China: The policy to Localize Expatriates in Reversion?
By René J.M. Schillings
Thursday, 27th October 2011
Since the second half of the last decade, starting around 2004/2005 there has been a strong drive and one may call it affirmative action to localize management positions in hotels in China, in favor of local nationals, reducing the amount of expatriates.

Affirmative Action to enforce the hiring of a certain group over another can be described as:  Action defined by policies that take factors including national origin into consideration in order to benefit an underrepresented group, usually as a means to counter the effects of a history of unbalance or overrepresentation of other groups. This policy attempts to "level the playing field" it focuses on such policies ranges from employment etc.

Whereas these actions are geared by the noble thought of giving more opportunities to people who traditionally were underrepresented, opponents to this policy are also known with arguments that it may in the long term be counter-productive and a surrealistic dream to achieve a state or being by force, rather than by rationality.

Whereas most hotel companies would publicly state that they are an ‘equal opportunities; employer, and to underline their modern international outlook would support that with a picture of smart looking happy smiling ‘employees' most often representing both genders and usually a few ‘colors/races', in reality many job advertisements can put boundaries on who can apply, in particularly to exclude foreigners by putting requirements such as language and nationality.

This can be a legitimate cause, just like for most jobs in the USA or in the EU only USA citizens/green card holders, or EU Nationals can apply etc. to stop the flow of immigrants, however in China this is hardly the case. Cities like Hong Kong, Singapore have put restrictions on granting work permits to foreigners basically to avoid these overcrowded cities with limited land-space to become overflowed with ever more people, and in Macau legislation to safe-guard the balance locals/foreigners is mostly politically driven to keep the local population satisfied and employed.

In the case of China, there are government enforced restrictions on employing foreigners and they have become more strict and enforced as the countries' economy grew and it became more attractive for foreigners to find jobs in China. However as the foreign population in China is really tiny, these restrictions are more based on qualifications to ensure that those foreigners who are hired do have special skills that will contribute to the improvement of a business, however vague or wide the term ‘special skills' may be.

The policy of favoring local nationals is more so a self-imposed policy by (hotel) companies for reasons other than giving minorities a chance. It's an urban myth that ‘the government or immigration department in China puts a set number of foreigners allowed in a company' and even government officially stated rules, such as the need for any expatriate to work in China to have at least a Bachelor's Degree, and the official age ‘cap' of 60 years to issue employment permits is administrated at random, at will and ‘ad hoc'.

As an Executive Search Firm, recruiting talents for positions we are confronted with these policies when our clients outline the profile and background of the talents they seek. For any search it's good to be clear and direct and have as many criteria to selection as possible so that we can zoom in on a clearly defined target audience. However assuming that our clients want the best possible people to perform the job duties and the policy to favor local nationals over expatriates is often lead by non-defined rules, even sometimes just given little thought of the implications, if not unrealistic. We nowadays have to make a case for considering expatriate candidates for positions where the preference is given to locals. This is quite a reverse from the years 2004 – 2006 when TOP Hoteliers was rather successful in encouraging hotels in China to hire local nationals for positions that were started as searches for expatriates.

However since 2010 we have more and more cases where positions open to local nationals only can not be filled and due to the shortage of sufficient qualified local talent, the search is then widened and the position becomes open to expatriates as well. So whilst TOP Hoteliers is and was the agency with the largest reach towards local (PRC) national Hotelier candidates, 50% of the placements we do continue to go to expatriates, whereby it should be mentioned that many of these expatriates, i.e. not nationals from The People's Republic of China, are still ‘Chinese' in terms of race, language skills and family/cultural origins, but they are not citizens of the People's Republic of China.

Localization is an integral part of doing business internationally and hotel management companies have always encouraged and implemented localization as a natural process of both reducing the reliance on (expensive?) expatriates and growing their companies overseas with local talent pools and management to become fully integrated businesses that form part of the community.

Hotel companies throughout the world and throughout history have a very good record of creating local employment and opportunities, providing careers domestically and even opening up international careers for local nationals, throughout their worldwide network of hotels. Localization is a noble cause, and eventually a must, but just like positive discrimination it can also have negative side-effects and often may fire back upon hotel companies who favor policy over common sense or realities of the day.

Localization of management positions in China in hotel operations has possibly started rather late. Therefore the Chinese hotel industry has suffered from a ‘loss' of those earlier  local Chinese hotel managers who joined the industry a good 10 – 20 years ago.

These local Chinese hoteliers, Nationals of the PRC have rather experienced negative discrimination for a long time whereby the management positions were consistently filled by newly arriving foreigners. This ‘glass ceiling' has made many of them leave the international hotel companies to seek career progress with local hotels and/or leave the hospitality sector all together. But by 2005 there was a sudden change of direction, it was back then when TOP Hoteliers was still relatively new in the market and being the first Hotel & Hospitality-specific Executive Search Firm in the People's Republic of China that we saw a strong demand for PRC nationals in senior management positions and with a certain ambition to create a pool of (future) local General Managers.

The drive to localize management positions, was however also accelerated by less-noble factors, namely to greatly reduce the cost of hiring expatriates and partially to ‘cover up' or rectify earlier mistakes made by foreigners who came in as the proverbial ‘Bull in a China Shop' and may have upset local owners, under-estimated local market conditions, or in other ways gotten in rough waters by doing their work in China following conventional worldwide methods and not understanding, respecting or respecting local culture or being too slow, or stubborn to change their methods and applications.

By 2008, certainly helped by the worldwide Financial Crisis, localization became a by-word for simply phasing out expatriates and replacing them with whoever was the next in line, usually a local assistant to that expatriate, ready or not. And by 2008 the hotel industry in China had already grown so fast that often the next-in-line wasn't present, or far from ready so whilst the expatriate packed his bags to find employment elsewhere, there wasn't a local alternative ready and in place and had to be recruited from outside, from an already very small pool. Succession Planning is another such noble and worldwide applied policy or tool that missed the purpose in China, in the situation at the time.

Of course this time around the local PRC nationals reaped the benefits from this ‘policy' and were fast promoted to positions they would otherwise had to toil for a few more years, and could also command salaries that were actually only 20 – 25% lower than their former expatriate predecessors were paid Expatriates tend to enjoy additional benefits such as live-in accommodations, duty meals, relocation and annual leave and those benefits made expatriates more expensive and often frowned upon by the local staff.

But as a matter of convenience these expatriate benefits have been continued for the local replacements. We wish every hotelier of course to have excellent working conditions and good benefits apart from the salary for a job done. However while in the meantime the shortage of local management is felt all over China, and at the same time also the Chinese Yuan (RMB) strongly gaining in value versus the US Dollar, which today is still used as an international benchmark for expatriate salaries, actually made this localization of positions, national citizens versus expatriates not automatically a cost-saving exercise.

Localizing positions for the sake of policy has become a political correct statement, against which it remains hard to argue that an expatriate for a position is the better choice, without getting the objection that foreigners are too expensive, do not understand the local conditions and that local Chinese must be given a better chance.

It is however not a matter of local Chinese hoteliers not being capable. They are at present simply too few with the adequate experience and in some cases the rather good ones got catapulted into positions that were just 2 steps too fast in their careers. They have been bent too far and it may break. And for these local hoteliers who benefited from this policy, there is no way back, at least they would not get it in their minds to go back in salary and position, and let the foreigners come back to take their jobs. Luckily for them, but unfortunately for the industry there is a save way out, and that is to hop to the next job.

Because everybody is after the local Chinese managers, who have the right title and (are supposed to) have the right experience. There is a way back for the hospitality industry from this snowballing by looking at merit and ability rather than choosing based on nationality, and to insist less on short-term want for ‘localizing' positions, now that the financial benefits have proven to be less evident, and where in an fast globalizing world and China becoming a modern world economy the language and cultural understanding of managers remains important but not always the one and only factor for selection.

And in that respect, China is simply catching up with other more developed countries in Asia. We can see that in more established locations, like Japan, Hong Kong, and South East Asia in general, there is the same ‘desire' for local hires but often the practical solution to hire an expatriate, which may not cost extremely more than a local, and is sometimes proven to be more effective a choice.

TOP Hoteliers was ahead of the trend in 2004/2005 by having local Chinese hotelier talents on its radar, and focusing on Chinese speaking expatriates. However we now are bucking the trend of localization by often suggesting expatriate candidates again for positions earlier on earmarked for fast localization.

The expatriates are back and are here to stay, especially the foreigners who have worked in China before and understand that China is changing, but not so much that expatriates are no longer required.

About the Author:
René J.M. Schillings, a Dutch National, is the owner, founder and Managing Director of TOP Hoteliers, the first specialized hospitality recruitment agency to open offices in the People's Republic of China (in 2004). Based in Hong Kong he devotes most of his time managing the 2 offices in Shenzhen and Beijing, where his team of consultants recruit hotel managers for all major international and some local hotel companies in China. His company was very early to recognize the need for local talent, Mandarin speaking expatriates and China experienced expatriates. His knowledge of the China Hotel Industry stems from his career as Hotelier in China that began in 1997. He has a BA in Hotel Management from Stenden University, a.k.a Hotel Management School Leeuwarden, The Netherlands and an MA in International Tourism & Leisure Studies from Metropolitan University in London, England. He is a keen observer of industry trends and has published numerous articles on HR issues in hospitality in China.

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