New Poll: Expats in China – Please Apply? Or Please Leave?

Monday, August 6, 2007 5:35
Posted in category Uncategorized

Rock the vote
HR in China is always a challendge, and the last few years has brought an enormous amount of foreign talent to China, some good and some not.

In the wake of the recent product scandals and failed investments I am curious … are expats still in demand, or is a change coming? Are expats part of the problem, or are they needed more than ever?

If you would like to elaborate, please do so in our comments section.

Responses are currently closed, but you can trackback from your own site.

28 Responses to “New Poll: Expats in China – Please Apply? Or Please Leave?”

  1. b. cheng says:

    August 6th, 2007 at 7:27 pm

    Things are changing, in many white collar professions, the time when expats ruled has come and gone and fewer and fewer, especially entry and mid-level expats have an opportunity here…

  2. Julien says:

    August 6th, 2007 at 8:07 pm

    More and more companies in China do not make any more expat contracts. It is a sign. On the other hand I see more and more chinese candidates for a job with “expat profiles” who want to come back to the motherland. In the IT field, you will find more and more middle-sized companies (500 – 1000 empployees) which are drastically reducing the amount of foreign employees. At the opposite, you will still have positions for foreign profiles on jobs in emerging fields in China that are already very developed in Europe or in US. I think very qualified foreign engineered will always find good to very good positions.

  3. Chris Devonshire-Ellis says:

    August 6th, 2007 at 8:13 pm

    I find the quality of expatriates in China immensely variable. Engineers are top of the pile however, foreign businesses do tend to send over high quality engineers here, and I have a lot of respect for many of the engineering and related professionals I meet – they have to pick up a lot of the crap given to them by HO and are often just dumped into situations they have to fix – and solve them. Thats tough, and many of them are better China smart guys than almost any other tier of expat.

    Most, but not all of the business executives are pretty smart, but there are many who do not do their homework properly, and who try and cut corners in budgets, especially when it comes to dealing with time pressures to get an operation / venture started and to carry out the required due diligence. The latter is often sacrificed to fit into their corporate timeframe and budget; the results can be disasterous. I’d say a one out of two ratio are good. The others; weak and with less power than required to stand up to board level decisions.

    Third, I generally have a low opinion of professional services expats. There are simply too many of them, their businesses are often underfunded, and they resort to cheap selling or unethical behavior to win business away from their competitors. Many also do simply not possess any pertinent China expericence and just make matters worse by being fly by nights. Only 1 in 10 are any good, if that, and only then when they’ve been here a minimum of five years and can speak the language. Otherwise they are next to worthless, overpaid, arrogant and inscrutable characters. But then how popular have lawyers and accountants ever been in society ?

    Fourth, you have the chancers, who think the streets of Shanghai are paved with gold. They all sit around talking to each other in bars, and just want cheap sex and cheap beer. Nothing wrong with that necessarily but are they adding anything to the China business culture. Not really, and only 1 in 100 make it.

    So, as usual – it’s the engineers who get to sort out the shortcomings of all the others. Good work unsung technical geezers ! Most of the rest can be terminated. Go home !

  4. Rich says:

    August 7th, 2007 at 3:17 am

    Thanks B Cheng –

    Sounds like you think the time of the halfpats is here? With budgets having more room from an expat departure, what kind of salaries do you think halfpats are possible?

  5. Rich says:

    August 7th, 2007 at 3:19 am

    Julien –

    My father always said I should get an engineering degree, and then my MBA.

    do you see opportunities for foreign professionals in Chinese firms? this was something that we used to joke about in Beijing… better to work in a Chinese company first and learn the ropes, and then go to the foreign company. Is it possible to reverse that?

  6. Rich says:

    August 7th, 2007 at 8:31 am

    Chris – Thanks for taking the time on your assessment of the expat spectrum.

    What I find interesting is how the four groups you mentioned have different numbers between Beijing and Shanghai. It is something I discuss with people here on a regular basis as most of my friends are now in the 5-8 year category and we find shock, humor, and awe in dynamics of the expats in Shanghai.

    Until 6 months ago, my biggest issue with the 3rd and 4th groups you mention was there effect on my fees. I would often find that there were entrants into an RFQ bid that would be significantly lower to mine, and what I realized that in their desire to get experience they would sell at any price.

    Now though, the picture has a little more color in the wake of product recalls and lax supplier management. Perhaps I am asking a stupid question given i have 10 posts on the topic, but what are you seeing here? What other problems do you think are going to arise, and how much of these issues could have been prevented through the engagement of an experienced China hand rather than the fresh MBA?

    DO you think the pattern will change? will people start paying more attention to who they are contracting to, or is it still too difficult for foreign executives to make that distinction?

  7. Romain Guerel (French working in Beijing) says:

    August 7th, 2007 at 6:10 pm

    I concur with Chris about the engineers. At rare exception, they are the really worth expats for China and they are still in high demand for this market.

    The qualities for expat success in China are known but more than in any other market, you shall have a full set of skills: entrepreneuship minded, open to new culture, able to think out of the box (very important!), have a good command of Chinese, know your job, have failed a few times (the one who says he has never failed in China, doesn’t know China! Probably, he is the one in his ivory tower and spend the evening in bars), spend 50% of his time outside his office or expat compound, have lunch or dinner with your CHINESE colleagues etc…

    I know people -and I am sure you do too- who have been in China for many years and have no clues about this country and its people.

    The real people I admire are:
    1/ the foreign guy who came without expat package but a lot of guts. Started his business from scratch and enjoys some entrepreneurial success.
    2/ the Chinese employees working in FIEs who listen all the sh.t talk again and again from new expatriates.

  8. Paul Denlinger says:

    August 7th, 2007 at 7:15 pm

    Could you put up a link showing where those of us who are bilingual can go to take the HSK?

    I for one would like to take it and be able to say that I have taken the test and ranked so and so according to the HSK.

    Thank you.

  9. Rich says:

    August 7th, 2007 at 8:14 pm

    Hi Romain,

    There are a number of expats here who I call long term tourists. They have done little to integrate, but in all honestly their companies don’t really need them to. they are managing foreign relationships, and so that is what they do. when something goes wrong… it’s the Chinese

    One of the more interesting conversations I had recently was how there are dozens of language capable halfpats in town who are working for peanuts. they WANT to be in china, and their experiences have put them in a good position. Quite often though, what we are seeing is that companies are still choosing to send over an expatriate to do the job.

    As someone who came to China without parachute, I have enjoyed not only building my own businesses but watching the successes of my friends. Some of them had strong expat umbrellas to shield them, some only had 10 USD to their name, but the majority have succeeded. It takes a lot to build something anywhere, and I have a lot of admiration for those who have stuck it through

  10. Rich says:

    August 7th, 2007 at 8:16 pm

    Hi Paul,

    I am not 100% sure on the HSK, but a google search turned up this link. The test dates are from 2006, but I am sure you can call them up to get the updated number

    http://www.hsk.org.cn/english/Intro_summ.aspx

  11. Mark Forman says:

    August 8th, 2007 at 7:49 pm

    Good post and comments here. I’m not surprised how much of this mirrors my experience and actual conditions here in Taiwan.

  12. Paul Denlinger says:

    August 8th, 2007 at 9:39 pm

    Rich–

    Thank you very much; very useful info!

    Paul

  13. Rich says:

    August 9th, 2007 at 2:36 am

    Paul

    Glad I could help

  14. Rich says:

    August 9th, 2007 at 2:38 am

    Mark

    There are a lot of previously TW based foreigners now I Shanghai… which category would you place them in?

    Rich

  15. Chris Devonshire-Ellis says:

    August 10th, 2007 at 7:35 am

    Well the allusion is that QC is a problem and foreign manufacturers need more QC people on the ground here. Most of the CSR aligned manaufacturers in fact already have this, it’s the low end small traders who have problems – and risks. Actually I don’t necessarily buy the issue as being a Chinese problem. Western (largely) American buying policies have brought profit margins in the developing world (read China, India, Africa & South America) that the only way manufacturers in these locations get a break is to cheat, or cut corners. Result ? Poor quality goods. Overseas buyers have to permit their offshore manufacturers to – shock – also make a bit of profit on the deal.

    So I think this is a seperate issue. However, even running a professional law/tax practice China, I’d rather go hang out with a foreign engineer for a beer ona Friday night; I’d learn far more from him about what goes on in China business practice than I would from most expat lawyers or consultants – those execeptions know who they are. So for cowboy operations – a lot can be laid at the door of poor and shoddy legal and consultancy work, meaning cheap, and the encouraging of businesses to set up in China that do not fully understand the financial implications or are willing to then duck and dive over QC themselves. The sort of consultant who says you can set up a FICE for RMB30,000 in registered capital or a manufacturing WFOE for RMB100,000 in RC. It’s utterly irresponsible. If any low end consultants / lawyers read this – you’re not making any money, you are doing more harm than good, and your business is inherently dangerous when encouraging poor investments at low cost. Please leave and go set up in Nigeria.

  16. Rich says:

    August 10th, 2007 at 8:32 am

    Hi Chris,

    Well.. Nigeria sounds a bit too far for my likings actually, and my personal motto is that I never want to learn another language so that I can conduct business.

    I have spent a lot of time recently with people in textiles, toys, and others where margins are thin and many of the problems are more visible. your statement that firms need to cheat to make money is something that most if not everyone agrees on, but with that said… if you are going to operate that way, you have to up your QC.

    With regard to your statement on the registered capital figures, what is the current level for FICE and WOFE? I have spoken to two members of 2 firms recently that claimed to be able to register at those amounts, and when I pushed them on it, they said no problem.. but I remain skeptical (I am neither a lawyer, nor do I have experience in licensing)

    Also, I found this post on China Law Blog going back a few months with those numbers as well. Are these numbers simply the initial deposits and someone will come collecting on unsuspecting companies later?

    A bit off topic, I have always wondered what happened if a company failed to meet the registered capitalization after the 18 months. has this ever happened? Is is a situation where a fine occurs, someone is deported, or …?

    finally, I would also agree that low end consultants/ lawyers/ accountants/ offshore financial companies/ others do more disservice than service, and one can only hope that market forces will force them into closure. What I find interesting is that Shanghai is a small town, and It really isn’t difficult to get th real story on just about anyone (or their firm), yet few people will take the time to ask questions… If any good comes of the recent scandals it will be that people will begin asking more questions?

    Have a good weekend.

  17. Tim says:

    August 11th, 2007 at 12:44 am

    Chris’s point is not whether or not you can actually setup a company for 100kRMB, but rather that it is irresponsible for consultants/lawyers to be telling their clients that it is feasible to do so. There are far reaching implications on registered capital amounts and far too many entrants think of this as a payment rather than investment and unfortunately many consultants do nothing to discourage this misunderstanding. Few spend the time to explain the difference between total investment and registered capital or how the difference can be used. And staggering few entrants bother to spend the time to put together a budget for sustainability.

    The important sentence in Steve’s post on CLB is: “However, these numbers have no real meaning for the formation of a WFOE in China.”

    In the end, you get what you pay for and those companies who want to enter the market on a shoe string budget are welcome to hire semi-competent agents at bottom basement prices. For those who have extensive experience in China these agents can provide significant savings but for the uninitiated they are extremely dangerous.

    I have a client who has past their 2 year mark and has not completed their capital injection and nothing has happened to them at this point; the tax bureau has reminded them to get this done, we have repeatedly reminded them to complete their registration, but nothing has actually occurred to them. That being said, it is a felony not to complete the capital injection within the stated time limit and could cause serious problems for the company – not a strategy I would recommend.

  18. Rich says:

    August 11th, 2007 at 1:11 am

    Tim

    Thanks for coming in on the conversation.

    So, it is technically feasible to register at those amounts, however registering at those amounts has different implications for different firms per their size, long term goals, and knowledge of China?

    Is there an area (Service firms vs. manufacturing firms) that you see this problem being more prevalent?

    Also, while I realize both your firm and Chris’s offer integrated services, how often will you have an external consultant whose focus is on the entry planning come into your office and work with you to understand the above?

    Thanks for answering the question about the 18 months, and I definately not would not recommend it either… just had never heard of anyone missing the cut

  19. Chris Devonshire-Ellis says:

    August 11th, 2007 at 1:33 am

    Registered capital is supposed to be a guideline, it is not enshrined in Chinese FIE regulations. It was originally in place to ensure FIEs indeed had enough capital to sustain a business, not to be a type of ;’sales’ pitch to show how cheap it is to invest in China, which is what it has now become.

    It should actually be calculated on the amount the new business needs to inject to sustain it until it can generate enough revenues from it’s own cashflow in China. If you do not do this, this is what happens:

    1) You run out of money. That requires a cash injection, and cannot be put in from China generated funds (it’s a foreign investment, remember). If you transfer money if from overseas but do NOT go through the process of re-registering your registered capital, through the correct processes, (which take about 6 weeks and involves a new business licence being issued) then that amount counts as income and is subjected to business and profits tax (which registered capital is not).

    2) Many businesses underestimate the amount required up front in their operational cashflow. Take for example just two scenarios:

    a) Imported equipment for use in the facility. Duty is now payable on full on this
    upon importation, and then repaid back at 20% per annum for five years. But you need to have the amount ready up front as a cashflow expense. It’s often missed meaning you have to go back to HO and ask for additional monies.

    b) VAT payer status. Depending upon your first year expected turnover, and especially for a small business (small VAT payer status), customs now expect you to remit the entire VAT bill on your 1st years imports in one go, up front. Again, if you haven’t expected that you’ll have to go back to HO and ask for it.

    The under appreciation of upfront cashflow needs has seen many a business go very quickly to the wall when if they had known about it possibly they would have thought twice about the investment or would ensured additional funding was available. I also wonder how many businesses are aware that registered capital is equal to their limited liability status in China and that there are issues to address with this also ?

    There are just a handful of issues affecting the calculation of RC. At Dezan Shira & Associates, we ALWAYS go through with our clients their operational costs and the implications of their investment as it is this essential need that dictates the registered capital amount. A few then tell us “so and so told us we only need RMB30,000”, don’t take our advice, assume we are expensive, and don’t use our services. But it’s simple economics – you can’t run a business in China on fresh air, and those that try, become very rapidly insolvent. They are not the sort of clients we would want, although I do feel a little sorry for their naievity.

    Cheap consultants that do not understand what they are doing, or the implications of their clients registered capital status, are dangerous. Insolvency is not a pleasant experience when you have staff to pay. Cheap lawyers and China consultants, recommending RMB30,000 investments, are interested in securing their fees to stay in business, not the clients long term well-being. There is a huge difference in professionalism. Because even in China, you cannot escape basic economics. You either have the money to run your business, or you do not.

  20. Rich says:

    August 11th, 2007 at 1:56 am

    Chris

    Thank you for your comments, which I believe will give readers a lot of clarity into the issue.

    Also, what are your thoughts on the questions I asked Tim:

    Are there areas (service vs. manufacturing) you see this a more prevalent, and is this a common practice overall?

    How often do you have external consultants come and work with you on these issues as part of their projects and then incorporate into their recommendations?

    Again, thank you for the clarity.

    Have a good weekend
    R

  21. cash-flow » Blog Archive » Who Da Man, You Da Man, De Only Man! says:

    August 11th, 2007 at 11:29 am

    […] It should actually be calculated on the amount the new business needs to inject to sustain it until it can generate enough revenues from it’s own cashflow in China. If you do not do this, this is what happens:. 1) You run out of money. … …more […]

  22. Chris Devonshire-Ellis says:

    August 11th, 2007 at 7:03 pm

    Manufacturing, being more capital intensive, tends ton be able to afford a better quality of expat. But there are, as always, exceptions. It’s the services industry, which requires generally a lower investment, that tends to attract a lower intellect of expat. Most lawyers, for example.

    At Dezan Shira, we do all our work inhouse, we don’t subcontract. If we are faced with a project we cannot handle or control, we will pass it on a a firm who can. Consulting practices can either conduct work professionally or they cannot, and on the rare occasions a piece of work has come in for us to bid for that is beyond our capabilities we will pass it up rather than try and attempt something we are not capable of performing to specification. That preserves the integrity of the practice. We’re only really good at a very few things: Advising of Foreign Interprise investment law & tax in huge developing countries with evolving regulatory platforms. That we understand, which is why we are in China & India.

  23. Chinese Language Requirements, the HSK, and Senior Positions in China says:

    August 13th, 2007 at 9:01 pm

    […] Among China consultants, the HSK has already become a hot topic for discussion. […]

  24. Frank says:

    August 14th, 2007 at 3:01 am

    The paradoxical thing is that there is more localization of expatriates, while at the same time there are more expatriates in China. The logic of this is that companies are continuing to localize when they have built the kind of infrastructure they need to function. But at the same time there are so many new companies entering the market that the demand for expatriates to run them continues to increase.

    So the flow that you see is expatriates leaving established companies. Their companies have a long history in China and don’t feel the need to pay expat salaries anymore. They move on to the new players who are starting up and need someone they can trust to get the job done.

    Additionally, you have a number of international companies changing their status from China to Asia Pacific. The HQ for Asia is moved to Shanghai or Beijing and every country reports to China. This move creates new positions for expatriates who can handle multi-country operations. Many expats have been ‘saved’ from a one-way trip home by this change. Typically you have a GM taking an Asia Pacific Sales Director or Operations Director role.

    For so long as China continues to grow, expats will be necessary. There is a catch up process here but it will take decades before China-raised staff can handle multi-country operations, simply because so many of them have not spent any time overseas yet. Try booking a flight with your local travel agent to see what I mean. If the agent has never been to Heathrow it is hard for them to imagine that you need 3-4 hours just to change from one terminal to another. They can’t imagine it because they have no reference point for it. Local airports in China normally have only one terminal.

    Now extend that to the complexities of running a business. Expats, even not so effective ones, are relatively safe yet.

  25. Rich says:

    August 14th, 2007 at 9:31 am

    Frank

    Thanks for checking in and posting your comments.

    what you have written is something that is occurring a lot now in Shanghai. Whereas the majority of expats (40+) were in GM roles for multinationals, those with 3-5 years in China are moving to open their own shops.

    To date, success is a mixed bag, but they all deserve a lot of credit as they try to make it work.

    Hope all is well in Shenzhen Dublin, London, and Paris

  26. Frank says:

    August 14th, 2007 at 10:02 am

    Rich,

    To confuse things further I am leaving Dublin now for London, then Paris. And I am based in Shanghai ….. :>)

    I agree that many GMs are setting up shop themselves. China offers open doors that were closed long ago in the US and Europe. If you stay long enough in China something will pop up. You just have to be ready.

    Frank

  27. Rich says:

    August 14th, 2007 at 10:20 am

    Frank.

    you will see the correction above.

    Good to see someone got a vacation I am also based in Shanghai, but in Beijing, Tianjin, and Suzhou this week.

    Rich

  28. China Law Blog says:

    August 14th, 2007 at 10:47 am

    Chris is exactly right when he says the amount of minimum capital required depends on the money needed to fund operations. The figure is based on your business and your location, not so much on the law. So obviously the minimum capital requirements for a huge manufacturing operation in the Shanghai area will be quite a bit more than for a small service business in Qingdao.

    The other reality is that forming a company is NOT easy when done right. I have been contacted by people who paid consultants as little as $800 to form a company and all they have gotten in return for that is (literally and I am NOT exagerating here) is a horribly translated form they are to fill out. Not only should someone seeking to form a company in China use those who are experienced with this AND come reccommended, but they should, if possible, use someone with extensive experience with their home country. In other words, there are advantages to using someone experienced with US companies if you are a US company and with French companies if you are a French company, etc.

    Getting a “bargain” and then not getting your company formed is no bargain at all.