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Business> Legal-Ease
UPDATED: December 15, 2006 NO.33 AUG.17, 2006
Pitfalls of Using Chinese or Expatriate Staff to Run Your Company

Chinese staff

The question needs to be asked--is it normal business practice, anywhere, to have one person in control of all aspects of your country operations?

No, it isn't. And with very good reason:

International competency

The way in which foreign companies have to be administered in China and the reporting structures they have to go through are very different from those that Chinese companies must adhere to. In reality, foreign businesses in China face far more scrutiny than Chinese companies do. If your employees, good as they are, are not familiar with the regulatory aspects concerning operating and maintaining an international office or business in China, chances are there will be issues your company will immediately be out of compliance with. That can and does get expensive. Additionally, there are circumstances where the employees may deliberately keep the company out of compliance--to obtain benefits or other leeway later, if any argument arises against their favor.

Solitary staffer

Having one person in control of all your corporate documents and/or banking is a very common occurrence. The risks are obvious. You can lose all your abilities to operate the company overnight if he/she decides to walk out of the door. There are also financial risks.


Bringing in family and friends into the business is quite common. You need to audit your purchasing and sales departments regularly, to ensure employees are not placing orders with friends' or relatives' companies that are then charging your business above market rates.

Parallel business

We investigated a case in which a China manufacturing entity was established by a Canadian company, whose China business never was able to attain anywhere like the initial projected sales. It had to be continuously funded from the parent to tide it over. A variety of "market conditions," "competitor pricing" and so on were given as excuses. When, just before a new $1-million investment was to be injected into the China entity, the parent company sprung an internal audit to find the two trusted employees had established a parallel company, with similar sounding Chinese name to the international brand, and had been diverting all orders to that business instead. They offered local competitive pricing and were actually competing with their employers.

Expat staff

There are problems with expatriate staff as well. Especially, (and unfortunately) often with personnel in professional services:


Hiring a lawyer with no China experience is expensive and futile, especially if their Chinese language capabilities are minimal. However, many look good, and although their companies may have a China presence, what about their individual presence in China? International lawyers are great at international work--cross border structuring and so on--but far too many of them profess expertise in areas of China practice they are neither qualified or experienced to be dealing with. Use lawyers with local experience, they do exist!

Language skills

Don't expect miracles from young professionals just out of Chinese language school. You need more than two years in China to understand the China "issues." A management development program designed to maximize your recruits' language skills, yet gradually introduce them to your business, will reap greater rewards both for you and for them if you continue to develop their education.

The China guys

Expats of note are those who really know their way around, and can steer you away from all the problems we have identified. They will have a good grasp of the language, and may well have settled down with family here. You cannot survive in China without knowing how to get on, and this is a matter of experience as well as possessing inherent patience, tenacity and people and communications skills. They are available-interestingly at this time, many of the established multinationals are localizing and expatriate engineering and other talent are perhaps more available in China than ever before.

Chris Devonshire-Ellis chris@dezshira.com is a senior partner of Dezan Shira & Associates, Business Consultants www.dezshira.com


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