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Human Resource Issues in the Automotive Industry

(May 29th, 2014)

By Richard Hoffmann,  ECOVIS Beijing

China’s automotive industry is booming and already holds a global market share of just under 20%. However, one of the most common challenges within the industry remains to be Human Resource Management which, still today, causes some of the largest issues faced by the industry. The following segments illustrate some of the most pressing considerations.

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During the past few decades, ever more steps within the value chain of European automotive suppliers were outsourced to China. Whereas, in the early 90s, mainly manufacturing related processes were outsourced, later on in the same decade marketing, sales and distribution activities followed. Additionally, at the turn of the century, sourcing and servicing activities were localized and R&D including product development began to take place in China. This transfer of the entire automotive value chain caused an overall shortage of mid-management employees and lack of young professionals.

Job requirements make it increasingly difficult for young professionals in China to find work and in return shows the talent shortage that has become obvious throughout the automotive industry. Due to the rapid economic growth over the past three decades as well as the large waves of foreign direct investment (FDI) into China, the soaring demand for skilled and qualified labour had to be mostly satisfied through local supply. Given the country’s recent transition towards a market economy as well as the overall relatively low levels of education, supply shortages were inevitable from the start. It was then up to Human Resource Management to solve the labour and employment problems caused by this major change within the business landscape of China – a difficult task considering that 80% of employees in China do not plan to stay at their current jobs for more than two years and 55% actually change their jobs within three years.

One of the main HR related challenges within the automotive industry is due to the complexities of the automotive market itself which offers great profitability and success but challenges and failure are never far. The Chinese automotive market is the largest and one of the most diverse markets worldwide – as always, the greatest differences lie between rural and urban regions. The overall movement of qualified employees towards the developed coastal cities in Eastern China, means that HR Managers will generally experience major difficulties in attracting and retaining talented staff in those less developed and lower-tiered cities in Central and Western China – around 84% of young professionals work and live in either Shanghai or Beijing.

 

Legal Challenges of Human Resources

Although the booming automotive market naturally causes excessive labour demand and a shortage of labour supply, Human Resource Managers face restrictive labour laws and inflexible labour policies issued by the respective Chinese governing bodies. For instance, foreigners can only work in China after obtaining their employment permit and residence certificate – this can often prevent skilled labour and young professionals from abroad working within the Chinese automotive industry. In order to receive the employment permit the applicant must be at least 18 years of age, in healthy condition with a clean criminal record and, most importantly, is required to have sufficient professional experience from previous employments. These and other such requirements for the foreigner’s employment permit may vary between jobs and cities.

Authorities in Beijing, for example, require that the applicant holds a Bachelor’s Degree as well as at least two years of working experience and must be between the age of 24 and 60 years. As the automotive industry employs a lot of technicians who may not hold a Bachelor’s Degree and are under 24 years old, these rules turn into limitations for Human Resource Managers. Other lower-tiered cities may not have such strict requirements with regard to education, however, they might have limitations on other points. Tianjin, for example, requires that applicants prove several years of work experience in the respective home country and within the relevant industry – this mainly applies to management-level positions.

The Chinese automotive industry is in urgent need of greater talent supply but the restrictive nature of employment guidelines makes it hard for interested companies to employ potentially skilled labor.

If you have any further questions with regard to Human Resource Management issues in China, especially within the Chinese automotive industry, please do not hesitate to contact us at ECOVIS Beijing.

with contribution of Brigitte Both (ECOVIS Beijing)

Richard Hoffmann Richard Hoffmann is a Partner at ECOVIS Beijing China. Richard obtained an honor’s degree in law and worked in Germany, America and China for various prestigious law firms prior to joining ECOVIS. He has published more than fifty articles in international magazines, frequently speaks at high profile events in China and abroad and is often invited as a legal expert by international TV. Contact: richard.hoffmann@ecovis.com
Ecovis Beijing is the trusted tax and legal advisor of several embassies and official institutions in China. It specializes in mid-sized international companies and focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up to our Newsletter or give us a call  +86 10-65616609 (ext 811/806)   or contact us directly via Beijing@ecovis.com
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Author:
Richard Hoffmann
richard.hoffmann@ecovis.com
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