It was so close, but so far away. The opportunity was within his grasp, but technical hurdles got in the way.

Perhaps nothing could have made Zhang Jinrong happier than clinching a deal for his HR (human resources) firm to dispatch several hundred outsourced workers to a Fortune 500 firm.

Sending those people to more than 100 cities across China, where the firm has no subsidiaries, was where matters became difficult. Under Chinese Government regulations, HR firms cannot operate in cities unless they establish branches there.

Zhang, general manager of Shanghai Temporary Staffing Service Co Ltd (STSS), had no choice but to look for local partners. He needed reliable companies to help him process employment services such as labour administration duties, insurance, payments to local governments and employment contracts.

"It is very hard to control service quality in distant markets Simultaneously co-ordinating 100 partners is not easy," he says.

The industry is not currently regulated in China. This makes it difficult to clarify responsibilities with smaller HR firms when conflicts arise.

"How do you ensure that each partner carries standardized service criteria? Have they bought the right insurance? Are employees satisfied with their living and working environment? Who is responsible if conflicts arise?"

That was the situation a few months ago. Now STSS has trustworthy partners spread throughout most of China's big cities.

The third largest HR outsourcing company in Shanghai came up with the idea of establishing an industry outsourcing alliance. It allows for resources to be shared and guarantees consistent service standards.

"Only expected to maybe develop a dozen partners in other provinces. But I was surprised when more than a hundred companies asked to join the network," Zhang says.

Zhang ensured service quality by limiting the number of HR firms in each province to one or two. These firms had to rank within the top three in their markets in order to qualify.

More than 90 HR outsourcing organizations from 105 cities joined the alliance in March this year. The Network of Trans-Regional Human Resources Outsourcing Alliance is the first of its kind in China.

Zhang says that the alliance can help standardize the industry by setting unified working standards. A strict membership qualification system and an operative integration process are the foundation.

The multilateral agreement established basic criteria for its members' HR outsourcing services. The alliance's first work standards were laid out last month.

HR outsourcing firms typically provide routine services such as personnel administrative duties to other companies. Clients can then reduce operating costs, focus on their core businesses, and maximize overall efficiency.

Both foreign and State-owned enterprises currently make use of outsourced staff.

The HR outsourcing market has grown by 25 to 30 per cent over the past two years in Shanghai, China's economic hub. This is well above the world average of nine per cent growth.

With this rapid growth, however, come problems.

"There is a lot of tight competition, a lot of price slashing," Zhang says. He says that some small HR companies offer one-eighth of the market price to land deals.

"Outsourced employees are the first to suffer from chaos in the market," he adds.

Small companies are not equipped to adequately confront risks, Zhang says. He describes HR outsourcing as a triangular relationship between HR firms, the client companies and outsourced staff.

"These small HR firms cannot afford to cover work-related injuries or deaths. Outsourcing is similar to the insurance business a company's reputation and strength determine service quality."

STSS has a branch in Xuzhou, in East China's Jiangsu Province, and is the third biggest player in Shanghai's outsourcing industry. Only Shanghai Foreign Enterprise Service Group and China International Intellectech Corp rank higher.

(China Daily 08/29/2005 page5)