Reference no: EM132605261

Although one of the world's biggest shipping line leaders, Danish company Maersk is increasingly worried about the future of the Chinese market. In a recent interview with the Wall Street Journal, Søren Skou, the head of the company's container-shipping division in mainland China, expressed his concern. One issue mentioned is the fact that some of the traditional advantages China was representing, its abundant pool of cheap labor, are rapidly shrinking, and personnel costs are going up. According to Chinese government data, wage income for urban households rose 13 percent year-to-year in the first half, and average monthly income for migrant workers rose 14.9 percent.

This comes on top of other common problems related to human resource management in China, which all Western companies have experienced in one way or another. These issues have been known for a long time, at least since the beginning of Deng's Open Door Policy, which in 1979 opened China to foreign direct investment. One problem is the availability of a qualified manager to lead operations. China has experienced such a high-speed growth that the pool of local talents has dried up quite quickly and importing managers from overseas is not as simple as it may appear.

Expat managers, the usual choice for the top management and often for the middle management too, present other challenges, including cultural fluency and language skills in the complicated Chinese business environment. Even organizing a banquet can be a daunting experience for someone not acquainted with the local culture. In addition, expats who have a solid experience of the country and speak Mandarin are in such high demand that they are normally very expensive.

An alternative is to hire local talents and to train them to function in Western companies. While this seems a reasonable choice, it may be very expensive and the process painfully slow, especially if the hiring is done privately bypassing the expensive, government-owned labor center FESCO.

Furthermore, once the manager is hired, a series of efforts needs to be made to retain the employee. One of the solutions Maersk and other international corporations have found is to move part of their business further west, in the center of mainland China, where labor costs are lower than on the coast, and to hire better educated, English-speaking younger staff. For instance, the Maersk branch in Chengdu, Sichuan Province, employs more than 2,000 people, with the average age of its employees no higher than 25.

Discussion Questions

Question A. Why does human resource management represent one of the major challenges faced by foreign companies entering the Chinese market?

Question B. What are the main issues expat managers generally face?

Question C. Why don't foreign companies simply hire local staff instead of reaching out for foreign managers?

Question D. What advice would you give companies?