1. Breaking Down Borders
Doing business in China
Guo Xin
www.mercer.com

2. Today’s speaker
Guo Xin is a Senior Partner and Managing Director for
Mercer in Greater China. He is also the chairman for Marsh
& McLennan Companies (MMC) in China which is the
parent company for Mercer. During his career at Mercer,
Guo Xin has held a variety of leadership positions, including
Asia Pacific Human Capital business leader and Managing
Director for China.
Guo Xin has expertise in working with clients on developing
strategic organization structure, business processes, and
human resource systems. His clients include local private
and listed companies, state-owned enterprises and
multinational companies in and outside of China. Guo Xin
has also worked in the US for 10 years, both as a
consultant and a practitioner. He has extensive experience
in business process improvement and re-engineering for
clients covering forest products, logistic and distribution,
chemical and fast moving consumer goods.
Guo Xin is also a member of WorldatWork Global Advisory
Board.
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3. Topics for discussion
1 Setting the China scene
2 Attracting and retaining top talent
3 Ensuring compliance with local legislation
4 Moving critical staff / relocating expats to
China
5
Ensuring success in your expansion:
M&A in China
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4. Setting the scene
China

5. Setting the scene
Global financial crisis
Today An enabling environment
 One of the fastest growing  China has overtaken Japan as
economies; 7 years of more the second largest economy
than 9% GDP growth
 Ever expanding middle class
 Resilient economy – solid
growth during the peak of the  Massive infrastructure
global crisis expansion
 Opening new sectors for – Linking East China with
foreign investment Middle China
 World’s largest population; – Improving economic
Promising consumer markets efficiency & improving
quality of life in developing
 Significant investment in regions
healthcare and infrastructure
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6. Setting the scene
Pacing ahead
18 GDP
CPI (Inflation Rate)
16 Salary Increase
15.6 14.6 Staff Voluntary Turnover
13.5
14 12.8 13.4
12.2 13.0
11.2 11.3
12 11.9 11.6
10.4 10.5
9.3 10.1 9.6
10 9.0 9.1
Percentage
9.1
8.0 7.3 8.0
8
8.5 7.6 8.2 8.6 8.7 8.1
8.3 7.4 7.3 8.2 7.4
6 6.9
5.9
4 3.5
4.8
3.9
2 1.2
0.7 -0.8 2.7
0.4 1.8 -0.7
1.5
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010(E) 2011(F)
-2
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7. Rise of Chinese companies on a global scale:
Powerful state-owned enterprises becoming major global players
Chinese companies listed on Fortune 500
60
54
50
43
40 35
30
30 23
18
20
10
0
2005 2006 2007 2008 2009 2010
Source: Fortune 500 2005-2010
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8. Setting the scene
Beyond the crisis
 Chinese economy coped well with the crisis; clear signs of recovery
 Revised government growth projection for 2010 at 10.5%; Q3 GDP
growth at 9.3%
– GDP forecast for 2011 is 9.6%
– 2011-15 to be a year of economic tightening and inflation control;
launch into the stable growth and the development of 2nd and 3rd tier
cities
 China’s long-term promise still holds
– Growth primarily driven by the strong domestic market
– Workforce unrest is just one of a few of the challenges facing new
entrants into the potentially lucrative Chinese market
– China exports return to pre crisis levels; with expected slower annual
growth as China moves to a consumer based economy
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9. Attracting and retaining talent

10. Voluntary turnover rates
Quick economic recovery and strong growth projected
 Due to a quick recovery of the China market, company’s are looking to
Asia for growth opportunities
– Strong consumer growth spending
– Ministry officials predicted foreign direct investment (FDI) this year
was set to "surpass $100 billion", compared to $90 billion last year
 The war for talent is the single biggest challenge for MNCs expanding
into China
 Rapid business growth has resulted in a fierce competition for talent:
– 2010 voluntary turnover forecasted to be 15 – 16%, returning to pre
crisis numbers.
– 41% companies indicate that they have high turnover of blue collar
which is a significant symbol of local labor shortage.
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11. Attracting and retaining top talent
Local SOEs and finding talent
 Local employers are competing by aligning employee’s personal
career ambitions to the needs of the business
 SOEs are offering key positions within domestic organizations, with
significant titles and benefits
 Foreign multinationals needs to offer a clearly mapped out career and
development plan that is communicated to the employee
 English ability: while China graduates 5 million people each year, few
have the ability to speak English. Those who can are from top schools
and are recruited quickly
 An employee being asked to relocate will know there is a high
likelihood of a similar job in the tier one city with a different employer
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12. China’s HR conundrum
Talent
challenges
Weak
Aging Changing
Leadership
Workforce Career Competition
Bench
Expectations for talent
strength
• Available jobs • Career • Lack of • Pressures on
predicted to development leadership salaries
outpace available drive choice capability • Short average
workers • Development key impacts tenure
• Slow take up of retention tool immediate
the aging business results
• Localize instead
workforce of expatriates • Speed of change
challenge – dynamic for
leaders
• China's gap in
leadership ranks
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13. Attracting and Retaining Talent
Lack of dynamic leadership
 A strong demand but short supply has led to a war for talented leaders
 The leadership pipeline is also not running smoothly with talent, they’re
not developing fast enough to keep pace with economic growth
 Not only MNCs, but also SOEs are searching for leadership talent as
they expand globally
 As SOEs begin to expand overseas, they’re struggling with the right
balance between bringing leaders from outside the country and
building up its own leadership pipeline
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14. Compliance
The ‘people’ dimension

15. Dimensions to governance:
Ensuring compliance with local legislation
 Unions have an influence over workplace relations from levels of pay
to employment (i.e. Summer 2010 strikes)
 In the past multinationals have been known for better pay and offering
more training opportunities. This perception is changing, local Chinese
firms are also catching up and offering more reimbursement options to
lower tax liabilities, difficult for MNCs to offer such benefits
 China has a reputation for a high level of bureaucracy with many
government agencies involved with different industry sectors.
Expertise in navigating red tape is crucial for a foreign organization
(many local deals are struck with regulators)
 The government provides pay-as-you-go pension benefits via an IRA.
SOEs often provide Defined Benefit schemes to attract talent. MNC
companies under pressure to follow suit.
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16. Social and supplemental benefits overview
Statutory Benefits Employer Sponsored Benefits
(Mandatory) (Optional)
Social security (including Supplementary Pension
Pension Insurance, Medical Plan/ Enterprise Annuity
Insurance, Maternity Supplementary Medical
Insurance, Work-related Life Insurance
Employee Injury Insurance,
AD&D Insurance
Unemployment Insurance,
Benefits Housing Fund) Critical Illness Insurance
Public Holiday (11 days) Supplementary Housing
Savings Plan
Other legal leaves (e.g.:
Medical Treatment Period, Training and Education
Marriage Leave, Maternity Assistance
Leave, etc.) Work/Life Balance Plan
Severance and Termination Stock Plan
Benefits Perquisites
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17. Statutory benefits requirements
Example: contributions in Shanghai
As of July 2010
Employer Employee Minimum Maximum
Contribution Contribution Contribution Contribution
Social Benefits Wage Base
as % of as % of Wage Wage
wages wages Base* Base*
Pension 22% 8% RMB2,140 RMB10,698
Medical 12% 2% RMB2,140 RMB10,698
Maternity 0.5% - Employee’s RMB2,140 RMB10,698
Last Year
Work-related Average
0.5% - Monthly Salary RMB2,140 RMB10,698
Injury
Unemployment 2% 1% RMB2,140 RMB10,698
Housing 7% 7% RMB2,140 RMB10,698
• Maximum Contribution Base is equal to three times of employee’s last year’s average monthly salary
• Minimum Contribution Base is equal to 60% of employee’s last year’s average monthly salary
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18. Moving critical staff to China
- Employee mobility
- Challenges of expats into new regions

19. International assignment issues in China
Geographical arrangement
 Given China’s vast size there are many different cultures and dialects
within the country. It’s cities are split into tiers, which are based on
their stage of economic development
– Tier 1 cities: Beijing, Shanghai, Guangzhou and Shenzhen
– Tier 2 cities: include Chengdu, Dalian, Suzhou, Nanjing, Tianjin
etc.
 China has many large cities with industry clusters – for
example: Chengdu and Dalian are know for outsourcing
 Beijing and Shanghai are known for Research and
Development centers and as common location for regional
headquarters
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20. International assignment issues in China
Employer perspective
 Talent readiness: Lack of skilled and readily employable talent in
specialized roles requires companies to source expatriate talent
 Certain positions held by locals require pay equal to that of foreign
talent, these positions are highly skilled
 Managing employee mobility costs e.g. housing, hardship allowance
and travel. Could cause employee equity issues
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21. International assignment issues in China
Employee perspective
 Safety  Medical care
 Cost of living  Remote location
 Inability to obtain certain goods  Benefits
 Tax issues  Pollution
 Work visas  Internet access
 Quality of living  Logistics
 SARS/Bird Flu/Pandemics  Schooling in rural areas
 Hardship – developing cities  Housing costs and availability
 Food  Cultural differences
 Language barriers  Difficult living conditions
 Health concerns
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22. Challenges of moving expats into new regions
 Many multinationals report that they get significant value from having
expatriate talent in China.
 The cost is justified by focusing on grooming future local leaders.
 Drawbacks:
– Once you factor in housing, salary, housing, education and
transport allowance, the cost becomes significantly higher
– Given the scarcity for globally focused experience leaders, they can
easily move around the region to jump to competitors ie revolving
door effect. This has a negative effects on staff morale and the long
term strategy of the organization
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23. Ensuring the success of your expansion
M&A in China

24. Evolution of a Transaction
How M&A deals are done in China
 Highly regulated process
– Separate local provincial-level regulatory bodies and processes
– National-level regulatory agencies and processes
 Ministry of Commerce (i.e. MOFCOM, NDRC, SASAC)
– Anti-Monopoly Law (AML)
– Industry specific laws (media companies governed by 10+ agencies)
 Deal environment unpredictable
– Target companies experience varies significantly
– Data/compliance issues
– Documents exist only in Chinese
– Unspoken/undocumented “local” deals
 People & their relationships drive most deal value
– Retaining “pre-deal” relationships critical
– Executives, key managers, suppliers, customers
– Incentive-based approach vs. contract-based approach
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25. Challenging deal issues at each phase
Typical issues during transactions in China
Due Doing Making the
Diligence the Deal Deal Work
Due Diligence Doing the Deal Making the Deal Work
 Fraud  Valuation expectation  Unsophisticated local
 Multiple sets of books  Deal financing management team
 Local government “deals”  Paying the Chinese owner  Retaining pre-deal relationships
 Compliance issues  Deal governed by 6 ministries  Unwinding improper sales
 EHS, OSHA issues  Deal structure practices
 Legacy issues from  Switching from APA to SPA  Install reporting & control
state-owned enterprises  Indemnity considerations requirements
(SOEs)  Escrow considerations  Conflict of interest with original
 Land use rights owner’s “other” entities
 “You don’t understand China”
 Expectations of local employees
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26. Summary of China issues
A few things to key in mind…
SEVERANCE and RETENTION
• Statutory severance payments
HR ENVIRONMENT
• Non-compliance on social security
• Mandatory employment contracts contributions and overtime common
• New ECL
RETIREMENT & BENEFTS
M&A ENVIRONMENT • Statutory social security contributions
• M&A highly regulated • Supplemental retirement plans emerging
• Supplemental benefits emerging in
Chinese companies
COMPENSATION
COMMUNICATION • Highly competitive talent environment
• Subtle; face-to-face • Use of tax efficiency plans common
• Sales compensation compliance often an
issue
LEADERSHIP
CULTURE • Build trust
• National, geographic and • Negotiate interests & incentives
organizational differences
• Retention is key
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27. Questions?

28. Questions & answers
 Please use the Q&A panel on the bottom right hand of your screen to
type in your question
 To ask a question while in full screen mode, click on the question mark
button on the floating panel at the bottom right hand side of your
screen
 If there is not enough time to answer your question during the Q&A
period, we will send you an answer by e-mail
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29. Additional information
Where to go for help

30. For more information on regional strategies
Risks and opportunities
Visit our Breaking Down Borders
website to access articles, points of
view, podcasts and more information on
investing in China
www.mercer.com/breakingdownborders
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31. Future markets in the Breaking down Borders webcast series
 Doing business in India
Held When:
Webcasts will begin at
 Doing business in Japan the following times:
Held
Delhi – 11:30 am
 Doing business in China Bangkok – 1:00 pm
2 December Shanghai, Hong Kong,
Singapore – 2:00 pm
 Doing business in Korea Seoul, Tokyo – 3:00 pm
16 December Sydney – 4:00 pm
Additional markets will be added in 2011
www.mercer.com/breakingdownborders
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32. www.mercer.com