DiligenceChina

Approaches to Due Diligence in China Part III: HR Consultants

We have already looked at 3 typical approaches to performing Due Diligence in China – Lawyers, Accountants and Business Entry Consultants.

HR is not usually the first area that one thinks of when doing Due Diligence investigations on a new business. In China, international managers routinely identify HR issues as their number one concern. It’s an area where you will be spending a tremendous amount of your time, money and energy – and you definitely want to get it right the first time.

In China, you have a number of options for getting professional assistance in managing HR issues. The list includes, but is not confined to:

Business Entry Consultants – We’ve already discussed this group in terms of establishing your business, but many have also developed specialties or expertise in HR issues. Find out if your business entry candidates can bring any useful resources into play to help with staffing or outsourcing.

HR Consultants or Head Hunters. Giants like Hewitt and Korn/Ferry are here, and so are a slew of smaller boutique shops. As with any management consultant in China, screen out the newcomers, first-timers and opportunists. Find out what they are capable of and whether or not they have useful specialty. As always check references carefully.

Outsourcers, BPOs, Testing Companies. There is a wide range of useful and effective outsourcing options that allow you to assemble a “virtual company”. From cleaning services to strategic planning functions, you can find experienced companies to do just about everything your operation will need. The catch? Plan on paying a premium for high-level services. China is not a cheap place for high end business service providers.

We’ll discuss Due Diligence issues for each of these groups in a moment. Let’s start by going over some basics of the Chinese HR landscape.

Your HR Orientation – Top Down or Bottom Up

Top down. If you want to hit the ground running with an existing product or business model, you might want to establish a fully integrated operation as quickly as possible. A top-down approach in China should involve HR planning much earlier than it would back home. Once you have settled on a general manager, you should pick a good HR manager. Plan on spending quite a bit for someone with appropriate skills and experience. Vet your new HR head carefully. It is a very sensitive post, and one that is hard to fill. It’s a relatively new position for China, and finding someone with more than 5 years experience is very tough. Don’t discount informal experience – a typical HR career path in China may start as a general administration clerk or personal assistant. Try to find someone with experience in the same type of business as the one you are running. The best HR professionals can be found at large multinationals, but if you are setting up a small shop their experience may not transfer well. The HR community in China is tightly-knit and extremely cliquey. There are benefits to finding someone who is already in the group, but also some pitfalls.

Bottom Up – If you plan on running a lean operation at first and building staff as needed, then you should start with a good personal assistant. DiligenceChina warning : Fight the temptation to hire the cute & giggly graduate in the short skirt. A good PA will develop into your HR manager, country head or QC manager. Find a woman who has experience in your area and the skills & maturity to be effective. Good, relevant experience with so-so English trumps an English major with no work experience. Your PA will handle a lot of day-to-day negotiations – and in China there is A LOT of this. She should also be your eyes & ears in the marketplace and your chief sourcer for consultants and outsourcers.

Those consultants and BPOs are vital to your success, and will be how you manage to develop the business while still maintaining lean operation. Good consultants don’t come cheap, but they give you access to resources that you wouldn’t be able to find any other way. The key advantages to outsourcers are the quality of their work and the short-term commitments. Downside is trying to manage them and the cost issue. Again, a qualified PA is absolutely key.

Due Diligence challenges for China HR

HR Bottleneck – HR managers (and the HR consultants you are interviewing) control big budgets, and it is still common for them to get offered pay-offs and kick-backs. There is also the danger of them referring too much work to members of their own group or network. This is the darker side of guanxi relationships that Business Week never mentions. Your budget represents power & profit to other people. When you are buying raw materials or plastic parts, it’s relatively simple to measure and count and test. When you are hiring staff or service providers, it’s a little more opaque. Check references carefully, and have honest discussions with candidates about the selection process and standards you expect. Honest people will not be offended. They guy who looks wounded and talks about “losing face” is a pass.

Staff bloat – Teams get larger and larger. You need to develop a manpower plan that makes sense, and use it to monitor how your staff grows. Make this an early part of your discussion with your HR consultants. If they have never seen an organizational chart, you should probably keep looking. A good consultant should be able to give you a general idea of how large a staff you will need to start, and what the growth will look like. Expect the numbers to be larger than they would back home – but beware consultants who want you to hire an army of staffers.

Training plan – Training should make up a substantial part of your HR budget. Does your consultant know where to source good training talent? Beware of brand-names that can’t deliver relevant training services. Good trainers tend to charge international rates.

Manage closely – build the hierarchy. Beware a Spoke & Hub organizational chart that has everyone coming to you for answers. Western companies run on a clear, well-defined hierarchy – Chinese companies don’t necessarily operate that way. If you want a traditional structure (that would be YOUR tradition), you should build it from the start. Make sure you are writing job descriptions for supervisors and managers – and then recruit them and give them responsibility from Day 1. Expat owners have grown old waiting for leaders to emerge naturally.

Not-so-cheap labor. If you want to hire someone to operate a shovel or a mop, China is certainly one of the cheapest places you can go. If you need managers, salespeople and analysts, you will have to pay the price. Office help starts at around rmb 5,000 a month in big cities. Managers will expect between rmb 10 – 20,000. Senior people like CFOs and Sr. Marketing VPs are probably basing their compensation packages on Hong Kong rates. You can fill chairs for much less than in NY or SF, but many ex-pat managers & owners suffer a good amount of HR sticker-shock when they re-figure the business plan. Don’t forget to include insurance & social welfare payments – and add at least 30% for training.

Weak in the middle. China has plenty of eager young graduates with good skills but no experience. There is also a good supply of returnees, experienced locals, overseas Chinese, HK/Taiwan transplants and effective ex-pats who can slot in at the top level of the company. Your big problem will be finding solid managers with 3 – 7 years of experience in the jobs you need done. They are expensive, in demand and highly mobile. This is the type of person your value-adding HR consultant should be helping you with. I can fill a room with bilingual graduates or highly paid ex-pats in a heartbeat. Locating a sales manager with an up-to-date outlook address book is the tough part. Don’t fall for nonsense about “good connections” among C-level candidates from HR consultants.

Men leave. The Great Chinese Success Story is about starting your own company.
Chinese men believe in this dream. The reasons are many – but you don’t care about any of them. What you do care about is NOT TRAINING YOUR OWN COMPETITION. If you have a choice between a man and a woman, hire the woman. If you have a choice between a local man and an out-of-town man (with reasonable connections), go for the “waidi-ren” (out-of-town-person). Sounds harsh and politically incorrect, but this is what you will know after 2 years and bitter experience. We just saved you a little time.

Hard to say goodbye. My first assistant had absolutely no initiative. He didn’t complete a single task or follow a single instruction. He wouldn’t ask questions when he didn’t know how to do something – just waited for me to ask for the finished report and then told me he hadn’t started because he didn’t know how to do it. I honestly believed he was challenged or impaired in some way. Then I fired him. You never saw anyone show more initiative or creativity in your life. He called every hour with explanations, justifications, negotiations and realizations. When I set the time and place for him to get the final payment, he found it – on time – during a rainstorm. It is MUCH worse when you are an established foreign-invested company trying to cut staff. This is a major reason for limiting your staff size and using outsourcers when possible.

Final Word: You will invest a lot of time, effort and energy into HR at your China operation. It can be planned and scheduled, or a constant series of fire-fights. Your results will be best if you approach HR issues in China with a careful plan and a qualified professional service provider who can add value in the areas your operation needs. Start looking for HR consultants early, and select them carefully.