Common staffing mistakes in China, and how to avoid them

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It’s a slow news day – besides that whole one-year-to-go thing – and while we were tempted to run with this story from the Shanghai Daily, the better angels of our nature prevailed and instead, we decided to republish an excerpt from our popular “Common mistakes and misperceptions when investing in China – and how to avoid them” China Briefing issue from July of last year.

Common mistakes when using Chinese staff to set up or run your company

Putting them in control of everything
Yes, it may be very useful to have that ever-so-nice-and-efficient local Chinese person help you with all aspects of setting up your China operations, including all business licenses, offices, bank accounts, handling all documentation and so on. The language and bureaucracy are almost unintelligible and you’re a busy corporate executive. But wait; is it normal business practice anywhere to have one person in control of all aspects of your country operations? No, it isn’t, and with very good reason.

Their abilities may not stretch as far as international competencies
Although they may in fact be honest and helpful, the way in which foreign companies have to be administered in China, and the reporting structures they have to go through, are very different from those that Chinese companies have to adhere too. In reality, foreign businesses in China face far more scrutiny than Chinese companies do. If your employee, good as they are, is not familiar with the regulatory aspects concerning operating and maintaining an international office or business in China, chances are there will be issues your company will immediately be out of compliance with. That can and does get expensive. Additionally, there are circumstances where the employee may deliberately keep the company out of compliance – to obtain benefits or other leeway later if any argument arises against their favor later on.

Having one person in control of all your corporate documents and/or banking
Very common. The risks are obvious. You can lose all your abilities to operate the company overnight if he/she decides to walk out of the door. Plus all your money.

Insertion of family and friends into your supply chain
This is very common. You need to audit your purchasing and sales departments regularly to ensure employees are not placing orders with companies owned by friends or relatives that are then charging your business at rates well over the market odds.

Setting up of parallel businesses
In one particularly nasty case we were called in to investigate, two Canadian-Chinese were hired, having worked for the parent company overseas for several years, to establish a China manufacturing entity. This they did, however the China business never was able to attain anywhere like the projected sales, and had to be continuously funded from the parent to tide it over. A variety of “market conditions,” “competitor pricing” and so on were given as excuses. When, just before a new US$1 million investment was to be injected into the China entity, the parent decided just have a quick look-see internal audit – things started to become clear. The two trusted employees had established a mirror company, with similar sounding Chinese name to the international brand, and had been diverting all orders to that business instead. “Local competitive pricing” indeed. From a business the staff themselves had established to compete with their employers.

Common mistakes when hiring expatriate employees to set up and run your China entity

There are problems with expatriate staff as well. Especially, (and unfortunately) often with personnel in professional services.

Hiring lawyers with no China experience
Expensive, and not really much point, especially if their Chinese language capabilities are minimal. However, many look good, and although their firms may have a China presence, what about their individual presence in China? International lawyers are great at international work – cross border structuring and so on – but far too many of them profess expertise in areas of China practice they are neither qualified or experienced to be dealing with. Are you looking for a salesman selling his firm, or proper advice? Really, if you need to hire a lawyer with China experience – go to a firm that has the real thing. That’s what they are there for, and China has had private lawyers now for 15 years – Google their names to see how well known they are.

Hiring personnel On their language skills alone
Well, everyone has to start somewhere. But a new kid just out of language school is still a new kid out of language school, and will have no experience dealing with the “China issues.” Don’t expect miracles. And two years in China does not an expert make. Young graduates do have skills of course, but don’t weigh them down too much with managerial responsibilities before they have had time to adjust them to a commercial business environment and have found their feet around your business. A management development program designed to maximize on their language skills yet introduce them to your business will reap greater rewards both for you and for them if you treat them with continuing educational attention.

The China guys
Expats of note are those who really know their way around, and can steer you away from all the problems. They will have a good grasp of the language, and may well have settled down with family here. You cannot survive in China without knowing how to get on, and this is a matter of experience as well as possessing inherent patience, tenacity and people and communications skills. They are available – interestingly at this time, many of the established multinationals are localizing and expatriate engineering and other talent is perhaps more available in China than ever before.

For more on the common mistakes and misperceptions when investing in China, check out the 2006 July/August issue of China Briefing.