Managing human resources in hong kong

This paper focuses on the major human resource issues facing business executives whose firms are operating out of Hong Kong.. This may explain why Hong Kong employers are unwilling to in

Jiing-lih Farh

Kwok Leung

David K 'Ise

1997 and Beyond

Financial transition is not Hong Kong's only concern after 1997 'I his paper examines issues that senior human resource management executives must address as llong Kong's deadline approaches Within Hong Kong's particular political context, Farh, Leung and 'Ise identify the major social and economic trends that directly affect the management

of human resources and discuss the key implications

of these trends with regard to personnel planning, recruitment and selection, training and

compensation.

Jiing-lih Farh is a reader in the Department of Management

of Organizations at the Hong Kong University of Science

and Technology Kwok Leung is a senior lecturer in the

Department of Psychology at the Chinese University of

Hong Kong David K Tse is a professor in the Department

of Business and Management at the City University of

Hong Kong.

This research was supported by a Competitive Earmarked

Research Grant given by the Hong Kong Research Grant

Council The opinions expressed in this article are those of

the authors and do not necessarily reflect the views of the

council.

In less than t w o years Hong Kong will cease to be

governed by Britain and become a Special Administrative Region of China During this period of political and economic tumult, companies operating in Hong Kong face the formidable task of attracting and retaining a competent workforce in order to take advantage of the booming Asian and China markets This paper focuses on the major human resource issues facing business executives whose firms are operating out of Hong Kong

Our premise is that effective human resource management practices are based, in part, on the proactive responses to changing environmental conditions By heeding the signs and acting accordingly, senior executives

in Hong Kong can ensure that their companies build a competitive workforce and reap the enormous benefits that the vast China-Hong Kong region offers We begin by analyzing the political context and the socioeconomic trends that are of great significance to the management of human resources, and then discuss their managerial impli-cations

Political Context

Maintenance of Hong Kong's economic prosperity has been

a major policy objective for Britain and the People's Republic of China (PRC) since 1984, and it is likely to dominate in the policy objectives of the Chinese government's post-1997 era Chinese leaders are expected

to continue to shelter Hong Kong from major shocks because of Hong Kong's enormous economic contribution

to the PRC

While having many positive benefits, the Hong Kong government's wish to maintain economic prosperity in Hong Kong could be used to oppose any large-scale political and social changes on the island in the period before 1997 For example, continued economic prosperity has been a major criterion in the debate over the estab-lishment of a comprehensive old-age pension system in Hong Kong Against the widespread support of Hong Kong citizens, as well as the support of some pohtical parties in the Legislative Council, the Hong Kong government withdrew the scheme to support the currently retired workers and endorsed a compulsory private pension scheme for all workers One of the main motives behind this governmental decision was to maintain the status quo rather than risk upsetting the delicate social, political and economic balance that has so far been achieved

Few dispute that the economic success in Hong Kong,

that is now so precious, was built through the individual

initiative, entrepreneurial spirit and the resourcefulness of

its people In fact Hong Kong's people prosper with

minimal government support For instance, in the

employment arena Hong Kong lacks major laws and

regulations common in most industrialized societies such as

a minimum wage, an old-age pension scheme, and laws

prohibiting discriminatory hiring and unjust dismissal In

the wake of waning British rule and the rise of generally

conservative Chinese leadership, the Hong Kong

government most likely will not change its time-honored,

hands-off policy within the employment arena

It is evident that political uncertainty after 1997 will

translate into higher business risks for employers and higher

anxiety levels for employees As a result, both will likely

take a short-term perspective toward their employment

relationship This may explain why Hong Kong employers

are unwilling to invest heavily in training and development,

and why job hopping has become the norm in major sectors

of the economy.'^

Social and Economic Trends

All indicators confirm that Hong Kong's economy is rapidly

integrating with Southern China's Beginning in the early

1980s, many manufacturers began to move their operations

across the border to take advantage of the lower labor and

land costs in China By 1993, Hong Kong firms in Southern

China employed more than three million workers Today

the city's thriving re-export trade to China accounts for

40% of its total exports and grew 254% from 1988 to

1993 Thus, Hong Kong contributes enormously to China

both as its largest outside investor and as its gateway to

global markets

This economic integration is a two-way street In 1993,

China became the largest "foreign" investor in Hong Kong,

overtaking British, American and Japanese investments

While forecasts differ, investments by various state,

provincial and municipal enterprises in Hong Kong reached

U.S.$58 billion in 1993 Since 1993, state enterprises have

been seeking investment funds in Hong Kong by listing in

the Hong Kong Stock Exchange This economic integration

should continue up to, and beyond, 1997

From 1980 to 1992, more than 450,000 Hong Kong

people emigrated to Australia, Canada, the United States,

and other countries Although fewer left in 1993 due to an

economic boom in Hong Kong and Southern China, and a concomitant recession in Australia and North America, emigration remains at quite a high level (66,000 emigrated

in 1992 and 53,000 in 1993).-^ As 1997 approaches, emigration can be expected to continue from Hong Kong, but at a slowly declining rate as many who wish to emigrate have already left It is worth noting that the emigrants were predominantly wealthier, more educated, and highly skilled Thus, firms in Hong Kong will probably continue to lose their managerial and technical personnel

Since 1991, however, there have been a significant number of Hong Kong returnees to replenish the "brain drain." This inflow of immigrants is likely to continue if the political and economic situation in Hong Kong remains stable Nevertheless, this massive flux of population in and out of the country means firms must devote more resources

to recruiting, training and retaining their key personnel Another major social change is in the supply of manpower in Hong Kong In response to the "brain drain,"

as well as an urgent need to upgrade the labor force, the Hong Kong government introduced an ambitious program requiring heavy financial investment in higher education In the early '80s, only 2% of all secondary school graduates were admitted to a degree course By 1995, this figure was 18% As a result, workers with a university education will grow from 173,000 in 1991 (6.3% of the labor force) to 320,800 in 2001 (10.3% of the labor force).^ It is also expected that many university graduates will come from China after 1997 This large supply of high-quality employees implies that Hong Kong will have a better trained workforce and, possibly, a relaxation in the growth

of labor costs Accordingly, the need for expatriates with very high salary demands will decline

In 1993, about one-fifth of the labor force in Hong Kong was unionized Despite this high rate (relative to other Asian nations) Hong Kong has no effective labor movement, and

an outstanding feature of its labor relations is the low level

of industrial conflict Between 1987 and 1991, the average number of working days lost per 1,000 wage earners and salaried employees per year was just one, one of the lowest

in the world Several factors may have contributed to Hong Kong's weak union movement: 1) lack of political representation in the government, 2) internal political dissension within the union movement, 3) an economy increasingly dominated by service sectors, and 4) a chronic labor shortage, which implies that workers can gain bigger pay raises through job hopping in lieu of collective

bargaining Thus, the basis of labor relations in Hong Kong

tnainly rests on individual contracts of employment, freely

negotiated between the employers and employees In the

next few years, the union movement in Hong Kong is

expected to remain weak and unlikely to have a significant

impact on the labor market or the political scene

Since the mid-1980s Hong Kong's overall labor force has

been increasing at a very slow rate For example, from 1988

to 1992 the size of the labor force increased from 2.76

million to 2.79 million—an increase of 1.1% in a four-year

period Coupled with a booming economy, this has resulted

in a low unemployment rate (under 2%) and a severe

shortage of labor The slow labor force growth in Hong

Kong during recent years may be attributed to a number of

factors including: 1) low fertility, 2) high emigration, 3) low

immigration, 4) an aging population, and 5) a lower labor

force participation rate To relieve the labor shortage, the

Hong Kong government introduced a labor importation

scheme in 1992, setting an overall quota of 25,000 workers

per year In 1994, a scheme was approved to import 1,000

technical and professional employees from China, and an

additional 5,500 workers will be imported, mainly from

China, for the construction of the new Hong Kong airport

in 1995 It is envisaged that the labor market will remain

tight until 1997, then gradually ease due to an influx of

immigrants from China

Managerial Implications

The above review of the political, economic and social

contexts in Hong Kong highlights some key trends that are

likely to have a significant impact on the management of

human resources for companies operating in Hong Kong

Implementing human resource planning programs,

overcoming a high employee turnover rate, recruiting

employees with specific skills and selecting and training

these employees are issues that are the most concern for

HRM managers in Hong Kong We will look at each of

these issues in turn

Implementing Human Resources Planning Programs

As we approach 1997 and beyond, uncertainty and its accompanying anxiety are likely to become more acute in Hong Kong A sizable portion of the managerial and profes-sional workforce in Hong Kong has obtained foreign passports or permits to emigrate These people are presently contemplating whether to stay or leave Hong Kong The ultimate decision is heavily influenced by their perception

of career risk and gain in Hong Kong as compared to other foreign countries where they might immigrate It is thus important to monitor the labor market conditions not only

in Hong Kong, but also in countries that are popular targets

of emigration, for example, Canada, Australia, New Zealand and the United States It is also important for management to develop a trusting relationship with their employees so that they readily reveal their career plans For those employees who chose to emigrate, the management may want to maintain regular contact as some of them may wish to return

Since losing key employees is inevitable, succession planning should be a top priority in human resource management during the next several years This is especially vital for companies planning to undertake aggressive local-ization programs (see below) For these companies, large groups of local employees must be trained to assume senior posts For instance, the Hong Kong government has been engaging in a vigorous localization program, involving ongoing succession training for local employees

Overcoming High Employee Turnover Rate

Due to the uncertainty of 1997, Hong Kong citizens have developed a short-term perspective on employment relationships In the 1990s, annual employee turnover rates

in many business sectors hovered around 20%, and in retailing the figure was as high as 50% Today job hopping

is considered not only socially acceptable in Hong Kong, but also fashionable With the continuing emigration and a tight labor market, a high employee turnover rate is likely to continue in years to come In the current climate of uncer-tainty it is difficult for management to implement human resource policies aimed at building a long-term workforce Rather, it is more practical to take specific actions aimed at mitigating the negative impact of a high employee turnover rate First, all key tasks need thorough documentation so that new hires can ease into the job in the event of a

turnover Second, managers should take time to familiarize

themselves with subordinates' work in detail so that they

can train new hires when necessary Third, all key positions

should have multiple back-ups, which may be achieved by

implementing job rotation, cross training and work team

programs

Intensifying Localization Programs

In recent years the number of foreign-owned companies run

by a local executive has risen rapidly in Hong Kong This

trend for localization (i.e., the use of locals to replace

expatriates) is primarily due to three factors: 1) the cost

consideration, 2) the availability of local talent, and 3) the

fairness consideration The total compensation package

for an expatriate is often two times the cost of hiring an

equally qualified local employee With the rising

educa-tional level of the local workforce and increasing

impor-tance of the Mandarin language in China-related operations

(see below), localization is likely to accelerate in the years to

come

Recruiting Employees with China-Specific Skills and

Knowledge

As Hong Kong becomes further integrated with China,

companies in Hong Kong will become increasingly involved

in China-related operations Since the business

environ-ments in China and in Hong Kong are distinctly different,

companies wishing to remain competitive in future Hong

Kong need to recruit employees with China-specific skills

and knowledge

Unlike Hong Kong, where English is the business

language Mandarin is the language of choice in China

Since most Chinese managers lack English skills, the

inability to speak Mandarin could become a major

hindrance to the development of good business

relation-ships in China The importance of language can be

illus-trated by the observation that despite Hong Kong

businesspeople having entered the Chinese mainland

market five years earlier than Taiwanese businesspeople, the

former remain concentrated only in the Guangdong

province, where Cantonese is the major dialect, while the

latter have penetrated into many more regions throughout

China The key to Taiwan's successful expansion is

Mandarin language skills Since Mandarin is not taught in

the schools or used in Hong Kong, most people do not

understand or speak the language (their native dialect is Cantonese) In contrast Mandarin is not only taught in Taiwanese schools, but also recognized as the official language in Taiwan This language skill certainly makes it easier for the Taiwanese to do business throughout China Unlike in Hong Kong and most industrialized societies, the rule of law remains in its infancy in China Because of the inadequate judiciary system and legal infrastructure, due process takes on a very different meaning in China than in Hong Kong or other industrialized societies.^^ The recently publicized trade row between the United States and China over rampant copyright infringements is a manifestation of the clash between two different legal systems With a weak

legal framework, guanxi (i.e., interpersonal networks) is

more important for doing business in China than in indus-trialized societies Thus, both a deep understanding of the business environment in China and the ability to establish

good guanxi are important China-specific knowledge.

In Hong Kong it is often difficult to find people willing to accept a long-term assignment in China as the move requires an uprooting from their social circle, and perhaps even family, as well as a major adjustment in lifestyle and environment Should employees assigned to China resign in the middle of their assignment, the financial costs associated with the failure can be substantial Thus, it becomes important to develop reliable and valid recruitment proce-dures to identify candidates suitable for a posting in China

In addition to job knowledge and language skills, such information as personality profiles, attitudes toward an assignment in China, previous experience in foreign assign-ments and family background will be useful in identifying the most suitable candidates Unfortunately, most Hong Kong human resource professionals have little experience in such issues and procedures

Where can you find personnel with China-specific skills and knowledge? Many United States-based multinational firms have recently discovered the large number of Chinese-Americans born and raised in Chinese societies—China, Hong Kong, Singapore, and Taiwan—who traveled West to pursue higher education and better job opportunities Armed with a Western education, work experience, Chinese background and the requisite language skills (English and Mandarin), they are well suited for China-related assign-ments For example, the China operations of Allied Signal, Motorola, and Dow Chemical are all headed by Chinese-Americans

Developing New Selection and Recruitment Devices

New recruitment and selection procedures are needed for

companies that intend to hire employees from China There

are two difficulties that need to be overcome in this area

First, most human resource staff based in Hong Kong are

unfamiliar with the employment situation in China Lacking

experience, they may find it hard to evaluate the academic

and professional credentials of the mainland applicants

Since the structures and the job specifications of Chinese

organizations are quite different from those of Hong Kong

firms, it is not always easy to determine whether an

applicant has the right work experience Second, as the

recruitment process usually takes place in China, the Hong

Kong staff will have to visit China to test or interview

appli-cants In China they are likely to be hindered by inadequate

clerical and administrative support if no subsidiaries are

operating in the location Due to time constraints, they

often rush through the selection process

Both barriers will lower the validity of the selection

procedure To make matters worse, the number of mainland

job applicants is likely to be overwhelming due to the

relative high pay offered in Hong Kong The Hong Kong

human resource staff will be confronted with the daunting

task of selecting the right candidate from a colossal pool of

applicants Because of the long-standing labor shortage

problem in Hong Kong, most firms do not have elaborate

recruitment procedures for screening a large number of

applicants at one time In fact, most firms in Hong Kong

rely primarily on interviews to screen applicants instead of

systematic testing Faced with the different labor market

condition in China, Hong Kong companies should devote

resources to developing reliable and valid tests to screen

applicants

Designing Special Training Programs

As the workforce continues to change, companies operating

in Hong Kong will need to develop special training

programs for several groups of employees

• Workers from Mainland China As there will be more

mainland Chinese working in Hong Kong, training and

development for this group of people will have to be

broader in scope Issues should include not only

work-related skills, but also adjustment to life in Hong Kong,

values and beliefs underlying the organizational life in

Hong Kong and accepted norms in Hong Kong

Furthermore, human resource professionals may have to assume the role of counselor to help with personal and family matters

• New College Graduates As explained before, the

workforce will be more educated with a significant increase

in the number of college graduates among job applicants This group may need to receive special attention When college graduates were scarce, many managers with only secondary school education were promoted from the lower ranks Today college graduates often enter companies as

"trainees." When they become managers, many will lack that "hands-on" experience gained by their predecessors It therefore becomes important to design training programs that will enhance practical experience as tomorrow's managers rise up through the ranks

• Hong Kong Staff Stationed in China For companies who

post Hong Kong staff in China, special training programs need to be developed to help these expatriates adjust to the business environment and their new social lives For instance,

as many Hong Kong employees do not speak Mandarin well, intensive Mandarin classes should be offered In a similar vein, the scope of training and development programs should

be broadened to include the knowledge and skills required for working with managers and officials from mainland China Unfortunately, most Hong Kong firms have little experience in these issues, which must be tackled tenaciously

in the countdown to 1997

• Displaced Workers As Hong Kong continues to move its

plants and factories into China to reduce costs, employees

in the manufacturing sector are losing their jobs to mainland workers In 1992, the Hong Kong government set

up an Employee Retraining Scheme to retrain workers from declining industries to make them more employable in other industries Obviously, in-house training programs are also needed to help employees make the transition from manufacturing jobs to service jobs From a societal point of view, retraining is obviously a more palatable solution than massive layoffs or growing unemployment due to a lack of relevant skills

• College Graduates Seeking a Second Degree As college

education has become widely accessible, more and more employees will wish to obtain a second degree Many

companies in Hong Kong have programs to sponsor their

staff, either financially or by granting them special leave In

the future, to attract the best talent and retain staff,

companies may have to be proactive in offering staff the

opportunity to obtain a second degree For instance, some

firms in Hong Kong have teamed up with overseas

univer-sities to organize special MBA programs for employees It is

envisaged that this trend will continue beyond 1997

Managing Employees from China

In future Hong Kong, the influx of mainland workers to the

region will present a special challenge to human resource

management Although Hong Kong and mainland workers

share a similar cultural origin, decades of separation

between capitalistic Hong Kong and socialistic China have

created two very different workforces When compared to

workers from mainland China, Hong Kong employees are

more individualistic, accustomed to work assignments

based on individual responsibility and used to working

longer hours The challenge facing managers of these two

diverse work factions will be how to appropriately value

employee differences, balance individual needs with group

fairness, ensure group cohesiveness and open

communi-cation and maximize opportunities for all

Designing a Flexible Compensation Scheme

to Reward Employees

As we mentioned earlier Hong Kong workers have

tradi-tionally taken a short-term view toward employment

relationships Coupled with the lack of government

initia-tives to mandate employment benefits and a low tax rate

Hong Kong workers prefer short-term cash to benefits As

compared to other industrialized societies, benefits offered

by Hong Kong employers are meager and constitute a small

and insignificant portion of total compensation This

preference will remain, and firms in Hong Kong will

continue to offer packages with a large cash component In

addition, firms will have to develop schemes that tie

perfor-mance to cash reward to motivate employees In short,

compensation schemes will have to be very flexible, taking

into account the nature of the jobs and preference of the

employees

Conclusion

During the next two years, as well as the immediate years after 1997, Hong Kong will undergo an unprecedented transformation in its history in virtually every aspect of its society Companies operating in this dynamic environment are faced with great opportunities as well as challenges In managing human resources in this turbulent environment, the greatest challenge for business executives is to attract and retain a high-quality workforce capable of capitalizing

on the business opportunities in Hong Kong and China Despite the iniherent uncertainty associated with China's takeover in 1997, we argue that many of the changes which will take place in Hong Kong are predictable It is up to business executives responsible for managing human resources to plan for, and overcome, these challenges with a proactive approach Firms that are able to manage these human resource issues effectively will fitid themselves in an enviable position as Hong Kong and the Southern China region continue to grow and prosper together

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