One of the world’s biggest shipping companies, Danish company Maersk is concerned about the future of its presence in the Chinese market. In an interview with the Wall Street Journal, Søren Skou, the head of the company’s container-shipping division in mainland China, mentions that some of the traditional advantages China represents, like its abundant pool of cheap labor, are diminishing, while personnel costs and the income for urban households continue increasing. In fact, wages in China are equal to, and in some cases, more than the wages in some east European countries like Croatia and Latvia. This is on top of issues related to managing human resources in China, which all multinational companies in the West have experienced when trying to enter China.
One problem is the availability of a qualified manager to lead operations. China has experienced such a high-speed growth that the available pool of skilled managers have been headhunted up quite quickly leading to a shortage of skills in the domestic market while hiring managers from overseas is not simple. Expat managers, the usual choice for the top management and often for the middle management too, present other challenges, including cultural adaptation and language skills in the complicated Chinese business environment. Even organizing a banquet can be a daunting experience for someone not acquainted with the local culture. In addition, expats who have a solid experience of the country and speak Mandarin are in such high demand that their wages became too high. An alternative is to hire local talents and to train them to work in Western companies. For example, Siemens AG is a German multinational conglomerate corporation that operates in many countries including China and has a special program called Siemens Management Trainee Program targeted for hiring local talent. The program in China is a 24-month management-training program for employees to become successful leaders. While this seems a reasonable choice, it may be very expensive and time-consuming.
One solution for Maersk and other international corporations is to move part of their business further west, to the center of mainland China, where labor costs are lower than on the coast. Also, they can hire English-speaking youths who have the right skills for the job. For instance, the Maersk branch in Chengdu, Sichuan Province, employs more than 2,000 people, with the average age of its employees no higher than 25.
DISCUSSION QUESTIONS
12-1. Why is the task of managing human resources a challenge for foreign companies operating in the Chinese market?
12-2. What are the main challenges that expatriates often face in China?
12-3. Why don’t foreign companies simply hire local staff instead of reaching out for foreign managers?
12-4. What advice would you give to foreign companies in China to lower the risk of managing employees?