International HRM in Practice

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International HRM in PracticeInternational HRMInternational Human ResourceManagement Dissertation

Cultural and Gender Issues in International HRM

Much of the work in the international HRM area concerns ways in

national cultureimpacts employment practices in host countries and the limitationsculturecreates regarding the ability of MNCs to transfer employment practicesto hostcountries.National culture may be thought of as the values, beliefs, perceptualorientations,and norms typical of the members of a particular society. Theintroduction ofmanagement techniques inconsistent with national culture can lead to

the failureof the method, not to mention conflict between an MNC and itsemployees and,perhaps, the broader society. Comparative studies of national cultureacross alarge number of countries is limited because of the significant costsassociatedwith data collection. A study by Hofstede (1991), using data collectedin around60 countries in the late 1970s, remains influential despite controversyover his

methodology and interpretation of the findings. However, other work(e.g.,Triandis, 1995), would tend to support the general findings ofHofstede.There are various dimensions of culture that have been identified andcan bemeasured (via survey questionnaires) cross-nationally. Hofstedes workfocuseson four such dimensions, all of which are related to work behaviors:Individualism/collectivism: The extent to which personal versus groupobjectives govern a persons life. Most industrialized Western

countries have individualist cultures, while much of the rest of theworldis collectivist, including virtually all developing countries.Power distance: The extent to which a low-status persons accept andlegitimize the power and influence of high-status persons. Powerdistance and individualism/collectivism are correlated, so thatindividualist cultures are generally low on power distance (lesshierarchical) and collectivist cultures are typically high on power


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distance (more hierarchical). Again, industrialized Western countriesare generally lower on power distance and most other countries arehigher.Masculinity/femininity: The extent to which aggressiveness andmaterial

well-being are valued in a society versus good interpersonalrelationships and general quality of life. "Masculine" cultures may alsotend to be more patriarchal, while "feminine" cultures tend to havegreater inequality between the sexes. This dimension does not seemto be related to economic development or even geographical location.Japan has the highest score of any country on the masculinitydimension, though several other East Asian countries score in themiddle of the scale. Egalitarian societies, such as the Scandaviancountries, tend to be have more feminine cultures.Uncertainty avoidance: Cultures where people are troubled by changeand risk.

Work specifically on gender issues in the international HRM field issomewhatlimited. A book edited by Adler and Izraeli (1994) contains several casestudiesof countries from all parts of the world; the authors discuss the extentto whichwomen have achieved managerial positions in these countries andconsider therole factors such as national culture have played in promotingopportunity forwomen.

More quantitative work by Deva and Lawler (1998), using aggregatenationaldata from the UN database on women, combined with Hofstedesnational culturenorms, suggests that culture certainly plays a distal, but perhaps not aproximate,role in generating employment opportunities for women. Ironically, themasculinity/femininity dimension seems unrelated to the proportion ofmanagersin a country that are women; more important is the degree to whichthe countrys

culture is individualist or collectivist. Individualist cultures tend toemphasizepersonal achievement and merit as a basis for mobility, whereascollectivistcultures are more ascriptive. Thus, individualism is positively related toemployment opportunity for women in managerial positions.Some work suggests that workforce gender composition in subsidiariesof MNCs


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tends to conform to host-country norms (Rosenzweig and Nohria,1994).However, some of our work suggests that the national culture of anMNCs homecountry, which presumably influences the firms corporate culture,

carries over topolicies regarding employment opportunities for women in adeveloping countrythat imposes no specific limitations on gender-based employmentdiscrimination(Lawler and Bae, 1998). This study was conducted in Thailand, thoughmorerecent work we have done finds similar relationships in Taiwan.

USA

Job Seekers Want Money And Job Security

August 20 2006- Senior managers believe that pay and job security are the most importantfactors when workers consider job offers according to a recent survey developed by Robert HalfFinance & Accounting. 27 per cent of chief financial officers (CFOs) polled believed that salarywas the biggest consideration for prospective new hires and 24 per cent highlighted companystability. The results were similar to a 2001 survey asking the same question.

Over 1,400 CFOs from a stratified random sample of U.S. companies with 20 or more employeeswere asked, "In your opinion, which one of the following is the most important consideration for

job candidates today when evaluating employment offers?" CFOs responsed:

Salary levelStability of the companyWork environment/corporate culture

Career advancement opportunitiesEquity incentives/stock optionsOtherDon't know/no answer

2006

27%24%22%17%4%3%3%

2001

23%28%20%21%4%0%4%

"Businesses that have a successful track record and offer competitive compensation are at anadvantage during the hiring process," said Max Messmer, chairman and CEO of Robert HalfInternational Inc. and author of Human Resources Kit For Dummies(R) (John Wiley & Sons, Inc.)."Employers should emphasize all the factors that distinguish their firms, such as exceptional payand benefits, a history of stability and growth, and a supportive corporate culture."

Max Messmer considers that small and newly emerging businesses that cannot afford premiumsalaries can highlight their other qualities such as the strength of their leadership team. "The bestcandidates tend to base at least part of their employment decisions on how much they can learnon the job. During the recruiting process, hiring managers are selling potential employees as


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much on their own experience and management style as on the other features that make the firma great place to work."

Canada

Employers Struggling To Find And Keep EmployeesJune 20 2006- A survey by Hewitt Associates, a global HR services company, has found that bigand small organizations in all industries throughout Canada are finding it challenging to attractand retain workers. Most of the 232 employers in the survey are focusing on flexibility as a meansof addressing the problem.

While three-quarters of Canadian companies are finding difficulties in attracting or retainingemployees, 44% have problems with both. The situation is worst in Alberta where 97% ofrespondents were having difficulties and almost two-thirds reported that both attraction andretention were challenging. With an aging workforce - half are over 40 - the problem can only getworse.

According to Cathy Course, a senior benefits consultant in Hewitt's Calgary office: "Canadianemployers understand that they will all soon be facing the labour shortages companies in Albertaare already experiencing. As a result, we're working with HR professionals across the country tolook at new ways to adapt workplace policies and practices to appeal to workers in a competitiveenvironment."

Flexibility offers a solution, according to the survey. More than half (52%) of respondents said thatflexible hours and benefits will help attract and keep the best employees.

John Tompkins, a principal in Hewitt's Toronto benefits consulting group says that: "Organizationsare beginning to realize the need to convince older workers to stay on the job longer. At the sametime, they want to convince Generation X and Y employees - those under age 40 - to join them.With an employee population so diverse in terms of age, a 'one size fits all' approach is no longer

effective. Employers who can identify and meet the different needs of their employees will bemost successful in the current labour market."

Hewitt's survey indicates that 55% of organizations are intending to introduce formal phasedretirement programs, offering shorter working weeks for older employees near retirement, by2009. This compares with the 26% that have such schemes at present. Additionally, there isincreasing interest in offering other flexible arrangements such as:

Job sharing Flexible hours Compressed work schedules Vacation buying and selling

Working from home Elder care support Wellness accounts Unpaid time off for charitable work Assistance with home technology purchases

Hewitt advises employers to take a disciplined approach to such working arrangements."Employers need to balance their need to have the right talent with the reality of their financialsituation. We recommend organizations undergo a process to audit their current talent pool,


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assess their future workforce needs, and then determine what they want to change and how thatfits within their budget," said Cathy Course.

"Workers need to really understand the value of what employers are providing over and abovewages and salary," she said. "With the labour shortage, organizations can't afford to loseemployees because they don't know the extent of their full compensation package."

Japan

Pacific Bridge, Inc. - Japan HR Publications

Economic Challenges Spur Non-Traditional Employment in Japan

Published inSHRM Global Perspectives, a publication of the Society for

Human Resources Management Global Forum

Print Article

By Ames Grossand Caroline Tran October 2003

For more than a decade, the Japanese labor market struggled with a recessionary economicenvironment and a very tough employment atmosphere. During this time,traditional ideas ofemployment and career in Japan have come under fire and many Japanese have been forced torethink conservative concepts. Ideas such as lifetime employment and seniority-based pay are nolonger feasible for some Japanese companies facing economic hardships. As a result, someJapanese employees have revised their traditional employment concepts and found morecreative ways to develop careers.

Alternative employment in Japan has included work-sharing, overseas jobs, and part-timeemployment. Work-sharing, or flexible work schedules, have given more people previously

unemployed or not considering employment, such as housewives, stay-athome mothers, andretired seniors, the opportunity to enter the workforce and contribute to economic development.The greater numbers of Japanese workers willing to move overseas to find employment has alsohelped in the diversification of Japan's labor force. However, the tremendous growth in thenumber of part-time workers and the continued underemployment of youths in Japan is a growingconcern to the Japanese government.

Work-Sharing

The Japan Institute for Labor Policy and Training (JIL) released a report in 2002 on work-sharingin Japan. According to the report, it is generally believed that when a country is in recession, thenumber of part-time and non-regular workers tends to decrease in order to lower costs and

maintain the number of regular workers. However, what has been evident in Japan is that thenumber of full time regular Japanese workers has decreased while the number of part-timeworkers has increased. Although this may seem a reasonable means to combat loweredrevenues and rising costs during times of recession, part-time workers in general do not have thesame loyalties and career development as regular workers.

Thus, in Japan, work-sharing has been utilized to combat the rising number of part-time workersand has been a highly debated topic among employers in Japan. JIL's report outlines three typesof work-sharing: 1) employment maintenance, 2) job creation, and 3) diversified working patterns.
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Employment maintenance work-sharing mainly targets midlevel employees, allowing them toreduce their work hours and share them among themselves. This allows the employees to stayemployed with their wages adjusted for the hours they work. Job creation work-sharing involvescutting work hours at national and company levels so that the overall number of jobs canincrease. Diversified work-sharing allows employees to choose their work hours in order to allowpersons previously not considering employment, such as housewives and the elderly,opportunities to enter the labor market. These varied working patterns allow more persons to beemployed in the economy.

Japanese companies have been experimenting with these types of work-sharing. For example,Sanyo Electric Co., Ltd. announced in January of 2003 they were introducing a work-sharingprogram in one of their factories. Over 200 employees were involved in the program whichrequired workers to take three more days of vacation per month and reduce their basic pay by12%. Sanyo estimates that as a result, the company will be able to retain its employees and save100 million yen (US$921,000).

Employment Overseas

While in the past Japanese employees felt that assignments overseas were hardship posts with

few career advancement opportunities, more people in Japan are seriously considering workingabroad either for foreign or Japanese companies. As the job market becomes tighter and jobvacancies grow scarce domestically, those who are unemployed increasingly view workingabroad as a viable and attractive career move. This is even the case for more senior or mid-levelworkers. Besides opportunities in the West, many Japanese are interested in working in Asia,particularly in China, where many see huge potential for growth.

According to Tomoko Hata, Tokyo branch manager and marketing director of PaHuma Asia Co.,a human resources company, the number of Japanese people registering with the company topursue career opportunities abroad has increased tremendously over the past five years. "Before,it was mostly women who were looking for jobs abroad, but the recent trend is for more men to beregistering with us. One reason is that Japanese companies have recently been giving workersfewer opportunities to work abroad than they did before. As a result, many of these men are

looking to try and build their careers themselves by quitting the company and going overseas,"Hata says. "Working abroad independently was considered something unusual andunconventional in the past, but now it is not. For many people, it is just one of the alternativesthey consider," she adds.

Freeters, Part-Time Workers

In a nation that values seniority and still hires 90 percent of new employees straight out ofcollege, the recession has caused many companies to severely restrict the numbers of newgraduate recruits in order to retain their mid-level and senior employees. Thus, many unemployedyoung people choose part-time work as a means to earn income.

The slang term, "freeter," derived from the English-German combination of "freearbeiter' is used

to describe these individuals. Arbeit is the German word for work. Many freeters performmundane clerical tasks as well as work in menial jobs in convenience stores and restaurants.Freeters often move from job to job depending upon the availability of part-time positions and areunable to gain significant work experience or build up advanced skills.

Although in the past many freeters chose to engage in this type of part-time work in order topursue other hobbies such as music or art, more and more people are forced to become freetersout of necessity. As a result, the average age of freeters is also increasing.


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According to a white paper released by the Cabinet Office's Quality of Life Bureau, the number offreeters in their early 30s increased by 270 percent in 1989. The same study found that in 2001,one in five Japanese people between the ages of 15 to 34 were freeters or unemployed.Currently, there is an estimated 2 million freeters in Japan, approximately 4 times the numberfrom 20 years ago.

In order to curb the numbers of freeters in Japan, the Prime Minister Junichiro Koizumi hasannounced new policies to assist these young part-timers in gaining full-time, regularemployment. His policies include establishing job placement offices and distributing subsidies tocompanies hiring freeters. Whether his policies will indeed be able to stem the growing numbersof part-timers has yet to be determined.

Conclusion

It may be some time before Japan is able to climb out of its current economic recession.However, the ways in which its society deals with its current employment situation and its policiesto sustain labor force development will greatly affect the country's propensity for a faster recovery.In the meantime, many Japanese people will continue to find different means to eke out a livingunder very challenging conditions.

China

Pacific Bridge, Inc. - China HR Publications

2005 Human Resources Trends in China

Published by Pacific Bridge, Inc. Print Article

By Ames Gross and Loren Heinold May 2005

After more than a quarter century of economic reforms, China is still booming. But while Chinacontinues to experience rapid growth, it is a much different country than it was in the late 1970s.One area of substantial change has been Chinas human resources market. As more foreigncompanies enter China, as Chinese state-owned enterprises privatize, and as Chinas dynamicprivate sector catches up with the rest of the world, demand for Chinese workers is growing.While improvements in Chinas higher education system have led to growing numbers of entry-level white-collar workers, there are continuing shortages of both mid-level and senior-levelmanagers and increasing shortages of blue collar workers. The way in which these issuesdevelop and are resolved will have a large impact on any firm looking to expand or get involved in

China.

I. CHINAS HR MARKET: WHITE COLLAR WORKERS

A. ENTRY-LEVEL WORKERSFor companies looking to hire entry-level white collar workers, Chinas HR market is morepromising than ever. The number of Chinese graduates from all fields of study entering the jobmarket is skyrocketing, and fierce competition for jobs has led to flat wage levels. To be sure,there is a substantial difference in the prospects of graduates based on the university they


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attended, their English level, and the quality of their work experience (if any). However, thegeneral trend is that that this group has been growing, keeping wages flat and providingemployers with a large pool of talent.China has traditionally had very low levels of higher education; 50 years ago, only two out ofevery 10,000 Chinese people received a college education. That percentage has increasedsubstantially since then, more than doubling in the last decade alone. The class of 2005 isestimated to be 3.4 million, an increase of 600,000 from 2004. According to Chinas Ministry ofEducation, the proportion of 18-22-year-olds attending Chinese universities last year was 15%,compared to 7% in 1995.These increases mean that the Chinese workforce is significantly better educated than just a fewyears ago but it also means that the competition for entry-level white collar jobs is much fiercer.Chinas economy has been growing at a rapid pace for more than 20 years, but economic growthhas been outstripped by the growth in higher education, and there are not enough jobs to goaround.

According to Chinese government estimates, nearly 800,000 of the 2004 college graduates werestill jobless in September 2004. There are some jobs available, but graduates expecting a fasttrack to riches and a comfortable life have turned down jobs they feel to be below them. AChinese university survey estimated that more than half of the class of 2003 that was stillunemployed at the end of the summer after graduation had been offered jobs but had refusedthem. College education used to mean a guaranteed high-level job after graduation in China, butthe move to a market economy, the slimming-down of state-owned enterprises, and the swellingranks of university graduates has made the job market much more competitive, despite Chinaseconomic growth and the entrance of many foreign companies.

The expansion in higher education in China and the relative lack of jobs means that companieshave a large pool of qualified entry-level candidates from which to choose especially ifcompanies need technical workers. Despite high levels of college enrollment in the US, therewere less than 60,000 engineering graduates in 2002, or 5% of all college graduates. In contrast,China graduated 219,600 engineers in 2002, which represented 39% of all college graduates.Nearly 60% of all degrees awarded in China were in engineering and the physical sciences,compared with only 17% in the US. In 2004, 4.2 million new students enrolled at Chineseuniversities, as China surpassed the US in terms of total number of students enrolled. China israpidly building up a large, well-educated technical workforce. However, Chinas emphasis ontechnical skills and science degrees means that there is still a slight shortage for entry-levelpositions in areas such as sales and marketing.

B. MID-LEVEL MANAGERSAs the number of entry-level workers grows, the number of mid-level managers is growing quicklyas well. In the 1990s, China experienced rapid growth in both higher education and foreigninvestment. Many Chinese graduates from the 1990s worked for foreign companies that hadbegun entering China, and now they have 5-10 years of quality work experience. But while thisgroup continues to grow, increasing the number of mid-level managers, demand is stilloutstripping supply. As foreign companies enter and expand their operations in China, they needmid-level managers to run their offices and factories. Because of the high level of directinteraction with the local workers, local mid-level managers are ideal. Local Chinese now fill

almost all mid-level white collar jobs and some are now entering the upper mid-level. For thebest mid-level managers (local Chinese from top universities with 5-10 years of work experienceat leading foreign companies), there is still very stiff competition among companies. Five yearsfrom now, when the current group of college graduates gains significant work experience,competition for mid-level managers may ease.

C. SENIOR MANAGERSChina has dramatically improved the quality of its workforce, but it still lacks a large pool of veryexperienced senior managers. The sweeping changes China implemented in its reform of the


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higher education system have only been in place for a few years, and the beneficiaries are younggraduates fighting for entry-level jobs, not senior-level employees with the requisite experience tobe effective senior executives. According to a 2004 survey conducted by the American Chamberof Commerce in Shanghai, along with six other chambers of commerce, 40% of foreigncompanies report having trouble filling top managerial positions for their operations in China. Thedemographic most likely to serve as senior managers Chinese in their late 40s and 50s wentthrough a severe interruption in their education during the Cultural Revolution from 1966-1976.Partly because of this, many lack the necessary education and training to serve as seniorexecutives.

Many MNCs began by using expatriates as managers in China but are now trying to transition tolocal managers, returnees, or other overseas Chinese who provide good experience at a lowercost. This has led to stiff competition between firms for a limited number of top level Chineseexecutives, driving wages up to Western levels in some cases. Adding to the problem has beenthe entrance of local Chinese firms into the market for top management talent. A long-time victimof brain drain, as Chinese talent was poached by multinational firms, China is now beginning toenjoy a reverse brain drain, as some senior management executives are leaving their posts inforeign firms in China and switching over to Chinese firms that offer dynamic growth prospects,greater opportunities for advancement, and increased compensation. Firms looking to becomeinvolved in China should recognize that, while China has a huge population and an increasinglywell-educated workforce, it is becoming more difficult and more expensive to attract top-levelmanagement. As China continues to develop, the composition of its workforce will no doubtadjust to meet the demands of the market, but currently China lacks the senior managerial talentnecessary to lead the growing number of educated workers.

II. CHINAS HR MARKET: BLUE COLLAR WORKERS

For foreign companies looking for cheap factory labor, they may be surprised to find that Chinamay not retain its dominant position forever. Recently, companies in southern Guangdongprovince, a hotbed of foreign direct investment (FDI) and labor-intensive manufacturing, havecomplained of labor shortages. Despite Chinas population of 1.3 billion, much of which remainsunderemployed in the agriculture sector (there are an estimated 170 million surplus workers out

of the 800 million people in Chinas rural areas), the appeal of becoming a migrant worker andtraveling to find a job in a coastal city has dropped. According to a report from the Chinese policyresearch institute of Dongguan, a main manufacturing center and FDI recipient in Guangdongprovince, there is a shortage of nearly two million migrant workers in the Pearl River Delta region(the large manufacturing hub in southeastern China, directly north of Hong Kong) alone. Whilethe region has long had a shortage of highly-skilled workers and managers, the shortage ofmanual workers has only emerged over the last several years.

While some claim that the shortage is specific to southeastern China, arguing that other regionssuch as Shanghai are still attracting large numbers of factory workers, others point to deeperstructural problems. Chinas implementation of special economic zones (SEZs) on its east coastin the early 1980s created an extremely successful system where workers traveled hundreds,sometimes thousands, of miles to get factory jobs. Now, economists are positing that this systemmay not be sustainable, and that factories may have to move to the regions where the workersare located, not vice versa.

Just how serious is the growing shortage of manual labor? According to the Peoples Daily,Chinas state-run newspaper, China now has 88 vacancies for every experienced skilled bluecollar worker and 16 vacancies for every factory technician. This is leading to rapidly increasingwages on Chinas East Coast, prompting some corporations to move to Chinas cheaper inlandregions or to Southeast Asia (especially Vietnam). As the expected demographic changescontinue to unfold, the situation could worsen. The effects of Chinas one-child family-planning


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policy, implemented in the late 1970s, are now being felt: the number of people between the agesof 15 and 19 is predicted to decline from 124 million to 103 million by 2010.

Multi-national corporations, with better reputations and better working conditions than local, HongKong, or Taiwanese companies, have been more successful in recruiting and retaining blue collarworkers. And some MNCs have been successful in attracting these workers by offering perks and

increasing worker satisfaction. But while China remains the factory of the world, labor shortagesand rising wages especially on the East Coast will undoubtedly affect the strategies of firmslooking to use China as a manufacturing base.

CONCLUSIONS

An examination of Chinas job market reveals several unexpected developments. First,

despite its status as a developing country, China is producing a surprising number of

university graduates, especially in technical fields. These new graduates are flooding the

market, making talent plentiful and cheap for a number of different industries. Second,although the number of experienced local mid-level managers is growing quickly, there is

still a supply gap, as foreign companies demand increases. At the middle white collar

levels, supply may catch up with demand when the current group of college studentsgraduates and gains work experience, but this will take at least several years to happen.

Third, despite its incredible economic success and substantial improvements in education

and training, China still has a severe shortage of top-level managers. Finally, despitebeing the worlds largest country, with 1.3 billion people and nearly 200 million surplus

workers, China is experiencing a shortage of manual laborers on the East Coast. This is

affecting factories production, increasing their prices, and adding to the difficulty of

doing business in China. In short, while China has been successful in educating theengineers to innovate and design new generations of high tech products, it soon may not

have the workers needed to produce them or the managers needed to supervise the

projects. While firms should not let these developments keep them from entering China,

they should be aware of difficulties they may cause.

hongkong

Pacific Bridge, Inc. - Hong Kong HR Publications

Hong Kong 2005 HR Update


By Ames Gross and Rachel Weintraub August 2005

Overview

Hong Kong s labor force is approximately 3.5 million, about half the countrys total population.The economy is showing strong growth (close to eight percent GDP in 2004), though the size ofthe workforce has grown minimally, with only a one percent increase last year. However, for2005, an overall two to three percent increase is predicted, according to the HK Institute of


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Human Resource Management. Very large companies (500 employees +) are expected toincrease employment by five to seven percent; a one to two percent increase is expected amongsmaller companies.

Department of Labor

The goal of the Department of Labor (DOL) in Hong Kong is to improve the well-being of thecountrys workforce by promoting the health and safety of its workers. The Department is incharge of four main areas: Employment Services, Employee Rights and Benefits, Labor Relationsand Safety and Health at Work.

The Employee Rights and Benefits Program was setup to establish and enhance employmentstandards in HK, as well as to create a balance between the interests of employers andemployees. The Program is governed under the Employees' Compensation Ordinance, theEmployment Ordinance (EO), Employment of Young Persons Regulations, and others.

To promote safety and occupational health in HK, the DOL provides training courses, trainingproviders and the registration of safety officers/auditors for companies. In 2004, over 800 trainingcourses were held on occupational safety laws in HK, including more than 300 custom sessions.In total, more than 13,000 employees and employers attended training sessions in 2004.

Programs to Combat Unemployment

The unemployment rate in HK has been gradually improving over the past several years and iscurrently around 6.7 percent.

Young Workers

In order to increase the number of young new hires, the DOL established the Youth WorkExperience and Training Scheme (YWETS). The YWETS offers guidance and counselingservices to youth and focuses on such areas as communication and interpersonal skills.Employers who hire young workers will receive $2,000/month (US$260) while the traineeparticipates in on-the-job training.

Mid-Level Workers

To help improve the employment situation for middle-aged job seekers, the DOL launched theRe-employment Training Program in 2003. This service assists those who are age 40 and abovein finding new employment opportunities. Any employers who hire a participant of this program

will receive a $1,500 (US$200) monthly allowance for on-the-job training. By the end of 2004,over 8,000 employee participants of the Re-employment Training Program had been placed innew positions.

Salaries


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Over the past several years, salary increases on the whole have been limited in HK, with lessthan a one percent overall increase in 2004. However, for 2005, about of companies plan toraise salaries, though the increase is expected to be only around one percent on average. On theother hand, non-guaranteed bonuses are on the rise, now estimated at about 1.5 times anemployees monthly salary. Many companies are switching from guaranteed bonuses to non-guaranteed in order to motivate and reward staff based on performance.

India

Pacific Bridge, Inc. - India HR Publications

HR Situation in India: 2005 Update


By Ames Gross and Rachel Weintraub August 2005

Introduction

As of July 2005, Indias population stands around 1.08 billion with a labor force of just over 480million. However, unemployment remains high at around 9.2 percent. Some of the leadingindustries in India include telecommunications, IT and software.

Labor policy and laws are established and regulated by the Ministry of Labor in India. Some of theareas covered by the Ministry of Labor include: workplace health and safety, minimum wage,unemployment benefits, employee training/skill-improvement programs and industrial relations.

New Pension System

On January 1, 2005, India established the Pension Fund Regulatory and Development Authority(PFRDA). Its primary function will be to oversee the creation of Indias new pension system(NPS). The NPS will give private companies the responsibility to compete for and managepension accounts. Indias current pension scheme, the Public Provident Fund (PPF), is managedby the government. Although the NPS will be optional for both public and private employees, theIndian government hopes that a smooth transition will eliminate the need to continue with thePPF.

The PFRDA will create eligibility requirements for potential Pension Fund Managers (PFMs) andwill define the number of PFMs allowed in the market. It has the responsibility of ensuring thatonly quality players become certified. It will also provide a regulatory framework within whichPFMs will operate. Employees who choose to invest in the NPS will contribute 10 percent of theirannual salary to a certified PFM, with the government contributing a similar amount. PFMs willprovide three types of accounts for investors to choose among: safe, balanced and growth. It ishoped that this move toward privatizing the pension system will both increase rates of saving andcapital accumulation, and relieve pressure on the governments fiscal deficit.

Special Economic Zones; Less Stringent Labor Laws


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The Indian government hopes to pass legislation in 2005 that will allow for the establishment ofChinese-style special economic zones (SEZ) within India. The legislation is part of an effort toattract more foreign direct investment (FDI) into India and also to improve the countrys stagnantemployment rate. Indias prohibitive labor laws have been identified as a strong deterrent toforeign companies establishing or expanding business within India. The planned SEZs willaddress this issue by allowing companies that invest within a SEZ to bypass these restrictivelaws.

Currently, a company in India that employs more than 100 people must first obtain permissionfrom the state government before they may fire any employee. Current labor laws also requirethat this same type of company receive state government approval before hiring contract workersthat may not be offered a permanent job later on. These laws have been blamed for encouragingworkers to strike without proper cause and also for restricting proper hiring and lay-off cycles.Many believe that Indias labor laws are a significant reason why Indias labor force has beenincreasing twice as fast as the rate of employment.

The Indian government hopes that with the passage of legislation creating SEZs, foreigncompanies will be able to avoid restrictive labor laws, which in turn will encourage greater rates ofFDI and stronger employment rates. If the legislation is passed, individual Indian states will be

able to decide if they will provide for SEZs within their state.

New Fringe Benefit Tax

Oftentimes, one half of an employees compensation in India is given in fringe benefits (i.e.housing and medical allowances, cost-of-living adjustment). Thus, these benefits play afundamental role in attracting and retaining employees. As part of the 2005-06 budget, the IndianGovernment has implemented a new fringe benefit tax (FBT) that will increase the cost of nearlyall perks offered by companies to their employees. Employers are now responsible to pay a 30percent tax on all benefits given to employees outside of regular salaries and wages. Many Indianfirms fear that the FBT will have a significant impact on their bottom lines. Employees fear that

this will result in altered compensation packages designed to shift the burden of the new tax awayfrom employers.

The announcement of the new tax has been met with opposition from Indian companies. Indiancorporations argue that the new policys broad definition of what a fringe benefit is will make itunable to differentiate between money spent on employees as a perk, and money spent onemployees for legitimate business reasons. Perks such as company cars, club memberships andholidays through company accounts will all be charged the 30 percent tax. What many Indiancorporations fear is that expenses for things such as travel between cities for marketing reasonswill also be labeled as a fringe benefit and will get taxed accordingly. Some fear that the resultingconfusion will lead to heavy litigation.

There also exists the expectation that rising tax liabilities for Indian companies will translate intoless generous compensation packages for Indian workers. Some believe that employers willeither start taxing employees, or will reduce perk components by 30 percent to match the newtax. Despite the general negative reception of the new tax, the Indian Government has reaffirmedthat fringe benefit taxes are here to stay.

Higher Demand for Experienced Executives


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As Indias economy continues to experience strong growth, top Indian software companies andoutsourcing companies are rapidly gaining global influence. As these companies becomeincreasingly sophisticated, there is rising demand for experienced executives who can helpmanage growth and penetrate foreign markets. There are a limited number of Indian executiveswith this type of western business acumen, and that has caused some firms to offer substantialpackages to lure executives from top U.S. companies.

Some successful Indian companies are currently experiencing quarterly growth rates as high as50 percent per quarter. Many of these companies are expanding in India and establishing officesand headquarters overseas. This rapid development has made some Indian companies willing tooffer compensation packages to western executives that are more attractive than such executivesare currently getting from their U.S. employers. Reports indicate that recent months have seen asignificant number of U.S. executives from well-established companies being picked up byexpanding Indian businesses, with many of the positions being located in India.

In a February 2005 survey taken by over 300 executives from U.S. technology firms, 9 out of 10said that competition from Indian and Chinese firms would intensify within the next two years.There is already evidence that many Indian technology companies are at the same level ofcompetitiveness with their U.S. counterparts. As Indian companies continue to become important

players in the world economy, the demand for experienced U.S. executives from Indian andChinese companies is likely to grow.

US Students Seek MBA Education in India

More and more US companies are moving to India to take advantage of the countrys highlyeducated and inexpensive labor force. For instance, Oracle, one of the worlds largest softwarecompanies, established facilities in Bangalore and Hyderabad, India in 1993 and now employsover 600 people. GE Capital India, a subsidiary of General Electric, experienced 50-100 percentgrowth per annum and was hiring upwards of 400 new employees per month during its highestgrowth period. To benefit from Indias booming economy, many US MBA students are going to

India for education in order to become acquainted with Indias market and business environment.

In the past, Indian students often went abroad to the US or Europe to obtain the best educationand business exposure, but now that trend is beginning to change. An increased number ofIndian students are attending Indian universities, while US business schools such as Harvard andStanford University are sending students to India as part of their education program. For instance,the Indian School of Business (ISB) in Hyderabad was established several years ago and offershigh quality post graduate, executive, and doctoral programs. The ISB is affiliated with theUniversity of Pennsylvanias Wharton School and Northwestern Universitys Kellogg School ofManagement. US business students can benefit from ISBs shortened programs of one yearrather than the typical two, and tuition costs of nearly one-tenth the price of a typical US businessschool.

The Economist Intelligence Unit, a provider of global forecasts in dozens of countries andindustries, rated the MBA program at the Indian Institute of Management (IIM) ( Ahmedabad,India) as one of the best in the world. IIMs style of case-study teaching (originally created basedon Harvard Universitys system), attracts many overseas exchange students. Presently, theschool is internationalizing its curriculum to include more education on multinational corporationsand organizations and plans to expand its exchange program over the next few years. IIM alsoexpects an increased number of international students to enroll in the full-time program, as itscost is only 250,000 rupees (US$5,700) for the two year program.


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Indonesia

Pacific Bridge, Inc. - Indonesia HR Publications

Human Resources in Indonesia

Internal Publication Print Article

By Pacific Bridge, Inc. Summer 1997

Overview

Over the past several years, Indonesias economy has experienced rapid growth. Indonesiaincreased its per capita GNP 1000% between 1967 and 1993 from $70 to $700. (1)

Indonesia s robust economic growth was initially stimulated by its government policies. In 1986,following a sharp decline in oil prices, the government initiated a structured deregulation package.The package allowed the government to stabilize and adjust the Indonesian economic structurethrough the use of strict fiscal policy, deregulation and institutional reform. As a result, Indonesiaexperienced a boom in both domestic and foreign investments that propelled the economy on apath of rapid export-oriented labor-intensive growth.(2)

Employment Trend

Rapid economic development has fundamentally altered the structure of Indonesias labor forceover the past two decades. In 1971, less than 40% of Indonesian labor worked in the industrialand service sectors, while over 60% worked in the agricultural sector. However, as members ofthe Indonesian workforce moved away from agriculture and towards trade and manufacturing,

this distribution changed dramatically. By 1990, only 54.8% were employed in the agriculturalsector, showing a progressive decrease in agricultural workers. Of the remaining workers: 14.7%were working in trade, 13.1% were engaged in service industries, 11.4% were involved inmanufacturing, and the remaining individuals were distributed in other industries.(3)

The dramatic economic growth also altered the gender composition of the workforce, as the needto improve family economic conditions induced an increasing number of women to enter theworkforce.

The following table illustrates this trend:

Table 1. Number of Workers Employed in Manufacturing in Indonesia

by Gender, 1982-1990

Number ofEmployees

1982

(000)

1986

(000)

1990

(000)

Total Increase

1982-1986

Total Increase

1986-1990

Male 1,852 2,113 2,779 14% 32%

Female 879 992 1,517 13% 53%
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Source: Indonesia Labor Market Policies and International Competitiveness, The World Bank,Sept. 1995.

Another impact of the foreign and domestic investment boom was an increase in workingopportunities, which in turn led to an elevation of the employment rate.(4) Between 1971 and1990, employment increased from 37.6 million to 71.6 million, while unemployment decreased by

1.3 million within the same period of time. (5)

The size of the Indonesian labor force increased from 41.3 million in 1971 to 82.2 million in 1993.(6) In 1995, the US Commercial and Information Center in Jakarta estimated that 75% of the 83million people in the labor force are between the ages of 15 and 34.(7) Furthermore, the centernoted that the labor force is thought to be growing at about 2.8% per year despite the fact thatpopulation growth has declined to 1.7%.(8) At the current labor force growth rate, developing andcreating adequate employment opportunities has become one of the most pressing prioritiesfacing the Indonesian government. In addition, Indonesia is experiencing shortages of valuablemanagerial and professional personnel.

Acquiring the Best Employees

The existing skilled management personnel in Indonesia are well aware of the demand for theirservices and tend to charge accordingly. A number of companies cope with the shortage byimporting staff, although the process can often be significantly more expensive. When a companyhires an expatriate, it must consider a variety of costs housing, schooling for dependent childrenand health insurance as well as other benefits, such as a car with driver. In addition, theIndonesian government limits the number of work permits granted to expatriate staff. (9) Anothertactic used by many multinational companies in order to overcome the shortage of skilledmanagerial employees is the development of qualified local staff through in-house or on-the-jobtraining. However, this process can be expensive and there is always a possibility thatcompetitors will lure away the trained employees.

For growing local companies, pirating staff from multinational companies offers a quick and easysolution to the need for management and professional staff. Pirating has helped local companies

to get the level of education they need from their candidates, as many multinational companiesmaintain a strong reputation for good in-house training. In addition, pirating may also occuramong multinational companies themselves. Many of these cases arise when a professional asksfor a higher salary than the initial company can afford to pay.

Recruiting Indonesian students who study overseas is another option for companies to cope withthe shortage of skilled personnel. In the United States, the recruitment is usually done throughHome Country Placement a program conducted by Northwestern University in Boston as part ofits Cooperative and Education Service. This center receives requests from more than 400 majorIndonesian and US companies daily; the inquiries are then matched with student profiles. Thecenter also assists the US Indonesian Student Association (PERMIAS) by hosting an IndonesianJob Fair each year. Recruiting recent Indonesian graduates from overseas universities hasprovided employers the opportunity to recruit the best employees straight from university.

The Indonesian government readily acknowledges that training a sufficient number of skilledworkers to meet the growing demands of the rapidly moving economy is one of the greatestchallenges facing Indonesia. The government further understands that the failure to develop theessential manpower skills to maintain economic growth could result in the loss of economicopportunities and an inability to compete internationally.(10)

Human Resources Development
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Aware of the need for human resources development, the Indonesian government has made aconcerted effort to make development a high priority and to improve the quality of humanresources. In its Repelita VI five-year development plan, the primary goal of human resourcedevelopment in Indonesia is to increase the capabilities of each individual and thus all ofIndonesian society as a whole. Furthermore, This will be reflected in religious beliefs,improvements in physical and mental health, development of knowledge and skills, increasedadherence to a productive work ethic, a sense of national responsibility, and increasedawareness and understanding of the importance of preserving natural resources and theecosystem. Other goals include the development of a sense of self-reliance, development ofleadership and entrepreneurial skills, and an increased number of national development cadreswho have patriotism, perseverance, initiative, discipline, social awareness and awareness of theirrights and duties. (11)

Indonesias policymakers are now redefining the role of the government, from being the soleprovider of education to the catalyst for stimulating private-sector training programs, includingemployer-sponsored schools, vocational centers, and polytechnic schools. (12)

According to the World Bank, the higher education system in Indonesia has grown rapidly duringthe past 20 years. General education gains, investment in a wide range of training facilities and

various forms of on-the-job training has improved the skill level of Indonesias labor force. Skillstraining is provided either through senior vocational high schools, which account for 27% of uppersecondary enrollments, or through public training centers that offer short specialized courses intargeted disciplines. (13)

As part of the governments effort to improve the quality of human resources, it implemented theNine Years Compulsory Education Program in 1994. The program is an extension of theprevious six-year compulsory education program that the government originally launched in 1984.In the new program, children between seven and 15 years of age are required to attend schoolfor nine years, including six years of primary education and three years of intermediate education.Despite the existence of this program, 76% of the total workforce in 1994 only possessed aprimary educational background.

Beginning in January 1997, the Indonesian government will impose a US $100 levy on everyexpatriate in order to establish a skills development fund to help local professionals. In addition,companies in the financial and manufacturing sectors must pay compulsory training levies toequip Indonesians with the skills necessary to do the work currently performed by expatriates.

In 1996, a US $20 million loan from the World Bank was used to finance a US $25 million SocialSectors Strategy and Capacity Building Project. The main objective of this project is to strengthenIndonesias efforts to sustain high income growth rates and poverty alleviation, improve thequality of social sector services, assist with the transition towards decentralization, and enhancethe development impact of investment.(14) In the same year, the Asian Development Bank alsogave a US $80 million loan to Indonesia to upgrade technology capabilities of Indonesianindustries. (15)

Building Working Relationships with Indonesians

According to Bruce Gillespie, chief consultant ofWings of Eagles, a program that has conductedmany in-house training programs in Indonesia, building positive relationships with Indonesians iseasy as long as you are honest, open and sincerely interested in each person as an individual.Furthermore, Gillespie commented that consultants, experts and mentors must be adept at
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building relationships in the same way that Indonesians build relationships - with sincerity, warmthand commitment.(16)

Indonesians love to learn. The company can stimulate its employees by giving sources ofinformation for those employees who wish to further develop their expertise. Another usefultechnique is to provide numerous learning challenges in actual daily work. Follow-up action is

important, since it demonstrates that the management staff cares about the ability level of theirstaff and lets the employees know that their work is important. (17)

Indonesia is a country ingrained with strong cultural traditions. Therefore, it is crucial for acompany to consider cultural values in order to be successful in Indonesia. For example, religionis an important part of Indonesians everyday life. Muslims need time for their everyday prayer,while Hindus (especially in Bali) have a specific daily schedule for religious rituals. In addition,when a company is planning to provide a cafeteria at employees facility, the company should beaware that meals must be prepared in a accordance with Islamic traditions.(18) Another culturaltradition that Indonesians value is harmony and consultation leading to consensus. Lastly,Indonesians tend to confront issues in an indirect manner as an adherence to Indonesianconcepts of politeness and aversion to embarrassment. (19)

Employees Wage Rate and Benefits

Citibank advises foreign investors it is unwise to see Indonesia as a nation which can provideprofit merely by virtue of its cheap labor. However, Citibank also noted that major foreigncompanies report that Indonesian workers quality and productivity can be as high as elsewhereas long as the company provides the workers with reasonable wages, a good workingenvironment and a positive channel of communication between management and workers.(20)

In Indonesia, the Ministry of Manpower regulates the minimum wage rate, or the lowest basicwage including permanent allowances. The minimum wages are fixed by calculating the level ofminimum physical need (KPM), costs of living and labor market conditions. The minimum wagelevel is calculated for each region, and differs according to location. (21)

Indonesia first introduced its minimum wage legislation in 1989. Since then, the government hascontinuously increased the minimum wage level to meet the changes in KPM figures. As a result,the minimum wage rate in several regions is now equal to the KPM.(22) In April 1996, thegovernment increased the minimum wages by an average of 10.63% per region. The dailyminimum wage for the Jakarta area was increased from Rp 4,600 to Rp 5,200 per day or Rp156,000 per month.(23) The minimum wage rate does not include the overtime wage rate, whichis 1.5 times the hourly wage rate for the first day and two times wages per hour for the followingdays. The overtime rates on public holidays differ from the overtime rate on regular days.Pregnant and young workers may not participate in overtime.

In September 1994, the Ministry of Manpower issued a decree that requires all companies to paya 13th month of salary basic salary and fixed allowances timed with major religious holidays.

As of 1993, the monthly wage rate was Rp5 million (US$2,430) for managers, Rp2 million(US$971) for executive staff, Rp500,000 (US$243) for clerical staff, Rp400,000 (US$194) forskilled labor and Rp200,000 (US$97) for unskilled labor.(24) Nevertheless, The World ExecutiveDigestreported that Indonesias executive salaries in 1995 were still lower than those in mostother ASEAN countries. The aforementioned reported salaries do not account for various benefitspaid by the company which may include taxes, car with driver, credit cards, executive club
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membership, transfer fees, etc. Overall, the difference in the total salary package might not be asgreat as it appears.(25)

Table 2. Indonesian Executive Salaries

(in millions of Rupiah per month after tax) by Industry

Industry CEO/Director Vice President Senior Manager

Banking 27.0 - 41.0 7.5 - 11.2 6.9 - 7.8

Security 10.0 - 19.0 6.0 - 9.0 4.5 - 5.75

Trade & Distribution 12.5 - 20.0 7.0 - 9.5 3.5 - 5.5

Multilevel Marketing 6.8 - 9.2 5.5 - 7.5 3.5 - 5.0

Telecommunication 18.0 - 35.0 9.0 - 11.0 6.5 - 9.0

Source: Executive Salaries, Indonesia Business Center Online, www.indobiz.com.

In 1978, the government established the Manpower Insurance Program (ASTEK) for civil servant

employees. The government broadened the scope of the program in 1992 so that it would alsocover employees in private sectors.(26) The new program was enacted through Law Number 3 of1992 that is known as JAMSOSTEK. Initially, companies that employ more than 10 persons orhave a payroll of at least Rp1 million per month are obligated to participate. However, companiesthat already offer superior benefits may choose not to participate in the program. The law coverslife insurance benefits, retirement funds, free health care for workers (including spouses and up tothree children), and compensation for work-related accidents and illnesses. The employerscontribution and 2 percent of employees wages provide funds for the program for the retirementfund. PT ASTEK, a state owned enterprise, is responsible for administering the program.(27)

Regulations(28)

Besides regulating the minimum wage and detailing the employees insurance program, theIndonesian labor law delineates the regulations for standards of working conditions, the formationand rights of unions, and rules in employing expatriate staff.

The minimum age for employment in Indonesia is 15 years old, while the maximum workday is 7working hours per day or 40 hours a week. Working hours may be extended to 9 hours a day, 54hours a week with overtime pay. The regulation further stipulates that employees will receive atleast a half-hour rest after 4 successive hours of work as well as 1 day of rest per week. Thesingle rest day per week can be changed into 2 rest days per week given an agreement fromworkers regarding an 8-hour workday.

Annual leave entitlement for all Indonesian workers is 12 days a year. After six years in the sameorganization, a worker is further entitled to three months leave. Female employees may not beobligated to work on the first and second days of their menstrual periods. Although the officiallength of maternity leave is 1.5-3 months before and 1.5 months after birth, the law allows for amaximum three-month extension before the expected date as long as a medical certificateaccompanies the request.

A trade union at any level must register with the Ministry of Manpower. Furthermore, unions mustbe registered in order to enter binding negotiation contracts at any level. Collective laboragreements by independent unions beyond the plant level are still effectively impossible.
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Although termination of employment on the basis of establishment of union membership is notpermitted, the law allows a company to fire any worker who does not show up for work for 6consecutive days without a valid explanation.

The Ministry of Manpower may also require that an employer extend negotiated benefits to non-union employees in an establishment. Furthermore, the ministry can decide whether part or all of

a collective labor agreement can be applied to other employers/employees in the same field ofactivity.

The settlement of industrial relations disputes must go through several stages, such as bipartitenegotiations, mediation by a Ministry of Manpower official and settlement by regional and centralcommittees. Central committee decisions are binding unless nullified by the Ministry ofManpower.

Workers may strike only if negotiations with an official fail or if the employer refuses to negotiate.They must notify the employer and the Chair of the Regional Committee of their intention tostrike, and may only strike after the Chair has acknowledged the receipt of notification (usuallywithin 7 days). A strike must be suspended if there is an official inquiry.

The unionization process has been slow, due to Indonesian societys lack of familiarity with tradeunion practices. Although approximately 40% of the labor force is unionized, the Hong Kong andShanghai Bank estimates that active membership is only around 5-10%.

Currently, Indonesia has only one recognized union, the All Indonesia Workers Union (SerikatPerburuhan Seluruh Indonesia - SPSI), an organization that is further differentiated into industry-based sections. The government has insisted that an SPSI branch should representorganizations with more than 25 employees. According to Citibank, the government took thisaction in response to outside pressure from overseas. Many critics question the effectiveness ofSPSI as the employees representative, since factory managers often appoint branch unionofficials.

In addition, since negotiations are typically based on Indonesias preferred consensus system,

workers charge that the results are often biased against them. In the past, this has led to a largenumber of strikes occurring without prior notification to the Ministry of Manpower. Strikes usuallyrelate to employers failure to pay the minimum wage, denial of benefits, poor working conditions,and the termination of employees without just cause.

If a company elects to employ expatriate staff, it must conform to regulation number 4, whichrequires the company to submit a training plan for Indonesian nationals. The goal of this trainingplan is to educate and train Indonesian nationals to later take over positions currently performedby expatriates. In most manufacturing industries, blue collar and supervisory level positions areclosed to foreign workers, while there is three-year limit for technical staff. In other sectors suchas export marketing, tourism and consultancy, work permits are not difficult to obtain. For allpositions, a sponsorship letter is required from the company or government agency.

Foreign investors who are going to set up an office in Indonesia must submit a manpower plan tothe Investment Coordinating Board. Foreign investors are allowed to fill director positions incapital investment companies in direct proportion to the foreign shareholding for such companies.

Expatriate employees enter Indonesia on a business visa that can later be transferred to a one-year temporary residency visa (KIM-S). This visa must be renewed each year with a new letter ofsponsorship. Dependents of the aforementioned expatriate employee may enter the country witha social and cultural visa. The process of obtaining the KIM-S (one-year temporary residence


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visa) is long and arduous. As a result, many companies prefer to employ an agency to handle thework permit application process.

Currently, the Indonesian government is drafting a new labor law that will review the proceduresrelating to employment of expatriate staff. With unemployment at 7.24% in 1995 and as many astwo-thirds of local graduates unable to find jobs, the new law will attempt to reduce the number of

expatriates in the country. (29)

Conclusion

The rapid growth of Indonesias economy is expected to continue well into the next century. Thegovernment has been stimulating economic growth by deregulating previous laws in order toentice investors. New investments will mean new working opportunities that are badly needed toaccommodate the growth of Indonesias labor force. Simultaneously, Indonesia is experiencing ashortage in managerial and professional personnel. Therefore, further investment in humanresources is still needed to allow Indonesia to retain its international competitiveness. In answerto this challenge, the government has continuously improved the Indonesian educational system

and human resources development as well as the labor law.

Pacific Bridge, Inc. - Japan HR Publications

2004 Human Resources Trends in Japan

Published in SHRM Global Forum, an online forum of the Society forHuman Resources Management

Print Article

By Ames Gross and Rachel Weintraub December 2004

INTRODUCTION

Due to the collapse of major financial institutions, the Asian currency crisis and decreasedconsumer demand, Japans economy has struggled since the early 1990s. However, Japanexperienced a mild recovery period in 2003 with a 2.7% GDP, and the average annual GDP for2004 is expected to be around 2.2%. Nevertheless several economic reports released at the endof 2004 show that the countrys economy is once again on the decline with a decrease inindustrial output, increase in the unemployment rate, and decline in household spending. Inparticular, Japans electronics industry has experienced some difficult times. Electroniccompanies with good sales at the beginning of 2004 are now finding themselves curbingproduction of some products due to a decrease in demand. The struggling industrial sector hasled to an increase in the countrys unemployment rate. The average unemployment rate for 2004

is expected to be about 5.3%.

One of the reasons for the relatively high unemployment rate is the discrepancy betweenavailable jobs and unemployed workers. With a large number of older workers preparing to retirein the near future, many higher level jobs will become available and companies will look to hiremid-career employees, who can often offer good experience and skills. Younger people currentlyhave the highest rate of unemployment. There is a growing trend among youths in Japan to avoidworking altogether, called NEET youths, or youths Not in Education, Employment or Training.
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The uneven labor force, high unemployment and declining population have put a strain onJapans economy, causing many companies to turn to non-regular workers, such as part-time ortemporary workers. In 2003, Japans Ministry of Health, Labor and Welfare (MHLW) estimatedthat non-regular employees made up over one-third of the workforce in Japan. Additionally, thewage restraints for these non-regular workers add to the strain on the countrys pension system.Many of these workers do not contribute to the pension system at all due to their limited wages. InJune 2004, the Japanese government passed legislation to change the pension system andpayment schemes in order to save the system from a potential collapse.

CHANGES IN THE PENSION SYSTEM

Reasons for the Change

Japan faces decreasing pension finances due to numerous non-complying citizens, or those whoavoid paying their pension contributions, an aging population and a declining birth rate. Thecountrys aging population is a major concern for the government, as the number of retiresincreases and the working population decreases. Last year, the number of citizens age 65 orolder comprised nearly 20% of the total population, or approximately 24 million, an increase ofover 180,000 from the previous year. Conversely, the working-age population (ages 15-64) in

Japan is declining, and fell 300,000 in 2003, to about 85 million.

The decreasing total fertility rate (TFR) in Japan is also putting a strain on the pension system, asit has been declining for almost thirty years. In 2003, Japans TFR hit a record low of 1.29,decreasing from the previous years rate of 1.32. Tokyo had the lowest rate last year, a TFR ofonly 1.0. The TFR is predicted to rise slightly, but nevertheless, the pension system will not beable to withstand the pressure and strain of these declining rates.

New Pension Legislation

Hoping to save the current system from collapsing, the Japanese government passed legislationto reform the pension system in June 2004. According to the new legislation, beginning in fiscalyear 2005, employees will be faced with increased pension premiums and a reduction in

retirement benefits. This new pension system will be in effect between 2005 and 2023.

The new legislation proposes several changes in Japans current pension system. First,committees will be set up by the Japanese government to review the social security system inJapan. These committees will also look into the possibility of merging the National PensionSystem, Employees Pension System and Mutual Aid Pension System into a single system.Currently, all Japanese nationals pay into the National Pension System. In addition, citizensemployed in the private sector pay into the Employees Pension System, while public servantspay into the Mutual Aid Pension System. By merging the three pension systems, the pensionpayment scheme will become more straightforward for employees and should help reduce thenumber of non-complying citizens, which is currently about 40% of eligible pension contributors.

Pension Payments

According to the MHLW, the actual value of pension payments will be reduced by about 13% overthe 20 year course of the new plan. For example, an average 65 year old retiree who paid into thepension plan for 40 years would receive a pension of 233,000 yen (US $2,250) per month in2004. By the year 2024, the pension payout would equal 246,000 yen (US $2,400) per month.But in terms of 2004 values, this 2024 payout is equivalent to 202,000 yen (US $1,900), which isa drop of 31,000 yen per month (US $300).


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Low-income employees will also be affected by the new scheme. Currently, there are two types ofexemptions for low-income employees: a full exemption, and a 50% reduction in pensionpayments. For instance, an individual who earns less than 350,000 yen (US $3,200) annuallyreceives a full exemption, while a person who makes between 350,000 yen (US $3,200) and850,000 yen (US $7,800) per year receives a half-exemption. With the new system, two morecategories of exemptions will be introduced: 75% reductions and 25% reductions in pensionpayments. However, the maximum income level for these reductions will be raised. Therefore,employees who would have previously qualified for a 50% reduction may now find themselvesonly qualifying for a 25% reduction, forcing low-income employees to also pay higher premiums.

Compliance

Recently, the Social Insurance Agency launched a nationwide investigation into possible cases ofcorporations illegally withdrawing from the Employee Pension System, thus avoiding pensionpayments. According to the current pension scheme, all corporations with five or more employeesshould be enrolled in the Employee Pension System. However, some of these companies havebeen submitting paperwork with false information, stating that the company has either closed orsuspended their operations. If this paperwork is approved, the company is able to avoid payingpension premiums but may still run their business without any problems or concerns. During the

investigation, the Agency will re-examine any withdrawal forms, and if the information isquestionable, will contact the company by phone or letter or, in some cases, even visit thecompany in person.

As a way to encourage employees to enroll in the pension scheme, the grace period foremployees joining for the first time will be extended. Presently, those who register with thesystem receive credit for only one month prior to joining. Under the new system, an employee willreceive credit for the period extending back to the previous July (the beginning of the pensionprograms fiscal year).In hopes of increasing the number of complying citizens, Japans Social Insurance Agency willbegin mailing out pension payment records to all citizens covered by a publicly-managed pensionprogram next year (those eligible for either the National Pension System or the EmployeesPension System). Previously, the Agency only mailed records upon request. The Agency has two

reasons for implementing this new policy: (1) Many workers have requested to receive paymentrecords in order for them to verify that they have kept up with their payments. (2) The Agencyexpects that mailing the records to all eligible workers, regardless of whether they are currentlycomplying or not, will increase public awareness of the pension system and the need for workersto participate. Additionally, any worker who drops out of the Employee Pension System, whetherdue to a loss of job or change in a job, will receive a reminder and a payment-status notification.

Moreover, workers who contribute to a pension fund may now be informed of the amount they areeligible to receive at the age of 55. This change went into effect in January 2004 in response tofrustrated workers who accused the System of withholding information as to the exact pensionpayment amount a worker would receive. Previously, only those 58 and older could receive thisinformation from their Social Insurance Agency.

EMPLOYMENT TRENDS

Moving Away from Lifetime Employment

Traditionally in Japan, employees began working at a company immediately after graduating fromuniversity, and stayed with that company for the entire course of their career until retirement. Thislong-term employment trend is referred to as lifetime employment. Under this system, employeesare trained throughout their career and often rotated or transferred within their company.However, with Japans struggling economy and increasing cost of labor, some companies are


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beginning to move away from lifetime employment practices. In particular, the concept of lifetimeemployment is becoming less prevalent in Tokyo and Osaka. Instead, companies are reducingthe number of regular employees in exchange for more non-regular employees, such as part-timeworkers. The hiring of non-regular employees provides added flexibility and easier adjustments inthe number of workers a company employs. The company can also save money by reducing theoverall number of hours worked by employees. Moreover, companies are not required to providethe full set of benefits to irregular workers.

Non-regular Workers

As mentioned above, the decline of the lifetime employment system has led to an increase innon-regular workers. By the end of 2003, the percentage of non-regular workforce made up over30% of the total workers in Japan, an increase of nearly 4% since the beginning of 2002. Non-regular staff, who are often younger workers or mothers, also benefit from their part-time status,as they can choose schedules that fit their needs while still earning money to contribute towardstheir education or household expenses. However, as the trend towards non-regular staffcontinues, companies may have to offer benefits, such as education, training opportunities orsocial security. Additionally, companies may also need to provide more specific information onworking conditions and job requirements as more and more non-regular staff enter the workforce

in Japan.

Job-hoppers

In response to the changes in employment norms and the fading of lifetime employment, a newgroup of workers known as job-hoppers, has evolved. Opposed to seeking out a reliablecompany after graduating from university and staying with that company for 20 or 30 years untilretirement, some Japanese are choosing to change jobs every few years.

Most job hoppers are younger workers, often people who have graduated from university withinthe past several years. However, job-hopping also exists among older workers, often those whohave lost their job due to corporate restructuring, as companies lay off managers and high-salaried workers to save costs. Many job-hoppers justify their frequent shifting of jobs by offering

a variety of skills, experiences and knowledge, as opposed to a single focus. However, accordingto a survey conducted by the MHLW earlier in 2004, about 30% of companies would not lookfavorably upon a job-hopper. These companies view job-hoppers as workers who have no senseof responsibility, no specific or developed skills, and could quit their job at any time.

Rehiring Retirees

According to the Elderly Persons Employment Security Law, employers may not set a mandatoryretirement age of below 60; accordingly, nearly 90% of companies have set a retirement age of60 years old. However, as the number of retiring employees continues to rise, companiesstruggle with a shortage of experienced workers and an overall lack of manpower.

In June 2004, the Japanese government made revisions to the Law Concerning Stabilization ofEmployment of Older Persons. Under this new revision, companies will be obliged to employworkers for an additional five years (until the age of 65), if an employee requests to workadditional years. Even though this revision does not go into effect in Japan until fiscal year 2006,approximately 65% of companies have already extended their employment period for workers,though most set specific conditions. These conditions include requirements such as the employeemust have met or exceeded certain company standards.

For example, Asahi Kasei Corporation introduced a system for rehiring retirees in 2001. Thecompany cannot afford to rehire all its workers, but if an employees department has a continuing


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need for them, the employee may be re-employed in their former department. During the pastthree years, about 570 employees retired; approximately 190 requested to be rehired. AsahiKasei was only able to rehire 71 of these former employees. The new revision will provide acompany with flexibility, as a company will not be required to rehire all employees that request tocontinue working, but may choose only a select number for rehiring.

Toyota Motor Corporation also plans to expand their current rehiring program in the next year.Presently, Toyota rehires about 100 of its employees each year, for up to three years. However,Toyota will re-evaluate its retirement age (currently 60 years old) and pension system. Anothermajor company in Japan, Kawasaki Heavy Industries, is planning to increase its retirement agefor non-managerial workers from age 60 to 63 beginning in 2005.

Once this revision is implemented, employees should have less anxiety about their futurefinancial situation, since they will have the option of earning a salary for an additional five years.However, the salary for a full-time job during the re-employed period may drop, even as much as50%, in comparison to an employees pre-retirement salary.

WOMEN IN THE WORKPLACE

Overview

The number of women in the workforce is increasing in Japan, with nearly 60% of all womenemployed in full-time or part-time jobs. In addition, government agencies and ministries hired arecord number of women last year, totalling almost 17% of all new hires. However, women in theJapanese workforce still find it difficult to achieve professional growth and promotion in atraditionally male-dominated culture. In a survey on womens participation in political andeconomic decision-making, Japan ranked 38th, a very low ranking for a modern andindustrialized country. Moreover, in 2002, only about 50% of women were full-time employees,versus 85% of men, making it difficult for women to advance in the workplace.

Women in Management Positions

In Japan, females constitute only 9% of managerial positions, a strikingly low figure comparedwith 58% in the Philippines and 46% in the United States. Although the current employmentsystem does not violate the existing Equal Employment Opportunity Law, a glass ceilingobviously exists for Japanese women in the workplace. So, to get ahead, women must thinkcreatively and apply their entrepreneurial skills.

One way for women to advance is to offer specialized talents that companies lack. For example,those who have studied abroad and come back with foreign language skills can land prominentpositions at multinational or internationally oriented firms. Their ability to effectively communicatewith foreign employees and overseas partners makes them a valuable resource.

Earning an MBA is another route to advancement. Start-up firms and companies entering new

markets or attempting to rebuild their business need management expertise. They hire based ontalent, rather than age or gender. Additionally, some established companies have implementedprograms to promote female employees after they have received an MBA.

That model has worked well for Benesse, a publisher of educational materials that leads Japanwith a 30% female supervisory staff. In the 1970s, the company was based in rural Okayamaprefecture and struggled to recruit qualified personnel. The decision was made to hire andpromote the best talent available, and word spread among female university students. Firmsmarketing their products and services primarily to female customers have also realized thebenefits of a female perspective. Cosmetics manufacturer Shiseido, toy maker Bandai


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Entertainment, and supermarket chain Ito-Yokado all employ a respectable percentage offemales in their management departments.

According to a survey conducted by the MHLW in 2003, nearly 10% of the companies surveyedhad management track systems for women, versus the 7% of companies in 2000. But despite thegrowing opportunities for women in Japan, the MHLW has recorded approximately 25 cases of

violations of the Equal Opportunity Law, due to unfair treatment of women workers. Over a dozenof these cases resulted in the issuance of warnings to the violating companies, which were oftenaccused of establishing separate career tracks for men and women. In about 200 othercompanies, the MHLW recommended that the employment and personnel systems be revamped,as they frequently engaged in discriminatory acts towards women, even though these acts did notviolate the Equal Opportunity Law.

Childcare for Working Mothers

Faced with a rapidly declining birthrate and a new class of professional women, the Japanesegovernment has taken steps to encourage new mothers to stay in the workforce. ModernJapanese women only have 1.29 children because the demands of raising a family and building acareer are difficult to manage. One-third of Japanese women resign their positions following the

birth of their first child.

To ease the burden, the government has instituted some programs of its own and is alsoencouraging companies to follow suit. The Law for Measures to Support the Development of theNext Generation requires companies and local governments with more than 300 employees toadopt rules to make the workplace more family-friendly.

Cash payouts are one method the government has instituted to promote starting families. Forcouples earning less than 7.8 million yen (US $75,000), the state will pay monthly allowances of5,000 yen (US $50) for the first

International HRM in Practice

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