Pudong revisited – the WTO-column

(next week also in Chinabiz)
When I read early Friday morning Pudong in Shanghai is going to allow foreign HR-firm to own a majority stake in their China-operation I was awake right away. I’m sure this also happened at the offices of Manpower, Monster, Randstad and a few other HR-giants who are still pondering about their China-strategy.

The strategy looks very much like the one used to slowly open up the financial industry. Foreign banks would be permitted to trade in the Chinese currency on the condition they would register in Pudong. That policy killed a few birds in one blow. First, it allowed the financial authorities to open up a very strategic industry for further reform in an experimental way. Second, it boosted Pudong at a time when nobody wanted to go there because of the lacking infrastructure. After the bankers moved in, law firms followed and in the end also the subway connected Pudong to the rest of the world.
By picking a similar strategy for foreign firms involved in recruiting the Chinese authorities show the importance of this kind of labor-related issues to them. They only want to allow more freedom when they are really sure it does not disrupt the country. In theory, they can reverse the policy again.

Of course, there are more differences than similarities between the financial industry and human resources. The banking industry is heavily regulated, while the HR-industry – how can I put this mildly – is more wild west.
Regulations for the industry are only in place since 2004, forcing foreign HR-firms not only to team up with a Chinese partner, but also give them a majority stake of at least 51 percent. That has limited the operational scope of some of the larger recruitment firms in China. Monster did take last year a 40 percent stake in Chinahr.com, but has not put much effort into the venture, precisely because they could not own a majority. Others like Manpower and Randstad did even less and have basically set up representative offices until legal changes would take place.

But the industry itself could not have been livelier than it has been. Hundreds of smaller players, who would stay under the legal radar screen, have appeared in large numbers, making the headhunting industry to one of the least desirables in China. You would be better off in manufacturing TV-screens. Technically a lot of these operations are not legal, but that is not uncommon in a country like China were regulations are still being developed.
The playing ground has been expanded enormous. Until, say five years ago, mainly foreign companies used professional HR-firms to recruit people. Part-time jobs or temporary jobs were unheard of. The few times a recruiting firm was able to get a state-owned company as a client was celebrated as the long-awaited breakthrough. Now, partly forced by the shortage of experienced managers and engineers, Chinese firms have to use professional support or perish.

For the larger players, the coming months are going to be crucial. Although their operation might be registered in Pudong, their playing field will be nationwide, especially when their operation will be for a large degree online anyway.

Fons Tuinstra