CHALLENGES FACING HRM FUNCTION IN ASIA AND RESEARCH AGENDA

At present globalization is changing the stable workplace systems in the region. This is evident in many countries. Thus, the effects of changes created by the globalization pose major challenges for HRM in the Southeast Asian region. For instance, in China and India there is some evidence that economic liberalization arising from globalization and competitive pressures is changing the pattern of HRM, employee relations and industrial relations and labour legislation. Some of these changes are occurring both in the private and public sectors in both countries. In China, it is argued that the emergence of market economy is undermining the nanny employer image of organizations as there is a concerted effort to shift the huge welfare burden from employers to individuals. In line with this approach, then, the downsizing of organizations and changing recruitment and retention practices have resulted in insecurity for workers in China. It is expected that a similar pattern will emerge in countries like India where many of the state owned firms have surplus labour. However, unlike China, downsizing in India will be strongly resisted by both trade unions and opposition political parties.

Similarly, the changing business environment in Japan has put tremendous pressures on employers to change their traditional employment practices in order to survive. Accordingly, Japanese employers are restructuring their employment systems in response to low growth, globalization and international competitiveness. The major elements of the Japanese style HRM - lifetime employment, seniority promotion system, enterprise unions, keiretsu and sub-contracting relations developed essentially in response to rapid and high economic growth during the post-war industrialization boom are being fundamentally transformed.

This transformation is by no means will be smooth, especially against a background of low growth, recession and rising unemployment, Japanese employers are experiencing

significant HRM problems. Consequently there are calls for a critical re-evaluation of the basic framework of the established Japanese HRM model. In this regard, for a country famous for providing lifetime employment, this is a major transformation with fundamental and long term challenges for HRM. The deep-seated challenges are not limited to Japan, China and India as they are occurring through out the region. The challenge facing HR managers who are dealing with the global forces is how they can minimize the threats posed by global competitive pressures on HRM while at the same time taking advantage of the opportunities created by globalization to restructure their HRM and employee relations practices. This also provides a great opportunity for researchers and should be considered as an important research agenda.

Globalization and international competitiveness can pose significant threat to the productivity and morale of employees. In an attempt to explore these challenges, Rowley and Bae have proposed the use of Rousseaus (1995) three-fold typology of psychological contracts as an analytical tool. This is quite pertinent in view of the impacts of globalization and competitive pressures on HRM discussed earlier. Throughout the Asia-Pacific region, the changes in traditional employment practices have crucial consequences for HRM. These include increased stress, declining job security - as a result of downsizing and rising unemployment - as companies adopt labor flexibility strategies to reduce labor costs (Wiseman 1998). In such a changing environment, employees still expect to be treated fairly, rewarded equitably, provided growth opportunities, to know what is expected of them and be given fair and constructive feedback on their performance (Armstrong, 2001). This is particularly the case in Japan, China, India, and Vietnam. In the last three countries there are internal changes pertaining to privatization of state-owned enterprises (SOEs), which have resulted in insecurity for workers. In the case of Japan the insecurity arises from changes in the external economic environment.

For many employees in Japan, China, India and Vietnam the move away from

traditional employment practices constitute a violation of the psychological contract. Thus, the challenge for HR managers is how to be able to deal with the outcome of employees responses to the perceived violation of the psychological contract - such as reduce effort on the job or output and reduced contributions in the form of loyalty and commitment. In the Asian context, there is the need for research to ascertain what constitutes violations of psychological contract. It is also necessary to explore the contextual patterns and diversity of responses to psychological contract violations.

Perhaps this is going to become a much bigger challenge in information technology enabled services (ITeS) providers such as call centres and business process outsourcing (BPO) firms where problems relating to psychological contract and job stress become prominent after a while. For example, in the case of India, majority of call centre employees are full of enthusiasm when they start their first job. However, after a while the dark side of the rosy picture starts to emerge and the level of staff morale declines considerably (see The Economic Times, 2003). To a great extent, the lack of talent development initiatives is held responsible for this (Chowdhry, 2003) as the lack of career structure provides a good opportunity to competitors to poach talented people (Prabhakar, 2003). Such emerging trends pose challenges to HR managers regarding both their recruitment and retention policies and practices. Here, there is the need for researchers to provide insights into the causes of dissatisfaction in call centre work in emerging economies and what can be done to promote growth and development of workers in the sector.

Another essential challenge in HRM in the Asia-pacific region is the effects of the transition from collectivism to individualism in HRM practices in countries such as Japan, India, China and Vietnam. Here, along with the managerial responses to employees perceived violation of the psychological contract is the need for managers to develop a new 11culture where promotion, pay and other organizational benefits will be based on individual contributions rather than group characteristics. In this regard, it appears that globalization and

competitive pressures are pushing organizations in East Asia to move towards the Australian system of determination of employee benefits. How to achieve an effective and successful change to individual based HRM practices within the broad East Asian culture of groupism is a critical challenge for all managers in Asia.

The emergence of the knowledge-based economy/knowledge-driven global economy is also creating a significant challenge for managers is the Asian region regarding how to manage employees involved in it. The importance of human knowledge in economic growth is now widely acknowledged. Knowledge is now considered as the basic form of capital and as such the accumulation of knowledge, it is argued, drives economic growth (DTI, 1998). A knowledge-driven economy is one in which the generation and exploitation of knowledge play the predominant part in the creation of wealth (DTI, 1998). The two key drivers of the knowledge economy are globalization and communication technology (Houghton and Sheehan, 2000), both of which are prevalent in the South-East Asian region. Research is urgently required on the appropriate forms of compensation and motivation to retain knowledge workers.

Singapore was one of the first countries to move towards a knowledge-driven economy (Ofori 2003) and has instituted plans/programs to develop a world-class workforce. Singapore considers its current economy to be progressing from capital intensive to knowledge based. To a great extent, Hong Kong is also following the same model. To achieve this objective, Singapore has acknowledged the importance of talent and education, and life-long learning among other factors as the key determinant of a competitive economy. HRM has a major role to play in the knowledge economy not least because of its ability to equip employees with skills, knowledge and attitudes to operate in a competitive environment. 12Moreover, as the knowledge-driven economy creates rapid and dramatic change, uncertainty and turbulence as well as adjustment problems for employees, HRM managers will have to develop new strategies for managing people. These issues would be of interest to managers in

the region as they move towards knowledge-driven economies in their attempts to compete in the global economy. The management of knowledge workers thus provides considerable challenges for HR managers.

Across the South-East Asia region, governments are trying to develop biotechnology industry. Many of the ambitious projects are in India, Singapore, South Korea, Taiwan and China. Many cities in these countries already have thriving high-tech industries and want to ride the next big wave by creating life-sciences centres/hubs. Singapore, for instance, is pouring money into Biopolis, a science park for biomedical and other knowledge-based industries. In India, Hyderabad is witnessing a gathering of the elements needed to create a life science hotspot to match its IT industry (Merchant, 2003). South-east Asian countries, particularly China, Korea and Taiwan are building biotech clusters to attract back to their native (East Asian) countries expatriate scientist trained overseas (mainly US).

As these biotech clusters take hold in Asia, the need for knowledge workers will increase. The companies that are able to attract expatriate scientists must be capable of harnessing the knowledge of the scientists. In this respect, HR managers need to contribute effectively to knowledge management by exhibiting expertise in the area. In a changing psychological contract environment, HR managers need to be able to promote values and norms, which emphasize the importance of sharing knowledge, commitment and trust. In relation to that, HR managers must be capable of developing compensation and career development structures that can not only motivate but also retain knowledge workers. In addition, HR managers must be able to develop performance management processes and 13organizational and individual learning programmes for knowledge workers in organizations (Armstrong, 2001).

Yet another challenge for HRM managers in the region is the issue of diversity management. In recent years, diversity management has been a burning issue in the

management of HRs in the Asian region. The issues relating to gender, age, ethnicity among others, have assumed increasing importance. However, against a background of labor shortage problems in many Asian countries, the governments are urging more women to enter the labor market. In view of the declining birth rate in many East Asian countries it is anticipated that the female labor force participation rate will continue to grow. If this trend continues as predicted then HR managers face the challenge of developing a safe and secure working environment for women. It must be realized that in order for organizations to be able to recruit, motivate and retain female employees, HR managers need to confront the issues relating to the discrimination of women in the labor market.

Perhaps the most daunting scenario regarding diversity management in Southeast Asian countries is the looming demographic time bomb. As Holland (2003) asserts, Asians are getting older. This is a slow, silent and unstoppable revolution which is reshaping Asian societies. It is claimed that in the mid-1950s, old people (65 years and above) were a rarity in most East Asian societies. However, with better health care, higher standard of living, better educated people and increase in life expectancy in recent years there has been a considerable increase in old people. At the same time most East Asian countries are experiencing decreasing birth rates, ageing workforce and hence labor shortages. It is estimated that by 2050 nearly a quarter of East Asias population will be aged 65 or over (Holland, 2003).

Japan is particularly affected by the problems of ageing population. Currently, one in six Japanese is older than the mandatory retirement age of 65. But with a fertility rate of just 1.3 children per woman - way below the birth rate of 2.1 needed to maintain a stable 14population - and a life expectancy of more than 80 years and rising, it is estimated that by 2050 more than 36 percent of the Japanese population will be above retirement age (Holland 2003).

While some countries such as Singapore and Japan have made efforts in the legislative arena to tackle the problem others have paid little attention to it. However, ageing population poses serious challenges to HRM in the Asian region (See Debrah, 2002; Snape and Redman, 2003). How each country responds to the issues relating to an ageing workforce depends on the severity of the problem but it is likely that some countries would have to import labour or rely on immigration in order to sustain economic growth. For instance, it is anticipated that Japan will need 6 million immigrants in the next 25 years but immigration is bitterly opposed by those who equate it with crime (Pilling, 2003). Even if East Asian countries manage to delay or resist limited or large scale immigration from both within and outside the region, the countries would most likely need migrant workers.

Currently there are legal migrant workers from labor-surplus countries such as Indonesia and Philippines to labor-receiving countries such as Hong Kong, and Singapore. There are also low-paid legal migrant workers from countries such as India and Bangladesh in Singapore and Malaysia. In many workplaces in the construction industry in Singapore, for instance, it is possible to find migrant workers from different countries working together in a team. The management of such multicultural work teams is one of the challenges facing HR managers. Going by current demographic trends, it is possible that the use of migrant workers is likely to increase in future with multiple implications for the management of HRM in the South-East Asian region. Hence, researchers need to conduct more research on equal opportunities and diversity management issues. Here, research can focus on single countries and various aspects of discrimination and diversity management. It can also focus on these issues as the pertain to a particular sub-region.

Other interesting HRM challenges are emerging in the region. One such challenge is the HRM issues relating to the outsourcing of service jobs from industrialized countries to the developing world. In the last decade, advancements in information communication technology and availability of high skilled workforce in some developing countries have

made it possible for some developing countries to attract white collar jobs from developed countries. It is estimated that 3.3 million jobs in the US and 2 million in Western financial services will be lost as result. In the UK, 200,000 jobs losses have been predicted by 2008 (FT, 2003). Asia has been the major recipient of these jobs.

Lower cost locations such as India, the Philippines and China are now attracting outsourcing of much higher value-added services such as medical diagnostics, treasury management, and software development (FT, 2003). Bibby (2003) also points to the offshore outsourcing of architectural services. For instance, a British company Atlas Industries- has set up an office in Vietnam to work entirely for the UK market. The Vietnamese employees produce drawings and 3D computer-generated designs for buildings at a relatively low cost. The work is assigned or finished product transferred through email or a password-protected website (Bibby, 2003).

In India, the main activities or areas covered by the call centres include customer care (such as remote maintenance, help desk and sales support), finance and administration (for example, data analysis, medical transcription, insurance claims and inventory management), HR and payment services (such as payrolls, credit-card services, cheque processing and employee leasing) and content development, i.e., digital content, R & D, LAN networks and application maintenance (for more details see Chenggapa and Goyal, 2002). As the competition, both nationally and internationally, to get business contracts has increased considerably in recent years; HR managers working in the sector are facing enormous challenges in attracting and retaining the best employees.

At another level, HR managers face significant challenges in their attempts to utilize internal labor markets (ILMs) in organizations. Appropriate ILMs are known to be conducive to the development of long-term employment relationships, bind employees to the organization and also help to reduce employee turnover (see Osterman, 1994). It is also

known that ILMs make it possible for HRM practices to be consistent with a systematic and rationalized employment system. However, in the case of countries like India and China (and many other Asian economies); ILMs are generally based on social connections, political contacts, caste, religion and economic power. Thus, in the context of present business conditions in India and China, the efficiency of the established traditional ILMs is questionable. The challenge, however, is how HR managers can engineer such a macro level change without alienating powerful members of their organizations.

The existing ILMs system has been linked to corruption in Asian countries. It is argued that ILM system, where informality, social networks and power distance are essential elements tends to engender corruption in organizations (see Luo, 2002). This has serious implications for efficient HRM system and HR practitioners need to pay due attention to it. Yet another challenge revolves around the quality of research in the Asian context. In his analysis of the main limitations of research conducted in the region, White (2002) suggests that too much of research effort has been limited to simplistic comparisons, correlational analyses providing no insight into underlying processes, and skewed, idiosyncratic sampling. Such research, it is argued, does not contribute significantly to theory development. Accordingly, White (2002) highlights the need to increase both rigour and relevance of research efforts in the Asian context.

In response to this suggestion, Lau (2002) recommends the adoption of Asian developed constructs to study local and global issues and calls for development and validation of new constructs so as to get into the depth of Asian-based issues. Similar suggestions have been made by many others. For example, focusing on cultural values, Kao et al. (1999) stress the need to indigenize management practices in Asian organizations. Due to the strong influence of the socio-cultural context, the authors question the applicability of Western management and organization theories in the Asian context. To a great extent this is a core issue for Western firms operating in the Asian context (see Kidd et al., 2001) and sends a

clear message to researchers in the field.

CONCLUSION The challenges facing HRM in the South-East Asia are clearly complex and daunting. Majority of these challenges have emerged due to the changes in the economic environment. In particular, globalization and international competitiveness have brought to the fore the need for organizations to adopt appropriate HRM practices in their quest for competitive advantage. In this globalized era, competitive pressures have laid bare the limitations of the traditional models of management in some Asian countries. Clearly, there is some indication that HRM is undergoing transformation in the region but it is unclear what the outcome of this transformation would be. Early indications are that there is a move towards individual basis in employment systems. However, it is too early to see a clear model or approach emerging. Possibly, a hybrid system (based on a mixture of both traditional Asian characteristics and Western rationalized system) would emerge. However, it is important that any HRM system that emerges in the Southeast region should be context based. The research conducted on the above raised challenges/agendas can significantly contribute in this regard.

RECRUITING AND HUMAN RESOURCES IN A COMMUNIST COUNTRY Overview China's economy is growing at a phenomenal pace. In fact, by early next century, China will surpass the United States to become the largest economy in the world. As China has grown so quickly, the number of qualified managers in China has been unable to keep pace. This staffing shortage in China is so severe that one Motorola supervisor quoted by the Journal of Commerce remarked that, "We couldnt bring over enough Taiwanese or Hong Kong managers, wed just drain the rest of the world dry." This statement succinctly summarizes the dilemma human resources in China currently faces. In some industries, there are as many as ten available jobs

for each qualified candidate. The shortage of skilled professionals has led to high job turnover rates and rapid wage inflation. The lack of educated professionals stems from problems within the Chinese education system. Chinas educational system stagnated during the years of the Cultural Revolution (1966-1976). During this period, all schools in China were closed for several years and then subsequently operated at such low levels that nothing substantial was taught or learned. Universities did not resume normal entrance examinations and regular curriculums until 1978. Thus, any diploma received during this time means very little in terms of knowledge acquired by the holder. A fiftyyear old today would have been eighteen when the Cultural Revolution began, and almost thirty when it ended. He or she would not have had the opportunity to attend formal college until 1978, many years after completing his or her secondary education. Moreover, a thirty-five year old candidate may have missed his or her elementary and high school education completely. Beyond this 15-year lapse in education, there are other problems related to education in China. In general, the current education system emphasizes technical skills over business skills. Due to this focus on technical skills, many (although not all) of Chinas top students pursue technical programs, which do not include any business training in the curriculum. Therefore, the pool of candidates holding the equivalent of an MBA or another business degree is miniscule. Thus, many foreign invested enterprises (FIEs) have employees who are excellent engineers but do not have management skills. The rapidly growing economy only extenuates the problems caused by the shortage of qualified candidates. Chinas annual growth over the last 15 years has often approached or exceeded double digits. In the more dominant coastal cities, growth has consistently reached a staggering 13-15%, fueled primarily by foreign investment. There were only 48 wholly foreign owned

enterprises (WFOEs) and 190 equity joint ventures (EJVs) in China in 1983. By 1995, there were 57,114 WFOEs and 157,739 EJVs in China, and the number continues to grow. As a result, the demand for qualified professionals has skyrocketed, while the supply has remained relatively stagnant. Because of this, finding the right qualified professionals is an unenviable task. Furthermore, a carefully prepared strategy is required to retain qualified employees. Due to the labor shortage, candidates in many managerial and business fields, such as accounting, human resources and others, often can receive two or three calls a day from headhunters. Many have more than one job offer at any given time. There is frequent "poaching" of key personnel by other foreign companies in China. Foreign companies are constantly losing key personnel, and are trying to develop strategies to retain their employees. While foreign invested enterprises (FIEs) denounce "poaching," almost all of them practice it. Given the current market, a company that initiates a successful, comprehensive human resources strategy will have a huge advantage over its competitors. Recruiting

General HR and China Executive Recruiting Strategies

Joint Ventures (JVs) in China should include HR planning in the earliest stages of their business development. HR planning should include the following: A preliminary HR Strategy for JVs as an integrated part of their overall future strategic planning. Thorough due diligence with regard to HR in China,investigating the local partners talent and overall availability of local talent. This should be done as part of the initial discussions and site survey with a potential Chinese partner.

A clear agreement should be made, giving the foreign partner complete control of management, including staffing. This is often the most difficult to achieve, but neglecting to do so will surely lead to future conflicts. The next step an HR manager should take is to define the type of candidate needed. A job description of the various positions within the organization should easily accomplish this task. While keeping the companys needs in mind, it is important not to be overly ambitious; given the shortage of qualified personnel in China, it is important to focus on the necessary rather than the desirable qualifications for each position. Clear, precise job descriptions will help both the company recruiter and the candidate determine whether or not there is a match. However, human resource managers must bear in mind that the shortage of qualified professionals is such a problem in China that it is often necessary to look beyond Chinas borders when recruiting and hiring. Companies searching for professionals to staff their Chinese operations usually have four options: Local Chinese employees; Chinese returnees; Overseas Chinese; and Expatriates. Each group presents different challenges and problems for recruiting and human resources professionals. These challenges are exacerbated for foreign companies with limited experience in China.

Local Employees Recruiting

There are a number of reasons why foreign firms operating in China are increasingly looking to local Chinese to fulfill their staffing needs. While salaries for local Chinese workers at foreigninvested enterprises generally run higher than the average at Chinese-run or State-owned firms, the cost of these employees remains substantially less than for their Western counterparts. Local candidates may also have valuable connections with local institutions or government bodies. A company that has been established in China for a few years may seek to localize staff by hiring local Chinese nationals, which is a common goal after the initial start-up years. Locals bring a variety of benefits to international companies. For example, their expertise with the language, culture, and organization of Chinese society can be quite valuable. Despite their advantages, the shortage of qualified professionals in China makes the right local employees very difficult to come by. Often, the firm must hire semi-qualified workers and train them. If the firm is lucky, it can hire someone who is truly qualified. Once such an employee is hired, the firm must also find a way to retain him or her. For companies wishing to hire a local candidate, there are several methods available in order to proceed with the search. These methods include using: State owned staffing companies, such as Foreign Enterprises Services Company (FESCO); Private recruiting companies; Local newspaper advertisements; Personal and business contacts (networking); and University recruiting.

Another alternative is to use a local recruiting firm. There are a myriad of advantages to using such services. In addition to having contacts in the field, they usually have a database of potential candidates. This allows them to expedite the search process considerably. Top local recruiting firms also check the credentials of potential candidates. In general, newspapers are an expensive and time-consuming method of recruiting local workers. Chinese papers often have a two to six month backlog of classified advertisements, which is inefficient if one is searching for an immediate opening. Once the advertisement is actually posted, it will often draw more than 100 resumes, most of which will not have any credentials relevant to the job description. In certain specialized areas where there is an extraordinary shortage, advertisements may result in only 30 resumes, none of which match the desired and necessary qualifications. As fabrication of credentials is a serious problem in China, it is very important to check the credentials of all potential candidates thoroughly. To further complicate the situation, references from State-owned enterprises do not bear any resemblance to references from western companies. The communist system does not emphasize "references," individual critiques or evaluation, thus making the credential checking process very time consuming. Recruiting through personal and business contacts is another possibility. However, hiring companies must be cautious, as they run the risk of hiring incompetent personnel who have been introduced and praised by "friends." These workers may be difficult to fire without creating conflicts among existing employees or associates. Finally, universities are a good source for entry-level personnel. In order to assist in the search process, several universities have even begun to set up employment centers. Recruiting directly from Chinese universities may also help reduce the issue of false resumes, as the candidates

credentials are easily verifiable. However, recent graduates will not have the necessary experience to fill middle and upper management positions, and will need extensive training to get them up to western standards. Nevertheless, university recruitment programs are increasingly popular in China, and can provide a solid source for entry-level personnel.

Training
Recruiting is just the first step in creating a qualified employee base. Due to the serious lack of business education in China, companies must often offer extensive training to their employees. Thus, although local Chinese employees may initially appear inexpensive, training programs will significantly boost the cost of these employees. Nevertheless, training employees is a necessary and vital aspect of conducting business in China. Training programs ensure that the Chinese employees feel valued by the company, which in turn makes the company seem more appealing. Establishing a formal in-house training program will not only help to train workers to perform their jobs better, but it can also be a useful tool for staff retention. However, companies do need to make specific provisions that will assure them that after providing this training, the Chinese employees will continue to work there and not leave and take their newly developed skills elsewhere. While it may be an attractive option for larger corporations, not every company will have the resources to establish an in-house training program. Some companies may send employees abroad to foreign universities for training. Smaller companies may elect to train their new employees at one of the various foreign training companies that have begun to operate in most of Chinas major cities. However, a company must be aware that the quality of these programs

varies and they may cost as much as thousands of dollars per employee per day. In some cases, it may actually be cheaper to hire a returnee than to train a local employee. While training can be very expensive, employers must realize that there is more at stake than just money. Training is an effective retention tool. If employees do not feel that that their employer is willing to invest in them, then they may be more likely to accept a job at another company that will. Similarly, if employees see that the company is willing to invest in them, they are more likely to remain with their current company.

Returnees
Returnees are people who were born in China, and who currently reside abroad for employment or educational purposes, but who wish to return to China for employment opportunities. The advantages they offer to multinational companies operating in China are clear: they are usually the only candidates who possess knowledge of western business, English language skills, knowledge of the Chinese language, and local business practices. However, this is only a superficial analysis. There are many complexities associated with hiring Chinese returnees. First and foremost, hiring returnees can be expensive. Although returnees are generally paid less than expatriates are, they still require both a higher base salary as well as a more generous benefits package than local workers. Returnees are usually concerned with visas and immigration. If a candidate is living abroad on a student visa, he or she is usually required to return to China within one year of graduation. These returnees are easier to recruit and less expensive, as they do not have as many options available to them. If a returnee has a green card or comparable documentation, however, he or

she may be less willing to return, may request a higher salary, or may ask the company to sponsor them for citizenship. Visa status may also affect the candidates compensation package. In addition to compensation issues, there are also other considerations. Perhaps the most important is the potential effectiveness of the returnee as an employee. A returnees possession of a western MBA is not a solid indicator that he or she will be able to operate effectively in China. In fact, the most common complaints local workers have about returnees are that they occasionally come across with a superior attitude and that they may also have a poor understanding of the current situation in the local market. In general, the returnee must bring some kind of special skill to justify the extra expense in hiring him or her. If the returnee has no special skills to offer, but is paid more or given more responsibility than other workers, he or she is likely to draw resentment from the local workforce. Returnees are often more successful in positions which allow the local staff to assess the benefits which the person will bring to the company more easily. Technical positions such as those in the accounting or engineering fields fall into this category. Also, many successful returnees have worked for consultancy firms rather than for a manufacturing JV. The process of actually recruiting returnees is often very arduous and time consuming. Posting an advertisement in an overseas Chinese newspaper may suffice, although it may be easier to use the services of a Chinese executive search firm that specializes in recruiting returnees. Companies must also be flexible in their expectations when recruiting a returnee. It may be exceptionally difficult to hire a "brand name" returnee (i.e. someone with a degree from a topnotch U.S. university and work experience with a Fortune 500 company), and the cost of hiring such a candidate may be excessively high.

Finally, hiring the right returnee is unfortunately far more complicated than it might first appear. Foreign companies need to be aware that the fact that the returnee speaks English as well as the local Chinese dialect, and has an MBA is not a sufficient condition for success. It is vital that foreign companies understand the dynamics associated with hiring returnees and are aware of possible pitfalls in the process.

Overseas Chinese
The advantage to hiring Overseas Chinese is similar to that of hiring returnees: they often combine Western business know-how with knowledge of Chinese culture and language. Yet, like returnees, there is a risk that they will run into status conflicts with local workers who do not feel that their higher pay is justified simply because of their overseas experience. Again, hiring Overseas Chinese will fit in only if they are humble enough to adapt to the local Chinese business environment and have some kind of unique skill to offer. Another feature that Overseas Chinese share with returnees is an often large price tag. Overseas Chinese typically require a little less than expatriates but generally require higher pay than local workers. The home country of the Overseas Chinese candidate is an important factor in determining salary. An Overseas Chinese employee from Taiwan may receive a comparable salary and benefits package to a returnee who has lived in the U.S., whereas an overseas Chinese employee from Southeast Asia will typically receive a lesser compensation package. However, it is difficult to generalize, and employers must tediously examine each candidates situation and qualifications on a case-by-case basis. The exact determination of their pay and benefits will often be a function of both their qualifications and where they have lived previous to their China experience.

The process of recruiting Overseas Chinese employees is similar to the process of recruiting returnees. While an advertisement in a Chinese paper abroad may suffice, it is not always an effective method. Generally, an executive search firm may prove to be a more realistic, cost effective, and relatively hassle-free option for many companies looking for these types of candidates. While hiring an overseas Chinese employee is, in many respects, similar to hiring a returnee, there is a very significant difference: Most Overseas Chinese have not lived or worked in China for a significant amount of time, if at all. This means that they will not have the same kind of contact network and knowledge of the local market as local workers or returnees -- an important difference.

Expatriates
Expatriates are typically quite expensive; it is not uncommon for expatriate packages to be worth a total of US$300,000 - US$600,000. The cost includes a salary of about US$75,000 US$150,000, as well as health benefits, housing assistance, allowances to relocate, educational benefits for dependent children, and more. Due to their exorbitant cost, expatriates should, in general, represent a very small part of a foreign companys professional team in China. Aside from their expense, there are many other disadvantages to hiring expatriates. Because they tend to lack the necessary cultural and language skills, expatriates may not be able to function effectively in the Chinese workplace. Additionally, while there is no shortage of westerners with extensive business qualifications, there is a dearth of expatriates who are fluent, or even proficient, in any Chinese dialect. Even among those who are fluent in spoken Chinese, there are very few who can read or write Chinese.

However, this does not mean that there is no reason to hire expatriates for China. For startup operations in China, it is usually necessary to hire a few experienced expatriates who have the ability to train Chinese managers, a thorough understanding of the business, or who have particular technical skills. However, foreign companies must be careful to hire expatriates with an appropriate attitude towards Chinese business culture. An expatriate who comes across as disdainful of China and the local people may make dealing with local bureaucracies, employees, and joint venture partners considerably more difficult. Companies must weigh the special skills the expatriate has against both the their enormous price tag and their personal qualities. Compensation Foreign employers must be flexible with their compensation packages in order to retain key personnel. Often, they must provide remuneration above the regular scale. At the very least, employers must pay competitive salaries if they wish to keep employees of whom they think highly. "Competitive" does not mean that salaries must be significantly higher than those offered by competitors, but they should be comparable to or slightly higher than salaries for similar positions at other foreign companies. In general, smaller companies in China normally have to pay higher salaries to retain staff. Larger organizations that offer more opportunities for job advancement or are better known may sometimes find it easier to retain staff without offering high salaries. Employers should also be aware that salaries are discussed openly in the Chinese workplace, and that every employee probably knows the salary of all his or her co-workers. Hence, setting an employees salary requires discretion so that it does not have a damaging effect on the morale of other staff members and their relationships with one another.

Foreign companies must also deal with the rapidly rising labor costs in urban China. In 1994, salaries rose between 28% and 35% in urban parts of China, according to a Towers Perrin Company survey. While inflation has slowed somewhat over the past few years, it is still consistently in excess of 15% and often more than 20% annually in major cities. Rapid inflation of salaries (above 20%) is something for which foreign companies must be prepared. According to the US-China Business Council, foreign companies in China must typically raise their employees salaries two to four times a year in order to effectively combat job-hopping. Special types of compensation are also becoming more common in China. For example, some companies are beginning to offer stock options. Including stock options in a compensation package for Chinese employees, however, it is a lot more complicated than in the west, as stock knowledge is less common. Because financial markets are relatively new in China, there is a low level of understanding about how the stock market works. Stock compensation programs should be supported by education on the fundamentals of financial markets and frequent updates on the stock values. Benefits While base salary is a very useful tool with which to lure qualified candidates to a foreign company, it is very important not to underestimate the importance of benefits. According to the William Mercer Company, an international human resource consulting firm, benefits in China are often worth up to 200% of the employees base salary. In contrast, benefits in the U.S. commonly amount to roughly 35-40% of the base salary. Therefore, it is important for employers in China to recognize just how useful benefits can be for both retaining and recruiting crucial employees.

The structure of benefits has changed over the past few years. The Chinese government launched a plan in 1995 to standardize all social benefits, including retirement, unemployment, and medical insurance. While housing is still left to the discretion of the employer, the current housing problems in China make it a vital benefit that should not be forgotten.

Housing
Although housing benefits are quite rare in the United States, the situation is very different in China. Housing is one of the most important and desirable benefits a Chinese employee can receive. In a survey conducted by Pacific Bridge, Inc., when asked, "What do you dislike most about your present employer,"40% of the respondents stated that the lack of employee housing was their most serious complaint. Under the Communist regime in China, housing was provided by the State. Because foreign companies are still a relatively new phenomenon in China, many Chinese employees expect similar treatment from private enterprises. Unfortunately, foreign companies often fail to meet their employees housing expectations. Companies differ in the type (if any) of housing assistance they provide. Options include company built or rented housing, housing allowances, housing funds and loans for employees, among others. Companies must consider their budget and goals when deciding which housing option is most suitable. Company-built or rented housing is one solution, but is costly and could meet resistance from the companys headquarters. Housing allowances, which involve paying employees a certain amount to lessen their housing costs, are simpler but generally less effective as retention tools. Housing/savings funds provide a range of policy advantages (i.e. employee responsibility, generation of capital, framework for employee savings, etc.) and are possibly the best long-term option with the widest applicability, but they can also be complex and difficult to operate.

A study by Towers Perrin Company on housing in China rated the different types of housing according to their effects on retention. Company built and rented housing, housing loans, equity sharing, and company housing funds all had a positive effect on retention, while housing allowances and city housing funds (where employers contribute to a city-run local housing agency that employees can use for housing purchases or renovations) had a negative effect. The survey also found that company savings/housing funds and housing loans were considered "effective," while city housing funds were "ineffective."

Retirement Benefits
Retirement benefits are a very recent phenomenon in China. Until the drive for modernization in the early 1980s, 80% of Chinas workers resided in rural areas. Rural residents generally relied on their families to take care of them in their old age. For urban workers, danwei (work units) offered formal retirement benefits, and most retired employees continued to live in work-unit housing and receive medical insurance, plus 70-100% of their former salaries. As part of its plan to standardize benefits on a national level, the central Labor Ministry decreed that enterprises are no longer required to pay retirement benefits directly to employees. Instead, both enterprises and employees now pay into general funds that are administered by city and provincial agencies. At present, neither pension benefits, nor employee-employer contributions are uniform; each Chinese locality sets funding levels and payouts, and also decides the percentage of salary to be contributed by the employee and employer. In general, employers contribute 20 - 30% of the employees salary to local retirement plans, and employees contribute 3 - 8%. In addition, some employees have Individual Retirement Accounts to which they contribute 2% of their

base salary, with an increase of 1% every year, which caps out at 8%. However, as mentioned earlier, contribution levels are hardly uniform in the various regions of China. While pension levels necessarily vary according to local living standards, enforcement of regulations also seems to oscillate between regions. Many enterprises have failed to pay retirement benefits or contribute to government pension schemes with little, if any, penalty. To rectify this problem, Beijings China Reform has recommended that the central government develop a plan to coordinate enforcement of employer retirement contributions from national government agencies. Perhaps of more urgent importance are the problems presented by new economic reforms. As inefficient State-run enterprises are phased out and the one-child policy turns the population pyramid upside down, the number of retirees in need of coverage will grow substantially. It is an arduous task for one child to support two parents and four grandparents. In addition, there is now a huge gap between government retiree funds and projections of the number of retirees in the near future. Any retirement strategy will have to take into account the reluctance of Chinese government agencies to hand over control of major portions of any social benefits plan to private entities. In addition, private companies in China that have any experience in managing retirement investments are scarce, and very few government agencies exist with the capacity to oversee such investment companies. It is safe to assume that a mixed public/private system, with a primary emphasis on the public side, will continue for some time.

Health Benefits
At present, there are no clear national legislative guidelines that spell out medical insurance requirements for foreign companies operating in China. However, this arrangement may not last for long. The government has extensive plans to overhaul medical insurance and standardize coverage nationwide. In the meantime, in an effort to compensate for the lack of national guidelines, many provincial and municipal authorities have imposed regulations of their own, which require FIEs to contribute between 7% and 8% of basic payroll to a municipally managed fund. In addition, employees must contribute 1% of their base salary to this fund. Under the 1995 Labor Law, the Chinese government called for local governments to establish a maternity and workers compensation fund. Sometime in the near future, the central government also plans to set nationwide guidelines for medical insurance. The guidelines will be based on what has become known as the "Two Jiangs" model. In 1994, the cities of Zhenjiang and Zhujiang began to experiment with HMO-style medical insurance plans. Prior to 1994, the cities operated under a scheme that required employers to pay a lump sum of 250 RMB per worker per year to hospitals, which were then required to provide unlimited medical treatment. Under both systems, some companies elect to add supplemental insurance benefits to the government scheme. Such benefits may take the form of extending insurance to dependents or increasing reimbursement rates. Some companies also provide in-house clinics for their employees.

Other Benefits
Finally, special perks may be used to entice potential employees. Foreign companies in China often use this method. Club memberships, superior medical insurance plans, pension or savings

plans, and business trips abroad are some of the benefits used by companies to recruit and retain top-level personnel. In order to use perks as a retention strategy, companies must utilize them, rather than just offer them. Putting minimum time limits on when some of these benefits begin so they start after an employee has proved him/herself loyal (after one or two years of employment) is one way of using perks for retention. Taxes Individual income taxes became a significant source of government revenue for the first time in Chinas history in 1997. In the past, income taxes were used primarily to adjust social inequities, but they are now big business for the Chinese government. Within 30 days of receiving a business license to operate in China, foreign companies must apply for tax registration. The process is usually fairly straightforward, and takes about a day to complete. Foreign companies in China pay the employees taxes from withholding accounts. Under Chinese law, companies are considered "income taxpayers" with virtually the same responsibilities as employees in what is called a "double declaration system." Accordingly, the employer must file monthly withholding reports, and both employees and employers are required to file annual employee income tax returns. Tax calculation in China is much more straightforward than in the United States. All employees, regardless of their dependents or marital status, pay taxes according to income only. Taxation regulations are different for expatriates. An expatriates income tax liability is dependent upon his or her residence status. Any expatriate who remains in China for more than 90 days is subject to income tax. For stays of 90 to 183 days, the expatriate is taxed only for income from

"Chinese sources" (i.e., income earned from work performed in China). Foreign residents of less than a year may be liable for taxes on work performed outside of China, unless the work is clearly differentiated by a separate work contract. Employees residing in China for one to five years can be taxed on a prorated day-in/day-out basis. Long term expatriates of five years or more are subject to taxes on all their income regardless of its source. If taxes are not paid punctually, the government will assess 0.2% per day on the arrears, effective on the due date. This is a problem for foreign investors who have received special "tax breaks" from a township, district, or even a provincial government. Even though tax breaks are spelled out in writing, the local tax bureau is not bound to adhere to them. The approval of "tax reduction" commitments is the sole purview of the tax bureau at the appropriate level. Tax authorities are allowed to disregard your companys tax calculations and may set the amount of taxes themselves if a companys account books are in disarray. Unions Chinese labor unions bear little resemblance to their counterparts in the west. All unions are created and controlled by the All China Federation of Trade Unions (ACTFU), and are very much creatures of the central government. On paper, these unions all appear very powerful. All Chinese workers are automatically members of trade unions in their workplaces, and it is mandatory for enterprises to pay fees equal to 2% of wages to support local trade unions. However, the right to strike was removed from the most recent Chinese constitution, and labor disputes are most often resolved through discussions with officials from local trade or labor ministries rather than through negotiations with unions. Thus, the effectiveness of unions in settling labor disputes varies More often, Chinese trade unions exercise the bulk of their influence from behind the scenes. Union leaders are often loyal Communist Party members and

are well represented in the National Peoples Congress. Thus, in spite of the fact that more than 65% of foreign enterprises are unionized, Chinese labor unions are generally not confrontational, and have yet to become a force to be reckoned with. Termination Termination is a very sensitive issue in China. The Chinese work culture long considered employment to be a permanent entitlement. While foreign investment has helped to spur changes in the laws regarding termination, attitudes have been slower to change. Under Chinas 1995 Labor Law, the government codified rules and regulations concerning the rights of employees should termination become necessary. Still, termination is far more difficult than it is in the United States. Foreign funded or joint venture enterprises are required to demonstrate that a terminated employees disciplinary violation had a serious impact on the business, that the employee had been counseled about his behavior on numerous occasions, and that the employee still had not rectified the problem. FIE regulations require that labor unions be notified and consulted with regard to the termination. FIEs are also required to provide severance pay of one month of salary for each year the employee has worked. This requirement is waived if the employee is fired for disciplinary reasons or resigns. Culture Many foreign companies enter the Chinese market in search of cheap labor and high profits. However, they must recognize the complexities of staffing an operation in China. Aside from the shortage of qualified professionals and problems with staff retention, foreign companies must also be aware of cultural issues. Superimposing Western standards onto a people that have a different upbringing and set of beliefs may cause conflicts. It is important, therefore, for

companies to approach management with a certain degree of cultural sensitivity and understanding. One legacy of communism is that many manufacturing workers are accustomed to a guaranteed job and substantially less personal responsibility. For example, Boeing Corporation had serious quality control issues because Chinese aviation inspection teams were accustomed to working in groups and preferred to take responsibility for problems and shortcomings as a collective unit rather than admit individual fault. This system allowed a lack of individual responsibility to prevail in an industry that requires it. When Boeing imposed western standards on the local workers, it had to not only change the organization of the inspection teams, but also instill the concept of individual responsibility at every level through ongoing training. While the Boeing example demonstrates that transplanting key features of American corporate culture is certainly not out of the realm of possibility, imposing such ideas requires a great deal of delicacy and patience. Implementing other typically western ideas, such as merit-based pay and advancement will also require a great deal of effort and diplomacy. Another factor western companies must be aware of is the important role that personal relationships play in conducting business in China. Vertical relationships and absoluteness of authority connected with senior positions are important Chinese cultural characteristics. Thus, loyalty to supervisors is often stressed over loyalty to the company. If a key person decides to leave a company, his actions may result in a rush to the exits by employees who are loyal to this leader. Foreign companies must cautiously define exactly what their corporate culture is and what is expected of employees due to the vastly different business practices. If they do not, then they may experience serious problems in the near future.

Conclusion The current Asian economic crisis has received widespread publicity, but despite worries to the contrary, it has had little to no effect on the Chinese economy. While growth in China this year will be slightly less robust than usual, it will still be extraordinarily high by Western standards. While U.S. economic growth in 1998 is expected to be around 3%, growth in China could be as high as 8%. Shanghai and a number of other cities should experience growth in excess of 12%. Although unemployment is slightly higher than last year, it is still very low and in most major cities, virtually nonexistent. Thus, while the Asian economic crisis is certainly newsworthy, it is not particularly applicable to China, and has almost no relevance to the Chinese human resource market over the long term. Over the short term, professionals may be slightly more reluctant to make the leap to another company, but not that reluctant. Turnover rates are still very high, and the basic structural problem of high demand and short supply of qualified employees remains. In order to achieve success, it is important for foreign companies to go into China with clear expectations and a well-defined human resources strategy. PARTICIPATIVE LEADERSHIP/DEMOCRATIC STYLE OF HUMAN RESOURCE MANAGEMENT Lewins study found that participative (democratic) leadership is generally the most effective leadership style. Democratic leaders offer guidance to group members, but they also participate in the group and allow input from other group members. In Lewins study, children in this group were less productive then the members of the authoritarian group, but their contributions were of a much higher quality.

Participative leaders encourage group embers to participate, but retain the final say over the decision-making process. Group members feel engaged in the process and are more motivated and creative.

ARE DEMOCRATIC LEADERS EFFECTIVE IN LARGE COMPANIES? The democratic style of leadership is one in which every employee has a voice and decisions are made through consultation and cooperation. Democratic leadership in large companies has many benefits as well as some serious drawbacks, and here we'll discuss both sides of this managerial style. Hearing Thoughts of Everyone Democratic leadership is a style of leadership that is based on sharing responsibilities and decision-making throughout the company. This style of leadership is differentiated from an autocratic type of leadership by four primary factors:

1. In a democratic leadership environment, consultation is sought from members throughout the company before decisions are reached. 2. Managers delegate responsibilities and, in so doing, give full control to those responsible for task completion. 3. Feedback is welcomed and encouraged. 4. Employees are continuously encouraged to develop into leadership roles.

Benefits Leadership that is democratic in style offers four primary benefits. First, it contributes to a positive work environment. By allowing employees to take full responsibility for delegated tasks, the employee is able to take ownership and, in so doing, becomes invigorated and motivated by the project or task at hand. Motivated, fulfilled employees are happier, eager to work, and have a better perspective about their work environment and managerial team. Second, the process of consultation and feedback tends to result in better decision making. The reason for this is all persons involved are able to participate and provide feedback in a decision. In this way, a decision proposed by management can be tweaked or changed to provide a benefit to all departments as opposed to one or two. For example, if management proposes changing shipping companies, customer service can weigh in on the decision as can the shipping department and the distribution department. Because employees feel empowered by their involvement in the decision making process, they are more likely to support the final decision. Third, this leadership styles allows for a free flow of ideas and room for efficient improvements. When various departments and employee classes interact together, barriers to efficiency can be discussed, monitored and amended. Fourth, it reduces employee turnover. Employees tend to feel more empowered, more valued, and more respected when their ideas and opinions can be voiced, and they are encouraged to do so. Employees feel vital and important to the overall success of the company, and managers find it makes their roles easier and less time consuming because there are fewer problems with dissatisfied employees.

Disadvantages However, for as many benefits as a democratic style of leadership carries with it, there are also several drawbacks: First, decision making can take a long time, at times long enough to erode some of the benefit of making a particular decision. In worst case scenarios, decision making may be permanently delayed or stalled and projects could fail or incur cost overruns because of the delays. Second, and sometimes subsequently, managers may end up creating a pseudo-participation environment, by where employees are encouraged to voice their opinions but their suggestions are never implemented. When this type of environment exists, employees feel deceived or betrayed and may rebel against all decisions made by management because of their built-up resentments. Lastly, employees may have the right ideas but implementation can be costly, particularly if the company is very large and employees numerous. If this is not properly communicated to the affected employees, it can cause miscommunication and ill-feelings.

Effectiveness of the Democratic Style This leads to the question of whether or not the democratic style of leadership is effective. Well, the reality is that the democratic style of leadership is one of the important elements employed by the Big Four to facilitate effective leadership so it seems to work very well in that industry segment.

For the large manufacturing company, this type of leadership is very effective. By listening to each employee, each step in the product cycle has a voice. As such, employees can explain where inefficiencies exist in their realm of the manufacturing process and provide suggestions for remedying the situation. Those suggestions can be discussed by the company as a whole and the process tweaked. A democratic style of leadership is also very effective in creative industries and nonprofit organizations. The former benefits through the flow of ideas, strategies, and concepts afforded by the democratic leadership style, while the latter enjoys the benefits of creative solutions to cost-cutting, fundraising, and budget stretching. Traditional corporations can also enjoy the benefits of a democratic style but only if the focus of the company is on effective leadership and employee development. The rise of HRM The election of a Conservative Government under Margaret Thatcher in 1979 marked a change in shift from collectivism to individualism. Legislation was introduced to control the perceived abuse of union power by banning sympathy strikes and removing the concept of the closed shop, where union membership was compulsory. High unemployment of over three million, and the decline of the manufacturing industries, also led to decline in the strength of the unions. The 1980s also saw the term human resource management (HRM) introduced to the UK from America. The meaning of the term has led to many debates and academic discussions, as can be seen below. To some, it was seen as a way of minimizing the trades unions inuence, and the name change from personnel symbolized this. Others saw HRM as a more strategic role in the achievement of organizational objectives, with an HR director at board level. Before

moving on to the personnel management versus human resource management debate, developments through the 1980s and 1990s, such as the rise of the training specialist, as well as there ward, resourcing and diversity specialists that exist in many large organizations are now seen as an important part of the personnel function.

As can be seen throughout the last century, the role of the HR professional continues to evolve, develop and have a signicant impact on the effectiveness of organizations.

The different functions of HR The HR manager has to juggle the different functions of HR in the internal environment of the organization while keeping an eye on what is happening in the external environment.

Below is a brief overview of each of these functions. Planning, Resourcing and Retention Managers need to know how many staff they will need in order to achieve the organizational goals. They need to identify where the staff will be needed, how many and at what times. This is especially important in organizations where business uctuates, such as the retail and hospitality sectors. Managers also need to be able to identify the level of skills required. The general manager of your local company knows that Friday and Saturday are likely to be the busiest days. She/he can look back at the past sales history and identify peak times. The store manager will ensure that s/he has trained checkout operators available, extra customer service staff and shelf packers to replace items. This is part of the planning and resourcing process. The retention of staff is also important, as recruiting staff is an expensive and time-consuming process. A manager needs to ensure that staff are happy in their work as not only will they be more productive, they will also be more likely to remain with the organization.

Recruitment and Selection When the need for people has been ascertained, the next task is to nd them, and ensure that

the right people are selected and recruited for the organization. If the wrong people are recruited then there could be difculties in achieving organizational goals and business could suffer. Employees may be over-qualied for jobs and leave, or under-qualied and not be able to perform adequately. This could have serious implications for the organization. Finally, as part of the new people management structure, a number of personnel activities have been devolved to line managers. The bank has pursued this policy quite vigorously, emphasizing the move from a support to a specialist role for the function. Yet people management has helped managers through the change process.

Overall, this process revealed a very positive response to the new HR model. Some of the feedback was inevitably backward looking and many employees thought that communication could have been better. More pertinent perhaps is the view that there was too much emphasis on structure and not enough on the skills in the HR community necessary to operate it. The skills needs of both generalist and specialist people management staff in their new roles clearly need to be examined. This links to the question of career paths. The switch to a shared services environment disturbs traditional development routes and they need to be reinstated in a new form.

Training and Development In order to get the best from employees they need to be trained. Training is done to ll gap between the skills and knowledge they have at present and the skills and knowledge the organization wants them to have in order to fulll set goals. It ensures that employees are able to perform to the required standard. Whenever someone new is employed they need to be trained; this may take the form of an induction program to make the new employee feel welcome and orientate them to the culture and working methods of the organization.

Remuneration and Reward Employees need to be paid so that they are able to live. Pay needs to be adequate and

equitable. Money is not the only reward and may not motivate employees to be more productive; other benets also need to be looked at. These can range from benets such as pensions, healthcare and other nancial incentives, to non-nancial rewards such as those that come from empowerment and job satisfaction. Employers are now realizing that employees have different needs and a xed reward system is unlikely to suit everyone. Flexible benets are becoming more common. With exible benets, an employee who needs childcare could choose childcare vouchers as part of their reward package, while older workers may prefer a company pension. The ability for employees to be able to choose their rewards means that they feel valued as individuals, which in turn means that they are more likely to stay with the organization.

Employee Relations Healthy relations need to be maintained with employees to ensure a productive workforce. In the event of disputes and conict arising, managers need to be able to manage the situation successfully in order to ensure winwin outcomes. They need to be able to communicate and negotiate with unions and other employee representatives to ensure that a stable working environment is maintained.