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People who have gone overseas often say that the domestic market is too competitive and they need to go abroad to "compete the world". This is to regard "competitiveness" as an advantage. Indeed, Chinese employees are hardworking, Chinese products are cheap, and are competitive in overseas markets.

But overseas labor and capital entities have different views. Recently, there have been reports that "talented" people in the mainland have taken the initiative to reduce their salaries and work overtime, which has caused dissatisfaction among Hong Kong HR and employees. There were also demonstrations in the Hungarian town of Debrecen to oppose the construction of a factory by CATL. Earlier, in 2019, the documentary "American Factory" told the story of how Chinese glass tycoon Cao Dewang opened a factory in the United States and encountered resistance in setting up trade unions and employee benefits. Today, "going overseas" has become a trend, and how to manage local employees overseas has become a common problem faced by Chinese bosses.

Why is it a "must" for companies going global to hire local employees? How do Chinese executives view and manage local employees? How does the understanding of the overseas employment environment affect the "going global" strategy of Chinese multinational companies? In August 2024, researchers from The Paper interviewed Chinese managers and local employees of three large multinational manufacturing companies to provide a first-hand perspective on the above issues.

Three hard truths about hiring local employees

Chinese overseas business managers originally preferred to use Chinese employees. A food factory in Hangzhou that went overseas to Thailand mainly used Thai raw materials (rather than labor), so it originally planned to send more Chinese employees there. "Chinese employees have better skills and are easier to communicate and manage."

The factory manager who was sent to Thailand told the researcher of The Paper that the Chinese and Thai employees currently speak English, but because English is not the mother tongue of both parties, there are always situations where "words cannot express the meaning". Even if a translator is hired, the degree of communication is limited. Moreover, the overall efficiency of Thai employees is not as good as that of Chinese employees, "one Chinese employee is equivalent to three Thai employees".

However, currently, among the factory's 80 employees, only three are assigned from China.

The researchers learned from interviews that Chinese bosses face various difficulties in managing foreign employees. Religion, culture, and language are challenges, and international relations and efficiency differences add to the difficulty. However, Chinese companies "going overseas" still need to hire a large number of local employees based on the following three reasons.

First, local employees understand local conditions, can help companies communicate with the outside world, and bring in local "relationships". In regions such as the Middle East and Southeast Asia, languages, religions, and cultures are rich and diverse, and markets are fragmented. People going overseas have limited self-learning and understanding, so business talks often require a local person as an interpreter and accompaniment.

At the same time, marketing promotion also requires interpreting the "pain points" of various local application scenarios and understanding local technical protocols and legal regulations. Ideally, local employees can also bring business relationships and help Chinese companies find cooperation.

Second, hiring local employees may be cheaper. In recent years, labor remuneration in China's manufacturing industry has continued to increase, and is already higher than that in neighboring countries such as Myanmar, Bangladesh, India, Indonesia, the Philippines, Thailand, and Mexico. China's labor-intensive industries have begun to shift to neighboring countries with lower production costs.

Sending Chinese employees abroad also involves additional settlement fees, expatriate fees, travel expenses and visa fees, etc. The cost of cross-border migration is higher, so local employees may be more "cost-effective" in comparison.

The third and most important reason is that the local government requires a certain proportion of local employees. For example, according to the 2023 Ministry of Commerce's Country Guidelines for Overseas Investment and Cooperation, the Saudi government has mandated that the proportion of Saudi nationals employed by the private sector be determined based on different industries, and compliance with the standards is directly linked to companies applying for work visas and paying taxes. For example, the localization rate for service positions such as call centers is required to be 100%. Companies that fail to comply will be severely punished and may be excluded from government contracts and loans, or have their foreign employees' visas and work permits suspended.

There are also some policies that indirectly encourage companies to hire locals. For example, in the UK and the US, companies hiring international employees need to pay work visa fees; in Thailand, the minimum wage for foreigners is higher than that for locals. These measures increase the relative cost of hiring non-locals, prompting companies to increase the proportion of local employees.

Understanding “laziness”: cultural conflict, institutional differences, or prejudice?

It is easy to hire, but difficult to use well. Chinese companies going overseas generally reported that local employees overseas "do not take the initiative to work overtime", "cannot be found on holidays", and the communication cost is high. A Chinese factory manager assigned to Thailand told a researcher at The Paper that he was given a warning by his employees as soon as he arrived: "Our factory is open 24 hours a day, and the machine debugging is scheduled until Saturday and cannot be rescheduled. So I sent an email on Friday asking everyone to gather the next day, but I was the only one who showed up."

He believes that Chinese employees are more result-oriented and responsible to the company. To manage Chinese employees, one only needs to assign tasks and set goals, and they will be self-motivated, strive to exceed the targets, and constantly report to the manager.

Thai employees are less proactive, not good at upward management, and less eager and persistent in promotion and money than Chinese employees. Moreover, Thai employees "seem to emphasize the process more, and will ask for rewards as long as they work hard, even if the results are not as expected." Therefore, to manage Thai employees, he has to formulate a series of procedural KPIs, "keep urging them, and they will not do anything if they are not urged."

Chinese executives often attribute the lack of hard work of foreign local employees to cultural conflicts and differences in the economic environment between China and foreign countries. For example, the factory manager who was assigned to Thailand believed that this difference came from the fact that Thai people mainly believe in Buddhism, have a low obsession with worldly success, a slow pace of life, and lack a culture of hard work.

On the other hand, Thailand has low academic competition, low unemployment rate, and easy job change, so employees lack loyalty to the company and rarely think of "doing good for the company". Moreover, Thai employees mainly rely on job hopping to increase their salary, and do not have the psychological expectation of "overtime = promotion and salary increase" that Chinese employees have.

However, some executives believe that refusing to work overtime is a manifestation of better institutional protection of labor rights. Researchers at The Paper learned that in Thailand, labor protection laws are particularly strictly enforced in foreign-funded enterprises. This is because the government not only encourages workers to report, but also helps reporting employees remain anonymous. "If employees report companies, the companies will definitely lose, so we raise the standards a little higher than the labor law."

In Saudi Arabia, if local employees report overtime, it will bring serious consequences to the company. A senior executive of a Saudi company told a researcher at The Paper: "Forcing Saudis to work overtime on Fridays is depriving them of their right to worship. Once they report to the government that a foreign company does not allow them to worship, the company will be finished."

The labor rights protection system in Thailand and Saudi Arabia is just a microcosm. According to data from the International Labor Organization, European countries have more relevant provisions in labor laws and stricter enforcement, and there are also social entities such as trade unions and associations that cooperate in supervising enforcement.

Researchers at The Paper also found that when it comes to the phenomenon of overseas employees refusing to work overtime, Chinese managers will give completely different evaluations depending on the country where the phenomenon occurs. If it happens in Europe and the United States, companies tend to explain it with "advanced work systems" and tend to affirm it, while if it happens in Asia, Africa and Latin America, companies tend to first think it is due to "lazy culture." Whether these evaluations are objective reflections of the facts or more reflect certain concepts or even prejudices of the Chinese people, further follow-up observation is needed.

Solution: Four models for managing foreign employees

According to a survey by The Paper Research Institute, there are currently four main models for Chinese companies to manage their employees overseas.

First, they mainly rely on Chinese expatriates rather than local employees. A Hangzhou manufacturing company that has expanded to the Middle East told The Paper Research Institute that "Chinese expatriates have left their hometowns, are hardworking, and have a strong sense of struggle. They work according to local time and report to the headquarters in the evening according to Chinese time." According to the company's employees, expatriates generally use young employees with an annual salary of 400,000 to 500,000 yuan.

Second, hire local managers to manage local teams. It is easier to manage one person than a group of people. Chinese bosses will also consider hiring local managers who have experience in cooperation or working with Chinese people. They are only responsible for supervising the performance of the manager, and they do not ask how the manager manages other employees.

Third, export wolf culture and assimilate foreign employees. Some companies hope to copy the Chinese work culture and prefer employees who identify with Chinese culture when recruiting, and even "it is best to find local Chinese directly."

Fourth, when in Rome, do as the Romans do and implement a dual-track management system. The chairman of a chip company in Suzhou told researchers at The Paper that due to data sensitivity and differences in personnel management, his company in Singapore and in mainland China are completely independent, and both locations are established according to local business standards.

Among these four models, the first two are more common. The latter two models have higher overall costs, and it is more difficult to assimilate foreign employees, while the dual-track management is more challenging for the boss's international management capabilities.

At the same time, only the last of the four models involves Chinese bosses changing their management habits and thinking to adapt to the local environment, while the first three are essentially managing foreigners in the same way as Chinese people. This reflects the pressure that international human resources bring to the management of Chinese companies when they "go overseas".

Where do international management capabilities come from?

Professor Wang Yimin of the School of Management at Shandong University found that the huge pressure brought by the serious lack of key international resources and management capabilities is an important feature of the internationalization of Chinese enterprises. Among them, researchers at the Pengpai Research Institute believe that the lack of international management capabilities of Chinese enterprises is related to the great differences in the employment environment between China and foreign countries.

Take trade unions as an example. The work content and actual influence of Chinese and foreign trade unions are very different, which leads to Chinese employers' lack of experience in dealing with the demands of a strong internal trade union. For example, in the documentary "American Factory", the boss of Fuyao Glass Factory refused the request to establish a trade union, which intensified the conflict with local employees.

Faced with employment pressures that are very different from those at home, Chinese companies may readjust their "going overseas" strategies. Using a time-fixed effect model and panel data from the OECD, the World Bank, and the International Labor Organization from 2005 to 2021, researchers at the Pengpai Research Institute found that Chinese multinational companies tend to avoid "going overseas" to countries with strong institutional support and employee demand for forming corporate-level representative groups and collective bargaining agreements.

At the same time, avoiding "going overseas" to countries with greater union pressure seems to be a phenomenon unique to Chinese capital, and no similar pattern has been found in other major FDI outflow countries such as Germany, the United Kingdom, France, Japan, Canada, and Italy.

It can be seen that international management capabilities are not something that can be achieved without water or roots. Improving international management capabilities cannot be achieved by studying behind closed doors in China. Since many difficulties in cross-border management are rooted in the differences between Chinese and foreign societies and systems, Chinese companies that "go global" need to be open-minded and accumulate local knowledge and experience overseas in order to become truly multinational companies.

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Cities are born out of agglomeration.

A city’s public policies, living environment, and customs and practices shape the foundation of citizens’ lives.

The Paper, focusing on public policies, responding to public concerns, and exploring urban issues.