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Meeting Note

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Meeting Note

    Meeting Note

    Client: Date: China Mobile 4 April 2001 Venue: Time: Shenzhen 9:30 am pm

    Present: Job No: Mr. Ji Wei, Mr. Hu Wei …….

    ML, JPD, HK, MY, SY

    Copies: Author: Hans Kothuis

STRICTLY CONFIDENTIAL INTERNAL WW BRIEFING NOTE FOR THE

    CHINA MOBILE TEAM

    Meeting with Messrs. Ji Wei and Hu Wei. Mr. Ji Wei is director of the corporate affairs department of

    China Mobile (Hong Kong) Limited. He is the more senior of the two. Both have responsibility for HR of

    the group.

    Company Overview

    China Mobile Communications Corporation (CMCC), a state-owned, Beijing based company and a spin-off

    of China Telecom, is the ultimate parent company, and owns 100% of the China Mobile Hong Kong Group.

    This latter company, in turn, owns 75% of China Mobile (Hong Kong) Limited (“CMHK”), a company publicly listed in Hong Kong and New York. MCC Beijing (State Owned Company) owns 100% of CMHK Group which in turn owns 75% of CMHK. CMHK has 13 subsidiaries, plus the Shen Zhen office,

    where the management office is located. In Hong Kong they employ about 40 people, the CEO, Finance,

    HR and other senior level people, who handle investor relations, finance, business planning, legal, etc.

    These people are primarily PRC nationals based in Hong Kong.

    CMHK listed in 1997, and since that time has acquired the subsidiaries from its ultimate parent. In addition

    there are still 18 companies under CMCC, that might be integrated into CMHK at some future date, if the

    assets prove to be good, and, presumably, if CMHK has the funds to acquire these companies.

    Some of the non-core assets of these subsidiary companies were left with CMCC.

    There are 38,000 employees among all 13-14 subsidiaries. About 4-5% of staff (~1,500 to 2,000) is in the

    managerial ranks.

    Each province is considered as a subsidiary. In one province there are cities and counties, with there own operating centre, and customer interface. They have already created a common organisational structure

    among the various subsidiaries. Each province has one general manager, and two vice general managers.

    They designed the new organisational structure themselves.

    Their main competitor is China Unicom, who competes on cost leadership, while China Mobile intends to

    follow a differentiation strategy. Hence, there is not much emphasis on business development.

    Issue 1: Creation of a common HRM system across all subsidiaries

    One of the key objectives of our exercise is to consolidate a common HR management system among these

    various subsidiaries into a common structure. They want to integrate the HR systems among the various

    subsidiaries, as currently the systems are very disparate. They began to undertake this task from April last

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    year. For example, they defined the new organisational structure themselves. They sent out a document on the structure that everyone in the subsidiaries had to follow.

    What they want is an umbrella HRM system. We do not need to go into the organisational design system. Issue 2: Attraction, motivation and retention of staff.

    They have a problem creating a more performance-oriented organisation. There are issues in relation to staff motivation. Although turnover is generally low (close the 0%), they are afraid of losing key staff at the managerial and technical level, once the WTO comes into affect, and upon the further consolidation of the telecommunication and technology companies. They fear losing people to private and foreign invested companies. At the lower levels in the organisation they have the feeling that there is too much staff. They want a better system that helps to attract, retain and motivate their staff.

    They also have the impression that they lack marketing people with the right skills, and fear that they do not have the right skills in the Internet Protocol area.

    Some of the senior HR people remained with China Telecom, so that the HR structure at China Mobile is rather weak.

    Issue 3: Performance Management / Measurement Systems

    They do have a Performance Management system that was developed for the Hong Kong operation, by KPMG. It consists of some kind of 360-degree feedback system. However, the system is not objective enough. In addition to the Hong Kong staff, the general managers in the provinces are held to this system. This system was launched in 1999. The employee appraisal takes place twice a year.

    They want to change this system into one with more quantifiable measures, as the current system does not measure the outcome or the achievements of the position. Employees think the system is not difficult to understand and operate. There is also a software system to track performance. However, overall the whol system is not objective and quantifiable enough.

    The Shanghai operations have more tangible KPIs. There the system is more like an MBO system. In addition to this softer performance management system, they have a detailed performance measurement and business planning system, that seems to work well. At the company level It has measures such as: Net Income, Revenue, Profit Margins, Business Coverage, Key Customer Ratio, Net Work, Connection rate, etc. This system is part of a very comprehensive business planning and performance measurement system. It seems to work well and is effective. They want the performance of the subsidiaries to be aligned with that of the overall company. There is a business planning process, but it is not very integrated. Issue 4: Compensation Systems.

    In Hong Kong everyone is employed on a Hong Kong competitive basis. For the PRC national employees this means that their compensation is divided into components, as one part is regulated by the city or province from which they hail. There are also some allowances in Hong Kong.

    In the provinces compensation is structured as follows: (1) Basic Guaranteed (2) Bonus (3) many allowances (4) Benefits that differ by provincial regulations.

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    There is also a stock option program. About 400 staff have received stock options. But this program is not enough. There could be an issue with respect to equity plans (such as option and share purchase) because PRC employees cannot purchase H shares.

    A major issue is that head office does not have good information on compensation information in the subsidiaries. What happens is that head office indicates that the subsidiaries can spend a certain percentage of revenues on compensation. This leads to anomalies. The Guangdong subsidiary is the largest as it accounts for about 50% of the revenues of the whole company. Hence, employees in Guangdong receive large compensation packages. It can happen that the people in Guangdong receive higher compensation than those in Hong Kong.

    The prospectus prepared at the time of the share offering in November of 2000 shows that total compensation costs at the 6-7 companies that already belonged to CMHK amounted to 2,256M RMB, while for the 7 companies just acquired compensation costs were only 546M RMB. This shows that compensation at the existing companies, such as Guandong, must be much higher than in the rest of the organisation. From the prospectus it appears as if personnel costs constitute only 4.3% of revenues. From June 30 1999 to June 30 2000, compensation expenses increased by 73.2%. They say that this increase was due to the implementation of a „performance based bonus system.‟ I am wondering if this had to do with this system of basing compensation on a percentage of revenue. It could be that these numbers are understated, as sales related expenses, such as commission payments come under „other operating expenses.‟

    Hence they seem to have adopted an extreme cost of sales versus a cost of labour perspective. If a certain province does well, they get more compensation dollars allocated. Guangdong accounts for more than 50% of the whole group‟s revenues. So, their salary increase is around 8% or 9%, which is much higher than at

    other province companies. They want to identify the right cost of their human resources not in direct link to the revenues. They want the reward system to be more linked with the market.

     There may also be an issue with the compensation arrangements for the sales people. Their performance should be measured more frequently.

    Issue 5: Structuring of the Project

    There will be three pilot studies, Hebei, Shanghai and Zhenjiang. Ideally, they would like us to include Bejing, as this is their second largest market. The criteria for selecting the subsidiaries to be included in the study are as follows: Shanghai because it is a municipality, Hebei because it is a provincial structure and

    an under-developed market, while Zhejiang, is a provincial subsidiary but a developed market Our role is to study the systems in each of these subsidiaries.

    In June and July they are planning 3 HR workshops in Hong Kong. All the 13 province HR representatives will be there. This will be for 5 day workshop, to be held twice, for a group of 20 people each. HK University is organising this. They will give the new HR philosophy and best practices. They expect us to have a role in this workshop, and to communicate some of the principles such as compensation according to market level, the idea of salary ranges, and get feedback from on the proposed design.

Additional documents / information required

    ? Compensation information (for company overall can be high level / but for the pilot programs it needs

    to be more detailed). This needs to be broken down between the various components.

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    ? Samples of the business planning / performance measurement information used. For example, the

    management information tools used, and historical and projected information for the various

    subsidiaries.

    ? Further information on turnover at the higher levels.

    After the meeting with these senior people, another meeting was held with Mr. Hu Wei and other HR people. During this meeting it was agreed to use the GGS. Additional issues in relation to project staffing were discussed.

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