Wal-Mart’s Test of Chinese Labor Union During Restructuring

Friday, April 24, 2009 2:34
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Even before the economic recession became to take shape, the question of China’s new labor law and the All Chinese Labor Union were being asked.  the former went into effect January 1, 2008, and by September of that year there were thousands of HK firms were saying the new law was forcing costs up, and they would have to close their factories (I was skeptical).  At the same time, the ACLU had just put another notch in their belt by bringing Wal-Mart into the fold.

But then the ripples of the economic downturn began coming ashore forcing further closures, and millions of migrant laborers were returning home.  It was a situation that was commanding more focus in Beijing, and analysts were beginning to ponder the possibilities of social unrest as job losses mounted.

It was a situation that drew immediate pledges from firms that they would not hire, and ad hoc changes in labor policies to make sure the interests of China’s workers were managed

For the majority of foreign firms in China, HR departments were prepared early and started taken action through the implementation of hiring freezes and allowing contracts to expire in late 2008.. and in 2009 other firms (primarily in the business services sector) began rounds of non-paid leave (EYI, KMPG, & BCG)… No one was hitting the panic button yet, but contingency plans were being formed in case the economy did not pick up as hoped.

However as the economy continues to decline (regardless of the rate of decline),  many firms are now finding that they are in the position where layoffs are no longer avoidable.  That without a drastic market turn around, operations will need to be scaled back with  staff/ management relieved of duties, and this will mean facing the pressure of the central party and union

A position Wal-Mart finds themselves in now, and a situation that many firms would be wise to pay attention to as:
1) Wal-mart is unionized
2) Wal-mart’s restructuring comes as a result of a China-wide retrenching
3) The size of the layoffs require special treatment as per the new recessionary measures.

The details to date are:
1) Both management and staff are being affected (roughly 50 per store)
2) The union was not initially notified (required by new measures), but are now actively negotiating a deal in Shenzhen
3) Wal-Mart’s offer was that affected employees could (a) take reduced title/ salary at same store (b) relocate to new store at reduced level or (3) take layoff – package is reported as being both paid and unpaid
4) 200 employees are picketing outside the Wal-Mart Shenzhen headquarters

It is a case where the union will look for a win from Wal-Mart, who was their poster child company last year, and with strong HR policies and government relationships, it has all the making of a very interesting story.  Especially since Wal-Mart has already upped the ante by saying that up to 10,000 jobs are at stake from economic conditions deteriorating.

Where this case becomes important for others, is that with the pressure to keep jobs and/ or to make sure employees laid off are taken care of, a lot of pressure from the government and the union is likely. Employees are not simply scared, but they firmly believe that Wal-Mart has not treated them fairly, and in breaking this social contract Wal-Mart’s risk profile has gone up another level as members of the press are beginning to pick up on the story.

A press that has proven quite effective when it comes to the role of foreign corporations operating in China.

Most importantly, is that with the central party and union involved this is a case that could very well set a precedent for others in the near future, a precedent that could have an impact on other firms who find themselves requiring a round of layoffs.

Regardless of the outcome, this is sure to be an interesting case for HR managers in China is that firms currently preparing layoffs, or their strategies for layoffs, can observe from the sidelines and make adjustments.  I have already spoken to several people who begun speaking about the inevitable.  They have begun a process of moving HR managers/ union reps into offices so that conversations cannot be overheard by the rest of the floor, internal messaging is being readied, and PR firms are beginning to get inquiries on how to best manage the news.

Which leads me to my last points, or observation.  right now, the primary complaint against Wal-Mart is not that they are laying people off, but that they feel the pacakages are not fair.  Not enough.  Were I a firm like Wal-Mart, a firm with many different interests in China, I would look at spending a extra X% above market and proactively do all I could to go above and beyond.  Right now, people are scared about jobs,  and there are some expectations that companies need to do right by their employees.  So, rather than risk the wrath of a social media/ traditional media shellacking, firms would be wise to go the extra yard and pick up some points in the market.

Everyone knows that the market is bad now, so take the time to learn from others when preparing you strategy because in the end, it really is not about laying people off.

It is how you do it that matters.

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