same time understanding the Chinese workplace culture, a skill that, according to a 2006 McKinsey survey, not so many new Chinese university graduates possess (only 10%).

The other side, which is high human costs in China with a recent addition by the government of 10-15% increase to annual remunerations, create a growing conflict between the features of Chinese culture and the HR standards.

The language barrier also presents to be one of the biggest challenges since usually international companies do not have the Chinese language skills necessary for the cooperation in the Chinese market and so recruitment of employees.

Main HR functions in China

The main functions of HR service in China can be divided into three groups:

• HR operations

•Recruitment of employees

•Training

HR operations focus on employee onboarding, employee off-boarding processes, and benefits and tax operations.

When a company is looking for employees to broaden the operations to China, the HR service is a crucial step for the recruitment of employees. The next step after recruitment is the help from HR service in training the employees. It can be either internal or external by engaging a third party to do that.

The reason why international companies refer to HR service in China for expanding their business is that expanding operations to China means working in the Chinese way with Chinese people which requires an understanding of the country, its local employment laws, regulations, and culture.

The main way how HR service provides help to international companies is by ensuring that the company is presented with the broadest option of best-qualified workers and then makes the best possible decision from the range of available talent. Finding the best talent, understanding, and complying with the local regulations, and providing long-run cooperation are the key steps that a China HR service can provide.

How an HR service in China can help foreign companies grow?

The most important ways in how an HR service could help foreign companies to grow would be through solving the most challenging aspects of opening a business in China which include:

•Cultural and language barrier

•Legal struggles with the rapidly changing policies

•Additional struggles of focusing on aspects of HR instead of your own business

HR service is a cost-effective way to solve all the issues connected with the compliance to the Chinese law, recruitment of Chinese employees without the language barrier, stability with no gap for turnover of the HR person, which is an important risk a company should consider, and finally, it will allow the company to focus on their own business development instead of trying to handle these challenging HR issues.

Lastly, for a company that does not want to open a new entity in China, the HR service is a perfect solution since, thanks to the PEO service, everything will be handled on their behalf without the need of opening a new legal entity in the country.

Thanks to this service the company can focus on its own business strategy in China while the HR service will handle all onboarding and administrative tasks. As a result, a client can have a physical presence in China without even setting up a legal entity in the country.

This article was written by Aleksandra Salacinska. Please send an email to [email protected] to get in touch.

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