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Western Companies Are Frittering Away China Employees. Or Not.

By Dan Harris and Steve Dickinson

Fascinating article by Paul French over at Access Asia on how Western companies are, at the exact worst time, cutting back on their employees in China. The article, "Are Foreign Brands in China About to Give It All Away??" says that many Western companies, run out of places like London and New York, are cutting back on their China operations so as to preserve cash and save money at home:

By and large, in most sectors of the retail business, they had the locals on the run both as brands and retailers. Then last year?s financial crash. Since then two mantras have surfaced ? the West is in freefall; China is surprisingly robust. Our sales are declining in the West; growth is still apparent in China. Good news then for those teams in China who did all the hard work over the last decade? Eeeerrr, no. Head offices from London to Paris to New York and back again panicked ? big time. Cuts were demanded; cost savings had to be found ? redundancies implemented. And it seems a sort of warped, nonsensical political correctness has been in vogue on the chopping block this season. We?ve seen one experienced brand brand/retail manager after another in China fired and slung out on the street. Why? Every country office must implement a 10% head count cut (it varies from company to company but...), regardless of performance, in the dubious name of ?fairness?. The result is that an office in Europe or America, where sales are falling through the floor sacks 10% of management ? and then so does the office in China, despite having double-digit growth!! This is apparently fair and equitable in corporate speak at the moment.

The article goes on to rightly point out what a big mistake this is because these Western companies are losing massively experienced employees to their Chinese rivals. I completely agree with the article's analysis, but this laying off of employees is not at all what I am seeing with my firm's clients. If I had to breakdown what our Western clients are doing in China (and I am admittedly pretty much guessing here because I have not been keeping track, but I do nearly always ask, "how's business?), I would say 60% have frozen hiring, 30% are still fairly actively hiring, and 10% have engaged in layoffs. Of all these numbers, I am most confident of the laying off one because I think we are nearly always called in to assist on the legal aspects of layoffs, but we certainly are not called in for freezes and only rarely are we called in for hiring (because our clients usually can use the employment contracts we previously drafted for them). So why the big difference? I think it is because most of our clients are small to medium sized entities, none are from New York City or London, and very few are directly connected with either the financial or real estate industries. What are you seeing out there? Are Western firms laying off employees in China, freezing their hiring, or hiring?

Full post as published by China Law Blog on June 12, 2009 (boomark / email).