International HRM in Practice

International HRM
International Human Resource
Management Dissertation
Cultural and Gender Issues in International HRM
Much of the work in the international HRM area concerns ways in
national culture
impacts employment practices in host countries and the limitations
culture
creates regarding the ability of MNCs to transfer employment practices
to host
countries.
National culture may be thought of as the values, beliefs, perceptual
orientations,
and norms typical of the members of a particular society. The
introduction of
management techniques inconsistent with national culture can lead to
the failure
of the method, not to mention conflict between an MNC and its
employees and,
perhaps, the broader society. Comparative studies of national culture
across a
large number of countries is limited because of the significant costs
associated
with data collection. A study by Hofstede (1991), using data collected
in around
60 countries in the late 1970s, remains influential despite controversy
over his
methodology and interpretation of the findings. However, other work
(e.g.,
Triandis, 1995), would tend to support the general findings of
Hofstede.
There are various dimensions of culture that have been identified and
can be
measured (via survey questionnaires) cross-nationally. Hofstede’s work
focuses
on four such dimensions, all of which are related to work behaviors:
Individualism/collectivism: The extent to which personal versus group
objectives govern a person’s life. Most industrialized Western
countries have individualist cultures, while much of the rest of the
world
is collectivist, including virtually all developing countries.
Power distance: The extent to which a low-status persons accept and
legitimize the power and influence of high-status persons. Power
distance and individualism/collectivism are correlated, so that
individualist cultures are generally low on power distance (less
hierarchical) and collectivist cultures are typically high on power
distance (more hierarchical). Again, industrialized Western countries
are generally lower on power distance and most other countries are
higher.
Masculinity/femininity: The extent to which aggressiveness and
material
well-being are valued in a society versus good interpersonal
relationships and general quality of life. "Masculine" cultures may also
tend to be more patriarchal, while "feminine" cultures tend to have
greater inequality between the sexes. This dimension does not seem
to be related to economic development or even geographical location.
Japan has the highest score of any country on the masculinity
dimension, though several other East Asian countries score in the
middle of the scale. Egalitarian societies, such as the Scandavian
countries, tend to be have more feminine cultures.
Uncertainty avoidance: Cultures where people are troubled by change
and risk.
Work specifically on gender issues in the international HRM field is
somewhat
limited. A book edited by Adler and Izraeli (1994) contains several case
studies
of countries from all parts of the world; the authors discuss the extent
to which
women have achieved managerial positions in these countries and
consider the
role factors such as national culture have played in promoting
opportunity for
women.
More quantitative work by Deva and Lawler (1998), using aggregate
national
data from the UN database on women, combined with Hofstede’s
national culture
norms, suggests that culture certainly plays a distal, but perhaps not a
proximate,
role in generating employment opportunities for women. Ironically, the
masculinity/femininity dimension seems unrelated to the proportion of
managers
in a country that are women; more important is the degree to which
the country’s
culture is individualist or collectivist. Individualist cultures tend to
emphasize
personal achievement and merit as a basis for mobility, whereas
collectivist
cultures are more ascriptive. Thus, individualism is positively related to
employment opportunity for women in managerial positions.
Some work suggests that workforce gender composition in subsidiaries
of MNCs
tends to conform to host-country norms (Rosenzweig and Nohria,
1994).
However, some of our work suggests that the national culture of an
MNCs home
country, which presumably influences the firm’s corporate culture,
carries over to
policies regarding employment opportunities for women in a
developing country
that imposes no specific limitations on gender-based employment
discrimination
(Lawler and Bae, 1998). This study was conducted in Thailand, though
more
recent 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 important
factors when workers consider job offers according to a recent survey developed by Robert Half
Finance & Accounting. 27 per cent of chief financial officers (CFOs) polled believed that salary
was the biggest consideration for prospective new hires and 24 per cent highlighted company
stability. 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 employees
were asked, "In your opinion, which one of the following is the most important consideration for
job candidates today when evaluating employment offers?" CFOs responsed:

2006 2001
Salary level
Stability of the company 27% 23%
Work environment/corporate culture 24% 28%
22% 20%
Career advancement opportunities 17% 21%
Equity incentives/stock options 4% 4%
Other 3% 0%
Don't know/no answer 3% 4%

"Businesses that have a successful track record and offer competitive compensation are at an
advantage during the hiring process," said Max Messmer, chairman and CEO of Robert Half
International 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 pay
and benefits, a history of stability and growth, and a supportive corporate culture."

Max Messmer considers that small and newly emerging businesses that cannot afford premium
salaries can highlight their other qualities such as the strength of their leadership team. "The best
candidates tend to base at least part of their employment decisions on how much they can learn
on the job. During the recruiting process, hiring managers are selling potential employees as
much on their own experience and management style as on the other features that make the firm
a great place to work."

Canada

Employers Struggling To Find And Keep Employees

June 20 2006 - A survey by Hewitt Associates, a global HR services company, has found that big
and small organizations in all industries throughout Canada are finding it challenging to attract
and retain workers. Most of the 232 employers in the survey are focusing on flexibility as a means
of addressing the problem.

While three-quarters of Canadian companies are finding difficulties in attracting or retaining

employees, 44% have problems with both. The situation is worst in Alberta where 97% of
respondents were having difficulties and almost two-thirds reported that both attraction and
retention were challenging. With an aging workforce - half are over 40 - the problem can only get
worse.

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

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

John Tompkins, a principal in Hewitt's Toronto benefits consulting group says that: "Organizations
are beginning to realize the need to convince older workers to stay on the job longer. At the same
time, 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 be
most successful in the current labour market."

Hewitt's survey indicates that 55% of organizations are intending to introduce formal phased
retirement programs, offering shorter working weeks for older employees near retirement, by
2009. This compares with the 26% that have such schemes at present. Additionally, there is
increasing 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 financial
situation. We recommend organizations undergo a process to audit their current talent pool,
assess their future workforce needs, and then determine what they want to change and how that
fits within their budget," said Cathy Course.

"Workers need to really understand the value of what employers are providing over and above
wages and salary," she said. "With the labour shortage, organizations can't afford to lose
employees 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 in SHRM Global Perspectives, a publication of the Society for

Print Article
Human Resources Management Global Forum
By Ames Gross and Caroline Tran October 2003

For more than a decade, the Japanese labor market struggled with a recessionary economic
environment and a very tough employment atmosphere. During this time,traditional ideas of
employment and career in Japan have come under fire and many Japanese have been forced to
rethink conservative concepts. Ideas such as lifetime employment and seniority-based pay are no
longer feasible for some Japanese companies facing economic hardships. As a result, some
Japanese employees have revised their traditional employment concepts and found more
creative ways to develop careers.

Alternative employment in Japan has included work-sharing, overseas jobs, and part-time
employment. Work-sharing, or flexible work schedules, have given more people previously
unemployed or not considering employment, such as housewives, stay-athome mothers, and
retired 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 also
helped in the diversification of Japan's labor force. However, the tremendous growth in the
number of part-time workers and the continued underemployment of youths in Japan is a growing
concern to the Japanese government.

Work-Sharing

The Japan Institute for Labor Policy and Training (JIL) released a report in 2002 on work-sharing
in Japan. According to the report, it is generally believed that when a country is in recession, the
number 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 the
number of full time regular Japanese workers has decreased while the number of part-time
workers has increased. Although this may seem a reasonable means to combat lowered
revenues and rising costs during times of recession, part-time workers in general do not have the
same loyalties and career development as regular workers.

Thus, in Japan, work-sharing has been utilized to combat the rising number of part-time workers
and has been a highly debated topic among employers in Japan. JIL's report outlines three types
of work-sharing: 1) employment maintenance, 2) job creation, and 3) diversified working patterns.
Employment maintenance work-sharing mainly targets midlevel employees, allowing them to
reduce their work hours and share them among themselves. This allows the employees to stay
employed with their wages adjusted for the hours they work. Job creation work-sharing involves
cutting work hours at national and company levels so that the overall number of jobs can
increase. Diversified work-sharing allows employees to choose their work hours in order to allow
persons previously not considering employment, such as housewives and the elderly,
opportunities to enter the labor market. These varied working patterns allow more persons to be
employed 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-sharing
program in one of their factories. Over 200 employees were involved in the program which
required workers to take three more days of vacation per month and reduce their basic pay by
12%. Sanyo estimates that as a result, the company will be able to retain its employees and save
100 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 working
abroad either for foreign or Japanese companies. As the job market becomes tighter and job
vacancies grow scarce domestically, those who are unemployed increasingly view working
abroad as a viable and attractive career move. This is even the case for more senior or mid-level
workers. 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 to
pursue 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 be
registering with us. One reason is that Japanese companies have recently been giving workers
fewer 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 and
unconventional in the past, but now it is not. For many people, it is just one of the alternatives
they consider," she adds.

Freeters, Part-Time Workers

In a nation that values seniority and still hires 90 percent of new employees straight out of
college, the recession has caused many companies to severely restrict the numbers of new
graduate recruits in order to retain their mid-level and senior employees. Thus, many unemployed
young 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 perform
mundane 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 are
unable 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 to
pursue other hobbies such as music or art, more and more people are forced to become freeters
out of necessity. As a result, the average age of freeters is also increasing.
According to a white paper released by the Cabinet Office's Quality of Life Bureau, the number of
freeters 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 number
from 20 years ago.

In order to curb the numbers of freeters in Japan, the Prime Minister Junichiro Koizumi has
announced new policies to assist these young part-timers in gaining full-time, regular
employment. His policies include establishing job placement offices and distributing subsidies to
companies hiring freeters. Whether his policies will indeed be able to stem the growing numbers
of 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 policies
to 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 living
under 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 China
continues to experience rapid growth, it is a much different country than it was in the late 1970s.
One area of substantial change has been China’s human resources market. As more foreign
companies enter China, as Chinese state-owned enterprises privatize, and as China’s dynamic
private sector catches up with the rest of the world, demand for Chinese workers is growing.
While improvements in China’s higher education system have led to growing numbers of entry-
level white-collar workers, there are continuing shortages of both mid-level and senior-level
managers and increasing shortages of blue collar workers. The way in which these issues
develop and are resolved will have a large impact on any firm looking to expand or get involved in
China.

I. CHINA’S HR MARKET: WHITE COLLAR WORKERS

A. ENTRY-LEVEL WORKERS
For companies looking to hire entry-level white collar workers, China’s HR market is more
promising than ever. The number of Chinese graduates from all fields of study entering the job
market 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
attended, their English level, and the quality of their work experience (if any). However, the
general trend is that that this group has been growing, keeping wages flat and providing
employers with a large pool of talent.
China has traditionally had very low levels of higher education; 50 years ago, only two out of
every 10,000 Chinese people received a college education. That percentage has increased
substantially since then, more than doubling in the last decade alone. The class of 2005 is
estimated to be 3.4 million, an increase of 600,000 from 2004. According to China’s Ministry of
Education, 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 few
years ago – but it also means that the competition for entry-level white collar jobs is much fiercer.
China’s economy has been growing at a rapid pace for more than 20 years, but economic growth
has been outstripped by the growth in higher education, and there are not enough jobs to go
around.

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

The expansion in higher education in China and the relative lack of jobs means that companies
have a large pool of qualified entry-level candidates from which to choose – especially if
companies need technical workers. Despite high levels of college enrollment in the US, there
were 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 Chinese
universities, as China surpassed the US in terms of total number of students enrolled. China is
rapidly building up a large, well-educated technical workforce. However, China’s emphasis on
technical skills and science degrees means that there is still a slight shortage for entry-level
positions in areas such as sales and marketing.

B. MID-LEVEL MANAGERS
As the number of entry-level workers grows, the number of mid-level managers is growing quickly
as well. In the 1990s, China experienced rapid growth in both higher education and foreign
investment. Many Chinese graduates from the 1990s worked for foreign companies that had
begun entering China, and now they have 5-10 years of quality work experience. But while this
group continues to grow, increasing the number of mid-level managers, demand is still
outstripping supply. As foreign companies enter and expand their operations in China, they need
mid-level managers to run their offices and factories. Because of the high level of direct
interaction 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 the
best mid-level managers (local Chinese from top universities with 5-10 years of work experience
at leading foreign companies), there is still very stiff competition among companies. Five years
from now, when the current group of college graduates gains significant work experience,
competition for mid-level managers may ease.

C. SENIOR MANAGERS
China has dramatically improved the quality of its workforce, but it still lacks a large pool of very
experienced senior managers. The sweeping changes China implemented in its reform of the
higher education system have only been in place for a few years, and the beneficiaries are young
graduates fighting for entry-level jobs, not senior-level employees with the requisite experience to
be effective senior executives. According to a 2004 survey conducted by the American Chamber
of Commerce in Shanghai, along with six other chambers of commerce, 40% of foreign
companies report having trouble filling top managerial positions for their operations in China. The
demographic most likely to serve as senior managers – Chinese in their late 40s and 50s – went
through 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 senior
executives.

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

II. CHINA’S HR MARKET: BLUE COLLAR WORKERS

For foreign companies looking for cheap factory labor, they may be surprised to find that China
may not retain its dominant position forever. Recently, companies in southern Guangdong
province, a hotbed of foreign direct investment (FDI) and labor-intensive manufacturing, have
complained of labor shortages. Despite China’s population of 1.3 billion, much of which remains
underemployed in the agriculture sector (there are an estimated 170 million surplus workers out
of the 800 million people in China’s rural areas), the appeal of becoming a migrant worker and
traveling to find a job in a coastal city has dropped. According to a report from the Chinese policy
research institute of Dongguan, a main manufacturing center and FDI recipient in Guangdong
province, 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. While
the region has long had a shortage of highly-skilled workers and managers, the shortage of
manual workers has only emerged over the last several years.

While some claim that the shortage is specific to southeastern China, arguing that other regions
such as Shanghai are still attracting large numbers of factory workers, others point to deeper
structural problems. China’s implementation of special economic zones (SEZs) on its east coast
in 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 system
may not be sustainable, and that factories may have to move to the regions where the workers
are located, not vice versa.

Just how serious is the growing shortage of manual labor? According to the People’s Daily,
China’s state-run newspaper, China now has 88 vacancies for every experienced skilled blue
collar worker and 16 vacancies for every factory technician. This is leading to rapidly increasing
wages on China’s East Coast, prompting some corporations to move to China’s cheaper inland
regions or to Southeast Asia (especially Vietnam). As the expected demographic changes
continue to unfold, the situation could worsen. The effects of China’s one-child family-planning
policy, implemented in the late 1970s, are now being felt: the number of people between the ages
of 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, Hong
Kong, or Taiwanese companies, have been more successful in recruiting and retaining blue collar
workers. 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 shortages
and rising wages – especially on the East Coast – will undoubtedly affect the strategies of firms
looking to use China as a manufacturing base.

CONCLUSIONS

An examination of China’s 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 students
graduates 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, despite
being the world’s 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 the
engineers 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

Published by Pacific Bridge, Inc. Print Article

By Ames Gross and Rachel Weintraub August 2005

Overview

Hong Kong ’s labor force is approximately 3.5 million, about half the country’s total population.
The economy is showing strong growth (close to eight percent GDP in 2004), though the size of
the workforce has grown minimally, with only a one percent increase last year. However, for
2005, an overall two to three percent increase is predicted, according to the HK Institute of
Human Resource Management. Very large companies (500 employees +) are expected to
increase employment by five to seven percent; a one to two percent increase is expected among
smaller companies.

Department of Labor

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

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

To promote safety and occupational health in HK, the DOL provides training courses, training
providers and the registration of safety officers/auditors for companies. In 2004, over 800 training
courses 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 is
currently around 6.7 percent.

Young Workers

In order to increase the number of young new hires, the DOL established the Youth Work
Experience and Training Scheme (YWETS). The YWETS offers guidance and counseling
services 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 trainee
participates in on-the-job training.

Mid-Level Workers

To help improve the employment situation for middle-aged job seekers, the DOL launched the
Re-employment Training Program in 2003. This service assists those who are age 40 and above
in 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 in
new positions.

Salaries
Over the past several years, salary increases on the whole have been limited in HK, with less
than a one percent overall increase in 2004. However, for 2005, about ¾ of companies plan to
raise salaries, though the increase is expected to be only around one percent on average. On the
other hand, non-guaranteed bonuses are on the rise, now estimated at about 1.5 times an
employee’s 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

Published by Pacific Bridge, Inc. Print Article

By Ames Gross and Rachel Weintraub August 2005

Introduction

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

Labor policy and laws are established and regulated by the Ministry of Labor in India. Some of the
areas 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 India’s new pension system
(NPS). The NPS will give private companies the responsibility to compete for and manage
pension accounts. India’s current pension scheme, the Public Provident Fund (PPF), is managed
by the government. Although the NPS will be optional for both public and private employees, the
Indian government hopes that a smooth transition will eliminate the need to continue with the
PPF.

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

Special Economic Zones; Less Stringent Labor Laws

The Indian government hopes to pass legislation in 2005 that will allow for the establishment of
Chinese-style special economic zones (SEZ) within India. The legislation is part of an effort to
attract more foreign direct investment (FDI) into India and also to improve the country’s stagnant
employment rate. India’s prohibitive labor laws have been identified as a strong deterrent to
foreign companies establishing or expanding business within India. The planned SEZs will
address this issue by allowing companies that invest within a SEZ to bypass these restrictive
laws.

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

The Indian government hopes that with the passage of legislation creating SEZs, foreign
companies will be able to avoid restrictive labor laws, which in turn will encourage greater rates of
FDI 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 employee’s compensation in India is given in fringe benefits (i.e.
housing and medical allowances, cost-of-living adjustment). Thus, these benefits play a
fundamental role in attracting and retaining employees. As part of the 2005-06 budget, the Indian
Government has implemented a new fringe benefit tax (FBT) that will increase the cost of nearly
all perks offered by companies to their employees. Employers are now responsible to pay a 30
percent tax on all benefits given to employees outside of regular salaries and wages. Many Indian
firms 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 away
from employers.

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

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

Higher Demand for Experienced Executives

As India’s economy continues to experience strong growth, top Indian software companies and
outsourcing companies are rapidly gaining global influence. As these companies become
increasingly sophisticated, there is rising demand for experienced executives who can help
manage growth and penetrate foreign markets. There are a limited number of Indian executives
with this type of western business acumen, and that has caused some firms to offer substantial
packages to lure executives from top U.S. companies.

Some successful Indian companies are currently experiencing quarterly growth rates as high as
50 percent per quarter. Many of these companies are expanding in India and establishing offices
and headquarters overseas. This rapid development has made some Indian companies willing to
offer compensation packages to western executives that are more attractive than such executives
are currently getting from their U.S. employers. Reports indicate that recent months have seen a
significant number of U.S. executives from well-established companies being picked up by
expanding 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 10
said 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 of
competitiveness 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 and
Chinese 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 country’s highly
educated and inexpensive labor force. For instance, Oracle, one of the world’s largest software
companies, established facilities in Bangalore and Hyderabad, India in 1993 and now employs
over 600 people. GE Capital India, a subsidiary of General Electric, experienced 50-100 percent
growth per annum and was hiring upwards of 400 new employees per month during its highest
growth period. To benefit from India’s booming economy, many US MBA students are going to
India for education in order to become acquainted with India’s market and business environment.

In the past, Indian students often went abroad to the US or Europe to obtain the best education
and business exposure, but now that trend is beginning to change. An increased number of
Indian students are attending Indian universities, while US business schools such as Harvard and
Stanford 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 offers
high quality post graduate, executive, and doctoral programs. The ISB is affiliated with the
University of Pennsylvania’s Wharton School and Northwestern University’s Kellogg School of
Management. US business students can benefit from ISB’s shortened programs of one year
rather than the typical two, and tuition costs of nearly one-tenth the price of a typical US business
school.

The Economist Intelligence Unit, a provider of global forecasts in dozens of countries and
industries, rated the MBA program at the Indian Institute of Management (IIM) ( Ahmedabad,
India) as one of the best in the world. IIM’s style of case-study teaching (originally created based
on Harvard University’s system), attracts many overseas exchange students. Presently, the
school is internationalizing its curriculum to include more education on multinational corporations
and organizations and plans to expand its exchange program over the next few years. IIM also
expects an increased number of international students to enroll in the full-time program, as its
cost is only 250,000 rupees (US$5,700) for the two year program.
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, Indonesia’s economy has experienced rapid growth. Indonesia
increased 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 structure
through the use of strict fiscal policy, deregulation and institutional reform. As a result, Indonesia
experienced a boom in both domestic and foreign investments that propelled the economy on a
path of rapid export-oriented labor-intensive growth.(2)

Employment Trend

Rapid economic development has fundamentally altered the structure of Indonesia’s labor force
over the past two decades. In 1971, less than 40% of Indonesian labor worked in the industrial
and service sectors, while over 60% worked in the agricultural sector. However, as members of
the Indonesian workforce moved away from agriculture and towards trade and manufacturing,
this distribution changed dramatically. By 1990, only 54.8% were employed in the agricultural
sector, 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 in
manufacturing, and the remaining individuals were distributed in other industries.(3)

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

The following table illustrates this trend:

Table 1. Number of Workers Employed in Manufacturing in Indonesia

by Gender, 1982-1990

Number of 1982 1986 1990 Total Increase

Employees Total Increase
(‘000) (‘000) (‘000) 1986-1990
1982-1986
Male 1,852 2,113 2,779 14% 32%
Female 879 992 1,517 13% 53%
 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 working
opportunities, which in turn led to an elevation of the employment rate.(4) Between 1971 and
1990, 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 83
million people in the labor force are between the ages of 15 and 34.(7) Furthermore, the center
noted that the labor force is thought to be growing at about 2.8% per year despite the fact that
population growth has declined to 1.7%.(8) At the current labor force growth rate, developing and
creating adequate employment opportunities has become one of the most pressing priorities
facing the Indonesian government. In addition, Indonesia is experiencing shortages of valuable
managerial and professional personnel.

Acquiring the Best Employees

The existing skilled management personnel in Indonesia are well aware of the demand for their
services and tend to charge accordingly. A number of companies cope with the shortage by
importing staff, although the process can often be significantly more expensive. When a company
hires an expatriate, it must consider a variety of costs – housing, schooling for dependent children
and health insurance – as well as other benefits, such as a car with driver. In addition, the
Indonesian government limits the number of work permits granted to expatriate staff. (9) Another
tactic used by many multinational companies in order to overcome the shortage of skilled
managerial employees is the development of qualified local staff through in-house or on-the-job
training. However, this process can be expensive and there is always a possibility that
competitors will lure away the trained employees.

For growing local companies, pirating staff from multinational companies offers a quick and easy
solution 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 companies
maintain a strong reputation for good in-house training. In addition, pirating may also occur
among multinational companies themselves. Many of these cases arise when a professional asks
for a higher salary than the initial company can afford to pay.

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

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

Human Resources Development

Aware of the need for human resources development, the Indonesian government has made a
concerted effort to make development a high priority and to improve the quality of human
resources. In its Repelita VI five-year development plan, the primary goal of human resource
development in Indonesia is “to increase the capabilities of each individual and thus all of
Indonesian society as a whole.” Furthermore, “This will be reflected in religious beliefs,
improvements in physical and mental health, development of knowledge and skills, increased
adherence to a productive work ethic, a sense of national responsibility, and increased
awareness and understanding of the importance of preserving natural resources and the
ecosystem. Other goals include the development of a sense of self-reliance, development of
leadership and entrepreneurial skills, and an increased number of national development cadres
who have patriotism, perseverance, initiative, discipline, social awareness and awareness of their
rights and duties.” (11)

Indonesia’s policymakers are now redefining the role of the government, from being the sole
provider of education to the catalyst for stimulating private-sector training programs, including
employer-sponsored schools, vocational centers, and polytechnic schools. (12)

According to the World Bank, the higher education system in Indonesia has grown rapidly during
the 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 Indonesia’s labor force. Skills
training is provided either through senior vocational high schools, which account for 27% of upper
secondary enrollments, or through public training centers that offer short specialized courses in
targeted disciplines. (13)

As part of the government’s effort to improve the quality of human resources, it implemented the
“Nine Years Compulsory Education Program” in 1994. The program is an extension of the
previous 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 school
for 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 a
primary educational background.

Beginning in January 1997, the Indonesian government will impose a US $100 levy on every
expatriate 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 to
equip 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 Social
Sectors Strategy and Capacity Building Project. The main objective of this project is to strengthen
Indonesia’s efforts to sustain high income growth rates and poverty alleviation, improve the
quality of social sector services, assist with the transition towards decentralization, and enhance
the development impact of investment.(14) In the same year, the Asian Development Bank also
gave a US $80 million loan to Indonesia to upgrade technology capabilities of Indonesian
industries. (15)

Building Working Relationships with Indonesians

According to Bruce Gillespie, chief consultant of Wings of Eagles, a program that has conducted
many in-house training programs in Indonesia, building positive relationships with Indonesians is
easy 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
building relationships in the same way that Indonesians build relationships - with sincerity, warmth
and commitment.(16)

Indonesians love to learn. The company can stimulate its employees by giving sources of
information for those employees who wish to further develop their expertise. Another useful
technique 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 their
staff 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 a
company to consider cultural values in order to be successful in Indonesia. For example, religion
is 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 employee’s facility, the company should be
aware that meals must be prepared in a accordance with Islamic traditions.(18) Another cultural
tradition that Indonesians value is harmony and consultation leading to consensus. Lastly,
Indonesians tend to confront issues in an indirect manner as an adherence to Indonesian
concepts 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 provide
profit merely by virtue of its cheap labor.” However, Citibank also noted that major foreign
companies report that Indonesian workers’ quality and productivity can be as high as elsewhere
as long as the company provides the workers with reasonable wages, a good working
environment 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 basic
wage including permanent allowances. The minimum wages are fixed by calculating the level of
“minimum physical need” (KPM), costs of living and labor market conditions. The minimum wage
level is calculated for each region, and differs according to location. (21)

Indonesia first introduced its minimum wage legislation in 1989. Since then, the government has
continuously 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, the
government increased the minimum wages by an average of 10.63% per region. The daily
minimum wage for the Jakarta area was increased from Rp 4,600 to Rp 5,200 per day or Rp
156,000 per month.(23) The minimum wage rate does not include the overtime wage rate, which
is 1.5 times the hourly wage rate for the first day and two times wages per hour for the following
days. 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 pay
a 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) for
skilled labor and Rp200,000 (US$97) for unskilled labor.(24) Nevertheless, The World Executive
Digest reported that Indonesia’s executive salaries in 1995 were still lower than those in most
other ASEAN countries. The aforementioned reported salaries do not account for various benefits
paid by the company which may include taxes, car with driver, credit cards, executive club
membership, transfer fees, etc. Overall, the difference in the total salary package might not be as
great 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 also
cover employees in private sectors.(26) The new program was enacted through Law Number 3 of
1992 that is known as JAMSOSTEK. Initially, companies that employ more than 10 persons or
have a payroll of at least Rp1 million per month are obligated to participate. However, companies
that already offer superior benefits may choose not to participate in the program. The law covers
life insurance benefits, retirement funds, free health care for workers (including spouses and up to
three children), and compensation for work-related accidents and illnesses. The employer’s
contribution and 2 percent of employee’s wages provide funds for the program for the retirement
fund. PT ASTEK, a state owned enterprise, is responsible for administering the program.(27)

Regulations(28)

Besides regulating the minimum wage and detailing the employee’s insurance program, the
Indonesian labor law delineates the regulations for standards of working conditions, the formation
and 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 7
working hours per day or 40 hours a week. Working hours may be extended to 9 hours a day, 54
hours a week with overtime pay. The regulation further stipulates that employees will receive at
least a half-hour rest after 4 successive hours of work as well as 1 day of rest per week. The
single rest day per week can be changed into 2 rest days per week given an agreement from
workers regarding an 8-hour workday.

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

A trade union at any level must register with the Ministry of Manpower. Furthermore, unions must
be registered in order to enter binding negotiation contracts at any level. Collective labor
agreements by “independent” unions beyond the plant level are still effectively impossible.
Although termination of employment on the basis of establishment of union membership is not
permitted, the law allows a company to fire any worker who does not show up for work for 6
consecutive 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 of
activity.

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

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 to
strike, and may only strike after the Chair has acknowledged the receipt of notification (usually
within 7 days). A strike must be suspended if there is an official inquiry.

The unionization process has been slow, due to Indonesian society’s lack of familiarity with trade
union practices. Although approximately 40% of the labor force is unionized, the Hong Kong and
Shanghai Bank estimates that active membership is only around 5-10%.

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

In addition, since negotiations are typically based on Indonesia’s preferred consensus system,
workers charge that the results are often biased against them. In the past, this has led to a large
number of strikes occurring without prior notification to the Ministry of Manpower. Strikes usually
relate 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, which
requires the company to submit a training plan for Indonesian nationals. The goal of this training
plan is to educate and train Indonesian nationals to later take over positions currently performed
by expatriates. In most manufacturing industries, blue collar and supervisory level positions are
closed to foreign workers, while there is three-year limit for technical staff. In other sectors such
as export marketing, tourism and consultancy, work permits are not difficult to obtain. For all
positions, 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 to
the Investment Coordinating Board. Foreign investors are allowed to fill director positions in
capital 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 of
sponsorship. Dependents of the aforementioned expatriate employee may enter the country with
a social and cultural visa. The process of obtaining the KIM-S (one-year temporary residence
visa) is long and arduous. As a result, many companies prefer to employ an agency to handle the
work permit application process.

Currently, the Indonesian government is drafting a new labor law that will review the procedures
relating to employment of expatriate staff. With unemployment at 7.24% in 1995 and as many as
two-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 Indonesia’s economy is expected to continue well into the next century. The
government has been stimulating economic growth by deregulating previous laws in order to
entice investors. New investments will mean new working opportunities that are badly needed to
accommodate the growth of Indonesia’s labor force. Simultaneously, Indonesia is experiencing a
shortage in managerial and professional personnel. Therefore, further investment in human
resources is still needed to allow Indonesia to retain its international competitiveness. In answer
to 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 for

Print Article
Human Resources Management
By Ames Gross and Rachel Weintraub December 2004

INTRODUCTION

Due to the collapse of major financial institutions, the Asian currency crisis and decreased
consumer demand, Japan’s economy has struggled since the early 1990’s. However, Japan
experienced a mild recovery period in 2003 with a 2.7% GDP, and the average annual GDP for
2004 is expected to be around 2.2%. Nevertheless several economic reports released at the end
of 2004 show that the country’s economy is once again on the decline with a decrease in
industrial output, increase in the unemployment rate, and decline in household spending. In
particular, Japan’s electronics industry has experienced some difficult times. Electronic
companies with good sales at the beginning of 2004 are now finding themselves curbing
production of some products due to a decrease in demand. The struggling industrial sector has
led to an increase in the country’s 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 between
available jobs and unemployed workers. With a large number of older workers preparing to retire
in the near future, many higher level jobs will become available and companies will look to hire
mid-career employees, who can often offer good experience and skills. Younger people currently
have the highest rate of unemployment. There is a growing trend among youths in Japan to avoid
working altogether, called NEET youths, or youths Not in Education, Employment or Training.
The uneven labor force, high unemployment and declining population have put a strain on
Japan’s economy, causing many companies to turn to non-regular workers, such as part-time or
temporary workers. In 2003, Japan’s Ministry of Health, Labor and Welfare (MHLW) estimated
that non-regular employees made up over one-third of the workforce in Japan. Additionally, the
wage restraints for these non-regular workers add to the strain on the country’s pension system.
Many of these workers do not contribute to the pension system at all due to their limited wages. In
June 2004, the Japanese government passed legislation to change the pension system and
payment 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 who
avoid paying their pension contributions, an aging population and a declining birth rate. The
country’s aging population is a major concern for the government, as the number of retires
increases and the working population decreases. Last year, the number of citizens age 65 or
older comprised nearly 20% of the total population, or approximately 24 million, an increase of
over 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, as
it has been declining for almost thirty years. In 2003, Japan’s TFR hit a record low of 1.29,
decreasing from the previous year’s rate of 1.32. Tokyo had the lowest rate last year, a TFR of
only 1.0. The TFR is predicted to rise slightly, but nevertheless, the pension system will not be
able 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 legislation
to reform the pension system in June 2004. According to the new legislation, beginning in fiscal
year 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 Japan’s current pension system. First,
committees will be set up by the Japanese government to review the social security system in
Japan. These committees will also look into the possibility of merging the National Pension
System, Employees’ Pension System and Mutual Aid Pension System into a single system.
Currently, all Japanese nationals pay into the National Pension System. In addition, citizens
employed in the private sector pay into the Employees’ Pension System, while public servants
pay into the Mutual Aid Pension System. By merging the three pension systems, the pension
payment scheme will become more straightforward for employees and should help reduce the
number 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% over
the 20 year course of the new plan. For example, an average 65 year old retiree who paid into the
pension plan for 40 years would receive a pension of 233,000 yen (US $2,250) per month in
2004. 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 is
a drop of 31,000 yen per month (US $300).
Low-income employees will also be affected by the new scheme. Currently, there are two types of
exemptions for low-income employees: a full exemption, and a 50% reduction in pension
payments. For instance, an individual who earns less than 350,000 yen (US $3,200) annually
receives a full exemption, while a person who makes between 350,000 yen (US $3,200) and
850,000 yen (US $7,800) per year receives a half-exemption. With the new system, two more
categories of exemptions will be introduced: 75% reductions and 25% reductions in pension
payments. 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 themselves
only 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 of
corporations illegally withdrawing from the Employee Pension System, thus avoiding pension
payments. According to the current pension scheme, all corporations with five or more employees
should be enrolled in the Employee Pension System. However, some of these companies have
been submitting paperwork with false information, stating that the company has either closed or
suspended their operations. If this paperwork is approved, the company is able to avoid paying
pension 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 is
questionable, will contact the company by phone or letter or, in some cases, even visit the
company in person.

As a way to encourage employees to enroll in the pension scheme, the grace period for
employees joining for the first time will be extended. Presently, those who register with the
system receive credit for only one month prior to joining. Under the new system, an employee will
receive credit for the period extending back to the previous July (the beginning of the pension
program’s fiscal year).
In hopes of increasing the number of complying citizens, Japan’s Social Insurance Agency will
begin mailing out pension payment records to all citizens covered by a publicly-managed pension
program next year (those eligible for either the National Pension System or the Employee’s
Pension 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 payment
records in order for them to verify that they have kept up with their payments. (2) The Agency
expects that mailing the records to all eligible workers, regardless of whether they are currently
complying or not, will increase public awareness of the pension system and the need for workers
to participate. Additionally, any worker who drops out of the Employee Pension System, whether
due 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 are
eligible to receive at the age of 55. This change went into effect in January 2004 in response to
frustrated workers who accused the System of withholding information as to the exact pension
payment amount a worker would receive. Previously, only those 58 and older could receive this
information from their Social Insurance Agency.

EMPLOYMENT TRENDS

Moving Away from Lifetime Employment

Traditionally in Japan, employees began working at a company immediately after graduating from
university, and stayed with that company for the entire course of their career until retirement. This
long-term employment trend is referred to as lifetime employment. Under this system, employees
are trained throughout their career and often rotated or transferred within their company.
However, with Japan’s struggling economy and increasing cost of labor, some companies are
beginning to move away from lifetime employment practices. In particular, the concept of lifetime
employment is becoming less prevalent in Tokyo and Osaka. Instead, companies are reducing
the number of regular employees in exchange for more non-regular employees, such as part-time
workers. The hiring of non-regular employees provides added flexibility and easier adjustments in
the number of workers a company employs. The company can also save money by reducing the
overall number of hours worked by employees. Moreover, companies are not required to provide
the 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 in
non-regular workers. By the end of 2003, the percentage of non-regular workforce made up over
30% 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 towards
their education or household expenses. However, as the trend towards non-regular staff
continues, companies may have to offer benefits, such as education, training opportunities or
social security. Additionally, companies may also need to provide more specific information on
working 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 new
group of workers known as “job-hoppers,” has evolved. Opposed to seeking out a reliable
company after graduating from university and staying with that company for 20 or 30 years until
retirement, some Japanese are choosing to change jobs every few years.

Most job hoppers are younger workers, often people who have graduated from university within
the past several years. However, job-hopping also exists among older workers, often those who
have 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, according
to a survey conducted by the MHLW earlier in 2004, about 30% of companies would not look
favorably upon a job-hopper. These companies view job-hoppers as workers who have no sense
of 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 mandatory
retirement age of below 60; accordingly, nearly 90% of companies have set a retirement age of
60 years old. However, as the number of retiring employees continues to rise, companies
struggle 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 of
Employment of Older Persons. Under this new revision, companies will be obliged to employ
workers for an additional five years (until the age of 65), if an employee requests to work
additional 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 employee
must have met or exceeded certain company standards.

For example, Asahi Kasei Corporation introduced a system for rehiring retirees in 2001. The
company cannot afford to rehire all its workers, but if an employee’s department has a continuing
need for them, the employee may be re-employed in their former department. During the past
three years, about 570 employees retired; approximately 190 requested to be rehired. Asahi
Kasei was only able to rehire 71 of these former employees. The new revision will provide a
company with flexibility, as a company will not be required to rehire all employees that request to
continue 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. Another
major company in Japan, Kawasaki Heavy Industries, is planning to increase its retirement age
for non-managerial workers from age 60 to 63 beginning in 2005.

Once this revision is implemented, employees should have less anxiety about their future
financial 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 as
50%, in comparison to an employee’s pre-retirement salary.

WOMEN IN THE WORKPLACE

Overview

The number of women in the workforce is increasing in Japan, with nearly 60% of all women
employed in full-time or part-time jobs. In addition, government agencies and ministries hired a
record number of women last year, totalling almost 17% of all new hires. However, women in the
Japanese workforce still find it difficult to achieve professional growth and promotion in a
traditionally male-dominated culture. In a survey on women’s participation in political and
economic decision-making, Japan ranked 38th, a very low ranking for a modern and
industrialized 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 compared
with 58% in the Philippines and 46% in the United States. Although the current employment
system does not violate the existing Equal Employment Opportunity Law, a glass ceiling
obviously exists for Japanese women in the workplace. So, to get ahead, women must think
creatively 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 prominent
positions at multinational or internationally oriented firms. Their ability to effectively communicate
with 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 on
talent, rather than age or gender. Additionally, some established companies have implemented
programs to promote female employees after they have received an MBA.

That model has worked well for Benesse, a publisher of educational materials that leads Japan
with a 30% female supervisory staff. In the 1970s, the company was based in rural Okayama
prefecture and struggled to recruit qualified personnel. The decision was made to hire and
promote the best talent available, and word spread among female university students. Firms
marketing their products and services primarily to female customers have also realized the
benefits of a female perspective. Cosmetics manufacturer Shiseido, toy maker Bandai
Entertainment, and supermarket chain Ito-Yokado all employ a respectable percentage of
females in their management departments.

According to a survey conducted by the MHLW in 2003, nearly 10% of the companies surveyed
had management track systems for women, versus the 7% of companies in 2000. But despite the
growing 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 dozen
of these cases resulted in the issuance of warnings to the violating companies, which were often
accused of establishing separate career tracks for men and women. In about 200 other
companies, 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 not
violate the Equal Opportunity Law.

Childcare for Working Mothers

Faced with a rapidly declining birthrate and a new class of professional women, the Japanese
government has taken steps to encourage new mothers to stay in the workforce. Modern
Japanese women only have 1.29 children because the demands of raising a family and building a
career 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 also
encouraging companies to follow suit. The Law for Measures to Support the Development of the
Next Generation requires companies and local governments with more than 300 employees to
adopt rules to make the workplace more family-friendly.

Cash payouts are one method the government has instituted to promote starting families. For
couples earning less than 7.8 million yen (US $75,000), the state will pay monthly allowances of
5,000 yen (US $50) for the first two children and 10,000 yen (US $100) for the third child through
the child’s third year of elementary school. Previously, the Law only covered children in
preschool. Local authorities are considering offering additional incentives. Tokyo’s Kita Ward, for
example, has extended free medical treatment to children up to 15 years old.

As part of the legislation, companies have been asked to change their attitudes towards issues
such as maternity and paternity leave and childcare. The government wants fathers to be allowed
five days of paternity leave. Mothers should receive extended maternity leave and be able work
fewer hours if necessary. More importantly, companies have been told that women taking
childcare leave should not have to worry about their job security.

Johnson & Johnson K.K., the Japanese branch of the American company, is a model company
that the government would like others to emulate. A childcare allowance of 300,000 yen (US
$2,900) can be used for various expenses, such as baby-sitting or daycare fees. Parents can pick
up their children from daycare at reasonable hours, and mothers on maternity leave are loaned
laptop computers in order to stay in touch with their office. Other Japanese companies have
established onsite childcare facilities.

Recently, there have been an increased number of women taking legal action over unfair
treatment at the workplace after becoming pregnant or giving birth. Presently, there is no law
preventing pregnant employees from undergoing a job change or other types of unfair treatment.
Additionally, the Law for Measures to Support the Development of the Next Generation does not
have any provisions for violations of the Law, despite the new childcare options and benefits it
provides.
As a result of the lack of protection for working mothers and pregnant women, a large number of
women still continue to leave their jobs in order to give birth or raise their children. Women
between the ages of 30 and 34 comprise the largest group of unemployed women. If these
women did not leave their jobs to raise their children, the MHLW estimates that an additional 1
million women could join the workforce.

UNEMPLOYED YOUTH

Overview

Currently in Japan, young people between the ages of 15 and 25 have the highest unemployment
rate equaling about 10%. Some of these young people simply lack skills and experience and
therefore have trouble getting a job. Others, called NEET youths, or youths “Not in Education,
Employment or Training,” do not even seek jobs, but rather choose to be unemployed. To combat
these unemployment trends, the MHLW and several other companies and non-profit
organizations have begun establishing programs to encourage, train and assist youths in entering
the workforce.

Job Training Certification

To make youths more appealing to employers, the MHLW has created a certification program to
improve the business skills of young people in Japan. The Certificate on Basic Business Skills for
the Younger Generation will certify that a person has the skills necessary to perform clerical and
sales work in a professional environment. The Certificate will be awarded on one of two levels: (1)
on a basic level, equivalent to a high school graduate, or (2) on a practical level, equivalent to a
college graduate. Courses for the Certification may be taken at designated vocational schools or
job training facilities.

The Certification program will focus on five main areas: (1) communication and interpersonal
skills, (2) professionalism and sense of responsibility, (3) academic abilities such as literacy and
mathematics, (4) business etiquette and manners, and (5) certification in a specific area, such as
accounting or a foreign language. In order to be rewarded Certification, participants must pass
the required courses and competency exams. Certificate holders should have an easier time
securing a new job, as the Certificate clearly defines the skills, abilities and job training
experience of the applicant.

NEET Youths

According to the MHLW, the number of registered NEET youths has exceeded 500,000 in Japan.
This is an increase of nearly 10% from 2003. NEET youths are generally classified into four
categories, (1) youths who withdraw from society, (2) youths who spend time with friends after
graduating or dropping out of school, (3) university graduates who cannot decide on a career
path, and (4) youths who previously had a full-time job, but left their job due to a lack of
confidence. Additionally, since Japanese parents tend to be very protective of their children, most
NEET youths are financially supported by their parents, so the NEETs have little need to find a
job or become independent.

A major concern of the government is the strain that these unemployed youths put on the
country’s current and future economies, since NEET youths do not pay taxes, contribute to the
national social security system, or have benefits or retirement plans. In order to address this
problem, a number of Career Centers, in collaboration with non-profit organizations, have opened
up in major cities in Japan. These Centers provide information about different types of jobs or
simple part-time jobs at local businesses and encourage NEET youths to think about their career
paths. For example, Sodateage Net, a non-profit organization based in Tokyo, established a
program in June 2004 to train and encourage employment among NEETs. In another case,
Young Job Spot Yokohama opened in July 2003 and had over 7,000 visitors in its first year.

Job Training “Camps”

In a proposed plan issued in September 2004, the MHLW will set up around 40 “camps” to
provide job training for youths. Within the first five years of the program, the MHLW intends to
train around 20,000 candidates, as well as provide training for many businesses and
organizations. Participants of the program will spend three weeks training with about 20 other
candidates and will be taught ethics, self-discipline and work etiquette. The program will also
provide support for finding a job.

SALARIES

Update: Merit vs. Seniority Pay

In Japan, the typical wage system, which bases remuneration on the number of years worked, is
the seniority-based wage system. This system first appeared in the 1920s and was created to
raise wages along with age and years of service (and the cost of living). However, in response to
the slow economy and pressure to reduce company spending, some companies in Japan have
adopted a performance-based pay system over the past several years. A performance- or merit-
based system allows companies to pay wages based on productivity and quality of work, rather
than age and seniority.

Despite this trend towards merit-based pay, some companies are reverting back to the seniority-
based system, as companies struggle to effectively assess an employee’s work progress and
level of productivity. Among the Japanese companies that introduced performance-based pay
systems, over 75% experienced difficulties managing them. At Tokai Rubber in Komaki, Japan,
the performance-based system was introduced in 1999. But, as its employees struggled to
perform using the plant’s old machinery, the company decided to revert back to the seniority-
based wage system.

Companies that had trouble assessing worker’s performance often lacked a performance rating
system; at other companies, managers lacked the training necessary to evaluate an employee’s
performance. Thus, management teams had difficulty determining the appropriate wages for an
employee. Moreover, Japanese companies were concerned about employee morale, employees
feeling a lack of job security, and company loyalty. According to a survey conducted by the Japan
Institute for Labor Policy and Training in January 2004, about 60% of companies surveyed had
switched over to a merit-based pay system. However, over 30% of the employees at these
companies reported that the atmosphere in their workplace had become less favorable. Some
employees also displayed unhappiness about the negative changes in their pay after the
implementation of the merit-based system.

Wages and Bonuses

In Japan, companies pay employees a “wage composition,” which includes an employee’s base
pay, plus additional compensation such as a housing or commuting allowance. Many companies
also pay a bonus twice a year in addition to the wage composition. Typically, employees receive
one bonus in the summer and the second bonus in December. Almost all companies provide a
bonus to employees even though it is not required by law.

OVERTIME
According to the Labor Standards Law, the standard workweek in Japan is 40 hours long. Any
workers who put in overtime may work an additional 360 hours per year, though there are specific
weekly and monthly limitations. Employees may only work an extra 15 hours per week, 45 hours
per month, or 120 hours per three-month period. The overtime pay varies depending on when the
work is performed; a 35% premium is paid for overtime during holidays, otherwise the premium is
25%. However, night-shift workers receive a 60% premium on holidays, a 50% premium all other
days.

Full-time Workers

Issues for Full-time Workers

Even though the total number of monthly working hours has decreased over the past few years,
more and more workers are complaining of working overtime without receiving compensation.
Some companies simply fail to provide overtime pay to their workers, while others find ways to
exempt themselves from paying the overtime wages. According to the Labor Standards Law,
employees should only work 40 hours per week, unless an overtime agreement has been
previously arranged. Any employees who put in overtime hours should receive a minimum of 25%
in extra wages. Violators of the Law can be fined a maximum of 300,000 yen (US $2,900) or face
up to six months in prison. However, according to inspections conducted by the MHLW last year,
approximately 18,000 businesses, or about 15% of all businesses inspected, failed to pay
workers for overtime. This figure is an increase of about 1,500 from 2002, and the highest rate in
the past three decades.

For instance, in one smaller company in Japan, about a dozen union members were persuaded
to become managers, even though the company only had about 100 employees. The reason for
this move was to reduce the amount of overtime wages to be paid out, as management-level
workers can only receive half the amount of overtime wages that a union member can receive. In
addition, the Japan Association of Labor Lawyers has reported an increased number of calls
concerning long working hours. The Association received over 700 calls just in the month of June
2004. In one case, a worker stated that his working hours are from 7:00AM to 11:00PM, but he
only receives one hour of overtime per day; he is not able to take any paid holidays.

New Measures Taken by the MHLW

To combat the lack of overtime wages paid to employees, the MHLW is taking various measures.
In addition to daytime inspections, the MHLW now conducts unannounced nighttime inspections
of companies, in hopes of cracking down on excessive overtime. When the MHLW receives
complaints from a particular company, it will map out a detailed inspection plan, including
checking on claims for labor accident compensation. In the case where a claim has been filed for
a death from overwork, the MHLW may take steps to improve the company’s working conditions
even before the claim is approved, in hopes of protecting other employees at the company from
future incidents or problems.

The MHLW is considering a proposal to change the Industrial Safety and Health Law, which
would place more responsibility on a company for overworked employees. Specifically, the
revision calls for all employees who work more than 100 hours of overtime per month, or
employees who work 80 hours of overtime a month for a two to six month period, to be
interviewed and given a physical by a doctor. In addition to the employee’s overall health, the
doctor will also check for depression. If a doctor determines that an employee is overworked or in
declining health due to overwork, the doctor may recommend to the employer that the employee
work less hours or take a paid holiday.

Actions Taken by Employees

Some employees have begun to take action against their current or former employer, requesting
that they be paid the overtime wages their employer failed to provide. In the past, workers were
reluctant to ask for their overtime wages, as they were worried they might lose their jobs. Now,
some workers are making this request, but only after losing their job due to company restructuring
or budget cuts. For instance, a driver for a delivery company who lost his job later demanded that
the company pay him for his overtime hours he worked over the past two years. After consulting a
lawyer, the driver was able to receive his lost overtime, totaling 800,000 yen (US $7,700).

In a second case, an employee died from excessive overwork, which had lasted several years.
The few months prior to his death, he was working an excess of 200 hours of overtime per month.
His wife applied for work-related accident compensation, and the local Labor Standards
Inspection Office recognized the cause of death as overwork and subsequently granted the
compensation.

Part-time Workers

New Laws for Overtime Benefits

In an effort to improve the balance between a part-time worker’s work life and personal life, the
MHLW is gearing up to submit a bill to the Diet in 2005, calling for the revision the Labor
Standards Law. In accordance with the current Labor Standards Law, employers must pay full-
time employees an additional 25-50% in overtime pay to those who work more than 40 hours per
week. However, the Law does not currently apply to part-time workers, and most companies only
pay them overtime wages equivalent to their regular hourly wages. The proposed amendment
requests that the current Law be applicable to part-time workers as well. Moreover, the MHLW
hopes to expand the scope of the Law, so all hours worked exceeding the number specified in a
part-time worker’s contract will be eligible for overtime pay. This is a key element to the revised
changes, as most part-time workers do not work 40 hours or more per week.

Opposition to Overtime Benefits

The MHLW expects a number of protests in response to the proposed change of the Labor
Standards Law. Businesses that employ a large number of part-time workers, such as retailers
and restaurants, will most likely object to the Law, as it would result in an increase in the
business’ expenses. However, the Law will also call for a number of measures to ensure clarity
and compliance among both employers and part-time employees. For instance, the MHLW will
call for a review of the current minimum wage levels, which vary by industry, and possibly lower
the levels as a result of the proposed overtime wage increases. Second, during the hiring
process, employers will be asked to state whether the new hire will be required to work overtime
and if so, the number of hours that will be required. Employers will have to follow a specific
process when requesting that a part-time employee put in overtime. In some cases where
workers may prefer to put in long stretches of time, such as researchers, the MHLW has called
for a special system to allow part-time employees to adjust their daily working hours accordingly,
without worrying about a daily working hour limit. Finally, the Ministry will look for ways for
businesses to end the differences in treatment between part-time employees and permanent
employees.

EMPLOYEE BENEFITS

Social Insurance Premium

In Japan, employees pay 22.16% towards social insurance premiums, similar to the rate paid by
employees in the U.S. The breakdown of this premium is as follows: 7.3% for medical insurance,
13.58% for pension insurance, 1.15% for unemployment insurance.
Paid Vacation

Employees who have a 80% or higher attendance rate and have been with a company for a
minimum of six months will receive ten days of leave per year. Once an employee has served
with a company for six years and six months, the annual paid vacation increases to twenty days
per year. However, most Japanese employees only use about 50% of their vacation days each
year. There are many reasons for employees not using their paid vacation, though many claim it
is due to their busy work schedule.

Flexible Work Schedules

In addition to the typical 40 hour work week and overtime hours, the Labor Standards Law also
provides for several other work scheduling systems for employees. First, employees may use a
weekly or monthly variation system in which the weekly working hours will be increased for a
specified number of weeks or months. All the other weeks or months will require the employee to
work fewer hours than usual. This system is common for workers in industries where the
workload varies during different months or seasons of the year.

A second option for more flexibility in working hours is the Flextime system. This system runs on
a one-month basis and allows employees to enter and leave the workplace as they choose,
depending on the number of customers or workload. Flextime is most commonly used by
employees who work in restaurants, retail stores or smaller hotels.

The “defacto working hour” system allows an employee to count their working hours from the time
they enter the “working field.” This system applied to employees in industries such as mining,
research and sales, where the employee does not necessarily have a traditional workplace or
office.

Stock Options

Japanese companies are beginning to offer a more diverse selection of company benefits. In
addition to better childcare options and services, and the stronger compliance with overtime
payments, some companies (typically larger companies with over 1,000 employees) are also
starting to offer stock options as an incentive. Usually, employees of these companies are
allowed to purchase stock at a fixed price.

RECRUITING TRENDS

Overview

In Japan, recruitment strategies vary depending on the type and size of a company. Most large
Japanese companies rely on university recruiting, which offer lifetime employment and on-the-job
training. Smaller Japanese companies, which cannot always offer the high wages and stability of
a large company, often hire more mid-career workers. Foreign companies tend to rely on
recruiting methods such as newspaper advertisements in Japanese and English, word of mouth
and employment agencies when seeking out new graduates, or may recruit more mid-career
hires or temporary staff.

University Recruiting

Many new university graduates still look to large Japanese companies for a job. Larger
companies offer stable management, higher wages and good working conditions. Additionally, it
is very prestigious to work for a large company in Japan.
When applying to a large company, a soon-to-be graduate will request information and materials
from a company during his/her junior or senior year at university. After attending information
sessions, a student will take the company’s written exam and then proceed on to an interview. A
company will normally make a decision after two or three interviews.

Recently, with the increased popularity of the Internet in Japan, many students have been
searching and applying for jobs online. Many companies now offer information online, and
students can often register for company events and seminars by email. Now, over 50% of large
companies use the Internet for recruiting, though many small and medium size companies have
yet to move their recruiting services online.

Mid-Career Hiring

Recently, some companies have begun seeking mid-career hires in order to fill positions left by
newly retired persons. Job experience, knowledge and skills are most important to employers
when recruiting a mid-career hire. In addition, they also consider factors such as ambition,
stamina and health. Mid-career hires are usually recruited by posting an advertisement in a
newspaper or on a flier, through a public employment office or through personal connections. As
more and more Japanese employees reach retirement age in the upcoming years, mid-career
hiring will increase in order to replace the lost experience and skills of the retirees.

CONCLUSION

Japan continues to experience changing “norms” in human resources while in the midst of a
struggling economy, with a discrepancy of jobs and available workers for those jobs, and a failing
pension system. While some companies still use traditional employment practices such as
lifetime employment and seniority pay, due to the sluggish economy, many companies are
moving away from these practices in order to cut their number of employees and reduce
expenses. Foreign companies currently in Japan or looking to expand their business into Japan
should take these new developments into consideration in order to successfully recruit or retain
staff.

Pacific Bridge, Inc. - Korea HR Publications

Korea: 2005 Human Resources Update

Published by Pacific Bridge, Inc. Print Article

By Ames Gross and Rachel Weintraub July 2005

INTRODUCTION

Korea ’s economy has experienced moderate growth over the past few years, with a 3.1 percent
GDP growth rate in 2003 and around a 4.9 percent growth rate in 2004. Nevertheless, the
country’s employment rate has remained low, with only about a 2.0 percent growth rate in 2004;
in 2003, the employment rate dropped around one-tenth of a percent. Korea’s unemployment rate
remains around 3.6 percent, with the most significant job shortages in the trade, services and
construction industries. Therefore, the Ministry of Labor (MOL), in cooperation with a number of
other Korean ministries and government organizations, have been establishing new laws and
regulations in order to improve the employment situation in Korea.

The MOL was established to monitor and improve employment conditions in Korea, including
employment security, accident prevention, job training and employees’ quality of life. Additionally,
the Ministry of Education and Human Resources Development is responsible for HR development
and the establishment of HR policies in Korea.

HIRING TRENDS

New Graduates

Korea continues to face a youth jobless rate of around 9 percent, the second highest in the world
after France. Out of the 400,000 university graduates in 2004, only about 20,000 found jobs.
Moreover, an estimated 70 percent of companies in Korea stated that they did not plan to hire
any new graduates in 2004. Various factors have led companies to implement hiring restrictions,
including the fact that some public institutions fail to provide adequate training and preparation for
students entering the workforce.

Therefore, the government established a new incentive program for hiring young workers. As of
October 2004, companies in Korea were eligible to receive a subsidy for each young worker
hired. The government allocated 7.4 trillion won (US $6.8 billion) for the subsidy program,
providing 5.4 million won (US $5,000) to large companies and 7.2 million won (US $6,600) to
smaller companies for each young worker hired. This program is effective for three years.

Additionally, on October 13, 2004, the Korea Employees Federation (KEF) released an official
letter to its 4,000 member companies urging them to ease their hiring restrictions of new
employees. The KEF is an independent economic organization in Korea and was established to
ensure industrial peace and economic development throughout the country. The 4,000 member
companies, both Korean and foreign, include companies in sectors such as manufacturing,
banking, transportation, construction, and insurance. However, the KEF has noticed a growing
trend among their member companies to place restrictions on the persons they hire, often by age
or graduation year.

The KEF has asked its member companies to reconsider their respective hiring methods and
regulations, and base their hiring decisions on the most capable and talented individuals. The
actual changes in hiring procedures may be decided by each individual company on a voluntary
basis (rather than by the KEF). Companies who choose to ignore the KEF’s recommendations on
lifting hiring restrictions could potentially be accused of age discrimination, though the KEF did
not mention any penalties, such as fines.

Irregular Workers

On November 2, 2004, in an effort to add more flexibility to the labor market, the Korean
government approved a bill allowing companies to hire an increased number of “irregular
workers.” Irregular workers, such as dispatched workers and subcontract employees, make up
over half of Korea’s labor force and allow companies to save time and money by avoiding the
cost of hiring full-time employees. However, many of these workers receive significantly less pay
than full time workers and often work in poorer conditions. The new bill will provide for better
treatment and working environments for these employees.
Previously, irregular workers were permitted to work for an employer for up to two years. Under
the new bill, their permitted work period is lengthened to three years, though this period may be
further extended under certain circumstances, including reasons such as, to continue an ongoing
project or to fill an open position after the retirement of a full-time employee.

All companies employing irregular workers are required to state the working conditions in writing,
as failure to comply with this rule can result in a fine. Additionally, overtime hours of irregular
workers may not exceed 12 hours per week, though an irregular worker with a fixed term now has
the right to object to an employer’s request to work overtime.

FOREIGN WORKER REGULATIONS

Two new regulations announced by the MOL will affect the requirements for companies in Korea
wishing to hire foreign laborers. The new regulations will mandate Korean language tests for
foreigners wanting to work in factories and will also shorten the length of time that a company
must look for Korean employees before hiring foreign employees.

Language tests for foreign workers wanting to work in factories will go into effect on August 17,
2005. The tests are not designed to ensure Korean language fluency, but rather to ensure that
workers will be able to identify safety signs and also understand basic orders from supervisors.

The government has not specified when it plans to officially shorten the period of time in which
companies must look for Korean worker before foreign ones. The new regulation will shorten the
obligatory period from one month to 3-7 days. Companies still must prove to the MOL that they
searched for, and were unable to find, Korean workers before attempting to hire foreign workers.

LIVING CONDITIONS

A recent survey, jointly conducted by Gallup Korea and Invest Korea, found that many foreigners
working in Korea are dissatisfied with their living conditions. Of the 223 employees of foreign-
invested companies that participated in the survey, 27.8 percent responded that they were
unsatisfied with their living conditions. Those surveyed expressed dissatisfaction with Korea’s
transportation, medical, education and housing environments. Recent surveys conducted by the
Ministry of Commerce, Industry and Energy (MOCIE) have identified similar complaints among
Korea’s foreign workers. Complaints such as these have led the MOCIE to embark on a 5-year
project to improve the living environments of foreigners working in Korea.

One of the first issues addressed by the MOCIE was the efficiency of visa procedures. To make
the process more efficient, the government has increased the sojourn period of foreign visa
holders from two to three years. In response to more options for education, the government has
increased their efforts to build quality foreign schools. MOCIE announced that in addition to
building new foreign schools, it also plans to increase aid to existing schools to increase the
quality of their services.

The Ministry of Health and Welfare has chosen certain private and university-run hospitals to be
designated as providers of medical services to foreigners. These hospitals are required to be able
to issue prescriptions in English. The ministry plans to provide aid to these hospitals in order to
strengthen language education for staff members.
The Invest Korea Plaza project is one of the main projects being undertaken by the government
to try and increase the quality of life for foreigners. It is now under construction in southern Seoul.
The plaza is designed to offer a one-stop service for foreign residents. By contacting a single
project manager at the plaza, a foreigner can access services ranging from investment
counseling, to help with education and housing concerns. The planned completion date for the
plaza is September 2006.

HEALTH INSURANCE

The National Health Insurance Corporation (NHIC) is one of the main organizations in Korea’s
social security system. It is the only public health insurer in the country and is in charge of running
the National Health Insurance (NHI) program, committed to providing Koreans with adequate
healthcare services. However, the NHIC has often been criticized for its high premiums and low
coverage. Moreover, it faces a debt of over one trillion won (US$975 million).

In response to these problems, Korea’s Ministry of Health and Welfare (MOHW) announced in
January 2005 that it will increase health insurance coverage for NHIC subscribers. Over the next
three years, health insurance coverage will gradually be raised a total of 10 percent, from 60 to
70 percent. The MOHW plans to establish a task force to determine specific ways to reduce
medical costs for patients. As part of the increased coverage, the NHIC plans to change its
coverage standards and also start providing coverage for medical services not currently included
under the scheme. However, the MOHW may also raise NHIC contribution premiums to help
support this increased coverage.

TAX BENEFITS

In order to create a friendlier foreign investment environment, the Korean Ministry of Finance and
Economy has implemented new income tax rules exclusively for expatriate workers and foreign
companies. Under these new rules, foreign employees living in Korea will now have a choice of
two methods when calculating their Korean income tax: they may apply for a flat tax rate of 17
percent of their gross income, or they can choose to utilize the current tax system, under which
their adjusted gross income is subject to a tax rate of 9 to 36 percent, depending upon their level
of income.

Korea also extended a personal income tax exemption for foreign engineers until 2006. The
exemption, which lasts for the first five years of employment, was set to run out at the end of
2003, but was extended. Therefore, those starting work on or before December 31, 2006 can
claim the exemption. It applies to foreign engineers working for a Korean company, designated
research institutes, or in certain industries including mining, construction, engineering, and
environmental.

Foreign-invested companies located in Free Economic Zones or Free Trade Zones in Korea may
also be eligible for new tax benefits. Qualifying companies are manufacturing and tourism
companies with a foreign direct investment of at least US $10 million, as well as freight
companies with a minimum foreign direct investment of US $5 million. These companies will be
eligible for a 100 percent exemption from Korean income tax for three years, including corporate
and local taxes, and then a 50 percent exemption for two additional years. These companies will
also receive an exemption from customs duties for three years.
Foreign businesses who are executing development work in Free Economic Zones may also
receive the same tax benefits as foreign companies that have locations within Free Economic
Zones. However, these foreign businesses must meet a minimum foreign investment of US$30
million. With the implementation of these new tax exemptions for foreign businesses and
expatriates, the Korean government hopes to increase international competitiveness among
companies in Korea.

PENSION UPDATE

In an effort to financially stabilize the pension system and better prepare for the fast-aging
society, the Korean government approved long-term measures in January 2005 to reform the
pension scheme. Previously, Koreans paid a monthly pension contribution of nine percent and
received 60 percent of their wages after retirement. However, if those pension rates were
maintained, the Korean government predicted that the National Pension Fund would run out of
money by the year 2047. The new pension scheme provides for the collection of higher pension
contributions and a reduction in monthly pension payments.

A National Pension Council was established to oversee the implementation of these new pension
reforms. As just mentioned, workers previously received 60 percent of their wages after
retirement, but after January 2005, the percentage dropped to 55 percent and by 2008, the rate
will reduce to 50 percent. Beginning in 2010, the monthly pension contributions will increase from
the current 9 percent to 10.38 percent. Additionally, the rate will rise 1.38 percent every five years
after 2010, reaching 15.90 percent by the year 2030. Other changes were made in the pension
scheme to reflect the changing demographics and family patterns in Korea. Pension benefits
were decreased for employees who filed for pensions under the age of 60. However, those who
continue working after the retirement age of 60 are eligible to receive additional benefits.

Second, the Employee Retirement Benefit Security Act was also passed in January 2005 and will
become effective in December of this year. Under this Act, the MOL will set up a Retirement
Pension Deliberation Committee to manage the operations of employee retirement schemes. The
new pension regulation will be applicable to all businesses and workplaces in Korea with five or
more employees. Any employee who averages at least 15 working hours per week and works for
at least one year will be eligible to join a retirement scheme. Those businesses with fewer than
five employees will be required to abide by the new regulation sometime between 2008 and 2010.

Any employer who establishes a pension plan will be required to designate a Retirement Pension
Trustee. The Trustee will perform services such as setting up and managing the pension account,
collecting the contributions, paying benefits, etc. In addition, either the employer or Trustee is
responsible for providing pension holders with information about their plan on a yearly basis.
Pacific Bridge, Inc. - Malaysia HR Publications

2005 Malaysia HR Overview

Published by Pacific Bridge, Inc. Print Article

By Ames Gross and Rachel Weintraub August 2005

Overview:

Malaysia ’s economy has grown steadily over the past several years, improving from a 4.2
percent GDP in 2002 to a 7.7 percent GDP in 2004. Currently, the fastest growing sectors in the
country include the healthcare, information technology and logistics industries. As of 2004,
Malaysia’s population totaled nearly 24 million, with a workforce of around 10 million and
unemployment rate of approximately three percent.

Pension System:

The Employees Provident Fund Act was set up in 1951 as a pension system for all employees in
Malaysia. It requires monthly contributions from employers (12 percent) and employees (11
percent). All workers in Malaysia are required to participate in the Fund except for expatriates,
those who are self-employed and domestic servants. Pension contributors can check their
balance at any time by submitting an inquiry in writing.

Contributors who reach the age of 55 are eligible to receive their pension funds. In addition,
eligibility also requires that an employee have contributed to the Fund for at least five years.
Pensions may be drawn before the age of 55 if (1) a contributor leaves Malaysia permanently, or
(2) requires the funds for the purpose of seeking medical treatment, subject to approval from a
medical board in Malaysia.

National Health Insurance Scheme:

Due to rising healthcare expenditure, the Malaysian government has recently announced that it
will implement a new National Health Insurance Scheme (NHIS). The NHIS will be managed by
the National Healthcare Financing Authority and will require mandatory contributions from most
citizens and eligible non-citizens. While the new scheme will mark the end of free universal
healthcare in Malaysia when it goes into effect around the end of 2006, it is expected to provide
better healthcare and healthcare facilities in Malaysia, and also offer financial risk management
for those facing high medical fees.

The NHIS will be based on a “community-rated” model, where the cost of healthcare will be
spread across the population, with the rich and healthy helping to subsidize the poor and sick.
Specialized packages will be available for those citizens who desire better healthcare service with
more options, such as a choice of private hospital or public healthcare facility. The Malaysian
government hopes this cost-sharing model will allow all citizens access to quality healthcare and
help alleviate the government’s financial burden due to rising healthcare costs.
The details of the NHIS are still being developed, including the mandatory contribution amount,
contribution ceiling, type of healthcare packages that will be available, and how the hospitals will
receive funds, among others.

However, since most private companies provide healthcare to their employees, some private
sector employers are concerned that this new scheme could place an additional financial burden
on them. According to the Malaysian Employers Federation, 98 percent of private companies
provide medical treatment to executives, 57 percent provide hospitalization coverage, and 53
percent provide dental benefits. Under the NHIS, private sector employees may also be required
to contribute towards the scheme.

Foreign Workers Insurance Scheme

In an effort to protect foreign workers in Malaysia, the Ministry of Human Resources (MOHR)
recently established the Foreign Workers Insurance Scheme, requiring all employers in Malaysia
to insure their workers with one of four approved insurance companies. Manpower Department
director, General Datuk Ismail Abdul Rahim, emphasized that policies from other insurance
companies in Malaysia are not valid and will violate the Workmen’s Compensation Act.
Employers may choose from Lonpac Insurance, the Malaysian Assurance Alliance, Mayban
General Assurance or Kurnia Insurans.

These four insurance companies will establish an Electronic Network System linked to the
Department of Manpower, providing for efficient administration and enforcement by the
Department. Additionally, the System will allow the Department of Manpower to quickly identify
any employers who fail to meet the new insurance requirements. An employer who violates this
policy could receive a fine of RM 20,000 (US $5,200), a two-year jail sentence, or both. The
insurance premium for this new Scheme will hold at its present RM72 (US $19). Of course,
foreign companies can also supplement an employee’s Malaysian insurance plan with an
overseas plan, under an umbrella policy.

Foreign Worker Induction Course

Effective November 1, 2004, all foreign workers who enter Malaysia and intend to stay for less
than one year must enroll in an induction course, according to the regulation established by the
MOHR. Annually in Malaysia, companies hire about 300,000 to 400,000 foreign workers. The
new induction course for these workers was created to provide basic and useful knowledge about
Malaysia, such as customs, labor laws and employment regulations.

The induction course is sixty hours long and consists of three modules. The first course will help
foreign workers communicate better in Bahasa Malaysia. The second course will provide
information on the customs, culture and religious beliefs in the country. Finally, the new workers
will be introduced to Malaysian labor laws, immigration and employment regulations.

Employers will be required to collaborate with a Malaysia training provider to organize the
induction course for their foreign workers, which will be held at a training center. The Ministry had
granted a six month transition period to employers, which lasted until April 30, 2005. Employers
are not required to hold induction courses for any new foreign employees who joined their
company prior to November 1, 2004.

Workplace Smoking Regulations:

In order to provide a cleaner and healthier environment in the workplace, the Department of
Occupational Safety and Health (DOSH) began drafting new guidelines on indoor air quality and
smoking regulations. This decision came as a result of increasing influence from other countries
which have already implemented smoking restrictions in the workplace. The new regulation,
which is expected to go into effect in late 2005, will specify what constitutes good indoor air
quality in the workplace. Currently, the Occupational Safety and Health Act requires employers to
maintain good air quality, but does not provide specific standards or measures of quality.

DOSH will develop the new regulations by examining the standards set in other countries and
also through consultations with Malaysian employers and unions. One main issue will be whether
offices should have designated smoking rooms – a provision strongly supported by the Malaysian
Trade Union Congress. Presently, some government offices in Malaysia have “smokers’ corners”
for the workers, which are often tables with ashtrays, and do not help to improve the workplace
air quality.

The DOSH intends for the new regulation to be very direct, clearly stating where workers can and
cannot smoke, as well as specific standards for air quality in offices. This should help prevent
employers from avoiding or challenging the new regulation. Moreover, employers who fail to
follow the regulation, once in effect, will be punished by receiving a fine of up to RM 10,000 (US
$2,600), a jail term of up to one year, or both. Continuous offences will be punishable with fines of
RM 1,000 (US $260) per day.

Pacific Bridge, Inc. - Philippines HR Publications

2005 Philippines HR Update

Published by Pacific Bridge, Inc. Print Article

By Ames Gross and Rachel Weintraub August 2005

Introduction

The Philippines has a total population of nearly 88 million and workforce of 36 million. The labor
force has shown little increase since 2004 and the country is struggling to improve its
unemployment rate which is around 12 percent. In 2004, nearly one million new jobs were
created, versus about 600,000 in 2003, but still not enough to improve the unemployment
situation. Over a quarter of those unemployed are youths (high school graduates), but many have
a college education.

To help locate jobs for the unemployed, the government, in cooperation with private businesses
and organizations, has planned and organized over 100 job fairs to be held between July and
December 2005. From 2001 until the middle of 2005, nearly one-quarter of a million employees
have been placed in jobs after attending a job fair.
In August 2004, the Filipino government established the KASH (Kasanayan at Hanapbuhuy)
Program in order to provide training and skills to younger citizens, preparing them to enter the
workforce. As of April 2005, over 50,000 young graduates had completed the program. The
program is run under the DOLE’s Technical Education and Skills Development Authority, along
with other organizations, such as the Philippine Chamber of Commerce and Industry and
Philippine Exporters Confederation. Employers that participate in the KASH Program are required
to employ young workers as apprentices for four to six months and pay them 75 percent of the
current minimum wage. However, these apprentices can only make up 20 percent of an
employer’s workforce.

Department of Labor and Employment

The DOLE was initially created in 1908 and become an official government department in 1933.
The DOLE is responsible for creating and enforcing labor policy on such issues as workplace
health and safety, minimum wage and job training. Some of the programs the DOLE leads
include the Productivity and Wage Setting Program, Social Protection and Welfare Program and
the Technical Education and Skills Training Program.

Social and Family Welfare

The DOLE Labor Code states that businesses with 200 or more workers should establish a family
welfare committee to manage the social and family welfare of its employees. Some of the areas
to be addressed by the committee include income generation, healthcare, education, gender
equality, housing, transportation and nutrition. In 2004, over 1,200 workers attended workshops;
in 2005, around 700 workers have participated in the training sessions to date.

Equal Employment

The Filipino government states that it shall protect labor, promote full employment, provide equal
work opportunity regardless of gender, race, or creed; and regulate employee-employer relations.
Men and women should be paid equal compensation for work of equal value; both genders
should have access to training activities and promotions.

The minimum age of employment in the Philippines is 18 for hazardous work, 15 for non-
hazardous work. However, citizens under 15 may also be employed in non-hazardous jobs with
parental consent.

Working Hours

A normal workday is eight hours, not including meal times. Employees who work more than eight
hours a day are entitled to overtime pay, excluding employees in managerial or field positions.
Any work performed between the hours of 10:00PM and 6:00AM is considered nightshift work.

Wages

Wages should be paid in cash at least twice a month, at intervals of 16 days or less. In
establishments with 25 workers or more, if the workers agree, wages can be made through a
bank located within one kilometer from the workplace.

As of June 16, 2005, the minimum wage in the Philippines increased by P25 (US$0.45) per day.
The wage hike was passed by the Regional Tripartite Wages and Productivity Board. Employees
earning minimum wage in the non-agricultural sectors should now receive a daily wage of P325
(US$6).
Pacific Bridge, Inc. - Singapore HR Publications

Update on HR Issues in Singapore

Published by Pacific Bridge, Inc. Print Article

By Ames Gross and Rachel Weintraub July 2005

INTRODUCTION

Singapore has a population of close to 4.5 million and a labor force of approximately 2.2 million.
The country’s economy remains strong and in 2004, boasted an 8.1 percent increase in GDP.
Singapore’s highly-developed economy and central location to other countries in Asia has led
many foreign companies to choose Singapore as their Asia hub.

The Ministry of Manpower (MOM) is responsible for maintaining a globally competitive workforce
in Singapore. Therefore, the MOM is constantly striving to improve working conditions and
benefits for all employees in Singapore by managing such areas as labor relations, occupational
health and safety, foreign workers’ rights and on-the-job training programs.

FOREIGN WORKERS

Hiring Regulations

Effective July 1, 2005, two MOM regulations related to the hiring of foreign workers have been
amended. The changes will affect the percentage of foreign workers allowed to be employed by
companies in Singapore and will also increase the skilled foreign worker levy.

Citing economic recovery as its motive, the MOM announced that the skilled foreign worker levy
will be progressively raised over the next year, with the first increase taking effect on July 1, 2005.
This increase will raise the levy from its current level of $50 to $80 per skilled foreign worker. On
July 1, 2006 the levy will increase once more to $100. This levy applies to all skilled foreign
workers across all sectors of the economy.

The MOM also started raising the Dependency Ceiling (DC) – the percentage of work permit
holders that are allowed to be employed by a company as part of their total workforce – on July 1,
2005. The DC was raised to 60 percent for the manufacturing sector and to 40 percent for the
service sector. The previous DCs were set at 50 percent for manufacturing and 30 percent for
services.

S Pass Work Permit

Prior to July 2004, foreign professionals and executives were issued P1, P2, Q1 or Q2 permits in
order to work in Singapore; foreign semi-skilled and unskilled workers were granted R1 or R2
passes. However, on July 1, 2004, the Ministry of Manpower (MOM) changed the work permit
system, replacing the Q2 pass with a new S pass. The S pass is a work permit for mid-level
workers and will help Singapore fill its gap between foreign executives and unskilled workers. S
pass applicants must earn a salary of at least S$1,800 (US $1,100) per month, though there are
no restrictions on nationality, age or duration of employment in Singapore.

S pass applicants will be assessed on four points: salary, education, job type and years of work
experience. S$1,800 (US $1,100) per month is considered the base salary and does not include
payments such as overtime, incentives, bonuses or housing and travel allowances. The MOM will
also evaluate the applicant’s qualifications, such as degrees received and specialized courses
taken in their field. The applicant’s desired job type – professional, technical or specialist – will
also be considered.

The application for the S pass requires the following forms and information: (1) S pass application
form, (2) a copy of all educational documents and past employment testimonials, (3) a passport-
size photo, (4) copy of the travel document page showing the applicant’s personal particulars, (5)
professional certificate of registration (for those who are doctors, nurses, dentists, teachers,
lawyers, etc.). The processing time for an S pass is approximately three weeks; the outcome will
be mailed to the employer. Once the S pass is granted, it is initially valid for two years with each
renewal to be valid for three years. The S pass holder will be required to pay a monthly fee of
S$50 (US $30). S pass holders who earn a minimum of S$2,500 (US $1,500) will be eligible to
receive dependent privileges and can bring their immediate family to Singapore.

Foreign workers who currently hold a Q2 pass are not required to convert to an S pass, as they
will automatically be issued an S pass when their Q2 pass expires as long as they remain with
their current employer. However, if the Q2 pass holder earns over S$2,500 (US $1,500), they
may wish to go ahead and convert to an S pass in order for their dependents to receive the
special privileges.

JOB TRAINING

Certified Training Course in Workplace Health Promotion

The Health Promotion Board (HPB), established in 2001, is focused on national health promotion
and disease prevention programs in Singapore. In 2003, the HPB conducted a health promotion
survey of nearly 600 organizations in Singapore. According to the results, over 25 percent of the
organizations surveyed complained of having insufficient budgets to support a health promotion
program and nearly half of the organizations admitted having inadequate experience in
introducing and evaluating health promotion activities.

Following the outcome of the survey, the HPB announced the establishment of the Certified
Training Course in Workplace Health Promotion (WHP). The new WHP program offers training
sessions to help foreign and domestic companies increase productivity and improve employee
performance, while reducing employee medical costs, absenteeism and turnover. The WHP
program will provide training for employees, enabling them to gain the skills necessary to
establish and manage a health promotion program within their company. Employees will have a
variety of topics to choose from, including health screening, physical activity, smoking prevention,
stress management and healthy eating.

Three different courses will be offered under the WHP program. The first course is WHP for
Health Activists, which is geared towards employees who will help organize and promote specific
activities. This course is 1 ½ days long and teaches basic concepts of WHP and how to
implement and market a particular program. The second course, which lasts 2 ½ days, is WHP
for Managers, and caters to those who will implement, plan and manage a WHP program. The
third course, WHP for Consultants, is a 4-day course offered to consultants who will eventually be
the trainers for Courses I and II. This course will provide a comprehensive understanding of the
WHP curriculum and identify areas where companies often need more supportive health
programs.

Work-Life Works Fund

On August 22, 2004, the Singapore government established the Work-Life Works (WOW) Fund to
improve the work-life strategy in Singapore. The work-life strategy consists of activities and
policies used by employers, which includes flexible working hours, employee support schemes
and family care leave, to harmonize the time and energy a worker spends at work versus home.
Businesses also benefit from this program through the increased productivity of employees, lower
rates of absenteeism and better motivated and satisfied workers. The WOW Fund will help
companies lower their costs of starting or improving work-life strategies by providing up to 70
percent of the costs associated with establishing new projects, up to S$30,000 (US$17,500) per
project.

All private sector organizations, including non-profit organizations, may apply for WOW grants,
regardless of their industry or size. However, projects which introduce flexible work schedules will
receive higher priority, as these programs have been very successful in improving work-life
harmony among employees in the past. WOW grants will cover the following programs: (1)
training HR managers and line supervisors on work-life strategies through Ministry of Manpower
(MOM) approved courses, (2) one-time infrastructural costs to implement network systems or
support schemes to setup and maintain flexible work schedules and family care, (3) contracting a
work-life consultant approved by the MOM and (4) hiring staff to implement or lead work-life
programs within an organization. Conversely, a grant may not support personal wellness, such as
gym memberships or recurrent costs for work-life programs such as computer maintenance or
reimbursement of goods and services tax (GST).

Companies interested in applying for a grant must submit an application, work-life project
proposal and a funds-allotment statement to the Quality Workplaces Promotion Department of the
MOM. Organizations must also designate a senior level manager who will be responsible for, and
committed to, the success of the project. Applications may be submitted at any time and
applicants will be notified of the outcome of their proposal within 14 working days. Upon receiving
approval, the organization will receive the first 30 percent of their grant. However, successful
organizations will still need to obtain permission from the MOM prior to actually initiating the
project. Once the project has begun, the organization will have one year to complete the project.
They must also submit a progress report within six months of the starting date, or half way
through the project, whichever is sooner. When the project has been successfully completed, a
final report must be submitted to the MOM and the organization will receive the remaining 70
percent of their grant.

CHILDCARE

The Singaporean government is becoming increasingly concerned over the country’s declining
birthrate, which dropped to a mere 1.05 at the beginning of 2005. To address this issue, the
government has announced a number of new schemes aimed at promoting parenthood and
improving family life in Singapore.

Parenthood Tax Rebate

The Parenthood Tax Rebate (PTR), to replace the Special Tax Rebate (STR), will reduce the
requirements and qualifications parents need to meet in order to receive financial support for
raising children in Singapore. The PTR will allow a mother to claim a S$10,000 (US$5,900) tax
rebate on her second child, regardless of the mother’s current age. Previously, the tax rebate
varied depending on the mother’s age, but the mother had to be under 31 years old in order to
receive any rebate at all. Second, under the STR, a parent had to claim the tax rebate within nine
years of childbirth. The new PTR Program does not have a time limit for claiming tax rebates.

Working Mothers’ Child Relief Program

Under the Working Mothers’ Child Relief Program (WMCR), mothers will continue to receive a
percentage of their salary in the form of a tax relief, somewhere between five and 25 percent. The
percentage will depend on the total number of children the mother has, but will no longer vary
depending on a child’s age (under 12 years old versus over 12 years old). The WMCR replaces
the Enhanced Child Relief Program and the Further Tax Rebate Program.

Updated Children Development Co-Savings Act

After October 1, 2004, working mothers in Singapore were permitted to take up to 12 weeks of
maternity leave, according to the improved Children Development Co-Savings Act. For a mother’s
first and second child, the employer is required to pay for the first eight weeks of maternity leave
and the government will reimburse the employer for the final four weeks. If the employee has a
third or fourth child, the government reimburses the employer for all 12 weeks of maternity leave.
The reimbursement will be capped at S$10,000 (US$5,900) per four weeks. In addition, if the
employer agrees, the mother may take her last four weeks of leave any time during the six month
period after childbirth. Otherwise, the final four weeks of leave must be used continuously after
the first eight weeks. Any mother who gave birth after August 1, 2004 is eligible for this extended
maternity leave.

Childcare Centers

In an effort to provide working parents with more childcare options, the Ministry of Community
Development and Sports (MCDS) has announced plans to increase the number of infant and
childcare facilities to 3,000 by 2009. Currently, there are about 670 childcare centers in
Singapore, with only 25 centers offering infant care services. The MCDS is hoping that these new
measures will alleviate some of the burden on working parents who are seeking professional care
providers for their infants and children during the workday.

In a marriage and parenthood survey conducted by the MCDS between July 2003 and February
2004, the majority of the 6,000 Singaporeans surveyed prefer to use childcare centers rather than
in-home childcare workers. Additionally, the majority of respondents also prefer that child care
centers be close to their homes, rather than close to their workplace. This preference contrasts
with working parents in Japan, where the majority of working parents prefer to take their child to a
daycare center at their place of work, leading more and more Japanese companies to invest in
on-site child care centers.

HEALTH INSURANCE

In Singapore, both the government and private sector provide healthcare services. While public
healthcare services are generally used by lower-income citizens, they also help to set the
standards for the private sector services. The government healthcare programs in Singapore
include the Medisave, Medishield, ElderShield and Medifund programs.
In 1990, the Medishield program was set up as a practical and affordable catastrophic medical
insurance scheme to pay for large hospital bills. Fees such as ward charges, medication, surgical
procedures and chemotherapy are covered under the scheme. Citizens and permanent residents
of Singapore who are under 75 years of age are eligible to enroll.

But recently, the country’s rising healthcare costs have been placing a strain on the government
and are forcing policyholders to pay increasing percentages of their hospital bills. In order to
relieve this burden and recalibrate MediShield to apply only to catastrophic medical bills, the
Ministry of Health (MOH) implemented several important changes to the existing policy.

The new reforms, effective July 1, 2005, reduce the burden of effective co-payments from 60
percent to 30 percent. In order to achieve this reduction, the MediShield payouts will be raised
substantially. Lifetime, annual, daily and surgical claim limits will all be increased to a large
extent. In addition, for amounts above S$5,000 (USD$3,050), the co-insurance rate will be
reduced from 20 percent to 10 percent.

In turn, the MOH was forced to raise the cost of premiums. Due to premium adjustments being
actuarially based, the elderly, as they are more likely to submit a claim, bear higher premium
raises than younger policyholders. Premiums were raised by about S$10 (USD$6.10) per month
for the elderly, and by S$4 (USD$2.44) per month for those below 50 years of age. In order to
make sure that MediShield is only used by policyholders for catastrophic medical bills, the MOH
also raised MediShield deductibles by S$500 (USD$305) for both Class B2 and Class C wards.
The MOH believes that higher deductibles will not present a problem as average Medisave
balances are currently about S$10,600 (USD$6,466).

Although MediShield is not a mandatory insurance scheme, it has achieved widespread coverage
in Singapore. Nearly 90 percent of the working population is insured under MediShield or
MediShield-equivalent programs.

WORKPLACE SAFETY

Following several occurrences of serious on-the-job accidents in the beginning of 2005, the
Singaporean government has announced that a new law governing workplace safety will be
introduced by the end of this year. The new act, named the Workplace Safety and Health Act, will
replace the existing Factories Act and will aim to halve the occupational fatality rate by 2015.

The Workplace Safety and Health Act will set higher penalties for poor safety management and
will also strengthen personal accountability of key personnel. The new framework intends to
reduce safety risks at their source by punishing companies for poor management before
accidents occur. In order to coordinate this new framework, the Workplace Safety and Health
Council will be set up.

The Workplace Safety and Health Council will be responsible for establishing and updating health
and safety standards in each industry, and will require periodic safety reports to be submitted.
Even before projects can start, a health and safety plan with specific goals and targets will be
required to be submitted for review. In addition, the number of required safety officers will be
increased and they will also be given more authority, including the ability to issue stop-work
orders. Training and evaluating workers on safety procedures and standards will also become
mandatory.
The government has stated that the current Factories Act is too specific in its regulations, which
has led to an environment where companies do not address safety issues outside of what is in
law. The Workplace Safety and Health Act will introduce broader goals and liabilities in order to
push companies to create safety procedures tailored to their own specific situations.

RETIREMENT

Under Singapore’s Retirement Age Act, the minimum retirement age is set at 62 years old.
However, as Singapore faces an aging population and rising health care costs, the government is
considering the possibility of increasing the retirement age. The National Trades Union Congress
(NTUC) responded to the proposal by stating that simply raising the legal age of retirement would
be largely ineffective. The NTUC argues that there are already many older workers dropping out
of the job market before the age of 62, so the effective retirement age is already lower than 62
years old. The NTUC fears that a hike in the legal retirement age may not significantly increase
the number of older workers and may encourage others to work longer than is appropriate.
Employers have added that the proposal would be an imposition on businesses and would
reduce their competitive edge.

The NTUC has instead suggested that Singapore concentrate its efforts on alleviating the
problem of structural unemployment of older workers. It will be launching a national campaign on
job redesign to encourage employment beyond 62 and has already set up pilot schemes to create
individual training accounts for workers. The NTUC has suggested that another practical measure
to facilitate the employment of older workers would be flexible work arrangements, allowing older
employees to remain with one company while their responsibilities gradually tail off until
retirement.

Pacific Bridge, Inc. - Taiwan HR Publications

Taiwan Human Resources Update

Published in Corporate Relocation News Print Article

By Ames Gross Winter 2001

The island of Taiwan is a multiparty democracy just under the combined sizes of Maryland and
Delaware. It has a population of over 22 million, 84% of whom are native Taiwanese, but which
also includes Mainland Chinese and aborigines. The majority of the population practices
Buddhist, Confucian, or Taoist beliefs, and Mandarin Chinese is the official language. The current
president is Chen Shui-bien.

Taiwan claims to be the Republic of China, though the United Nations and most major countries
refute this title. The status of Taiwan has been ambiguous since 1949, as the People’s Republic
of China has continuously maintained that the island is one of its provinces, due to historical links.
Although the two sides have softened their stances over the past 50 years, the issue remains
unresolved.

Taiwan ’s economy has remained one of the strongest in the Asia Pacific region, despite the
Asian Financial Crisis in 1997 and a severe earthquake in 1999. Unlike its neighbors, Taiwan
experienced a positive growth rate every quarter from 1997-1999. Furthermore, analysts believe
the Taiwan’s upcoming accession to the WTO (for political reasons, Taiwan will be allowed to join
only after China becomes a member) will only increase its financial strength.

Table 1: GDP and Unemployment

GDP Growth (%) Unemployment (%)

1997 6.7 2.7
1998 4.6 2.7
1999 5.4 2.9
2000 6.6 3.2

Source: Ministry of Economic Affairs, Taiwan

The Labor Pool

Taiwan has a labor force of nearly 10 million people, more than half of whom are employed in the
service sector. One third of these are members of labor unions. The majority of companies are
small businesses, with less than 5% considered to be large-scale enterprises.

Although shortages of qualified workers exist in some highly technical fields, such as financial
brokerage and advanced computer hardware and software design, Taiwan offers a large supply
of educated and skilled workers. The Council of Labor Affairs (CLA) is implementing training
programs to fill high-tech labor shortages.

Unskilled workers, however, are still in short supply for most sectors. The CLA has created a new
subsidy for laborers in the manufacturing sector, in an effort to attract more workers from Taiwan
to fill unskilled labor positions. These workers will receive a NT$60,000 (US$1,837) government
subsidy after their first six months of employment, for a total of NT$120,000 (US$3,674) for one
year.

Since 1989, many companies have turned to hiring legal foreign workers in the absence of local
workers. Firms hoping to hire foreign workers must apply to the CLA, and invest in the
government’s local labor training program. Firms in high-tech industries are required to invest
more than those in other sectors.

By late 2000, Taiwan had legally employed more than 320,000 foreign workers, 47% from
Thailand, and the rest from the Philippines, Indonesia, and Malaysia. Today, however, Taiwanese
unemployment is rising, even as the government is lowering the maximum working hours. In a
move to protect local labor, the government put immigrant labor restrictions in place. By 2004,
Taiwan hopes to cut back foreign labor figures by 60,000 to cap the amount at 260,000.

In addition, the government is restricting which companies may hire foreign workers, blocking
those delinquent in their wage payments or contributions to employees’ insurance funds, those
who are involved in labor disputes, are experiencing severe financial difficulty, or are involved in
illegal activities.

Labor Laws
Basic requirements under the Labor Standards Law are as follows:

Table 2: Basic Requirements of the Labor Standards Law

Minimum Age 15 years

Minimum Wage NT$15,840 (US$485)/month*
Maximum Hours / 2Wks 84 hours
Maximum Days/Wk 6 days**

Maximum Overtime/day
- Men 3 hours
- Women 2 hours

Sources: Department of Commerce, Bureau of International Labor Affairs,

Social Security Administration, International Labor Organization.

* The minimum wage is recalculated every year in August. The calculation is based on half of the
labor productivity increase and on the inflation rate.

** Government organizations and about a third of private companies participate in a new system
in which their employees work 5 days every other week. This system is not mandatory for private
companies.

Leave Entitlements. The Labor Law stipulates that foreign companies and large domestic
companies must pay their employees annual leave entitlements. At minimum, employers must
provide the following (assuming continuous employment):

Table 3: Leave Entitlements

Workers’ Service Period

Annual Leave Required
1 – (less than) 3 years 7 days
3 – (less than) 5 years 10 days
5 – (less than) 10 years 14 days
10 years or more For every year of service above 10 years,

Employees must receive one extra day

of leave, for a maximum of 30 days.

Sources: Department of Commerce, Bureau of International Labor Affairs,

Social Security Administration, International Labor Organization.
Anti-discrimination. While the Constitution protects equality “irrespective of sex, religion, race,
class, or party affiliation,” Taiwan has never enacted an equal employment rights law. The Labor
Standards Law does require that male and female employees receive equal wages for equal
work, but the Council on Labor Affairs estimates women actually receive 85% of men’s salaries
for similar work. In addition, protective laws restrict women’s working hours, limiting their overtime
and night work. This, in addition to the added cost of maternity benefits to employers, means that
women are less likely to be hired than men. President Chen Shui-bien has recently called
attention to the problem of gender discrimination in working conditions, pointing out that women
receive less wages, benefits, and promotions.

Under the Disabled Welfare Law, 1% of each private company’s employees must be disabled;
2% of large public organizations. Noncompliance will result in a fine equal to the basic monthly
salary for each disabled person not hired, roughly US$570 per person. The law has also set a
minimum fine of US$2,400 for discrimination against the disabled.

Labor Organization. All employees, apart from civil servants, teachers, and defense industry
workers, may establish and participate in labor unions, including those working in export
processing zones. Employers may not discriminate against union members, although the law
does not set a penalty for such behavior. Labor organizations must submit their constitutions and
rules to government oversight, however, and conform to the Labor Union Law. The law entails
that leaders be elected through secret ballot, and grants the right to strike, although it limits the
conditions in which strikes and lockouts are acceptable.

Termination . According to the Labor Standards Law, employers must provide severance pay
equal to one month of salary for each year of service, based upon the employee’s last six months’
salary. Employees must also receive notice of termination based upon their years of service, as
follows:

Table 4: Termination Notice Requirements

Period of Employment Termination Notice Required

Less than 1 year 10 days
1 – (less than) 3 years 20 days
3 years or more 30 days

Sources: Department of Commerce, Bureau of International Labor Affairs,

Social Security Administration, International Labor Organization.

The Labor Insurance Program

The national insurance system, under the Labor Insurance Act, is compulsory for all people
between the ages of 15 and 60 who work in an organization with more than five employees, or
who are self-employed. Foreigners are also covered under the program, and other groups may
sign on voluntarily.

The fund offers two types of premiums. Accident insurance requires a contribution of 6.5 – 11% of
each employee’s monthly salary. Employment injury insurance takes 0.09 – 3% of the same
salary, with an average contribution of 0.39%. (Specific worker contributions are listed in the
“Table of Grades of Employment Injury Contribution,” available through the government).
Employers, employees, and the government divide the responsibility for these contributions in
varying amounts, according to the type of work done. In the majority of cases, workers pay 20%
of accident insurance fees, employers, 70%, and the government, 10%. Also in most cases,
employers pay the full amount of occupational injury/illness premiums.

Employees receive several types of benefits, as listed below:

Table 5: Insurance Benefits

Type of Benefit Award to Insured Worker*

Childbirth 1 month salary
Non-Occupational 50% of salary

Injury/Illness Payments begin after 3 days of absence.

Period of Payment: 12 – 18 months

Occupational 1 st Year: 70% of salary

Injury/Illness 2 nd Year: 50% of salary

Maximum Period of Payment: 2 years

Non-Occupational Disability 1 – 40 months of salary
Occupational Disability 1½ -- 60 months of salary
Retirement People insured 1 – 15 yrs: 1 month of salary for each full
year of coverage.

People insured 15 – 30 yrs: an additional 2 months of

salary for each full year of coverage after 15 years
(maximum: 45 months of salary)**

Non-Occupation Related 15 – 35 months of salary

Death

Occupation Related Death 45 months of salary

Deceased Family Member 1½ -- 3 months of salary

Source: Taiwan Bureau of Labor Insurance Online

*All salaries for the basis of these awards must be those paid to employee while he/she is
insured. All awards are based on monthly salary.

** Workers over the age of 60 who wish to continue working may collect an additional award of 1
month of salary for each full year worked (maximum: 5 years).
Medical Benefits. Since 1995, Taiwan has operated the National Health Insurance program
(NHI), which works in tandem with the labor insurance program. NHI provides non-occupational
injury/illness benefits, while the labor insurance program deals with occupational injury and illness
awards.

Workers with an occupational injury/illness may attend any hospital associated with the NHI
system. Labor insurance will cover a large part of medical fees, and offers free, regular checkups.

The Department of Health (DOH) has proposed increasing the required premiums for single
people between the ages of 20 and 65, and providing free care to people under 20 and over 65
who have no income. In addition to adjusting the contribution scale, DOH officials expect that an
overall increase in premiums will be necessary in coming years.

Retirement Benefits. Currently, old age benefits are granted to male workers at 60 and female
workers at 55, as long as they have been within the insurance program for at least one year. The
CLA has proposed a new cap of 55 years of age, which it will most likely put into effect later this
year or early next year.

Under existing rules, employers must contribute 2%-5% of employees’ monthly wages to their
retirement fund account. In February 2001, however, the CLA raised the minimum contribution to
6%, a move that dissatisfied both employers and labor unions. While employers say that the new
rate pushes their operating costs up to an unacceptable level, workers are advocating an
increase to 12%, which they claim is necessary for a decent retirement living standard. The CLA
will implement the new contribution standards in 2002, once it has completed its amendments to
the new rule.

Unemployment Benefits. In new rules coming into effect January 2001, workers who have been
members of the labor insurance program for at least one year before they lose their employment
are eligible for unemployment benefits. While previously only workers laid off because of bad
business financials could receive unemployment benefits, now those affected by other factors are
also eligible. Workers susceptible to seasonal labor shortages, as well as those unable to find
work for more than three months after their work contract has expired are now included in the
program as long as they are members of the insurance program.

Benefits include a monthly award of 60% of the employee’s previous average monthly insurance
salary, vocational training, and job placement services. Workers who have been members of the
insurance program for less than one year may receive six months of the monthly award over a
period of two years of unemployment. Those who have been members for 5 –10 years may
receive twelve months of the monthly award, and those who have been members for over ten
years may receive 16 months of the award.

Trends in Wages and Company-Provided Benefits

Wages. Typically, salaries in Taiwan are equal to roughly one half to two thirds of those in the
US, though urban workers usually receive at least twice Taiwan’s minimum wage. The minimum
monthly rent for an apartment is US$300 - $400, and the least expensive meal costs $3, making
the minimum wage of $485 inadequate to cover basic living expenses.
Salaries in high-tech industries are surprisingly low, with entry-level electrical engineers receiving
between $1,200 and $1,400 per month. Even mid-level engineers garner only $1,500 - $2,000,
and high level, $2,500 - $3,500. (These figures represent average salaries; “superstar”
employees will of course receive more). In general, wages are not the prime motivator companies
use to attract high quality engineers; employees are drawn to their benefits packages, which
include stock options and bonuses.

Fringe Benefits. Companies are expected to provide a Spring Festival bonus and an end-of-the-
year bonus, and many also provide meals, transportation, and sometimes housing. Although the
law does not require partial vesting of retirement benefits when employees retire, many
companies do offer to vest 100% of such benefits after 15 years of service and 25% after 5 years.

Although in many sectors, companies give out bonuses equal to one-month salary, hi-tech
workers have begun to expect preferential treatment. Workers in technological fields, such as
electronics and telecommunications, received substantial end-of-year bonuses in December
2000, far more than other sectors. Even unskilled workers in these companies received a bonus
of 5-6 months of salary, plus stock dividends. Three electronics companies handed out bonuses
of 14-month salaries in this period. Whether or not this trend will continue depends upon Taiwan’s
growth rate.

Stock options are also an important part of the hiring package in high-tech firms, and can offset a
low salary and bonus in attracting employees. These companies have come to rely on stock
bonuses and options to keep their workers, offering between $4,000 and $80,000 per person per
year in stock benefits.

Despite their gains in bonuses and stock options, high-tech employees are willing to work longer
hours than employees in other areas. In mid-2000, a survey conducted by a Taiwanese magazine
found that 86% of workers in high-tech industries work more than eight hours a day, 20% more
than ten hours, and 12% more than 12 hours.

Conclusion: New Trends

Taiwan is undergoing significant changes in HR regulation. Apart from the new work hour law just
passed in 2000, several reforms are in the works, including changes in health insurance
premiums, a raise in employers’ pension contributions, and an ambitious “national development
plan” set to be put into effect later this year. The development plan to invest US$93.75 billion of
government funds over four years into Taiwan’s infrastructure, education, and resource
preservation was one of President Chen Shui-bien’s campaign promises, as a way to develop
Taiwan and to boost its economic situation and lower the unemployment rate. The Council for
Economic Planning and Development claims the effort will create 38,000 jobs and raise the GDP
growth rate by 0.7% to reach 5.3% this year.

The government’s focus on generating new jobs is due partly to the economy’s slowing growth,
as well as the projected reaction to the new workweek law. Although most multinational
companies will not be affected -- most had been employing workers less than 84 hours per two
weeks already -- the majority of Taiwan’s indigenous businesses are small companies, and will
encounter difficulties with the new regulations.

Despite the challenges ahead, Taiwan’s economy has a strong foundation, and its prospect for
positive developments is excellent. Multinational companies in particular will benefit from the
government’s new employment measures, including training programs, while seeing little
downside from its new protective labor laws.
Pacific Bridge, Inc. - Thailand HR Publications

Thailand Human Resources Update

Published in Corporate Relocation News Print Article

By Ames Gross Winter 2001

Introduction

The Kingdom of Thailand is a constitutional monarchy based on the British system, headed by
King Bhumibol Adulyadej (Rama IX), who was born in Cambridge, Massachusetts. The country is
just over twice the size of Wyoming, with nearly 80% of the population living in rural areas. Of the
more than 61 million citizens, 85% are ethnic Thai and practicing Buddhists, and 10% come from
Chinese heritage. Thailand is unique in Asia as the only country never colonized by Western
powers, and, despite a historical rivalry with Burma (Myanmar), cold-war tensions with Vietnam,
and its own bloodless coup of 1932, it has enjoyed relative peace.

Thailand enjoyed some of the world’s highest growth rates through the 1980s and 1990s,
reaching an average growth rate of 10%. However, the East Asian Financial Crisis (AFC)
devastated the Thai economy and growth rates were negative in 1997 and 1998. During that
period, 2.5 million Thais lost their jobs, with less than 30% receiving any kind of unemployment
compensation (see Table 1 below). The recession encouraged a sense of resentment against
foreigners, whose speculation in the stock market many Thai viewed as responsible for the AFC.

Table 1: Thai GDP Growth and Unemployment 1996-2000

GDP Growth Rate Unemployment

1996 5.9% 2.0%
1997 -1.7% 1.1%
1998 -10.2% 4.4%
1999 4.2% 4.2%
2000 4.5% 3.6%

Source: The World Bank and Asia-Pacific Economic Cooperation (APEC).

Since 1998, Thailand has experienced a relatively strong recovery. Although the financial sector
has now recovered from the AFC, some economic fine-tuning is still needed, especially in
corporate and bank restructuring. Additionally, the unemployment rate, while improving, remains
high in comparison to pre-crisis levels.

Labor Trends

Thailand has a labor force of nearly 50 million people, the vast majority of which is unskilled. High
unemployment, low wages, and poor working conditions in Thailand has led to increased labor
union activity. In addition, many Thai have moved abroad to seek employment in other East Asian
countries. Contributing to the poor employment prospects of many Thai is the fact that many
companies in Thailand have begun to rely on illegal immigrants, who are willing to accept less
than minimum wage. Thailand currently employs more than one million such immigrants, 90% of
them Burmese.

Demand for skilled workers remains high. Although more laborers, especially women, are seeking
higher education, currently less than half of the population receives secondary education. In
particularly short supply are IT workers, as only 22% of university students study science or
technology. A large part of the problem is the lack of qualified instructors. To tackle this problem,
the government has instituted a “Reverse Brain Drain Project,” which seeks to attract Thai
expatriates to return home to serve as desperately needed teachers and professionals. However,
the program has had little success.

The lack of Thai nationals qualified for senior positions means that foreign and local companies
must compete for the few candidates with experience and language skills. Those Thai who do fit
the qualifications are garnering competitive salary and benefits packages, as companies in
Thailand try to persuade them not to emigrate to more modernized countries.

Western companies looking for skilled workers in Thailand may look to three sources for
employees: indigenous Thai, foreign-educated Thai “returnees”, and Western expatriates. Local
candidates are generally the cheapest, however, because the majority of locally educated Thai
lack necessary skills, foreign employers must often provide their own training to such employees.
Unfortunately, such training also makes the Thai more marketable, increasing the risk that
another company will “poach” the employee with offers of a higher salary. Figures from just
before the AFC indicate that the finance, banking, telecommunications, and electronics industries
had 20-30% turnover rates for local professionals. Such job-hopping, rampant before the AFC, is
already returning to the scene, particularly among bank clerical staff and in the electronics and
petrochemical industries.

Returnee candidates are often a better option. Although returnees demand better salaries and
benefits, they also have a better education, experience in a Western business environment, and
strong English skills. Returnees are also often preferable to expatriate candidates. Unlike
Western expatriates, returnees also have an understanding of Thai business culture, language,
and customs. Furthermore, the Thai government puts a number of restrictions on expatriate
hiring. Foreigners working in the country must prove that no qualified Thai national is available for
the job, and foreign employees are required to train a Thai co-worker to eventually replace them.

Legal Issues

The Labor Protection Act of 1998 delineates Thailand’s requirements concerning wages, work
hours, compensation, and social security issues. Differences between Western and Thai
business culture may affect employment practices, and are important to bear in mind to avoid
legal misunderstandings. The word “employer,” for example, refers not simply to the Western
concept of the word, but also to some individuals or firms acting under the employer’s direction.
This may include firms providing management services, contractors and sub-contractors.
Because the law is subject to revision, checking with the Ministry of Labor and Social Welfare for
updates is recommended before commencing hiring in Thailand.

The following is an overview of critical labor laws, drawn from the Labor Protection Act, the
Compensation Act, and the Social Security Act.

Recruiting
Laws do not prohibit discriminatory hiring based on sex, age, physical features, or labor union
status.
Wages
By default, employees must receive their salaries at their place of work. Employee agreement is
required for payment at a different place or method, such an automatic bank account deposit
system.

Labor unions pushed for a hike in minimum wages in 1999 to 200 baht in big cities like Bangkok,
but the government has postponed the increases. Current minimum wage rates differ by region,
as shown below:

Chart 1: Minimum Wage Rates by Location

Minimum US$
Place
Wage/hour Equivalent
Bangkok, Nakhon
Pathom, Nonta Buri,
Pathum Thani, Phuket, $3.77
162 baht
Samut Prakan, and
Samut Sakhon
Chonburi, Chiang Mai,
Nakhon,
Ratchasima, 140 baht $3.26
Phangnga, and
Ranong
All other areas 130 baht $3.03

Source: The Thailand Board of Investment

Work Hours and Holidays

Employees must receive at least 13 national holidays and six days of vacation per year once they
have worked with the company for one year. In addition, each employee must receive a one-hour
rest period after working for five hours. The employee may opt for less break time, but must
accept at least one hour per day. The employee also must take one day off per week. Pregnant
employees may not work on holidays.

Overtime
Overtime is limited to 36 hours a week. Pregnant employees may not work overtime.
Professional, white-collar workers may be entitled to overtime pay, depending on their function
within the company. Although management with a largely supervising function is exempt from
overtime wages, this does not necessarily apply to all management-level employees. Employers
should consult with legal counsel concerning the applicability of overtime pay to professional
workers.

Maternity Leave
Female employees are allotted a 90-day maternity leave period, with a maximum paid leave of 45
days.

Sick Leave
There is no limit on the number of sick leave days that may be taken, but an employer is only
required to pay one month’s wages if an employee takes more than three months leave.
Work Regulations
Employers with at least ten employees must establish and display regulations concerning work
performance, written in Thai, at the workplace. In addition, employers must keep a register of
employees in Thai, as well as documents relating to wage payments and overtime.

Employee Relocation
Employers must give employees thirty days’ notice before requiring them to relocate. If the
employee is unwilling to move, the employer must pay him or her a “special severance” at half the
normal severance rate.

Termination Procedures
The Act outlines specific conditions for employment termination. If the employment period is not
specified in the employee’s contract, both the employer and the employee have the right to end
the contract at any time, effective at the next pay period or after one month, whichever is shorter.
Conditions differ for termination based on unacceptable employee behavior, or “cause.”
Termination for cause does not entitle the employee to severance pay, may be effective
immediately, and is permitted in the following cases:

• Employee is not honest in his or her work, or commits a purposeful criminal action against the
employer.
• Employee causes harm to the employer.
• Employee abuses work rules after having been issued a written warning. For serious offenses, a
warning may not be required.
• Employee does not fulfill duties for three consecutive working days without viable explanation.
• Employee commits a serious act of negligence that results in considerable harm to employer.
• Employee is sentenced to prison.

Severance Pay
Severance pay less than 300,000 baht (US$6,900) is exempt from personal income taxes. The
requirements for severance pay are as follows:

Chart 2: Severance Pay

Time Worked at Company Severance Pay Due

120 days – 1 year 30 days
1 year –3 years 90 days
3 years – 6 years 6 months
6 years – 10 years 8 months
More than 10 years 10 months

Source: The Thailand Board of Investment

Compensation Benefits

Under the Compensation Act, employers must provide benefits to employees who are injured,
become ill, or die due to work-related activities. The employer must provide the legally prescribed
compensation amount, medical expenses, work rehabilitation expenses, and/or funeral expenses.
The compensation amount varies by case, but typically employers must pay sixty percent of
wages every month, as long as the figure stays within a range of 2,000 baht and 9,000 baht
(US$46 – US$210).
Social Security

The Social Security Act requires employers with ten or more employees to withhold 4.5% of each
employee’s salary for social security contributions every month. This applies to monthly salaries
less than 15,000 baht (US$ 350). The employer must match this amount and submit the
combined contributions to the Social Security Office by the 15 th day of the month. Employees
may use their social security benefits to receive compensation for non-job related injury and
illness, as well as for childbirth fees, child welfare, pensions, and unemployment compensation.

Labor Relations

The Labor Relations Act stipulates legal actions concerning employer-employee relations. If an
employer refuses to pay an employee any amount of money required by the Labor Protection
Law, the employee may submit a complaint to the local labor inspector. The inspector must
complete an investigation of the case and issue an order within 60 days. Employers found to be
in violation of the labor law may be fined up to 200,000 baht (US$4,600) and receive up to one
year of imprisonment.

Employers with at least 20 employees must come to an agreement concerning labor terms and
conditions. Specifically, they must agree on work periods, salaries, welfare benefits, complaint
resolution procedures, employment termination and renewal, and changes in employment. The
default for these conditions is the current employment regulation. The agreement will remain
effective for a maximum of three years and a minimum of one year. Once the specified expiration
date has passed without renegotiation, the agreement will remain in effect for an additional year.

Either party may submit a demand to change the agreement, and must also list a maximum of
seven names of negotiation participants for its side. If a request on the behalf of employees is not
submitted by a labor union, it must include at least 15% of all participants’ signatures. Employers’
negotiators may include partners, shareholders, directors, permanent employees, or employer
association or federation committee member. Negotiators for the employees may include
employees and labor union or federation committee members. Negotiations must take place
within three days after the other party has received the demand.

If negotiations do not occur within this date or if the parties cannot settle the matter to the
satisfaction of both sides, the situation shall be determined to be a labor dispute. The party
making the demands must contact the labor dispute conciliator, who must conduct a renegotiation
between the parties within five days. If no agreement is reached, then the labor dispute is
considered irreconcilable. Employees then may call a strike and the employer may also affect a
lockout, after having given the dispute conciliator and the other party 24 hours’ notice.

If the strike or lockout endangers the national economy, public order, or state security, then the
Minister of Labor Protection and Welfare may order a cease to the strike or lockout, find
replacement for the employees, or give the Labor Relations Committee authority to decide on the
dispute and issue an opinion or an order to both parties.

Employers with at least 50 employees must set up an employees’ committee. The employer must
meet with committee members at least every three months to discuss regulations, resolve
disputes, hear complaints, and provide welfare.
Employees, the employees’ committee, or the labor union may appeal to the Labor Court if they
believe an employer is engaging in unfair labor practice. Reports of abuses within the Labor
Court, however, has led human rights and legal experts to push for reform. Because the court
usually works without lawyers, and because judges must investigate the cases personally, the
system is prone to corruption.

US pressure has pushed the Thai parliament to pass the State Enterprise Relations Act, granting
employees in state-owned enterprises the right to unionize. Although this will introduce greater
parity between public and private labor conditions, many analysts believe it will slow down the
privatization process, as employees resist the painful changes necessary to streamline public
companies. Among their grievances is the sale of state enterprises to foreign bidders.

Keeping Skilled Thai Employees in A Multicultural Workplace

Thailand historically has maintained a good relationship with foreigners. Thais benefited from
Western experts, who introduced modern scientific theories and technology, and the Western
expatriates enjoyed and often became absorbed into Thailand’s rich culture. Unlike most other
Asian countries, Thailand has never had to significantly alter its culture or way of life because of
Western influence, leading to pleasant relations.

Today, foreigners in Thailand are less interested in studying Buddhism than in high returns on
their investments. As more Thai companies are joining with foreign partners, Thai managers and
employees are realizing they must do more than polish their English – they must adapt their
business culture.

Traditionally, the Thai people have had little to worry about. They lived in an agrarian society that
benefited from a surplus of natural resources and insulation from natural disasters. Their modern
attitude is characterized by a strong sense of individual freedom, patience, and hospitality, but
also by resistance to rules, acceptance of failure, and lack of planning. Bolstering these traits is
the nation’s overwhelming belief in Buddhism, a religion that emphasizes patience, acceptance,
and a positive outlook. Some Thai point out, however, that the Buddhist cosmic outlook can also
lead to complacency at one extreme, and superstition at the other. In 2000, more than 50,000
people in Bangkok changed their names at their monk’s advice, in the hopes it would prove
luckier.

The Thai language captures the core of their beliefs. Maipenrai (“no problem, it’s okay”) is a daily
phrase that is applied to every problem, from bad weather to stock market crashes. Similarly,
sabai-sabai (“take it easy”) denotes the Thai accent on relaxation. They work best when they do
not feel rushed and when they are given a sociable environment. Many Western executives find
the “sabai effect” an enervating countercurrent to modern business practice. Employees may
gossip when they should be working, smile even in serious situations, and say what they think the
boss wants to hear rather than their true opinions.

Like many other Asian societies, Thais are accustomed to a paternalistic hierarchical system.
They have great respect for age and authority, preferring obedience and tolerance to conflict.
This respect is expressed through face, or haikiat. At home, work, and school, they avoid
correcting their superiors for fear of insulting them. Issues of face can be even subtler, such as an
employee offering an excuse after being criticized. Not wishing to appear to be challenging the
boss, most Thai employees will remain silent rather than explain the reason for a problem.
Unused to asking questions or disrupting their environment, Thais often do not discuss or ask
questions to clarify their instructions, but nod and appear to understand, and then are unable to
do their work. They prefer to talk about issues in an informal way, such as at lunch, rather than at
a meeting.

Even more important for the foreign employer, Thais expect face to be given to subordinates as
well. Direct criticism, visible loss of temper, and refusal to compromise are all considered rude to
a much greater degree than in the West. Superiors are expected to be considerate and polite,
even when reprimanding an employee. Although this is the ideal, Thai managers traditionally
have an authoritarian attitude, and show little respect for their employees’ ideas or opinions.
Therefore, establishing a work place with a friendly reputation can be helpful in hiring and
retention efforts.

The Thai educational system also emphasizes skills and thinking patterns that are inappropriate
to Western business. Lessons are taught by rote, and teachers do not encourage independent or
creative thinking, nor are students taught analytical skills. Some Thais are making the transition to
these new ways of thinking, but the pace is slow and cautious. In addition, English language
training focuses on formal writing skills, leaving most Thai-educated citizens uncomfortable with
verbal expression and unaccustomed to listening to normal conversations.

Finally, indigenous Thai business culture is vastly different from contemporary Western business
management theory. Managers typically give orders and a deadline, and the employee is
expected to not bother him or her with questions or comments. Until recently, employees were
not fired for incompetence or laziness, only for actually committing a crime at the workplace.

Conclusion

Hiring returnees in management positions can solve many of the cultural barriers between Thai
and Western culture. Because of their ability to work in both societies, returnees are uniquely
positioned to not only bridge cultural misunderstandings, but prevent them as well.

Foreign managers working with indigenous Thai, however, must work to create an environment
that will allow Thai employees to work within a Western business environment. Because most
workers are used to authoritarian management, empowering Thai workers requires patience and
consideration. An “open door policy,” for example, will likely not yield results due to Thai reticence
to “bother” the boss with questions. Managers may find taking employees out to lunch or planning
individual discussion meetings works better and puts them more at ease. Similarly, writing
important points down during a meeting can solve language problems, and maintaining a friendly
and relaxed relationship with staff can encourage them to be more open with their ideas.

As Thailand grows stronger, foreign companies will find it an increasingly profitable place to do
business. The government has proved receptive to IMF reforms, and its economy has recovered
to a healthy level. Thai authorities realize that they must carve a delicate balance between
satisfying increasing labor demands and retaining an attractive business climate, and its new
Labor Protection Law strikes a middle path between the two. The shortage of well-educated and
skilled laborers, especially in the IT sector, has prompted the government to focus its attention on
raising its education standards and attracting Thai expatriates. Although the country will
experience important reforms that may affect its economic outlook in the short term, Thailand’s
future prospects promise a gradual but certain change for the better.

Pacific Bridge, Inc. - Vietnam HR Publications

Vietnam Human Resources Update

Published by Pacific Bridge, Inc. Print Article
By Ames Gross and Rachel Weintraub August 2005

Vietnam ’s economy is growing rapidly (7.7 percent GDP in 2004) and competition for skilled
labor is on the rise. Following the establishment of economic zones and programs providing
foreign direct investment incentives, more and more foreign and domestic businesses have set
up shop in Vietnam. Therefore, employment opportunities have increased throughout the country
and by June 2005, Vietnam had already generated an excess of 650,000 jobs; a ten percent
increase over the same six month period in 2004. This rise in job opportunities has also led to
intensified competition among businesses trying to retain their highly-skilled workers and top local
talent.

Vietnam has a total population of around 83 million and a labor force of about 43 million, though
the labor force has been growing by 1-1.5 million workers on an annual basis for the past several
years. In order to retain highly-skilled workers and top employees, businesses have been
increasing salaries – blue collar workers saw increases of around eight percent, while white collar
workers received increases of close to 10 percent in 2004. Though foreign companies tend to
offer high salaries (sometimes as much as 30 percent higher) than domestic companies in
Vietnam, the domestic companies are the ones increasing their annual salaries at a faster rate;
the increase was about 2 percent higher versus foreign companies.

In the first quarter of 2005, the country’s job demand had already increased 15 percent from the
end of 2004. Fields with the most available jobs included sales, telecommunications, marketing,
and engineering positions. Conversely, positions in the areas of utilities, retail and real estate
dropped significantly. As Vietnam’s economy grows and more and more foreign companies enter
the country, executive management and expatriates are in greater demand with a 100 percent
growth rate in the first quarter. Healthcare and pharmaceutical/biotech positions are increasingly
sought out, with growth rates of about 400 percent and 300 percent, respectively.

In 2004, around $20 billion was invested by businesses and trainees into vocational training.
Moreover, the average salary was nine percent higher in 2004, versus 2003. Nevertheless, some
companies still struggle with job training and proper working conditions. Many workers in Vietnam
still lack adequate job training and are often subject to frequent overtime and low wages.

In hopes of improving the skills of workers and students in Vietnam, the government has
established two new human resource programs. Through a project established by Hanoi National
University, Vietnam will invest $20.7 million in the training of gifted students between 2004 and
2011; another $11 - 45 million will be provided in the form of State-funded scholarships and
international scholarships. In addition, the Prime Minister approved a program to help train and
improve human resource skills in small and medium size businesses through special training
courses.

Hanoi National University aims to train gifted students in the areas of management, technology
and business. For instance, top graduates studying business management, economics or law,
ages 22-30, will be eligible to enroll in Master’s programs in management and will go on to serve
as mid-level managers when they enter the workforce. It is expected that the program will attract
350 scientists, 175 business people, and 175 managers to Vietnam to help support and run the
program.

The new HR training program for small and medium size businesses in Vietnam went into effect
in August 2004 and will continue through 2008. The new HR program will help companies and
individuals increase their competitive edge and provide business owners with the knowledge they
need to expand in Vietnam and abroad. The program offers three types of training courses: (1) A
five-day training course offering information on laws and policies, production strategies, and how
to set up a company; (2) A seven-day course focusing on improving human resource
management, marketing, finances and technology skills; (3) A fourteen-day course training
business people in consulting and marketing. During the duration of the program, 3,600 courses
will be held for entrepreneurs and managers of small- and medium-sized companies.