Expats head to greener pastures

In 2011 the Chinese government stipulated that foreign employees had to participate in China's social insurance program. Although at present, this rule is only enforced in Beijing and a few other municipalities, it will eventually be enforced nationally, AmCham China says.

The requirement will add to the costs companies face hiring more expats, and this might affect their employment policies.

AmCham suggests the Chinese government establish mechanisms for foreign employees to receive benefits under China's social insurance program or allow them to opt out altogether.

Meng Jing contributed to this story

wangwen@chinadaily.com.cn

Foreign companies are sending more of their senior managers to China's smaller cities where markets are thriving

As foreign companies search for new markets in China's tier-two and tier-three cities, more expat senior managers are being asked to leave the bright lights of Beijing and Shanghai to work in places they are not fully familiar with.

Foreign companies are keen to assign experienced expats to new branches in the smaller cities to help in building foreign-standard management structures, some human resources consultants say.

Andreas Bukenberger, a 43-year old German, was sent to Chengdu, Sichuan province, to be the general manager of Siemens Electronics Works Chengdu. He moved there with his family in June 2012.

Siemens signed an investment agreement with Chengdu High-Tech Development Zone in October 2011 to establish a manufacturing and research and development center for industrial automation products in the city.

"It is Siemens' first such factory in China and we needed to send core people from Germany (to set it up)," Bukenberger says.

The factory, which will start operating in September, is the sister factory to one in Amberg, Germany. The new factory will ensure that its three main activities - enterprise management, product R&D and manufacturing -will be closely integrated, Siemens says.

According to Bukenberger, nine other Germans work in the factory as either managers or experts.

He says the company wants to hire more local people, but the new factory will still need experienced employees to ensure it follows the company's globally standardized working procedures.

International companies will always need to keep key foreign experts in the major cities where they are based, but sending foreigners to smaller cities will become more common, he says.

Some human resources consultants have noticed a correlation between international companies localizing their managers and increasing demand for foreign staff in China.

Over the past five years, the trend for foreign companies to localize their expats in China's smaller cities has increased as more businesses have realized that China offers them the best opportunity to make good profits on their investments, says James Darlington, head of Asia at Antal International, a British recruitment and training consultancy.

"International companies have invested more capital and human resources in China in the past few years because they realize that the market there is still growing while markets in other countries are stagnating," he says.

This trend has occurred in almost every industry, but it is more obvious in some sectors.

"Industries in which there is less local experience are going to see more expats; for example: chemical, tech, healthcare and green technologies," says Jonathan Edwards, a partner at Antal International (Shanghai).

He says the trend will be that industries that have factories in smaller cities will send their executives there.

To better meet their clients' requirements to deal directly with senior executives all over the country, Antal has already placed 25 percent of its expats in smaller cities, although it still needs most of its foreigners in tier-one cities, where its main offices are located, Edwards says.

Generally, every percentage point of GDP growth will add 1.2 million job vacancies to a particular region. As a result, the increasing economic vitality of China's smaller cities is adding to the demand for foreign executives.

"China's top 50 cities will account for 12 percent of global economic growth in the next 10 years, since they are already huge economic entities with total GDP of $2.9 trillion," says Kin Keung Fung, managing director of greater China for Jones Lang LaSalle Inc, a Chicago-based real estate investment services company.

In the past three years, China's main tier-two cities built almost 10 million square meters of new real estate for sale and 2.5 million square meters of A-grade office space, Jones Lang LaSalle said in its top 50 cities report, which was released in March.

The firm listed the top 50 cities in China based on their economic development, especially real estate construction data, and it described some cities as tier 1.5; that is, smaller cities that are developing into major cities.

Chengdu is a typical tier-1.5 city and more international corporations are developing their branches there.

As many as 173 of the world's top 500 corporations had branches in the city at the end of 2012. During the first nine months of last year, more than 20 global top 500 corporations established branches in Chengdu, according to the 2013 white paper from the American Chamber of Commerce in China.

"Although foreign direct investment in China fell by 3.4 percent from January to August 2012, Chengdu managed to achieve an impressive increase of $5.568 billion in realized foreign investment, a rise of 20.62 percent compared to 2011," the white paper says. Manufacturing and service industries attracted the most investment.

The rapid growth of these smaller cities has not only surprised the expats living there but has also given them confidence to continue working there.

"We could not imagine the speed of growth before we came to China," says Bukenberger, who had previously lived in Singapore for four years.

Many Chinese cities have tried to become more international by attracting global brands to their markets, and this has also attracted expats.

Kempinski Hotels, the European luxury hotel management group, opened its 18th hotel on the Chinese mainland in Yixing, Jiangsu province, which is a tier-three city.

Sebastien Mariette, general manager of Kempinski hotels in Wuxi and Yixing, Jiangsu province, was sent to set up the new hotel a year ago as part of the company's campaign to establish a presence in China's lesser-known cities.

The local government's support helped the hotel chain establish itself in Yixing, although so far 99 percent of guests at the hotel have been Chinese.

"For the city's international image, the local government wants a high-end international hotel here," Mariette says.

But in Wuxi, Mariette has seen expats attracted to the city.

"Over 50 percent of my guests in Wuxi are laowai (expats)," he says, as there are many foreign companies and factories in the city.

The expat community in Wuxi, which is near Shanghai, is also growing, he says.

Before working in Jiangsu province, Mariette was assigned from Africa to set up a Kempinski hotel in Huizhou, Guangzhou province.

"My experience in building up new hotels may be a reason for my company sending me to cities in China," the 37-year old Frenchman says.

Mariette is the only foreigner working at the hotel in Wuxi, because the Chinese employees can quickly adapt to the group's European standards, he says.

"But we still need a general manager from Europe," Mariette says, as that person needs to ensure the hotel maintains the company's European style and standards.

Mariette says he prefers the smaller cities because they have more Chinese character than the big cities.

"Big cities like Shanghai and Beijing are pretty much the same as other international cities, like New York or Paris," he says. "But the smaller cities are very Chinese."

The bright future of local development is another main reason why foreign senior managers are moving to smaller cities.

"As the government and companies are exploring the markets in smaller cities, the booming second and third-tier markets promise better career development," says Robert Parkinson, CEO of RMG Selection, a British executive search company specializing in recruitment in Asia.

Expats are very concerned with their future development, Parkinson says. Therefore, they believe the developing markets in smaller cities provide better career development opportunities.

"Most expats that are relocated to these cities are promised a promotion or planned future development from the parent company," he adds.

Also, the smaller cities are good locations for expats who want to develop their own businesses.

Cheaper startup costs in lower-tier cities and subsidies offered by some city governments also attract foreigners planning to set up businesses, says Parkinson.

In September 2007, an ambitious business graduate from Grant MacEwan University in Edmonton, Canada, flew to China to look for work. Adam McWhirter went to Chongqing, a mountainous city in Southwest China.

McWhirter is now a well-connected Chongqing representative of the European Union Chamber of Commerce in China and the general manager of the China management team of Maxxelli Real Estate, a company that offers relocation services to expats who work in tier-two cities in China.

"I came here for the opportunities and the opportunities in second-tier cities in China never end," McWhirter says.

He believes that whatever can be done in tier-one cities such as Beijing, Shanghai, Shenzhen and Guangzhou, has already been done.

"No matter what you do, as long as you are ambitious, you can take off, because things are changing so fast here," he says.

McWhirter says opportunities and challenges are what he loves about tier-two cities in China.

Maxxelli Real Estate was set up in Chengdu in 2006 for a similar reason.

"There were hundreds of companies doing what we do in Shanghai and Beijing, but there was no competition in the smaller cities," he says.

The market in tier-two cities is smaller, but there is great opportunity, he says. His company now has 13 offices in China, including Changsha, Xi'an, Suzhou and Hangzhou.

According to McWhirter, his company has offices in megacities, such as Beijing or Guangzhou, because important policy decisions are often made there and the company needs a presence there.

But tier-two cities will remain the focus of Maxxelli Real Estate.

"The market in Beijing and Shanghai is huge, but the second-tier markets still have the most growth potential with more foreign multinationals and Chinese multinationals expanding their businesses to smaller cities," he says.

McWhirter also says his company plans to have 20 offices across China by the end of 2014.

Some expats say China's smaller cities are better to work in than similar cities in other countries.

Language and cultural differences do not pose problems for these expats, says Bukenberger.

"The younger generation in China speak good English," he says, "and I did not find any culture differences in my life here."

Bukenberger says at the start his family spent a little time looking for the right places to buy their daily goods. Now they know where to buy anything they need.

Mariette appreciates the safety and security in China's smaller cities, and says the only thing that annoys him is the difficulty in buying English books and newspapers there.

The lower living costs in smaller cities also allow expats to enjoy a better quality of life than they would in the big cities.

However, foreign companies do encounter some problems in sending executives to smaller cities.

In 2011 the Chinese government stipulated that foreign employees had to participate in China's social insurance program. Although at present, this rule is only enforced in Beijing and a few other municipalities, it will eventually be enforced nationally, AmCham China says.

The requirement will add to the costs companies face hiring more expats, and this might affect their employment policies.

AmCham suggests the Chinese government establish mechanisms for foreign employees to receive benefits under China's social insurance program or allow them to opt out altogether.

Meng Jing contributed to this story

wangwen@chinadaily.com.cn