A SERIES OF ARTICLES FRoM THE 2011 EMEA CoMPENSATIoN ...

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COMPENSATION AND BENEFITS IN ASIA PACIFIC Regional overview The first thing that strikes you about the Asia Pacific region is that it is so diverse. So when it comes to compensation and benefits practice, it is impossible to generalise. Because it comprises such a disparate group of countries, all at different stages of development, nothing you say about Asia Pacific applies to the entire region. China is the second biggest market in the world, and India is one of the most heavily populated. Then there is a group of other developing markets, including Vietnam, Malaysia, Thailand, Indonesia and the Philippines. There are also the relatively advanced economies of South Korea and Taiwan. Singapore and Hong Kong are essentially large financial centres serving the rest of the region in addition to their local populations. Japan is the world’s third-largest economy, but it has the challenge of an ageing workforce. And Australia, although geographically closer to Asia than to any other part of the world, actually has very little in common with it – though it does rely on exports to China to drive its strong economic activity. GDP growth and inflation statistics for <strong>2011</strong> illustrate the highly disparate nature of the region. Country GDP growth (%) Inflation (%) China 9 5.3 New Zealand 1 4 Taiwan 4.8 1.8 Australia 3 3.2 Malaysia 5 3.6 Philippines 5 4.5 Thailand 6 4.8 Hong Kong 5.5 5 Vietnam 6.5 15 Japan 0.9 0.2 Singapore 6 4.9 Indonesia 7.2 6.1 India 7.3 7 Korea 4.7 4.5 24
One generalisation about the region that it is possible to make, however, is Asia’s growing importance to the global economy. This is reflected in many statistics, including a likely ranking of the world’s top cities (in GDP terms) by the year 2025, carried out by the McKinsey Global Institute. McKinsey predicts that 15 of the world’s 50 top cities in 2025 will be Asian newcomers (reflecting growing urbanisation in the region), with 13 of the dropouts between 2007 and 2025 coming from the West. This global shift of economic power is also reflected in annual salary increases in Asia Pacific: between 2010 and 2012 they have been on an upwards trajectory, with the exception of only New Zealand and Japan, where they are falling. In Vietnam salary increases have been at more than 12% for the past two years and are expected to be even higher next year, and the increases in India have been only slightly smaller. And in these high-growth markets, talent is in increasing demand. Operating in Asia Pacific is a challenge Operating in Asia Pacific can be challenging for a number of reasons – aside from the immense diversity in the region. • Legislative changes, particularly in emerging countries, come thick and fast, but are not always clear cut: a law may come into force before guidance is given on how to comply. • The rapidly rising minimum wage in emerging countries (in China it is increasing at 13 % a year) has a knock-on effect on blue-collar pay. • Countries such as Singapore and Hong Kong are tightening their foreign labour restrictions, making it more difficult to secure visas. • New data privacy laws mean companies need to be very careful when transferring personal information across borders. • “Employee-friendly” legislation in countries such as Indonesia, China and Taiwan, makes it very difficult to restructure the workforce. A deep dive on China By 2012 China, the world’s second-biggest economy, will have enjoyed 12 years of average GDP growth of 10 % a year, with salary rises running at an average of 8% or 9% a year over the same period. If that growth rate is sustained, by 2025 it is expected that 350 million additional people will be living in China’s cities – more than are currently living in the entire United States. In total, two-thirds of Chinese citizens – that is, around one billion people – will be living in these cities; 200 cities will have more than one million inhabitants (Europe has only 35 cities that size); and there will be 50,000 new skyscrapers (ten times more than there are today in New York) and 170 new mass transit systems (Europe currently has 70). The burgeoning Chinese middle class that this mass urbanisation implies has considerable implications for multinational corporations. Although a growing middle class is at first glance a good thing, it presents challenges. For example, local companies and stateowned enterprises are competing with foreign multinationals for talent, falling birth rates mean the working population is shrinking, wages are increasing and the standard of living is improving. Some 18 cities and provinces have adjusted their minimum wage in <strong>2011</strong>, 13 of them raising it by more than15%. And the twelfth “five-year plan” stipulates that the minimum wage should rise by 13% a year. In short, China is no longer a cheap source of labour – and it will get more expensive. Managing compensation and benefits in developing markets Given the picture described above, managing compensation and benefits in developing markets is difficult. The bottom line is that a Londonheadquartered multinational trying to compete with a local Chinese company for talent in China is on a hiding to nothing if it tries to use pay as its primary bargaining tool. The Chinese economy is so buoyant that a Chinese firm can afford to pay what it takes to attract and retain the best people. Companies domiciled in the stagnant markets of the West have to use different strategies if they are to compete for talent. 25
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Page 20 and 21: OPTIMISING HUMAN CAPITAL INVESTMENT
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Page 28 and 29: STIMULATING ENGAGEMENT THROUGH DIFF
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Page 37 and 38: ABOUT THE AUTHORS Piia Pilv, Mercer

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