China & Asian Human Resources – Sharing Talent Across Borders

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CDE Op-Ed Commentary

The human resource map in Asia is changing. An aging China is consequently facing a decrease in its numbers of available workers, while countries such as India are increasing theirs – a result both of China’s One Child policy now affecting the labor pool and of India’s absence of any strategic family planning. Yet these two massively populous countries are not the only sources of labor in Asia.

As foreign investors begin to look more closely at emerging Asia as a China manufacturing alternative – yet keeping their China HR experience in hand, we can examine where future labor pools are likely to come from and examine how workforce experience and talent can be shared across Asia’s own emerging markets. 

First though, let’s take a recap on the numbers of available workforce across Asia:

charts

To make it easier to examine on a regional basis, we can also break it down into larger bites:

charts2

The implications of this spread of available workers and where they are based are profound. The number of available workers in Asia externally from China – long considered the “workshop of the world” – now outstrips China by a multiple of close to 3 to 1.  This implies serious strategic considerations, as China’s workforce is aging, diminishing and becoming expensive. While some of these countries prove awkward for foreign investors – Pakistan’s large workforce is hindered by security concerns, while North Korea’s workforce is supported by Chinese and Russian investors, much of ASEAN, India and other parts of South Asia such as Bangladesh and Sri Lanka, do have latent potential.

Key to the overall HR question are India and the ASEAN nations as these contain the highest concentration of available labor. However there are issues to consider with both:

India

Although the average worker salary is just 30% of that in China, infrastructure issues remain. The country is also administratively time-consuming to deal with. However, India has great experience in providing back office solutions in the service industry and has done so for years. That experience is now beginning to transfer to the shop floor. Getting Indian workers organized is not hard, although there are cultural considerations, while India’s national insurance program is considerably less expensive for foreign investors, as are labor law demands when compared with China. Additionally, recent regulatory changes and a change in Government are making India more attractive to foreign investors. An example when it comes to Chinese bilateral ties is that both countries are currently discussing mutual visa-on-arrival services easing the way considerably for executives from both to visit each other. When this is implemented, China-India bilateral trade and investment will boom. India’s current VoA system is also being expanded, and numerous other nations are expecting to be added to it soon.  A list of current VoA nationalities may be found here and includes citizens of the United States, Germany, Singapore and Australia amongst many others. In a nutshell, getting to India is becoming easier.

It is also the only country in Asian able to offer mass workforce capabilities to anywhere close to that of China – a competitive advantage that should keep wages in India low for some time. There is still work to do, but India now has a new political will to deliver. We can expect to see India begin to take up the overspill of China manufacturing capacity to service both its own huge domestic market as well as that of China and ASEAN by 2020. As Christine Lagarde, the head of the IMF said just two days ago in Delhi, in a speech well worth reading through, the time has come for India to seize the moment. 

ASEAN

To some extent ASEAN is a mixed bag of countries. Countries like Cambodia and Myanmar occasionally feature on well meaning blogs as “China manufacturing alternatives”, yet Cambodia’s total available workforce is the same size as the population of Shenzhen City in Guangdong, while Myanmar, despite a large and available population, has such backward infrastructure it will be a decade before the country is able to compete with its more developed neighbors. The big players in ASEAN are the countries of Indonesia, Vietnam, Malaysia, Philippines and Thailand, all of which have visa friendly relations with China and are culturally close with an existing ethnic Chinese diaspora that have been there for generations. For these reasons it can be seen that manufacturing overspill from China, in search of lower overheads, is moving to ASEAN first, and will later gravitate further west to India. That ASEAN shift is happening now, while India I feel will start to take up more of this investment from about 2020.

Sharing Talent Across Asian Borders

What will start to happen on a more noticeable basis however is the migration of talent from China, but also from Japan, and intra-Asia, to other parts of the region. The Japanese are an excellent example in this regard, with multiple joint ventures right across the region. Maruti-Suzuki in India, and Toyota in Indonesia are just two examples and are streets ahead of the Chinese in this regard. However, although China is starting from a more backwards position, increasing numbers of Chinese executives will be travelling to ASEAN – and India – to install much needed Chinese investment, factory management techniques and supply chain infrastructure into these markets. The workshop of the world – and its Chinese executives – is on the move. That means HR directors need to become familiar with Asian visa and other compliance issues when sending executives overseas. Dezan Shira & Associates maintains a network of some 28 offices across Asia, giving us an unparalleled view of the region. We have developed an extensive intelligence of Asia, and have produced appropriate content to assist HR directors deal with these developments. These include the following issues of our various magazines:

Work Visa and Permit Procedures Across Asia
In his issue of Asia Briefing, we outline the specific documents required for foreign nationals working in China, India, Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam, as well as highlight the relevant application processes in each of these countries. Attention is also given to the role of the sponsoring company and the regulations they must adhere to. Once the appropriate visa and work permit has been identified, it is important to prepare the appropriate documents needed for a successful application. Together with each country’s visa and permit structure, we also provide a complete list of the essential documents required when filing for permission to work abroad.

In addition to visa and work permit compliance, there is also the issue of tax, and specifically relating to any potential liability incurred by an employee being seconded to another country. This varies depending upon the nationality of the employee and which country they are normally based in and paid from. This subject is typically addressed within so-called “Double Tax Agreements” between nations, an issue I dealt with in some detail here and with which both HR directors and in-house F&A managers need to be well aware of. That link also contains downloads to several regional magazines, detailing the respective Double Tax Agreements throughout Asia, as well as China, India and Vietnam and additionally identifies the countries these have been signed with. There are many component parts to these agreements, but within them are clauses that specify how long a foreign national can be based in a signatory country without being liable for tax, and indeed the percentages of any tax burden applicable against salary. It is important that the HR function is aware of these agreements and how they impact upon salary and corporate compliance.

Understanding the visa and potential tax liabilities when sending temporary staff to Asia are a pre-requisite for moving staff around either for research or to share experiences.

However, for more permanent arrangements, the issue is not just of company formation (which our firm also handles across Asia) but the managing of expatriate staff and their payroll also kicks into the mix. When looking at a permanent administration base for Asia, Singapore offers a highly valuable, low tax, efficient and administratively excellent base to site operations reaching out into Asia. It is easier to manage multi Asia operations from Singapore than it is from say Shanghai or Mumbai, purely because both China and India employ currency restrictions and it is hard to get transfers in and especially, back out again. Those restrictions do not apply to Singapore where money can be easily transferred in and out.

The Singapore Solution for Managing Asian Expats

Singapore is a member of ASEAN, and effectively operates as the regions de facto operational capital city. It is a massive services center for Asia as a whole, including China. The country has RMB trading status with Beijing, employs similar relations with India and the Rupee, and is also well connected to each of the ASEAN members – and crucially, their currencies. This is vital as neither China, India or any other of the ASEAN countries -with the exception of Singapore – have fully convertible currencies. Singapore then is an excellent base from which to consolidate payroll, and send out wages where needed elsewhere in Asia upon demand.

This negates the need to dump large amounts of capital, which can be hard to return, into these other countries. Payroll, for example, as well as operational expenses, can be better managed from Singapore. 

Establishing Singapore Holding Companies
We explain more about using Singapore as a regional hub for Asia, how to incorporate a wholly owned company in Singapore in this issue of Asia Briefing, as well as identify establishment procedures and discuss the local tax regime and the suitability for Singapore as a services hub for Asia as compared to Hong Kong.

 
Managing Permanent Payroll Throughout Asia

As companies diverge from China and into Asia, managing staff – be it just one executive based in the region to thousands of workers in a factory – requires attention to detail and compliance with local tax, visa and currency transfer rules. Staff expect to be paid on time and without complications. Our firm, Dezan Shira & Associates , has a fully developed payroll services division and has considerable experience in handling expat needs across Asia. We handle, through our own bespoke software, the payroll needs of hundreds of thousands of employees throughout Asia each month. These clients vary from small operations who rely on our infrastructure to make their life easier, to massive multinationals with demanding financial administration requirements involving multiple cross border locations. Consequently we have developed an essential reading library dealing with the subject, as follows:

Payroll Processing Across Asia
Be it one member of staff based in Asia or hundreds, attention needs to be paid to handling their salaries and other payments such as insurance, housing and expenses claims. In this issue we explain the various differences in systems across Asia as well as examine some of the solutions when dealing with staff in multiple locations.

 

Social Insurance in China
In which we explain the complexities of China’s social insurance mechanism and deal with payroll structures that can assist making your financial administration in China less of a burden.

 

 

Employing Foreign Nationals in China
Rules and regulations concerning employ foreign personnel in China changed recently -this issue provides HR directors with all the details of these changes and advice on how to ensure all your expatriate staff are fully in compliance with China’s visa, labor and tax laws.

 

 

Payroll Processing in India
India is an administrative country to deal with, and getting both your expatriate and local employees salaries and other payments under tight control is a prerequisite. Whether it be for one employee or hundreds, the system needs to be understood and then managed with adequate support, checks and balances put into place. In this issue of India Briefing, we examine the details of salary and related payments to staff in India, how to calculate them, and provide management solutions.

 

Vietnam – A Guide to HR in Asia’s Next Growth Market
In this issue of Vietnam Briefing Magazine, we clarify HR and payroll processes in Vietnam. We first take you through the current trends affecting the HR landscape and then we delve into the process of hiring and paying your employees. We examine the specific obligations an employer has to their employees, and guide you through the complex system of visas, work permits, and temporary residence cards. Finally, we highlight the benefits of outsourcing your payroll to a “pan-Asia” vendor.

As can be seen, there is much to consider when it comes to moving into Asia. The human factor is always the most difficult component part to get right in any business, which is why attention to detail when it comes to understanding local laws as concerns salaries, social insurance and the infrastructure required to both be in compliance, as well as keeping staff paid on time and additional benefits tracked is of key importance. As China based and international companies start to move more assertively into Asia, sharing HR experience from China and internationally around the region will become an on-going trend. Dealing with executives on the move, while having to administer and support new operations in Asia from scratch requires HR support and understanding. 

These are additional Asian HR issues that we also will be highlighting in the upcoming issue of Asia Briefing:

AB-2015-issue-2-draft-coverHuman Resources Across Asia
This issue of Asia Briefing will be out next week and contains details of the differing labor law provisions throughout Asia, as well as employee termination in China, India and Vietnam. This issue is a must read for HR directors concerned with the region. Available at our Asia Briefing Bookstore soon.

 

To summarize, the sharing of talent across Asia, be it from home bases in the United States or Europe, or the sending of executives from China deeper into Asia is a fast developing trend. While Singapore may be an excellent base to reach out into Asia from when strategic plans have been defined, HR issues also need to be catered for prior to a permanent Asian presence being established. Handling your HR and payroll issues, including visa applications, obtaining work permits, assessing tax liabilities and ensuring your staff get funds while overseas are among the first elements to consider when structuring your business and administrative control plans when investing in Asia.


Chris Devonshire-Ellis
is the Founding Partner of Dezan Shira & Associates – a specialist foreign direct investment practice providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam, in addition to alliances in Indonesia, Malaysia, Philippines and Thailand, as well as liaison offices in Italy, Germany and the United States. For further information, please email asia@dezshira.com or visit www.dezshira.com.

Chris can be followed on Twitter at @CDE_Asia.

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