Emerging markets in Asia present significant growth opportunities for businesses, but they also pose many challenges in terms of culture differences and government regulations.
“One reason Hong Kong and Singapore have become popular as a first destination for companies expanding into Asia is because they have very good legal systems with good intellectual property protection,” says Mark Matuscak, President and CEO of Benefitdecisions, Inc. “Other key factors are a strong talent pool of local skilled labor, favorable tax rates and a central location that makes travel within the region easy. Companies may be targeting business in China but set up in Hong Kong first as a gateway. Then geographically and culturally you’re much closer to the Asian markets, and it’s easier to build on that.”
Smart Business spoke with Matuscak about what companies need to know from an HR and benefits perspective before expanding into Asia.
How do HR requirements differ when setting up a business in Asia?
The concepts are the same — payroll and benefits — but statutory requirements are much different than in the U.S. and they vary by country. For example, all employees in Hong Kong have a mandatory provident fund that requires a 5 percent contribution by the employer and a 5 percent contribution by the employee. In Singapore, there is a mandatory central provident fund and the average employer contribution is 15.5 percent; that’s a substantial difference.
There are also differences regarding minimum wages, employee compensation insurance, notice periods, holidays, sick leave and even the manner in which people are paid commissions or bonuses. In some countries, laws regarding maternity leave protect a woman’s job as soon as she declares she’s pregnant. Companies expanding to Asia shouldn’t underestimate the complexities involved with HR.
What are the tax differences?
It’s difficult to generalize, as it varies among countries. Since that affects the design for employee benefit packages, it’s best to get an all-encompassing target for wages and benefits. If you set $60,000 aside for a position, dollars can be shifted between items such as housing allowance, mandatory requirements, core benefits and salary.
Getting the right mix for the market is key to securing the right talent. Start with the existing benefits policy and conduct a benchmarking exercise to see what competitors in the area offer.
Can that be accomplished within a company’s existing HR department?
It’s always a good idea to work with someone with the expertise to understand the unique requirements, taxes, culture and laws of each country. For example, you need someone who can help design a staff handbook that’s congruent not only with the culture and policies of the organization, but is also compliant with local legislation. An HR outsourcing company can create a compliance scorecard that identifies all of the requirements of the various countries.
What issues need to be addressed concerning current employees who will be working in Asia?
There are a number of issues that need to be addressed. For example, the application process can take up to 10 weeks, so make sure an employment visa is obtained in a timely manner. Workplaces are often quite remote, so it’s useful to provide a support structure where employees can go for information about schools, etc. Identifying the issues upfront with an expert and strategizing how to handle them is the best plan to minimize unexpected delays or complications.
Are many companies considering expansion to Asia?
About 10 to 20 percent of middle market businesses primarily domiciled in the U.S. say they are looking to do business in Asia. All the indicators are that China will become the largest economy in the world by 2020, and India the third-largest by 2030. Businesses need to look ahead and develop their plans for growth. Many are entering into Hong Kong and Singapore now as part of their future strategy.
Mark Matuscak is the president and CEO of Benefitdecisions, Inc. Reach him at (312) 376-0431 or firstname.lastname@example.org.
Insights Employee Benefits is brought to you by Benefitdecisions, Inc.