Forbes: With Labor Disputes In China On The Rise, Companies Must Tread Carefully

China Labour Bulletin is quoted in the following article. Copyright remains with the original publisher.


By Kent D. Kedl

SHANGHAI – Labor disputes in China are rarely kind to foreign employers. It is not terribly uncommon these days for a foreign visiting executive to be confined to a hotel room or for a plant manager to end up locked inside his own factory. Sometimes protestors from far remote regions of the country descend upon headquarters in Beijing or Shanghai, and striking employees have been known to shut down factories for weeks on end.

So it is with some trepidation that multinational corporations have begun to reassess their footprint in China. As the Chinese economy has slowed, many companies are finding the need to divest from certain facilities and trim down their China-based workforce. This is unwelcome news to both their Chinese employees and to the Chinese authorities who rely on foreign investment for tax dollars.

It’s not that these foreign companies are getting out of China entirely; they just need to make themselves leaner. A 2015 AmCham Shanghai survey found that a third of all respondents view rising operational costs as a “serious hindrance” and have either begun downsizing or have plans to start.

Some Chinese workers are not taking this sitting down. The China Labour Bulletin (CLB), a Hong Kong-based labor rights organization, recorded 569 labor incidents across China in the fourth quarter of last year. That is a threefold increase over the same period in 2013. Guangdong province in Southern China remains particularly vulnerable to labor unrest, but other locations such as Shandong, Jiangsu, and Shanghai are also prone. From March 2014 through February 2015, the CLB recorded a total of 130 incidents targeting foreign-owned or joint venture in China (almost entirely manufacturers). Of these, the vast majority involved demands for wage increases, new benefits, or compensation for restructuring, overtime, and layoffs.

Some of the uptick in labor unrest is a function of restructuring by multinationals, but it is also a function of a Chinese workforce that has new motivation to be more aggressive. Atop that list of motives is the wider manufacturing slowdown, which means workers who lose a job have a harder job finding a new one. Then there are China’s labor laws, which already give workers significant power and may soon be revised to limit companies’ ability to make large-scale personnel adjustments. Workers have begun using social media to become better organized and recognize their own power to damage a company’s reputation by attracting media attention and regulatory scrutiny. Many do not trust formal channels for reporting grievances and would prefer to take matters into their own hands.

When workers decide to take action, it often follows a predictable path with a series of measures that increase in intensity as they progress. The initial action frequently involves threats or actual leaks of information. The may include passing critical information to competitors, going to the press or disclosing previously unknown and problematic accounting or sales practices to government agencies. Subsequent action often includes denying access to facilities or offices, strikes or other refusals to work and shutdowns of machines and equipment. These tactics comprised the vast majority of labor incidents in China last year. Some labor disputes eventually escalate to the point where the company receives threats of physical damage against facilities or assault against individuals. Such violence is rare in China, but it does happen.

As uncomfortable and potentially damaging as a labor dispute may be, the economic imperatives forcing companies to streamline their China operations aren’t going away anytime soon. The challenge for firms that must restructure is to manage the change in a way that limits escalation.

This takes careful planning. It involves identifying all the stakeholders who would be affected by restructuring and understanding their needs and motivations. It also requires reviewing relevant labor laws, assessing any existing vulnerabilities and thinking through various scenarios to inform existing crisis management plans.

Carefully considered communications plans should craft different messages for different stakeholders. It is often a good idea to consider strategies for engaging with local government and law enforcement officials in advance, and monitoring social media can provide early warning of discontent. When it comes to actually executing the restructuring plan, it should be communicated clearly and in Chinese, both in writing and in verbally (through a town hall meeting or similar forum).

But planning and good communications have their limits. Companies should be prepared for the possibility that disputes could escalate. Having a security team in place to protect people and assets is a must. It is also wise to have developed negotiation strategies in advance that allow a company to avoid conceding to extortive threats.

Firms that restructure their operations in China will almost certainly face some degree of unrest. But those who are prepared have a better chance of preventing a confrontation from turning into a full-blown crisis.

Kent Kedl is the Shanghai-based Managing Director for Greater China and North Asia at Control Risks, the global risk consultancy.

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