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2 of 56Foreign Manufacturer’s Ultimate Guide to Hiring, Training, Managing & Firing Staff in China

1. Author’s Perspective ........................................................................................................... 32. What Can The Reader Expect From This Whitepaper? ......................................... 43. How This Whitepaper Is Organized .............................................................................. 44. Introduction To The “Three Circle Framework” .................................................... 5-65. Relationship .........................................................................................................................6 - Use Your “Foreignness” To Your Advantage ...........................................................6 - Recruitment (Blue Collar) .............................................................................................7 - Recruitment (White Collar) ......................................................................................... 8 - Tips For Finding & Interviewing Good Candidates ....................................... 8-19 - Training & Probation Period ...................................................................................... 19 - Manage Your Expectations About Management In China ...................... 20-21 - Cross Cultural Communications/Project Management ......................... 22-23 - Employer-Employee Relationships: Special Issues With Foreign Staff In China ........................................................................................................................................... 23 - Work Visa ................................................................................................................. 23-26 - Security Of Business Secrets ................................................................................... 26 - Culture Clash .......................................................................................................... 26-28 - Where To Find Foreign Staff In China ................................................................... 28 - “Those” Kind Of Relationships.......................................................................... 28-295. Documentation ............................................................................................................30-32 - Sensitive Area 1: Labor Contracts ................................................................... 32-34

- Labor Contract ................................................................................................. 34-37 - Sensitive Area 2: Employee handbook ................................................................. 37

- Employee Handbook ..................................................................................... 38-47 - Sensitive Area 3: Bonus System ............................................................................. 486. Documentation ............................................................................................................49-537. Compare Your Manufacturing Options in China .....................................................548. Additional Information ..................................................................................................... 55 - PassageMaker ............................................................................................................... 55 - AsiaBridgeLaw .............................................................................................................. 56

Table of contents

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Author’s PerspectiveDuring my 20 years living in Asia, I’ve owned a number of different business entities in greater China, ranging from China WFOE’s to HK holding companies to service companies. I’ve represented Fortune 500 companies as well as startups in their dealings with China. I’m on the board of advisors at AsiaBridgeLaw, but I’m not a lawyer and I don’t claim to be a China “guru.” China is too big and changing too fast. Anybody that claims to be an expert on all aspects of China business should not be taken seriously.

I’ve hired hundreds of employees over the years and dismissed dozens. I’ve been dragged into labor disputes with unpleasant outcomes and I’ve also sent staff to jail for contract violations and unauthorized activities. I’ve recruited, hired and trained local Chinese staff as well as China-based N. Americans, Europeans and Asians.

I’ve had my share of success as well as failure, and in this whitepaper I’d like to share some of the key lessons, pitfalls and best practices that I learned the hard way when answering the deceptively simple question of “what do foreigners need to know when hiring and managing local staff in China?”





http://www.psschina.com/china-business-blog/manufacturing-in-china-pros-and-cons-compare-your-options-here


What Can The Reader Expect From This Whitepaper?This whitepaper is designed to offer both a general framework for how to structure dealings with your employees in China (both Chinese and Foreign) as well as provide practical tools, tips and best practices for your day-to-day interactions with them. We will cover how to build a stable relationship, how to structure effective labor contracts and even how to create mechanisms for monitoring the relationship and monitoring compliance with the labor contracts. My goal in writing this whitepaper is to offer an affordable and effective way to protect the foreign employer while being fair to the employees they hire. This is not a guide on how to outsmart your employees or find loopholes in China’s labor laws.

How This Whitepaper Is OrganizedForeigners who own a WFOE or are thinking about setting up a WFOE will benefit the most from this whitepaper. But the concepts discussed in the whitepaper are applicable to any foreign business person who wants to recruit, hire and manage a team in China. To clarify, when I use the term “foreign” I am referring to businesses and people who come from outside of China regardless of race or language skills.






It helps to have an overriding framework for visualizing your interactions with your China-based employees. In my “three circle framework”, the circles represent “solid personal relationships”, “well written documents/contracts” and “effective monitoring mechanisms.”

Ideally you have a balance of relationship-documentation-monitoring in equal measure.

I think that many of the so-called “China Business Guru’s” overstress the importance of personal relationships- “guanxi” as it’s called in Mandarin Chinese. They imply that if you have a very friendly relationship with the Chinese employee, the employee will be productive, respect your intellectual property and avoid the temptation of “under the table deals”, simply because you are friends and friendship is the most important thing in China.

Those types of advisors, usually don’t have a lot of China experience, and they focus on the relationship side of things because they don’t know how to structure effective contracts, let alone know how to monitor things in “mysterious” China.

Introduction To The “Three Circle Framework”

Relationship

Contracts

Sweet Spot

Monitoring






In this whitepaper I’m going to show you that it’s actually not that hard to set up contracts that work and build mechanisms for monitoring. My relationships with key staff are solid and not based on “magic”. In my book, blogs and whitepapers, I’ll show you just how easy it is.

Notice I didn’t call the three circles “special relationships”, “crafty contracts” and “secret spies”. Common sense plus some basic tools and templates are all that you need. No “special magic” required, nor do you have to be a “China hand” to get things done.

While there are plenty of poorly managed foreign owned factories in China, the general perception is that foreign companies (especially western owned) provide a better workplace in terms of regulatory compliance, workplace safety, performance review and compensation structure. So leverage this perception in your recruiting.

This being said, foreign factories are also viewed as soft targets by local staff who are corrupt and looking to exploit an employer who is not savvy to the realities of China business.So as a foreign company, the trick is set the tone from the very first interview. More and more companies are requiring applicants to sign a “statement of truth” before the interview which explains that falsification of documents and exaggeration of work experience will not be tolerated. It also explains that verification will take place after the interview to confirm that what was said by the candidate, was true and accurate. Most importantly, it sets the right tone. The corrupt candidates will see you are not a soft target, and the honest candidates are happy to hear that honesty is an asset you value.

If your company is well-managed and a great place to work, don’t just mention it, show details in your job advertisements. Reinforce the benefits of working in your foreign company.

RelationshipUse Your “Foreignness” To Your Advantage






Finding “good” (meaning affordable, stable & loyal) office staff has always been a constant challenge in China, but these days, finding “good” factory staff is a real challenge too.

If your labor force is blue collar, you may want to apply the same tips and strategies found in this whitepaper for hiring/retaining white collar labor to the blue collar workers in your shop. Additionally, you may also want to consider the following special tactics for recruiting blue collar labor:

Most of the points in this section of the whitepaper are applicable to the recruitment of both factory and office workers, but there are some special considerations when recruiting factory staff.

Gone are the days that I remember so fondly, when we just hung a hand-written “We’re interviewing” sign on the factory front gate and there would be a long line of highly qualified candidates willing to start work on the factory floor for minimum wage.

Recruitment (Blue Collar)

At the risk of oversimplifying the situation, the reasons it’s harder to find factory labor on short notice now than 10 years ago is two-fold:

ĵ Thanks to the one child policy, there just aren’t as many 20 year olds looking for a job.

ĵ The rural interior of China is developing rapidly. Workers finally have job opportunities back home. So there is less of a need to travel 1000 miles to a factory on the coast and only go home to see the kids during Chinese New Year.

ĵ Give a bonus for existing staff who introduce new staff, but have clear rules about hiring family members and beware of cliques on the factory floor. (see case study section of this whitepaper).

ĵ Send a recruitment team to the interior and offer special transportation support to the new job site.

ĵ Find ways to make it easy for staff to get back home for Chinese new year. For example, staggering production so staff can leave early/late and come back early/late.

ĵ Keep an eye out for factories closing near your factory. This is a great place to find new staff!

ĵ Build an internship/work-study program with local trade associations and colleges to train and recruit new staff.

ĵ Pay above minimum wage and offer meaningful benefits.





I love the saying “if you don’t know what you are looking for, every road will take you there”. In this case it means that if you don’t have a well-defined description of the candidate you are looking for, you will most likely end up hiring somebody that isn’t the perfect fit for the job.

The challenge isn’t finding a candidate, the challenge is finding the right candidate from the tsunami of resumes you will receive. So the first step is to build a description of the ideal candidate covering the core details like.

Recruitment (White Collar)

Tips For Finding & Interviewing Good Candidates

Job TitlePick titles that are accurate based on local standards

In the West, because the typical office has a lot less people than in China, it is common for staff to have multiple titles and perform multiple roles. We don’t put a lot of stress on the job titles. For example, the CEO of a small company may be doing the same jobs as maintenance staff at a large company!

We tend to throw around the terms “manager, director, supervisor” indiscriminately. It’s very much the opposite in China. Staff take their job titles very seriously, because even small companies in China can have 1000 employees, the term “manager” really means something.

When recruiting in China, be sure you are using the right job title. When in doubt, use a title a rank or 2 lower than you would back home.

Job Description

The job description is very important, especially when you consider that foreign employers and local staff may have different perceptions of what a given job title entails. Be specific. Is this a desk job or do you expect them on the factory floor managing things? Is there a lot of travel involved?







Reporting Structure

It’s in your best interest to let candidates know upfront how many people they will manage and to whom they report to. This is especially important if there are international teams on the project.

In the West we would assume that if somebody makes it to the top rungs of the corporate ladder, they would know how to lead a team. Not always the case in China. I have come across some great candidates (on paper) for top positions in my company who were actually terrible at managing teams. The reason is that they always had an assistant or a Vice GM to handle communications and they focused on strategy from behind a desk.

Age Targets

In some countries it may be considered age discrimination to state a target age for the candidates, but in China it is quite common. So go ahead and state it in your job advert and use it as a tool for narrowing down the pool.

Experience

When asking about experience, set targets for both the # of years and type of experience. Be very specific. For example, “Engineer” is simply not descriptive enough. A garbage man could be considered a “Sanitation Engineer”. So it would be better to say “Looking for a Mechanical Engineer who has at least 5 years’ experience in a toy factory working with CNC machines.”






Salary Targets

I’m usually in a rush to hire new staff, so for me, time is of the essence and stating the target salary helps cut to the chase. However, many recruiters are hesitant to state their salary targets on the job description, instead preferring that the candidates list their expected salary when they apply.

Unless you are a professional recruiter in China and really understand the labor market it may be hard for you to judge if the expected salary as listed by the applicant is on par with their experience. This can lead to a lot of headaches because some candidates will lowball their expected salaries in order to get the job and get through the trial period. Then they ask for big raise. If the raise is not given, they then proceed to become dead weight around the office. But because they passed the trial period it’s hard to fire them due to the severance pay issues in China (more on that later in the whitepaper).

I go so far as the put the salary caps for years 1, 2 & 3 in the job advert and state them during the interview, so the candidate can’t say later “Oh, I didn’t know there wouldn’t be a 15% raise after 18 months.”

Stating the target salary in the job advert avoids those issues, and you can always adjust the target salary if you aren’t getting the type of candidates you desire.






Job Location

Unless you are looking for a very unique skill set, most likely your search can remain local. If you make it a nationwide search you will be overwhelmed with too many resumes and waste a lot of money/time setting up face to face interviews.

China has 300 cities with populations of over 1 million people. So pretty much anywhere you go in developed China, there is a large pool of local candidates in that same province, same city and perhaps even same neighborhood!

So be clear about the location of the job on your advert. Don’t state “City/Province”. State “Address, District, City, Province.” The added advantage for your recruitment process is that candidates will often be willing to work for a slightly lower wage target if they can stay close to their family. So try to fill the job locally when possible.

Now that we have an idea of what the dream candidate looks like, let’s turn our attention to the practical challenges of where to look for him/her and how to pluck a winner from a large group of candidates.






Where To Look?

First off, I want to say that I am not a big fan of headhunters and recruitment agents in China. They may work in the West, but as they charge a service fee equal to 1/3 of the annual salary of the recruit, it’s hard for me to justify paying a recruiter when I already have a HR manager on staff who has the job responsibility of finding candidates.

Here is how my HR Manager looks for Chinese staff:

1. We run an online Job advert. This is by far the most effective channel 90% of the time.

2. Most office buildings and industrial parks have a big bulletin board in a high traffic area. Ask the landlord to let you post your job advert there. This is a great way to get in front of local talent.

3. To supplement the online job advert, we rent a kiosk at local recruitment fairs. In a city like Shenzhen, there is an entire district of town dedicated to serving as a full time labor market. Each day of the week is designated a different type of fair. For example, every Monday is for sales positions. Tuesday is factory jobs. Wednesday is food & beverage…you get the idea. In the days before the fair starts, the labor market organizers will post the job description on their website and on the bulletin boards outside the building. On the day of the given industry’s job fair, we usually have 3 representatives from our company at the booth. The fairs usually last ½ a day, but a lot gets done! 2 people handle initial resume reviews and the 3rd person does a more in-depth interview on the spot. If the job requires English skills, I’ll have one of my English speaking staff at the booth to visit with the candidates. It’s not uncommon to extend job offers that very same day!






What Does It Cost?

Online Job Board

Offline Notice Board

I use the www.51job.com site’s enterprise package and it only costs me a few 100 USD per year for unlimited job listings.

Usually free.

Job Fair/Job Market

Job Advert Template

The Shenzhen labor market described above charges 1,500 RMB per day for the booth and listing. You can pay a bit more to have your listing promoted. Even without the promotion, we have days where we meet with over 100 people in 3 hours. Think speed dating- but for jobs!

For your reference, here is an advert we recently ran. Most likely you aren’t looking for an accountant, but I wanted to share the template with you to give a feel for what the document looks like.





http://www.51job.com


Notes

Exciting position in the accounting department of an American company in Liantang area of Luohu district in Shenzhen city.

1. If the job requires excellent English skills, I will run the advert in English-only. This helps the vetting process.

2. If the job doesn’t require English skills, I will run the advert in Chinese + English as having the English language helps demonstrate our positive “foreignness” as mentioned earlier in the whitepaper.

3. The items in gray are important.

Corporate Accountant

Company Overview

Job Description

XXXX helps US and European buyers find and manage suppliers in China. XXX has two factories in Shenzhen and a front office in Liantang, Luohu. Visit www.XXXChina.com for details.

We are looking for an experienced accountant interested in performing the following tasks:

Job Fair/Job Market

Job Advert Template

The Shenzhen labor market described above charges 1,500 RMB per day for the booth and listing. You can pay a bit more to have your listing promoted. Even without the promotion, we have days where we meet with over 100 people in 3 hours. Think speed dating- but for jobs!

For your reference, here is an advert we recently ran. Most likely you aren’t looking for an accountant, but I wanted to share the template with you to give a feel for what the document looks like.






Notes

Exciting position in the accounting department of an American company in Liantang area of Luohu district in Shenzhen city.

Corporate Accountant

Company Overview

XXXX helps US and European buyers find and manage suppliers in China. XXX has two factories in Shenzhen and a front office in Liantang, Luohu. Visit www.XXXChina.com for details.

1. If the job requires excellent English skills, I will run the advert in English-only. This helps the vetting process.

2. If the job doesn’t require English skills, I will run the advert in Chinese + English as having the English language helps demonstrate our positive “foreignness” as mentioned earlier in the whitepaper.

3. The items in gray are important.

Job Description

We are looking for an experienced accountant interested in performing the following tasks:

1. General corporate financial reporting in Hong Kong and Shenzhen (AR/AP & P/L Statements)

2. Work with auditors for tax planning and filing for HK and China companies.3. Implement accounting software4. Develop accounting team’s SOP’s & train accounting team members (on

VAT and other accounting procedures)5. Communicate with clients (able to clearly explain things like the AR/AP

balance or VAT system)6. Organize bank loans and letter of credit






Target Salary

Target Salary

1. At least 7 years accounting experience in a trading company, manufacturer or JV which has export and import rights.

2. Expert on the VAT system.3. Full understanding of international L/C4. Experience applying for bank loans in HK and/or Shenzhen5. Very familiar with tax systems in HK and China for both import and

export, including domestic sales in China.6. Experience with financial software which is bilingual for bookkeeping/

reporting7. Excellent communication in Mandarin, Cantonese and English

Base salary of up to XX,XXX RMB per month plus all mandatory benefits, month 13 bonus. The salary will be reviewed annually and depending on inflation and corporate performance may increase by no more than 5% per year, per corporate policy. After 1 year of successful employment the employee may join monthly bonus program based on KPIs. A number equivalent to 12% of payroll is allocated to the monthly KPI bonus.

Ideal candidate is between 35 and 38 years old, will have worked for an international company in Guangdong and be familiar with a trading/ sourcing environment. Priority given to candidates with experience setting up SOP’s and training others.

Please state “corporate accountant” in your email and send resume in Chinese and English to [email protected]. Only applicants who correctly state the job title in the email subject line and provide an English resume will be reviewed.

We are looking for a person that has good communication skills and is comfortable dealing with both Chinese and Westerners. Our company is small and friendly. We are growing very fast and looking for someone that is ready for this challenge. Our accounting team has less than 10 members. The corporate accountant will report to the CFO.






How To Vet Resumes?

In most cases you will find yourself with a big pile of resumes.

For me, I tend to put a lot of importance on salary target. Assuming you listed the target salary on the job advert, if somebody is a perfect fit yet way outside of your budget constraints, why bother to read into their resume and waste time?So simply ask your assistant to toss out the ones that don’t fit the basic criteria: age/salary/experience.

Rather than review resumes each day, I tend to review in batches. That makes it easier for me to compare and contrast. The top 5 to 10 candidates from the batch get an unannounced phone call from me. I’m not going to ask any difficult questions, but I just want to see how they handle themselves and to test their English if that is important for this particular job. If the person stutters and can’t communicate on the phone, their resume goes to the back of the pile. The top 3 to 5 are brought in for a face-to-face interview.

How To Conduct Interviews?

If we are interviewing for a job that involves international communications and conference calls, we’ll do an initial interview over skype to see how the candidate handles it. When using a 2nd language, it’s a lot harder to do conference calls and skype than face-to-face. So it’s a good sign if the person can handle themselves well on such an interview.

Before the interview starts we ask them sign the “statement of truth” as mentioned earlier in the whitepaper. That sets the tone.

At some point in the interview it’s important to bring up the multi-year salary plan and weed out those candidates that may be trying a bait and switch tactic on salary.






Regardless of your interview style, you will need a mechanism for keeping track of who was interviewed when and how did they score. Give yourself the ability to make an apples-to-apples comparison by using some kind of score card like this:

NameTime/

Date of interview

DOBYears of Experi-

ence

Relevancy of experi-

ence

Salary expecta-

tions

Distance for com-

mute

Other criteria

General impres-

sion/ Notes

MM/DD/YYYY

on tar-get/ too young/ too old?

on tar-get/ too much/

too little

Very high, high, low, too low

On tar-get/ too low/ too

high

Long/normal/

short

Mr. Li (Steve)

Mrs. Wang

(Nancy)

How To Make A Final Decision?

Different companies have different systems, but during the interviews I like to have multiple co-workers sit in on the interview and keep score using the same score cards. We don’t share the cards until all candidates have been interviewed. If everybody agrees on 1 candidate as being the winner, that’s a very good sign.






Combined scores can help rank the candidates as well, which helps when it comes to the follow up work of extending offers. Keep in mind that Chinese labor law allows for a trial period between 1 and 3 months (more on that later in the whitepaper). So on-the-job is the best “final interview”.

Tip: Foreign employers tend to put too much emphasis on English skills for jobs that may not need polished English. There is no correlation between English skills and leadership skills, but there is a correlation between English skills and expected salary. So if you focus too much on language skills, you may end up with a group that is overpaid and under qualified for the non-language side of the job.

Your training program is highly dependent on your industry and corporate culture. So how to set up a training program for your specific company is outside the scope of this whitepaper, but here are some important things to remember when setting up a training program in China:

1. There is a trial period during which you can release staff with relative ease. But once that period is used up, strict severance laws will apply. So it is in your best interest to structure a training program that quickly gets the new staff up to speed on the job so you can evaluate them in a meaningful way.

2. Obviously, have a written methodology for this training and evaluation.3. Make sure you know the labor laws concerning trial period length before

you sign contracts and onboard new staff. The laws in China are constantly in flux and interpretation varies from location to location, but at the risk of oversimplification, here is the important stuff to remember:

a. The trial period can normally be from 1 to 3 months in length.b. The trial period can be adjusted from 1 month to up to 3 months if the

results of month 1 are not conclusive in the eyes of the employer.c. Important: This may be unique to China, but every month of trial period

equates to 1 year of contracted labor. So if you end up hiring a person after a 3 month trial, you have in effect created a 3 year long contract period. If during those 3 years you wish to terminate the employment (at no fault of the employee, and sadly “poor performance” isn’t a legit reason to fire somebody in China!), the severance due will be as if the contract was for 3 years. There are different rules for project based employment vs open-ended contracts, but the rule of thumb I want to convey is that the longer the trial period, the greater your severance payout if you release the employee post-probation period.

Training & Probation Period






Manage Your Expectations About Management In ChinaManaging your expectations as a foreign employer: 3 ways China is very different from back home.

1. China is very business friendly in many ways. There are tax incentives to welcome foreign investment, the intellectual property system has come a long way and the rule of law is finally taking hold But don’t forget for one second that China is still a communist country. The employer-employee norms and laws from back home don’t apply in China.

Example 1: China IS communist.

On the surface it may come as a surprise that China doesn’t allow unions- in the Western sense of the word. Until that day comes when you have a strike at your factory and you suddenly realize the labor bureau is in effect a kind of union boss for every worker in all industries in all parts of China. That can be a good or bad thing, depending on your position.






Example 2: The law is clear- Interpretation isn’t.

As foreign investors, factory owners and business people, we tend to rely on the written law to guide our decision making. If you initiate a layoff and the law says the amount of severance owed is X, you probably think you are doing your staff a favor by giving X + 10% as goodwill. But then your staff reports you to the labor bureau and the bureau holds a “consultation” with the involved parties and recommends X + 20%. So you seek clarification in the local court where the judge awards X + 25%!

The two scenarios above don’t happen to everybody but they do happen. Consider yourself warned.

2. The employee turnover rate is much higher in China than in the West. As a foreign employer in China, you need to strive to find ways to not only reduce turnover but efficiently train new staff when turnover eventually takes place. In this whitepaper and related blog posts we’ll offer some strategies.

3. Managing a multi-cultural team is a challenge. Language, distance, culture…you name it. Challenges, but not roadblocks when handled property.

While an entire book could be written on the subject, in the next section, I’d like to offer a few tips for better communications and effective project management in China. I included those tips in this section on “relationships” because clear communications and managed expectations are the foundation of a good relationship.






Cross Cultural Communications/Project ManagementIf you communicate globally via email with co-workers or suppliers in China, you probably have at some point become frustrated by the amount of time it takes to get an answer to what you consider a simple question. Part of the reason is language and culture, but dealing in multiple time zones plays a big role too.

For example, if you are in N. America and sending e-mails to China, it is essential to have clear and effective communications because there is very little overlap of working hours in the two places. Should you get an unclear response to your question, you have to wait another 24 hours to ask and hear back. This cycle can go on for days and somehow a simple question like “did the samples arrive and get sent to the suppliers?” takes 2 weeks to answer.

Even simple communications get mucked up over email, so to help improve things around my office about 10 years ago I created the following protocol for all my China side staff. It proved so effective, now all staff regardless of nationality have a laminated copy of it attached to every monitor in my organization. Here is the English translation:

Before sending an e-mail, I will check the following:

• Are the right attachments attached?• Are the attachments formatted with correct page breaks and look nice?• Has the attachment been spell checked?• Has the e-mail been spell checked?• Is my point clear?• Does my email avoid sarcasm and phrases that could be misinterpreted by

the reader?• Do I need any other people in the organization to give a 2nd opinion before I

send the email?• If I am assigning a task, can this task be assigned using our project

management software rather than via email?• IF the task must be sent be email

A) Is the person I want to do something listed in the “to” line? Don’t expect somebody in CC to know they have been assigned a task.B) Is the task clearly stated in the email? Who, what, when, why!• Review who is in the “to”, “cc” and “bcc” to confirm your email is not sending

sensitive information to the wrong people.• If the people who will view your email don’t speak your language, make sure a

translation or at least a summary is provided for them.






Other simple/cost effective tools to help improve project management and communications

How to manage a team to coordinate your supply chain in China

7 things to note when outsourcing supply chain management to China

1. It is not an understatement to say that moving from a spreadsheet based system to proper project management software has changed my life as a manager. We made this change when we had about 50 staff. Today we have 200 and I know I would have hung myself had I not had this software in place.

2. Make sure your Chinese staff have English spell check on their computers. Some China computers don’t have this out of the box, but installing it is easy.

3. You need to have some incentive in place for people to follow and respect the rules. At my shop anybody that breaks the protocol has to buy me a beer, and I like expensive imported stuff from Belgium!

Related content

Employer-Employee Relationships: Special issues With Foreign staff in China

Work VisaIf you are a legitimate company (with a licensed operation in China) and have a legitimate need for foreign staff to be based on your China facilities, you should have no problem securing work visas for you international staff.





http://www.psschina.com/china-business-blog/how-to-manage-a-team-to-coordinate-your-china-supply-chain

http://www.psschina.com/china-business-blog/7-things-to-note-when-outsourcing-supply-chain-management-to-china


The first two items are obvious “no-no’s” and should be avoided, but what if you have international staff in your office for short term project work? Here are some guidelines:

• “Sell” work visas to foreigners who aren’t actually working in your business• Under declare the China salaries of your foreign staff to avoid tax.• Have staff working under a tourist or business visa rather than work visa.

• Unless they are friends and family visiting China on non-business related activities, there is no reason to have foreigners with tourist visas in your office for more than a few hours.

• Some foreign employers think that the China visa is the responsibility of the foreign staff and they don’t ask their staff for proof of work visa. Trust me, if you have foreign staff working in your office without visas, you both will have a lot of trouble once discovered. Your company may be put on a blacklist and you will be unable to hire any legit foreign staff for years to come.

• You are crazy to give anybody on a tourist visa any trappings of employment, such as but not limited to:

- Business cards with your China address- A cubicle in your office- Employment contract- Local currency compensation

And don’t think you can hide the visa status of your foreign staff from co-workers and authorities. I know plenty of cases of disgruntled local staff running to the labor bureau to turn the foreign employer in.

But you will run into problems if you do the following:

- Overseas clients and business associates are welcome to come to China. Every year it gets easier and easier to arrange a business visa. If you are from the USA, you can get a 10 year multi-entry visa and come and go as you please, staying for fairly long trips if needed. But if you stay longer than 90 days in China, that’s considered working here and you should get a work visa.

- About once per year, at a random time, professional and friendly (unless they were informed of a violation in advance) representatives from the local police unit or industrial affairs office will stop by your office to take a look around. They are looking for two things:






a) Are the foreigners with registered work visas actually working at this location?

b) Are there any foreigners without work visas working at this location?

The last thing you want is to be non compliant with the laws, but staff get nervous during the audit and say the wrong things causing unnecessary confusion. To avoid this, I recommend not only staying in compliance, but also having a plan to explain how you are in compliance if audited. For example, there should be a representative (and a backup) in the office who represents the company when there is a visa audit. This representative may be the front desk receptionist or even a senior manager, who the representative is isn’t as important as what they do. They should keep a list of all foreign staff based in the facility, along with copies of the passports/visas. If staff with work visas are out of the office, the representative should be able to explain why. Telling the truth is fine. For example, Mike is on a business trip to Beijing, he’ll be back in 2 days. If you have foreigners in the office who are not on work visas, the representative should be able to explain why. Once again, the truth is the best option. Explain that the person is from HQ doing training, or explain that it’s a customer. But if this person is sitting at “their desk” with Chinese business cards and a coffee mug with a year’s stains on it…you may have some explaining to do!

Here are some things to keep in mind when arranging a work visa for foreign staff:

There is no written rule made public that states how many foreign staff can be employed by one company at one time. But I am certain each local government has some kind of unwritten rule. For example, a business with X million RMB in revenue should have no more than Y foreigners. For every foreign staff there should be X times as many Chinese.

If you cross this unwritten line, you will find it hard to get working visas for staff and unless you are friends with the officials, you will never know for sure why.But as long as you follow these written regulations, you should have no problem arranging work visas for foreign staff in China:






a. Obviously you need to be a registered business in good standing to hire staff, foreign or local for that matter.

b. The staff you wish to hire from overseas must have at least 2 years of highly relevant work experience. You can’t easily hire a young person to be your marketing manager if he graduated with a teaching degree in the USA and has since then been based in China tutoring children!

c. The job can’t easily be filled by a local Chinese person. For example, I had some difficulties hiring American sales staff because the local authorities felt there were plenty of English speaking Chinese. But my Spanish speaking candidates for the S. American marketing manager job were warmly welcome!

Security Of Business SecretsForeign owners sometimes put too much trust into their foreign hires. Don’t foster an “us vs them” attitude around the office. Apply the same level of control over sensitive information with foreign staff as you would with local staff. That means signing NNN agreements and monitoring staff closely (more on that later in the whitepaper).

Culture ClashIn the past 5 years the number of foreigners in China has grown exponentially. I no longer recruit from overseas because I can find good staff right here in China. But I rarely hire anybody who has less than 2 years living experience in China because the risk of culture clash is just too great. It’s a real drain on my business to train up a foreigner only to have them leave China because they don’t like the pollution or have trouble with the food. By year number 2, most people will know if they are making a China career or just passing through.






Speaking of culture, when selecting a point person to lead your team in China, don’t assume that Chinese language or even ethnicity equates to Chinese business understanding. I know of more than one major N. American company that has pulled junior staff out of departments like accounting and marketing and tapped them to be the point person on major sourcing projects simply because they were Chinese-American.

I know of countless exchange students from Asia who went to the US and EU to study English, history, and even music only to be plucked out of the universities to join a Western company as their sourcing team leader. I don’t know of one success story from all of those examples. Every time the project failed because the Chinese person assigned was hired because his or her only qualification was being Chinese or at least looking Chinese. In reality, an understanding of negotiation, logistics, and engineering and, especially, sourcing experience would be far more important criteria when selecting a sourcing project leader. Language and ethnicity should be far down the list of priority skill sets.

In addition, don’t assume that all ethnic Chinese, even those with business backgrounds, are automatically able to do business successfully in mainland China. I have seen numerous overseas Chinese (Asian Americans, Taiwanese, Singaporean, and especially Cantonese/Hong Kong) complicate the employee-employer relationship because their cultural baggage alienated members of the team.

I’m sure what I am about to say is not politically correct, but it seems that a lot of overseas Chinese have a superiority complex and look down on their cousins on the Mainland as being a bit backward and unsophisticated. On the other hand, a certain amount of up and coming Mainland Chinese have an inferiority complex and may take issue with being “bossed around” by an overseas Chinese (especially those from HK and Taiwan) while they would look at the same directives coming from a European or American as just part of the job.






Where To Find Foreign Staff In ChinaWhile local bulletin boards and 51job.com are great resources for finding Chinese employees, they don’t work very well for finding foreign staff who are based in China.

The good news is that most Chinese cities have certain places online and offline where many of the foreigners congregate. It may be a magazine or website like “That’s PRD” or www.ShenzhenParty.com in South China. There are occasional job fairs for foreigners, but they are few and far between. So an advert in the right local publication is a good option to get the word out. Social media can really spread the word too!

I would be crazy to say that the language and cultural understanding that an overseas Chinese brings to the table as a project manager is not of value. But I firmly believe that ethnicity alone is not the best criterion for selecting a project manager. Focus on the whole package when picking a team leader.

“Those” Kind Of RelationshipsWhile this section of the whitepaper is devoted to business relationships, illicit relationships can cause headaches for the business, so let’s take about the darker side of Sino- foreign “ventures.”

Case in point: A large US Corporation sends a manager to China for a year-long project to lead the R&D team on a new product launch. The foreign manager was happily married with children before coming to China. While on the trip, he is introduced to China for the first time. The exotic food, the beautiful women, the royal treatment…it’s intoxicating and goes to his head.





http://www.ShenzhenParty.com


After a few too many drinks at his coworkers KTV birthday party, his judgment becomes clouded, and the manager goes home with the birthday girl. Thus begins a secret romance lasting many months. Six months later, that girl “suddenly” is head of R&D reporting directly to this foreign manager. HQ fired the foreign manager when they found out he had hired a girl with no skills at a very high salary package. But getting rid of the girl was no easy matter. She remained head of R&D at full salary for many years until the company finally bit the bullet and paid her the full severance package. Going to the labor bureau or court was not an option. The local authorities are not going to be sympathetic to a foreign company’s staff “taking advantage” of the locals.

In this case, it was easy to get rid of the foreign manager, but the company was left to sort out the mess. I have witnessed countless variations of the above story, with things ending even less pleasantly. For example, add pregnancies, private nude pictures, or even false accusations of rape into the plot, and the drama factor rises off the charts. In most cases, the local staff didn’t set out to take advantage of the company, but the actions of the foreign manager give the local staff an opportunity they couldn’t pass up!

My wife’s brother is an undercover vice cop in southern China. I could give you hundreds of real-life examples like the ones above, but I think the reader gets the point that certain actions have ramifications. Long story short, if you are sending foreign staff to China, your company needs to have clear policies and adequate training about “those” kind of relationships.






DocumentationLooking back at my 20 years in Asia, my biggest headaches weren’t with China suppliers, they were with my own employees! I think most people who have owned a China WFOE will agree that the process of hiring & firing is far more complex in China than back home. To complicate matters, the Chinese laws on severance, compensation & benefits may state the law, yet local interpretation by staff, the labor bureau, police and courts may be radically different from the law as you read it.

In order to help mitigate this ambiguity and reduce your stress, it is essential that your operation manual has solid coverage in the following three key areas:

Labor Contracts Employee handbookBonus System

In this section I will offer some tips and best practices in each of those three essential areas. But before we dive into labor contracts, allow me to vent some frustration.






Long story short, I learned that our company, under the guidance of that very HR manager, had indeed been slightly under declaring tax and not paying full benefits in accordance with current regulations. As these regulations were recently changed and as the vast majority of businesses in China were way worse in their non-compliance, the local authorities were reasonable toward my company. After a diplomatic negotiation we settled on a one-time penalty of less than 10,000 USD and our company to this day retains our “top class local taxpayer” status and “model employer” recognition with the labor bureau.

Early on in my career when I set up my WFOE I realized that HR issues would be a challenge so I allocated a big chunk of payroll to hiring a top notch HR manager. You would think that having a professional HR manager would be enough to ensure that you HR policies and contract would be kept up to date and that the company would stay out of trouble. I went so far as to explain to the HR manager that I know there will be gray areas, but error on the side of caution even if it costs more than operating in the gray.

I realized the HR manager was engaged in activities in violation of her contract, such as moonlighting on side projects and perhaps taking bribes. I terminated her employment. Despite a gracious severance package which was well beyond my legal obligations to her, the employee took things personal and wanted to create as much drama as possible. She reported me to the labor bureau and tax authorities for so-called contract violations and tax avoidance.

Her claim was that our company didn’t pay our full contributions to local government for mandatory benefits and that salaries were under declared in order to avoid tax. The craziest aspect of the case was that during her time with our company, she was the very person responsible for ensuring our company was compliant with those very issues!

Here are the 4 valuable lessons I learned:

1. The company will be held responsible for the mistakes of its employees.2. If you do face an audit, having a written HR policy is so much better than

having no written HR manual. Without a written manual, the auditors will assume you are not compliant in all areas!

3. HR managers are expensive. HR Lawyers are not. These days I actual save money and have a better compliance by NOT hiring an expensive HR manager. I hire a HR manager with reasonable experience at a reasonable salary package, then I spend a few 1000 USD once every year to have an HR lawyer do a full audit of my contracts, rules, SOP’s, templates…everything.





http://www.asiabridgelaw.com/areas-expertise/

http://www.asiabridgelaw.com/areas-expertise/


Here is some quick math for your reference:

20,000 RMB : “Top notch” HR manager monthly salary10,000 RMB: “Solid” HR manager monthly salary24,000 RMB: Full HR audit by a Top Notch lawyer. Once per year. 10K savings X 12 months = 120,000 minus 24,000 for the lawyer = 96,000 RMB in savings per year. That’s 480,000 RMB (about 75,000 USD!) in savings over the past 5 years.

4. China’s HR rules and regulations are constantly being changed or updated. The annual review by a reliable 3rd party is essential.

Sensitive Area 1: Labor ContractsIn addition to the usual items you would find in a labor contract back home, extra emphasis should be put on the following items in a China labor contract:

Many companies make the mistake of having a labor contract between the Chinese employee and the parent company in HK or overseas rather than directly between the Chinese employee and the WFOE. Even if you put the jurisdiction of that contract in China, it won’t be binding because the WFOE is not a signatory to the document. The WFOE can also get hit with penalties for illegally hiring staff who don’t have a contract.

1. Jurisdiction & Enforceability

If the staff will have access to any sensitive information, you’ll want to make sure your contract has good terms for non-disclosure, non-use & non-circumvention.

It’s fairly rare in the West to have pre-agreed penalties in a labor contract. But in the West there is a mature legal system and the law of the land provides employers with certain protection. In China, if you and the employee pre-agree on reasonable penalties for breaking certain aspects of the labor contract, you will be happy to learn that the courts will generally enforce those penalties. The key is “reasonable” penalty. If you say the employee needs to pay 1 million USD if they go an work for a competitor within 2 years of termination of employment, that wouldn’t be considered “reasonable”.

2. NNN

3. Penalties






Fake job experience. Fake diplomas. Even fake identities!Those items are much more common in China than in the West. So do your due diligence on new employees and make sure that the employee is signing the contract with their real name and real identification card.

(Contact me if you would like an introduction to the service provider I used for background checks on Chinese individuals.)

4. Due Diligence

You may be saying to yourself, “I paid a ton of money to a great lawyer back home to make my US labor contracts water tight. I’ll just translate them and use them in China.” BAD IDEA!

The labor laws are quite different. It’s a communist country after all. So your contract will almost certainly run afoul of local labor laws in China.

Also, the PRC labor laws supersede any terms you may have in place with your staff in your “custom contract”. For example, you may wish to have some kind of “modern office” where Chinese staff can work from home or telecommute to the China office. So you set up a contract that states no overtime is due because employees are monitoring themselves and should limit work to 40 hours per week. Sounds fair, right? But if you end up terminating that employee, I guarantee the employee will ask for payment for OT performed on weekends, holidays and evenings. They will show the labor bureau emails from you asking about work. And the date stamps on those emails will show evenings, weekends and holidays. OT is 2X after hours and 3X on holidays by law. The law trumps your “custom contract”.

Don’t make these big mistakes when setting up your labor contract!





mailto:mikeb%40psschina.com?subject=

mailto:mikeb%40psschina.com?subject=


To help give you an idea of the items that should be included in a Chinese labor contract, here is the English part of the bilingual template with important notes/terms in highlight.

1. Term of Contract2. Job Arrangement3. Working Hours & Rest Hours

Be very clear about OT and office hours.4. Remuneration5. Social Welfare & Benefits

Make sure this section is in exact compliance with national, provincial and local laws.

6. Labor Protection, Working Condition and Prevention against Occupational Hazard

7. Party B’s Responsibility8. Labor Disciplines9. Execution and Alternation of Contract10. Rescinding and Termination of Contract

1) Contract may be terminated based on both Parties’ mutual negotiation.2) In any of the following cases, Party A may rescind this Agreement: a) During the probation, Party B proves to be unqualified for employment; b) Party B breaches Party A’s labor disciplines or regulations or rules seriously; c) Party B commits dereliction of duty and thereby causes major damage to Party A. d) Party B has labor relationship with other employer e) Party B, by means of deception or coercion or by taking advantage of Party A’s difficulties, forces Party A to conclude or change this Agreement against Party A’s true will; f) It is verified that Party B submitted fraudulent personal information to Party A when or after applying for employment; g) Party B receives custodial education or is given security detention or reeducation-through-labor by public security organs; h) Party B is held guilty for crime.3) In any of the following cases, Party B may rescind this Agreement by sending Party A notification at any time:4) In any of the following circumstances, Party A may, by sending Party B a 30 days’ prior written notification, terminate this Agreement: 5) The Contract is terminated if:

Labor Contract






11. Invalidity and Nullification of Contract12. Compensation for Breach of Contract13. Confidentiality, Non-competition and Non-solicitation14. Intellectual Property15. Settlement of Labor Disputes

The Contract is executed and performed in Shenzhen; in case of any disputes arising from the performance of this Contract, either party may submit an arbitration application to The Shenzhen Labor Arbitration Commission; if either party refuses to accept the award rendered by the arbitration commission, it may file a lawsuit to the Luohu court in Shenzhen.

16. Other Stipulations1) The Contract is made in duplicates, each Party holds one. Annexes to the Contract have the same binding force as the Contract. In case of any discrepancy between the Contract and annexes, the annexes shall prevail. 2) The Contract shall come into force upon signature by the Both Parties.3) The Contract is written in Chinese and English versions. In case of any discrepancy between the two versions, the Chinese version shall prevail.4) Party B confirms that the following address shall be his or her address for service of all documents related to the employment relationship hereunder sent by Party A. In the event of any change of such address, Party B shall notify Party A thereof in writing. If the following address contains any error or Party B fails to notify Party A duly after any change, Party A may not be held responsible for non-service or delay in service of any documents related to the employment relationship.

Before we leave this section on contracts and take a look at employee handbooks, I’d like to answer this frequently asked question.






If the English only contract is signed by both parties, it is legally binding. But it’s a terrible idea to have English only contracts! Here is why:

Do my contracts need to be in Chinese?

Having a well-worded bilingual contract says to the Chinese employee that you “care” and it also shows them you are a professional not easily taken advantage of, even in China.

Don’t give your new Chinese employee some massive English-only contract template as it probably won’t even get translated, let alone be read. The employee knows that signature is a prerequisite for getting the job, so many of them sign without even understanding the contract terms. To solve this situation, make it bilingual and easy to understand.

If the English only contract is signed by both parties, it is legally binding. But it’s a terrible idea to have English only contracts! Here is why:

• You have to list the Chinese name of the employee for the contract to be valid. The name should be the same as what you see in their official ID. Many Chinese people go by different names, yet their legal name is the one that needs to be on the contract.

• If your key documents are in English, it complicates things should you need to go to court or arbitration. For example, before the courts can make a decision, the English documents/supporting evidence will need to be translated into Chinese by a court approved translator for the court’s review.

Do my contracts need to be in Chinese?

2 Technical reasons why it’s best to have a bilingual contract in China

Having a well-worded bilingual contract says to the Chinese employee that you “care” and it also shows them you are a professional not easily taken advantage of, even in China.

Don’t give your new Chinese employee some massive English-only contract template as it probably won’t even get translated, let alone be read. The employee knows that signature is a prerequisite for getting the job, so many of them sign without even understanding the contract terms. To solve this situation, make it bilingual and easy to understand.






When I talk about bilingual contracts, I envision 1 document with 2 languages. Avoid having an English copy and a Chinese copy. That complicates revision management and it’s too easy for parts to not get translated. I suggest you have it translated paragraph by paragraph. Requesting initials be put under each section also helps ensure the points are getting across to the Chinese side.

Tips for effective bilingual labor contracts

• This can be expensive and very time consuming. Plus the defense can employ a stall tactic of fighting over the wording of the translation itself. It’s much better to have your attorney structure the wording in advance in Chinese rather than hope the court’s translation will be accurate. Be safe. Use bilingual contracts.

Sensitive Area 2: Employee handbookIf there are items in the employee handbook which you consider essential for the employee-employer relationship, you should consider to include them as an appendix, under signature, to the labor contract.

Here is what my Employee Handbook looks like at PassageMaker’s front office. Our factory employees have a slightly different handbook.

To help give you an idea of the items that should be included in the Employee Handbook of a China based business, here is the English part of the bilingual template with important notes/terms highlighted in gray.





http://www.psschina.com


Employee HandbookMain Menu

Chapter 1: Corporate CultureChapter 2: Computer ManagementChapter 3: Documents and Revision ManagementChapter 4: Phone and Mail ProtocolChapter 5: File Backup ProcedureChapter 6: Instant Messaging and Leisure Computer Use ProtocolChapter 7: Time and Task Management Tools ProtocolChapter 8: Office Security ProtocolChapter 9: Project Security ProtocolChapter 10: Office Environment ProtocolChapter 11: Visitors and Transportation PoliciesChapter 12: EthicsCharter 13: HR ManagementChapter 14: Final Comments

What’s included? In this section we talk about what the values and mission of the company are. For your reference, the items in gray have been pulled from PassageMaker’s Bilingual Operation Manual.

1.1: Introduction to Corporate Culture1.2: Mission Statement1.3: Code of Ethics:

Chapter 1: Corporate Culture

The four-way test of things we think, say or do.Is it the TRUTH?Is it FAR to all concerned?Will it build GOODWILL and BETTER FRIENDSHIP?Will it be BENEFICIAL to all concerned?Creed or Rotary International






1.4 Guiding Principles for Management “THE SYSTEM IS THE SOLUTION”

PassageMaker, as a business model, must:• Provide consistent value to our customers, employees, shareholders,

suppliers, and lenders- beyond what they expect.• Operate under a comprehensive system rather than be dependent

on the skill of individuals. In other words, create the very best system through which good project managers, researchers and engineers can be leveraged to produce exceptional results.

• Stand out as a place of impeccable order (management/physical appearance/ documentation).

• Carry out all work in accordance with a well-documented Operations Manual.

• Deliver a uniformly predictable service to the customer which is beyond their initial expectation.

I thank you in advance for your efforts in helping to reach our primary goal. Welcome to PassageMaker. - Mike Bellamy, Founder & Owner

Chapter 2: Computer Management

What is this section all about? In order to present a unified and professional image to clients, guests, partners and coworkers, this section covers everything from what fonts to use on business email, how to set up a new email, how to manage passwords, and most important, how to communicate effectively via emails among international teams. For your reference, I have cut that important section on email communications from PassageMaker’s Employee Handbook and provide it below, highlighted in gray.

2.1 Morning routine:2.2.1 Composing Email 2.2.2 Email Content Management






In our work we often have to send reports and emails. If we have to ask many questions back and forth, it’s not efficient. One test you can use to check if your report has enough details is to ask yourself “does my report answer these questions – who, what, when, where, how much/how many, and why?.”

Who? 谁？Don’t say “the supplier”, give the supplier’s name.What? 什么事？Which part are you talking about? Be sure to use the correct part name.When? 什么时候？Always give specific dates - DO NOT say “later”, “after a few days”, “next week”, etc.Where? 什么地点？If you need to visit a supplier, or your introducing a new supplier, include where the supplier is located.How much/how many? 数量？Make sure your numbers are correct.Why? 原因？This is often the most important question, and the customer always wants to know the reasons, so be sure you include them in your email report.

Example of a bad report:“The supplier told me they need to raise the price by 10%. They’ll give us the samples later.”

Example of a good report:“The supplier, XuHui, needs to raise the price for the nylon End Caps from the original 15rmb/pc to a new price of 16.5rmb/pc because the scrap rate is too high (15% scrap). They’re still making the 10 samples and will give them to us on 4/10. The attached RFQ shows the original and new prices.” In our work we often have to send reports and emails. If we have to ask many questions back and forth, it’s not efficient. One test you can use to check if your report has enough details is to ask yourself “does my report answer these questions – who, what, when, where, how much/how many, and why?”






Other suggestions:• Try to think, in advance, what questions the client or manager will ask. Put

these issues in the report in advance.For example, if the price went up 10%, explain why and if you think the 10% is reasonable.

• There will always be problems. If you have to tell bad news, try to also give options and possible solutions.

• If your report doesn’t answer those questions, then it probably doesn’t have enough details.

• Ask yourself if this email is necessary – could you resolve the question more easily and quickly via a phone call? If so, then you should probably make the phone call instead.

• Ask yourself what the customer might think. Remember that they may not understand China; providing extra cultural or business information is helpful.






Before sending an e-mail, I will check the following:• Does your response answer the questions given?• Am I authorized to report directly to the client? If not sure, ask account

manager first.• Are the right attachments attached?• Are the attachments over 2 MB? If yes, put the attachments in Zip files

first.• Are the attachments formatted with correct page breaks?• Has the attachment been spell checked?• Has the email body been spell checked?• Is my point clear?• Does my email avoid sarcasm and phrases that could be misinterpreted

by the reader?• Do I need any other people in the organization to give a 2nd opinion

before I send?• If I am assigning a task, can this task be put in ACE (our project

management software) rather than send via Outlook? If yes, use ACE rather than Outlook.

• If the task must be sent by Outlook:- is the person I want to do something in the “To” and the people that I would like to read the email but who don’t need to do a task in the “CC”?- is my assigned task clearly stated in the email (“who is to do what and when”)?• Review who is in the “To” and “CC” to confirm that your email does not

send any sensitive information to the wrong people.• If the people who will view your email don’t speak Chinese, make sure

a translation is provided of any Chinese language in the email and attachments.






2.2.3 Email Set-up Procedure:2.2.4 Email Troubleshooting

3.1 Basic Guidelines 3.2 Template Protocol

4.1 Making Calls 4.2 Receiving Calls4.4 Checking Messages4.5 Mail and Fax Management4.6 Communications Log Procedure

Chapter 3: Computer Management

Chapter 4: Phone and Mail Protocol

I’m a firm believer that a business should stand out as a place of impeccable order. That includes not only management and physical appearance but also documentation! This section of the employee handbook includes the following sections:

You may be surprised at how many Chinese staff have never used voice mail. And don’t assume your local staff know how to answer the phone in a polite way. You only get one chance to make a great first impression, so ensure that now only your front desk staff, but anybody that could come into contact with an outside party, is trained up on the following items:






5.1 Purpose (Why it’s important to backup files)5.2 Scope (Who needs to follow this process)5.3 References5.4 Procedures5.6 Power Outage Procedure5.7 About the company’s internal documents security

Chapter 5: File Backup Procedure

Chapter 6: Instant Messaging and Leisure Computer Use Protocol

Instant Messaging (or IM) programs such as MSN, QQ, WeChat, FB messenger, Yahoo, Skype and other services can provide useful and cheap ways to contact clients, suppliers, and family. But on the flip side, they can easily become distractions in the offices. It’s important to state the rules behind leisure use.

This chapter is fairly self-explanatory, but here are the items covered:

7.1 OPL Procedure (open project list)7.2 Time / Task Analysis Procedure7.3 Non OPL Time/Task Analysis Sheet / Personal OPL Sheet

8.1 Office Doors8.2 Office Alarm System8.3 Office Exits8.4 Office Property Safety

Chapter 7: Time and Task Management Tools Protocol

Chapter 8: Office Security Protocol

This section gives an overview of some tools (software, SOPs, strategies) we use around the office to be more efficient at our jobs. During the onboarding process, there will be formal training, but this section gives staff an overview.

In order to ensure that the office is a safe place for its employees and company equipment, our company issues guidelines in the following areas:






9.1 Client Confidentiality9.2 Office Confidentiality

10.1 Meeting Room10.2 Equipment Library10.3 Lunch Room10.4 Bathroom Care Protocol10.5 General Office Care10.6 Air Conditioning Policy

Chapter 9: File Backup Procedure

Chapter 10: Office Environment Protocol

In order to ensure that all employees have an effective and consistent work environment, the following protocols will be followed and enforced.

In order to ensure that our company and clients’ security is maintained, the following guidelines are in place:






11.1 Visitors to PassageMaker Office Protocol11.1.2 Visit by Police & Government Officials 11.1.3 Clients Visits11.1.4 Supplier Visits11.1.5 Personal Guests 11.2 Outside Visits11.3 Car and Driver Protocol11.4 Pre-Travel Checklist11.5 Entertainment / meals11.6 Expense Account Protocol

12.1 Bribes & Corruption12.2 Romance

13.2 Recruitment Channels13.2 New Employee

Employee dress codeEmployee dismissal

Chapter 11: Visitors and Transportation Policies

Chapter 12: Ethics

Chapter 13: HR Management:

Chapter 14: Final Comments

In order to ensure that our clients and friends have a good experience when visiting PassageMaker, please follow the guidelines:

In order to ensure that all employees have an effective and consistent work environment, the following protocols will be followed and enforced.

Here are some special thoughts I included in my company’s employee handbook. They may or may not be applicable to your business, but I think they are good guidelines when doing business in China.

Here are some company guidelines related to different ethical dilemmas:






PassageMaker employees represent both their company, PassageMaker, as well as our clients. Please follow the general suggestions below to provide better service and professionalism across work.

• Listen carefully to the client and what people say. Listening is more important than talking.

• Getting angry and losing one’s temper rarely does anything to help in a tense situation. Stay cool.

• Even in the face of rude suppliers, it is best to display a calm and kind demeanor. Getting angry is a sign of weakness – politeness to a rude person is a sign of strength.

• Always ask yourself “What would I think if I was the client” prior to sending out an email or getting on the phone.

• Managing a client’s perception of any situation is just as important as how the situation is actually managed.

Remember 3 Things:• Never assume (always double check and confirm).• If you don’t know, ask.• There is always a better way if you think hard enough.






Sensitive Area 3: Bonus SystemThere are many types of bonus systems to consider. Personally, I prefer a bonus system that is based 75% on individual performance based and 25% on corporate performance. I try to allocate 10 to 15% of payroll to the bonus system.

1. If you dismiss employees and need to pay severance. The severance payment will reflect the number of years they were with the company and their compensation. Compensation includes all bonuses, regardless if given in cash or formal payment to staff’s bank account.

2. Chinese staff expect a “month #13” bonus equal to 1 month’s salary. This bonus is usually given out before Chinese New Year and is originally designed to help employees in good standing afford to go home during the holiday (and come back!). Many factory workers have left their homes in the countryside to come to the big cities along the coast. Many only return home once per year. If you don’t plan on implementing a “month 13” bonus, then you should state that clearly in your labor contracts and interviews to avoid misunderstandings.

3. Consider spreading out month 13 bonus over 2 months. I make use of being a foreign company to use the excuse of Christmas to pay ½ the bonus in December and the other ½ of month 13 before Chinese new year. That helps for cash flow as paying double payroll in a single month can be a challenge.

4. Along with the “month 13” bonus, most Chinese companies also issue additional bonuses based on personal and corporate performance. The worst type of employee to have is one that does “just enough not to get fired”. They bring down morale and are inefficient. In my opinion, lumping all the bonuses into 1 month has the side effect of those kind of employees to stick around for month 13th. At my companies, I try to implement a performance based bonus to incentivize staff on a monthly basis. If a person is consistently low on their KPIs (Key Performance Indicators) and not getting a bonus each month, they may decide to leave on their own, especially where their coworkers are racking up bonuses for positive KPIs each month. The underperforming staff lose face each and every month. This encourages them to leave on their own mid-year. That helps keep severance down and avoids a high staff turnover around Chinese New Year.

Things to keep in mind for a China bonus system:






MonitoringThe monthly KPIs system explained earlier in the whitepaper provides an effective means of monitoring not only the performance of the employee, but also their general disposition and level of happiness at work. But at the end of the day, salary plays a big role in employee happiness. It’s not just the amount, but also the perception that they are being paid a fair wage is important to staff in China.

So an employer needs to monitor the labor market to make sure the salaries offered to candidates are suitable to attract the level of talent desired. The costs of housing, annual inflation rates and even the nation’s GDP all impact staff salary expectations. While inflation and GDP figures are fairly easy to find and monitor in China, wages/housing/spending power varies greatly from area to area within China.

1. Typical Compensation Structure for the 6 Typical Employees in Shenzhen2. Pros/Cons of various locations in S. China from corporate and employee

perspectives

To help with your benchmarking, this whitepaper offers the following:






Typical Compensation Structure for the 6 Typical Employees in Shenzhen

Man Power Reference Figures for full time staff dedicated to the Client’s project

Support Staff (SS) (Office Manager) Factory Staff (SS)

Classification SS Level 1 SS Level 2 SS Level 3 SS Level 4 SS Level 5 FS Level 1

Description

Local Chi-nese with

college degree,

less than 2 year’s

work expe-rience, no

special language or techni-cal skills required

Local Chi-nese with

college degree,

less than 2 year’s

work experi-

ence, basic English but no techni-cal skills requiredt

Local Chi-nese with

college degree,

2-5 year’s work expe-rience, no

special language or techni-cal skills required

Local Chi-nese with

college degree, 2-5 years rel-

evant work experi-

ence, Eng-lish and/or techni-cal skills requiredt

Local Chi-nese with

college degree, at least 5 years

relevant work ex-perience, technical

skill or language required

Typical factory worker

basic ex-perience. Advanced

educa-tion not

required. Minimum

wage.

Typical base salary RMB per Month 3000.00 4000.00 4850.00 5200.00 6200.00 2020.00

Monthly Salary adjusted for Month 13 year end bo-nus per standard practice in China

3250.00 4333.33 5254.17 56330.33 6716.67 2199.00

Office Staff Insentives:KPI bonus (at the discres-sion of client). Passage-Maker suggests 10% of payroll be allocated to KPI fund. Dispursed on a monthly basis.

300.00 400.00 485.00 520.00 620.00 0.00

Factory Staff Insentives: KPI bonus (piece rate bonus) and/or OT. Pas-sageMaker suggests 15% of payroll be allocated for this line item.

0.00 0.00 0.00 0.00 620.00 303.00

Dorm (800 RMB per room per month/4 people) 0.00 0.00 0.00 0.00 0.00 200.00

Meal Allowance & Man-datory Benefits (Tax, Housing fund, Insur-ance...)

1050.00 1400.00 1697.00 1820.00 2170.00 600.00

RMB 4600.00 6133.33 7436.67 7973.33 9506.67 3202.00






Pros/Cons of various locations in S. China from corporate and employee perspectives

For your reference, here is a study our team conducted to help make the decision about where to locate our new assembly center when our long-term lease in the Buji district of Shenzhen was up for negotiation in 2015.

Other location incurrent

district (Buji) of Shenzhen

Other district in Shenzhen (LongGang

District)

Oher city in Guangdong

Province (Dongguan City)

Other city in Guangdong

Province (Huizhou City)

Other city in other Province

(Hunan Province,

Hengyang City)

Remarks

1. Paperwork: Cost/time/workload to adjust our business licenses and other key documents if the WFOE is moved (low vs medium vs high)

low medium high high high

2A. Rents (Estimated % change)

0% 0% -30% -30% -86%

2B. Rental Trends. What is the estimated annual increase for each location using the historic increases over past 5 years to estimate the next 5 years?

11% 11% 10% 12% below 7%

3A. Labor Rates (Estimated % change)

0% 0% -26% -33% -44%

3B. Labor Rate Trends. What is the estimated annual increase for each location using the historic increases over past 5 years to estimate the next 5 years?

11.40% 11.40% 8.59% 9.60% 11.77%

Hard to predict the future

as Gov’t can change the

minimum wage levels on short notice. As the

economy is slowing down, we are hoping the min wage

increases will not be as drastic in the

next few years. This is anext

few years. This is a national

rather tha regional issue.






4. Utility Costs (Estimate of % change for power and water)

0% 0% 0% 0% 0%

Utilities are roughly

the same across all

industrialized parts of S.

China.

5. Ease of recruiting factory workers

About the same, perhaps a bit easier to recruit if we have easier

transportationand living conditions

About the same, perhaps a bit easier to recruit if we have easier

transportationand living conditions

A bit easier A bit easier Easier

For this line item we are reffering to workers on

a production line. Outside os SZ it gets

harder to find technical skills,

experienced managers

and/or English skills.

6. Ease of recruiting skilled office workers and managers

Easy Easy A bit harder A bit harder Much harder

For this line item we are reffering to workers on

a production line. Outside os SZ it gets

harder to find technical skills,

experienced managers

and/or English skills.

7. Landlord Relations

Depends on location

Depends on location

Depends on location

Depends on location

Depends on location

8. Tax incentives from local government

0% 0% 0% 0%

Should be available,

however need to futher check

with local government

Tax incentives unlikely to play a major role in

the decision making

process for our industry and any tax

incentives that are offered

usually expire within a few

years.

9. Estimated cost per square meter to buy (rather than rent) factory space: How has this # changed over past 5 years and what is the estimate for future based on past 5 years?

6000-8000 Yuan/sgm

Going up 20% each year

6000-8000 Yuan/sgm


4000-5000 Yuan/sgm


3000-3500 Yuan/sgm


1000-2000 Yuan/sgm Going up

8-10% each year






10. Environment (quality of life, access to transport, food, shopping…) for employees

It depends on which

industrial park chosen, some

are good, some are not good

It depends on which



It depends on which industrial

park chosen, some are good,

some are not good

It depends on which industrial

park chosen, some are good,

some are not good

It depends on which



There is large variation

among options in any given

area.

11. Cost of Living Very High High Medium Medium-Low Low

When onboarding new staff or trying to retain current staff, here are some tips to help ensure a smooth relationship:

1. Grass is greener right here.If your company is paying wages, OT and/or bonuses above or equal to industry averages, share the data with your staff. Show staff they are better off staying with you!

2. Don’t make staff begSalaries should be paid on time with clear documentation of hours worked and vacation days left.

3. No side jobsYou are legally responsible for the actions of your staff during work hours. For example, there is a case where an employee of a company was running an online taobao store during office hours. That Taobao store sold fake medicine. The police penalized both the employee and the employer even though the employer was not aware, let alone supporting these activities. So monitor the actions of your staff and make it clear from day 1 in the labor contract that moonlighting is not allowed. You also want to confirm the employee has officially left his/her old job.

4. Pay close attention during probationAs mentioned earlier in the whitepaper, once the probation period is up, it’s difficult and expensive to let staff go. So make sure you found a winner before you end the probation period.






Compare Your ManufacturingOptions in ChinaWhether its registering your own WFOE, dealing with a sourcing agent or partnering with a contract manufacturer, there is most definitely a suitable manufacturing solution for your company, but with a few different options for you to choose from, how do you go about finding the right one?





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Additional InformationPassageMakerUS-owned, China-based PassageMaker, (PM) leverages its China-based infrastructure (China savvy management, SOP’s, business templates, quality systems, office space & business licensing) to recruit, employ, train & manage a dedicated team, on the ground in China, on behalf of the Client.





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