There has been a lot of talk lately about China’s inability to maintain its role as the world’s factory floor. Costs across the board are higher according to some, and it is just too much for them to handle… they are now looking at Cambodia, Laos, and Vietnam.

CNN in fact just profiled one such factory owner.

Based in Dongguan, a bicycle helmet manufacturer who supplies Wal-Mart and others is feeling the pinch. the recent labor laws have increased his costs, and he is now considering moving half of the lines from his 17 factories around China to Cambodia, Laos, and Vietnam.

What I found most interesting about the report is that it showed the factory owner as a bit of a victim. That because of the new laws, inflation, and a couple of other things that “all came together” he was no longer able to make a profit from China anymore…

For me, this is simply another case of how this situation needs to be reframed, and what I found interesting about this report was that they were more concerned with the conditions of the owner than the workers that the law was supposed to protect.

Now, why is all this relevant?

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Sure, it was the much discussed topic last year, and since its January 1 implementation 14000 HK firms have said they will need to close from its increased cost (note: Nike says it still does not meet ILO standard).

But it appears that there are still some who haven’t caught up on their paperwork as Kraft and Wrigley have both been outed in the papers this week for potential labor violations.

For Kraft’s part, they:

Kraft Foods (China) Co. has been accused of violating the country’s new labor law for the decision of shifting its headquarters from Beijing to Shanghai without consulting employees.

Whereas Wrigley appears to have what could potentially be a more controversial process as one of their employees was a Hep B carrier whose job involved handling food items. After laying him off, he has fired back with a lawsuit using the new labor law verbage to back his claim:

According to China’s Labor and Employment Promotion Law which took effect on January 1, 2008, employers must not refuse to use workers who are infectious disease carriers, and China’s Ministry of Labor and Ministry of Health also asks employers to protect the interests of Hepatitis B virus carriers.

when attending the AMCHAM labor law reading last year, one member of the crowd mentioned that the only way he felt he would be able to fire companies was by claiming bankruptcy.. and with that in mind my suggestion before taking out the pink slip is to (1) do what you can to move people (2) work with the labor union and get their buy in (3) check with the local labor bureau and (4) READ THE TEXT OF THE LAW

Oh - you all know that you were supposed to send in your taxes last month right? If not, and you want to figure it out on your own (I suggest sending a self criticism with it since you are late) here is the form.

While catching up on some reading this weekend, I came across a new anacronym in the book Natural Capitalism that I thought was pretty applicable to how some in China are operating… they are taking a CATNAP

Cheapest Available Technology Narrowly Avoiding Prosecution

With timing being everything, this anacronym is timely as last week during the showing of A Decent Factory. The movie, a documentary of an ethical audit at one of Nokia’s factories, catalyzed a discussion about global vs. local standards where some argued that the balance between moral obligations and profit had to be balanced.. and that while Denmark may have one standard, and China may have another, a firm may not necessarily feel compelled to do more than the minimum of either, much less implement a global standard.

Where this debate gets interesting, and where I will open it to comments, is that China’s regulatory and market conditions are changing very fast and that when they do it is almost always by taken a step towards global standards… not away.. and that firms investing in China need to begin looking at developing global standards rather than local +.

Areas that have seen changes in the last 12 months include labor, the environment, investment, and tax.. and as we have seen in many announcements, it was those firms who were banking on the minimum local standard rather than the global standard that were rushing to lawyers, accountants, and consultants (labor, environment, government relations) to make sure they were compliant, or figure out how much the cost to get compliant would be.

So, at this point, I will open the floor.

Should firms begin looking to implement global standards, codes of conduct, labor practices, etc? By doing so, is it actually more cost effective, or is the risk of over investment greater than getting compliant later

or

Should firms continue to leverage lawyers, accountants, and consultants to define the minimum and then develop the loopholes once the standard is raised?

and

will the primary catalyst for the rise of standard/ expectations be the government going forward? Or will it be consumers? labor market? Environmental NGOs? media?

In the article Factory fallout written by Bonnie Chen of The Standard, readers are invited to play a game of literary three card monty when Clement Chen Cheng-jen of the Federation of Hong Kong Industries is quoted as saying:

Up to 14,000 Hong Kong-owned factories in the Pearl River Delta may be forced to close over the next few months partly due to the snowstorms that have crippled the mainland’s infrastructure

er. Come again? 14,000 factories are going to close because of a snow storm that largely passed 10 days ago?

Sure, I can see that they may need to extend the holiday, but close? Well, according to Cheng-jen

more than 30 percent of the migrant workforce in the delta area may still not have returned from their Chinese New Year holidays when factories reopen today. The workers, he said, have opted to remain in their hometowns due to the travails they experienced after the snowstorms paralyzed railway networks.

As the article proceeds, the truth is set free, and the snow day theory melts:

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Moving to China for many rests on their ability to save money, and as we all know the cost and availability of labor have been one of the key considerations for investing in China.

So, when the new labor law drafts were being reviewed, managers up and down the east coast began to sweat bullets…

For Beijing is not middle managers who are working a few extra hours, but college students who are paid less an a pittance in foreign fastfood retail shops, child slaves working in the mines of Shanxi, migrant workers who build China’s glimerring buildings without pay, and others.

According to Eric Ardnt’s post on Crossroads:

If appropriately enforced, the LCL will help reduce the abuses that are leading to labor unrest such as that which recently resulted in the deaths of migrant workers at the hands of strikebreakers. However, as with so many laws in China, enforcement of laws is far more challenging than enacting them. Only time will tell if the LCL is able to help curb the many problems plaguing labor relations in China.

However, up and down the east coast, there are still a lot of concerns about how this new law will impact operations, and as such I would like to open the floor to readers.

1. Will the new law have a significant impact on the operations of your firm?
2. What are the three biggest issues for your firm?
3. What did you do to prepare for the passage of the law?
4. Will the new law prevent further investments, or catalyze your exit?
5. Will these laws be enforced evenly across China’s regions?
6. Do you think that foreign firms need to be more careful and protect themselves more than they used to when documenting hiring/ firing and employee performance?

Leave your comments here