There’s more to China than meets the eye

Underestimating the size and diversity of China and the complexity of its legal sector is one of the most fundamental mistakes law firms make when formulating a business strategy for mainland China. China has seven major dialects, 31 provinces, 650 major cities and 48,000 districts. Notwithstanding these differences, many lawyers either attribute to the Chinese market a homogeneity that it does not actually possess, or simply focus on either Beijing or Shanghai.

Although logic suggests that the complexities of undertaking business in China would encourage foreign entities to take an even more rigorous approach to contractual arrangements than they would adopt at home, some foreign firms simply follow the same strategies used in their home countries or, even worse, take shortcuts.

Although it is important to take a holistic approach to employment and career matters, employees should nevertheless be bound by comprehensive employment contracts that include, where appropriate, both non-disclosure and non-compete clauses.

The labour laws have been an area of focus for the central government for several years and they are increasingly well structured as a consequence. With this basic framework in place, it is important to ensure that employment contracts are both comprehensive and consistent not only with national laws, but also with local legislation, which may in some regions require compensation to be paid to employees in order for clauses regulating post-termination behaviour to be enforceable. Most employees are in fact very aware of their rights and will not hesitate to take advantage of ambiguities in their employment terms.

In most countries it is helpful to have good connections. In China, however, an almost mystical significance is attributed to the possession of local connections. In many cases these can indeed be helpful, as locally hired staff may assist expatriates to overcome cultural differences. Local staff would also instinctively understand that in China it is preferable to solve problems through dialogue and that showing commitment to a long-term relationship may produce significant long-term benefits.

As a matter of common sense, however, it is important to build cooperative relationships with relevant officials at a firmwide level, rather than relying on a single individual to handle all such relationships. It is just as foolish in China as it would be in any other country to place responsibility for official relationships in the hands of a single person, no matter how trusted they may be.

With an employee turnover rate approaching 40 per cent in most service sectors in China, staff retention is always a matter of concern. In a jurisdiction with an annual growth rate of around 10 per cent and salary rises to match, maintaining salaries at a reasonable level in the local market, while ensuring that business operations remain profitable, is a constant juggling act.

Foreign firms taking on local staff may be pleasantly surprised by the desire of local employees to obtain additional qualifications and improve their educational levels. Locals joining international firms cite educational possibilities and career opportunities as a key factor in making a decision that, in the case of qualified lawyers, requires them to relinquish their practising certificate.

Foreign firm employers in China must work hard to match the expectations of their employees. Providing career paths for professional staff in the face of regulatory restrictions is one of the key factors that, if correctly handled, could reduce staff turnover.

Foreign firms may also notice a desire among locally hired staff to identify their position and status within the organisation as a whole. The status of individual employees depends to some extent on the perceived status of their superiors within the organisation, and it is important to pay attention to these sensibilities when making internal transfers.