Global Compensation Issues - Essay Example

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A compensation package can be defined as a monetary or non-monetary payment to a worker for tasks done within a specified period of time. Proper management of human resources is critical…
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Global Compensation Issues here> Table of Contents Introduction 2 Summary of China’s Characteristics 3 Implicationsof the above Characteristics in China 3
Competitive Advantage for a U.S. firm operating in China 4
Expatriates Compensation Package 4
Employment Law and Regulations 5
Conclusion 5
References 6
Compensation is one of the key functions of human resources management in any organization. A compensation package can be defined as a monetary or non-monetary payment to a worker for tasks done within a specified period of time. Proper management of human resources is critical as it affects an organization’s performance both directly and indirectly. Human resources personnel determine compensation rates which directly affect motivation level of employees, recruitment process and employee retention. These rates depend on factors such as market rates, employees’ qualifications and expertise and the country’s legislations. There exists laws that regulate salaries and wages and human resources professionals must act within the guidelines of such laws. This study will look at China’s compensation structures and compensation issues.
Summary of China’s Characteristics
China is a communist state in East of Asia continent. It has a population of approximately 1.39 billion people and fourth largest country in the world. China’s terrain is rugged with hills and depressions which include the Himalayas Mountains and the Turfan Depression. It has to main and important rivers namely; the Yellow River and Yangzi River. China experiences four weather seasons of summer autumn, spring and winter. During winter temperatures can drop to a level of -50 degree Celsius. China’s financial year is from 1st January to 31st December and had a GDP of 10.355 trillion US dollars in 2014 with its main industries being manufacturing, mining and food processing.
China’s transport system includes railways, roads air and water. This makes most towns in this Republic accessible. The existence of navigable rivers has led to development of inland river ports and a reliable water transport system. The main mode of communication is telephone with approximately 23.68 Chinese citizens connected to telephone lines.
Implications of the above Characteristics in China
The communist government in China has had a lot of influence in the country’s labor market. Regulation of the labor market through legislation has caused redistribution of the readily available labor in China. In order to improve the levels of production, the government initiated programs targeted at moving labor from low production sectors to high production sectors of the economy
The large population provides huge supply of labor to China’s industries. In the earlier years, there was excess supply of both skilled and non-skilled labor. From the economics of demand and supply, the result was low cost of labor for different players in different industries and thus they were able to produce at competitive costs. Currently, as a result of the fast rising Chinese economy, there are incidents of periodic shortages in labor supply. This has been caused by an increase in the wage rate. Human resources professionals have to consider such factors while determining the amount of compensation for expatriates deployed to work in China.
China’s economic growth has resulted in a stronger currency. Many foreign companies and their expatriates in China would not mind using China’s currency for compensation purposes (Pak 1997).
Competitive Advantage for a U.S. firm operating in China
A U.S. firm that is operating in China would enjoy a competitive advantage in two dimensions. One would be to take advantage of the cheap labor available and reduce costs of production and operation. This would perfectly apply in the manufacturing and processing sectors. Upon production of low cost goods, it is necessary that the goods are branded so as to create a market identity for the goods. However, this should be done with careful consideration of Chinese culture. The second dimension that a foreign firm could use to gain competitive advantage is to create a network that can be used to acquire low cost raw materials. Such materials could include scarce raw materials that are readily available in the U.S.
Expatriates Compensation Package
A U.S. mid-level salesperson expatriate in China would include:
Base salary: this should be a minimum of $25,000 per year
Cost of Living Allowance: this is determined by the living conditions in the foreign country. This is paid to compensate the expatriate or the difference in prices of goods in the foreign country and their country of origin.
Housing Allowance: human resources personnel pay this to cover for the costs of housing incurred by the expatriate
Relocation package: this is paid to cater for the costs of moving work stations
Employment Law and Regulations
There are labor rules in China that affect compensation packages for expatriates. These include taxation where the expatriates are expected to pay income tax to the Chinese government. U.S. citizens can reclaim back the amounts of tax from the U.S. federal tax authority. Laws that regulate wage rates also apply to expatriates working in China. These are included in article one of part one of Ministry of Foreign trade general provisions (Hunter and Lam, 2008).
It is highly important that U.S. firms operating in China have well designed compensation structures for their expatriates. The reason is not to just adhere to the law but to also avoid human resource challenges and to boost employee performance. A sound compensation scheme goes a long way in giving a U.S. firm the much desired competitive advantage while operating in a foreign country such as China.
Martocchio, J. J.,& Joe, M. (2015) Strategic Compensation: A Human Resource Management Approach. Pearson Education. India
Pak, C. D., (1997). The Special Economic Zones of China and their Impact on its Economic Development. Greenwood Publishing Group.
Hunter, C., Lam, l., & Lin, K. (2008). Employment Law in China. CCH Hong Kong Limited. Read More
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