Income Structures 

in Emerging Countries

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Salary structures in emerging countries are probably the most interesting and complicated of anywhere on the planet. International managers who are first posted to fast-growth countries such as Thailand, Vietnam, Philippines and Indonesia 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 the same position. Managers and other employees at locally-owned companies can be half what the multinationals pay. Local government employees are often paid at starvation levels although they exercise the power of life-and-death over businesses. 

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 the traditional economic structures of the emerging countries and those of the disruptive global market. 
 

 
Concept 1: 
Multinationals Pay More
 
It is a fact that multinational organizations pay higher wages in most emerging countries in Southeast Asia. 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 advantages to thrash the multinationals. Unfortunately, companies run by families and friends are not as productive as those employing international management techniques. The local companies give up much of their advantage in wage rates by employing more people to do the same work. 

MANAGEMENT RULE:  

Multinational in many industries pay 50% or more than most local competitors. 
 

 
Concept 2:
Wide Income Differentials Between Companies
 
Another surprise 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 the other. This factor was a large problem a few years ago when Alcatel merged with Lucent. The acquiring company’s salary levels were so 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 pay rates were fixed. Remarkably, outrageous differences in cost structure can persevere for long periods of time since overall labour costs are low compared to margins in many emerging countries. 

MANAGEMENT RULE: 

Pay-scales are easy to let out-of-hand if managers don't know the market. 
 

 
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 very 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 even compared to those typical of emerging countries. Many such people 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 situation but that does not mean submitting to informal payment arrangements. 
 
 

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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

 

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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

 

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Asia Pacific Mining Conference 2007 - Report

by Chalre Associates senior staff

 

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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

 

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The State of BPO in Philippines: Dan Reyes Speaks

by Chalre Associates senior staff

 

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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