The prospects for enterprise management in the era of millennials
The digitisation of business functions is not a new phenomenon, particularly in developed economies. However, the adoption of technology for internal enterprise management in developing countries such as China is far less common. Arguably, it is in these countries where such information technology (IT) solutions are the most needed, and could have the greatest transformative effect on business operations. Ines Liu from Dezan Shira tells us more.
Although China is rapidly developing into a mature economy, the internal enterprise management processes of many companies operating in the country are still paper-based or recorded on rudimentary Excel spreadsheets.
IT solutions are a popular way to deal with management processes in developed countries, but before foreign companies implement their usual system into their operations in China, they should consider local conditions as well as their company’s structure and needs. Ultimately, the optimal solution rests on a company’s current requirements combined with its long-term growth strategy.
A glance at China’s reimbursement system
In China, invoices (or ‘fapiao’ in Chinese) are more than just ordinary receipts. Contrary to other countries, where invoices are usually used simply to record a transaction, in China they are also the way in which the government monitors the tax paid on any transaction. Fapiao are printed, distributed and administrated by tax authorities, and taxpayers are required to purchase the invoices they need from the tax authorities. When a company first applies for a licence to issue fapiao, the tax authorities will look at the company’s size and business scope to decide what kind and how many fapiao the company may legally issue.
Individuals must collect fapiao to obtain business expense reimbursements, while businesses need special VAT fapiao to claim tax deductions. Businesses unable to produce fapiao upon request face legal jeopardy, making it essential for their fapiao systems to be well organised.
There are multiple types of fapiao—including electronic ones—and complicated systems for their management, issuance and verification. With all these considerations, China’s fapiao system invariably causes confusion and accounting issues for foreigners unfamiliar with the concept.
It is always difficult for a company to review and check the authenticity of fapiao; companies must verify them one-by-one on the tax bureau’s website. It is almost impossible for a company to check the authenticity of each fapiao they obtain. Employees may inadvertently provide incorrect company information for fapiao, or even present fake fapiao to claim expense reimbursement. These factors inevitably increase the risk of fraud and lead to extra tax burdens for companies.
In terms of the reimbursement process, employees will see delays if the fapiao is not physically submitted to the people who need to review and approve it. Most employees cannot access information on the status of their claims, and will be upset if they don’t get expenses reimbursed on time. The sense of dissatisfaction among employees, especially those with intensive travel schedules, can be palpable if their reimbursement process is constantly delayed because they have to wait for their supervisors to be physically present in the office to move their claim forward. Furthermore, if an overseas headquarters always receives their Chinese subsidiary’s cost breakdowns a month late, it will diminish their ability to control and supervise their business activities in China.
However, developments in mobile technology and apps may provide new options for the future. A single function reimbursement and expense management tool can allow employees to easily record consumption, submit expense claims and track the status of reimbursement. Such a tool can also grab consumption data from other consumer apps, which are applicable to all enterprise types and scales. Managers, whether they are on a business trip or in a meeting, can review expense claims and statistical reports in real time, and better control the costs of the organisation. For finance departments, the online platform may facilitate auditing, bookkeeping and reimbursements, greatly saving the time of financial personnel.
Such single-function software has one core use. These solutions are conceptually straightforward, but come in a variety of forms and can have dramatic effects on efficiency and productivity.
Business automation in HR & payroll
Human resource (HR) departments and payroll processes can also have low levels of transparency, which can impact workflow for overseas managers unfamiliar with the Chinese language and unable to physically access relevant documents.
Advances in automation are forcing businesses to reimagine their HR and payroll processing workflows. Contrary to popular perceptions, automation is not likely to replace employees, but rather compliment their creative and critical skills – empowering them to be more productive.
Large multinationals invest heavily to establish in-house IT departments, while smaller companies often enlist a third-party provider for HR and payroll functions. Medium-sized companies often find themselves caught somewhere in between. They may find themselves at a size where outsourcing HR and payroll is no longer economical, but running their own enterprise resource planning (ERP) system is still unaffordable. Such companies are increasingly turning to ERP-based solutions [OD1] set up by payroll providers familiar with China’s payroll landscape. This kind of software allows each employee to set up a profile containing their contractual details, bank information, social insurance obligations, and so on. These profiles can then be configured with organisational HR hierarchies: reporting lines between employees and managers, and different teams and departments.
For example, an employee can scan or photograph the fapiao for a taxi trip and upload it to his or her profile to apply for a work-related expense reimbursement. The relevant manager will be automatically notified by e-mail and can approve or reject the expense. If approved, the expense will be transmitted to HR and payroll staff, and added to that employee’s monthly salary payment.
Time and attendance software
Time and attendance software products include biometric scanners and mobile phone apps that employees use to clock in and out of work. In China, they come in a variety of different forms to suit different businesses, such as a physical input (e.g. typing a passcode into a keypad) that also acts as an office key, or digital clocks accessible from any location that track the time spent working on a given project.
These types of software objectively determine when employees arrive and leave, thereby preventing false overtime claims and increasing office security. It facilitates the type of flexible working arrangements preferred by millennial and Generation Z employees. The software also slashes the time HR staff spend calculating work hours and reduce the potential for incomplete or inaccurate documentation, thus simplifying payroll processing.
In addition, managers can analyse the data collected by HR and payroll software to make more informed business decisions. For example, project work hours can be objectively tracked, and then compared with the average time spent on similar projects or by different teams. This can measure productivity and determine if profit margins on a given project are accurate.
Businesses can introduce automation into their organisation through simple, practical applications that mechanise routine, monotonous tasks. Not only will this improve an organisation’s productivity levels, but it will also prime both a business and its employees to be ready for further innovations in automation.
About Dezan Shira & Associates:
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. With more than 27 years of on-the-ground experience and a large team of lawyers, tax experts and auditors, in addition to researchers and business analysts, we are your partner for growth in Asia.
Ines Liu’s Bio:
Ines Liu is an Assistant Manager at Dezan Shira & Associates’ Beijing office and a member of the International Business Advisory team. She advises foreign investors on market entry strategy, corporate structuring, cross-border tax issues, and FDI-related legal and tax considerations.