Unionizing MNCs in China: Accept or Leave

Costa Coffee, PCP Beijing
Manic Friday
0953 hrs.

The Economist does a superb write-up (“Join the Party,” May 6th) on China’s growing effort to unionize the China staffs of multinational companies in China. Most apt is the magazine’s recommendation to the leaders of MNCs: accept unionization as inevitable.

The New Reality in China is that the nation’s leaders see the participation of foreign companies in as less and less vital to China’s economy. (I respectfully disagree with them – I think the importance is changing, but not declining, but leave that aside for the moment.) If foreign enterprises aren’t being tossed out of China, the government is determined to strip away the special operating conditions to which companies from overseas have grown to feel entitled.

We are in for a long sequence of these measures. Tax holidays, special services, foreign enterprise service companies, and the other explicit and implicit special conditions afforded to foreign enterprises are all being pulled. And with them are going many of the special privileges foreign individuals have enjoyed over the years.

The best we can hope for is equal treatment with local enterprises, but I suspect that the direction of the pendulum is going to take us into discriminatory territory: the government is going to be tougher of foreigners than the locals, and this is going to have personal, commercial, economic, and political ramifications.

The “good old days” aren’t coming back. Ever.

But that doesn’t mean China should be permitted to discriminate against foreign enterprises in violation of its international commitments and, more importantly, its own enlightened self-interest. It does mean that we are now going to have to start making a consistent and convincing case for a long-term role for foreign enterprise in China, and each enterprise is going to have to make its own case to be allowed into China, or to be allowed to continue operating here.

The extent to which this case comes from credible local voices rather than indignant foreign sources will determine its palatablity to local leaders and to the Chinese as a whole, and will thus determine its success. This means we have a profoundly challenging effort ahead of us.

Posted via web from Silicon Hutong on Posterous

Collective Responsibility

David.

I wouldn’t be overly concerned about this now for the simple fact that the vast majority of union reps sitting inside the companies are from the companies, and are not there to protect the staff any more than they are to create a brand for the ACLF.

Their role is to simply manage the status quo, make sure the basic requirements are met, and should their be a crisis, identify the appropriate parties to mediate it.

This is not the 1940s US labor unions, it is an effort to maintain a bit of the old way in the age of the new.

So, barring any massive labor scandals (Apple is testing that water nicely) that involve a large/ core industry, expect this to simply be another headcount that firms have to absorb for now.

R

David Wolf

Hey Richard:

Taken in isolation, I’m not particularly concerned about it – yet.

That said, I don’t think you can take this matter in isolation, but as a part of a wider effort on the government’s part to remove both the explicit and implicit preferences that foreign firms have enjoyed. I don’t think that’s wrong: that is the prerogative of any nation, as long as the trend ends with a level regulatory and administrative playing field. I fear that it will not, and I think we as businesspeople need to anticipate that possibility and prepare for it.

Where you and I probably differ (and this is likely driven by the difference in perspectives, with you being in Shanghai and me in Beijing) is over the status quo versus the future. We agree things are fine today, but I see in the current situation the potential for challenges ahead. Again, I think we would be all well advised to anticipate the potential effects of the ACLF’s new position inside of MNC enterprises. That doesn’t mean playing Chicken Little, nor does it mean ignoring the possibilities.

Today, the union reps are guardians of the status quo. But that does not encompass the potential for them to be much more than that, and a wise planner anticipates all possibilities.

Thanks,

D

Collective Responsibility

Hey David

I agree with you that things most likely, which is why I prefaced it all with a number of “yets”, but where I think we differ really is that you think the ACLF is actually interested (and will grow capable) at becoming a real union (in the Western sense).

That is where I believe things will ultimately have to change before a real tightening on labor issues happens, and my personal believe is that for any change on this level to occur it would take an external catalyst that is big.

On that involves a similar level of labor participation as we have read about in American history books.

Outside of that, the ACLF folks will maintain the status quo because that is ultimately in the interests of China.

All that being said, I would agree that the overarching trend is towards tightening, and I agree that this is only one part of the bigger equation.

Although.. I think there is an argument to be made that Chinese firms enjoyed a lot more tax breaks than Western firm, and I am sure it would make for an interesting study on the real impacts of their overall competitiveness either way.

Hope all is well in the Jing. all is nice and sunny in the Hai.

R