Income
Structures
in
Emerging Countries
Salary
structures in emerging countries are more interesting and complicated
than they are in more mature economies. International managers
who are first posted to fast-growth countries such as those of Asia are often perplexed at the seemingly
illogical contradictions in income levels.
Outrageous salary differentials are the norm. Among multinational
companies, one similar sized competitor might pay twice what another is
paying for similar positions. Managers and other employees at
locally-owned companies can be paid half what multinationals companies pay.
Local government employees often receive starvation income levels
although they exercise the power of life or death over industries.
How can anyone make sense of all of this?
There are a number of interesting dynamics that are the cause of most
of these confusing circumstances. Most of it seems to be the result of
a momentous clash between traditional economic structures of
emerging countries and those of disruptive global market forces.
Concept 1:
Multinationals Pay More
It is a fact that multinational organizations pay higher wages in most emerging countries. There are various explanations
for this. Locally-owned companies are often family owned-and-operated
and many senior employees are long-term friends or relatives of the
owners. Such relationships count for a lot in emerging countries and
managers will remain for years at low salaries.
Some might think that local companies could use their cost and other
home-team advantages to thrash the multinationals. Unfortunately, companies run
by families and friends are often not as productive as those employing
international management techniques. The local companies give up much
of their advantage in lower wage rates by employing more people to do the
same work.
Gladly,
this situation is changing as many families are employing
professional managers to run their businesses and paying
international salaries to do so.
MANAGEMENT
RULE:
Multinationals
companies in many industries pay can pay up to 50% more than local competitors.
Concept 2:
Wide Income Differentials Between Companies
Another interesting situation is that salary gaps can be irrationally large even
between multinationals. Direct competitors with similarly-sized
businesses can often have pay-scales that are 50% higher at one over another. As one of many examples, this factor was a large problem a
few years ago when Alcatel merged with Lucent since the acquiring
company’s salary levels were much lower than Lucent’s.
This is often the result of a peculiar situation when the initial
hiring decisions were made. In some cases, overly zealous or
inexperienced expatriate managers paid too much when hiring their
initial staff and income levels became set in place. Remarkably, outrageous
differences in cost structure can sometimes persevere for long periods
since overall labour costs are low compared to margins in many emerging
countries.
MANAGEMENT
RULE:
Pay-scales
need to be set at reasonable levels from the beginning or they
will persist over the long-term.
Concept 3:
Large Salary Gaps Between Job Levels
Emerging countries in Southeast Asia tend to be demographically
youthful with huge numbers of people suitable for entry and junior
level roles. As a result, salary levels for such people are usually low
compared to those in so-called developed countries.
On the other hand, managers and other highly-skilled professionals are
in short supply. Therefore, salaries for such people are comparatively
high especially in industries with strong multinational participation.
Given that salaries are very low at the bottom and comparatively high
at the top, there are naturally large gaps in all the little steps in
between.
MANAGEMENT
RULE:
There are large jumps in income as you move up the
corporate ladder in Asia.
Concept 4:
Government salaries are
meager
It is difficult for many new expatriates to accept the gargantuan
problem of getting things done in many government departments. Many
feel that one major factor for this has to do with salary levels.
Official incomes of government officials are shockingly low. Many civil
servants would not be able to survive without financial support from
other family members or "unofficial contributions" from patrons. It is
difficult to find and keep people motivated to work conscientiously
when they can’t feed their family.
MANAGEMENT
RULE:
When dealing with government employees, it is best to show understanding of their difficult
financial situation but that does not mean submitting to informal payment
requests.
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Media organizations
throughout the world call upon the Principals of Chalre Associates for thought leadership.
Below are some examples of published material written by our
consultants or international journalists who refer to them. For a complete list of published work,
Click Here.
Getting Ready For The
Deluge: Outsourcing in Philippines
by
Chalre Associates senior staff
Download
[PDF
file, 62KB]
The
Economist Intelligence Unit of the Economist magazine
asked Chalre Associates' Chairman, Richard Mills,
to write a chapter about the Philippine outsourcing sector
in its annual Business Guide Book. The material
provides a Executive Briefing on the progress and major
issues facing this industry that is certainly one of most
significant growth stories in the world.
more
Asia Pacific Mining
Conference 2007 - Report
by
Chalre Associates senior staff
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[PDF
file, 28KB]
The 7th Asia Pacific Mining Conference put on by the Asean
Federation of Mining Associations was perhaps the largest
such event in the region. Richard Mills, Chairman of Chalre Associates
gave this report on what was said by the prominent mining
people who presented.
more
The
State of BPO in Philippines: Dan Reyes Speaks
by
Chalre Associates senior staff
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[PDF
file, 31KB]
Richard
Mills, Chairman of Chalre Associates,
interviewed Dan Reyes of Sitel for ComputerWorld (US) recently to get
his views on the state of the BPO industry in Philippines. Dan
presented US readers with compelling information to support his view
that Philippines is currently seen as the "Number 1" option by global
companies sending BPO work to offshore destinations.
Dan Reyes is easily one of most experienced Business Process
Outsourcing (BPO) managers in the Asia Pacific region and the world. He
is head of the extremely successful Philippine operations of Sitel, the
world's largest call center organization. Among other things, he is a
founder and former president of the Business Processing Association of
the Philippines. more
