Category Manufacturing & Industry

Responding to the New Labor Law

New Chinese employment legislation, the Labor Contract Law (LCL), is due to be promulgated on January 1st 2008.

The response to the law so far has been a kind of fearful anticipation but all of this hand wringing is not going to change the fact of the law’s promulgation. The best way to deal with any new issue is to make decisions about responses, and start implementing now. The key question centres on the specific things HR should be doing to keep itself on the right side of the new law.

Here are a few suggestions:

Employee Handbook or Policy Manual – Regardless of your company size, this needs to be set up now, as it is mandated in the new law. It should set out the internal rules and regulations that deal with employee relations, and specify procedures for dealing with conflict situations like termination. Under the new law you would be best advised to have a paper trail to deal with difficult situations, such as firing staff, and the end of the line for this paper trail is your Employee Handbook.

Salary Ranges – If your policy is to specify salary ranges to job applicants then review your advertising and make sure to state the range very clearly in advertisements. In addition to the new labor law, there is also the Employment Promotion Law which also takes effect on January 1st. It specifies that recruitment information in advertisements published by employers should be the same as that mentioned in job interviews. Again you have the paper trail issue.

Overtime – As an exercise, calculate the cost of overtime to your company. The logic is that you may be required to pay amounts that you had not considered before. Under the new law employees in China cannot work longer than forty hours a week. Any time worked over that is liable for overtime pay and the new law makes this enforceable.

Discrimination – Look for a new trap: discrimination. The new Employment Promotion Law says that applicants for employment will be entitled to sue employers for discrimination. This is based on ethnicity, age, gender, race, religious belief or physical disability. Although multinational companies have tended to be on the right side of this issue for a long time, it is still worth reviewing your current advertising and hiring procedure. You don’t know what lurks under rocks until you turn them over. (Oddly, the government will issue a list of ‘jobs unsuitable for women’ to assist companies stay on the right side of the law.)

Job Descriptions – Review your process, if you have one, for creating Job Descriptions. If you don’t have one, create one. The new law says that employees cannot be sacked at will anymore. You have to have well-defined reasons with a paper trail back to documents that the employee has signed, along with measures that support your claim that they are incompetent.

Documentation – Review every document that you sign with an employee, including NDAs and non-compete agreements. The new law makes you liable for any negative outcome because the assumption (mine) is that you hold all the cards, and have superior power within the employer/employee relationship. Any slip-ups will cost your company money, not the employee or the job candidate. (Note: Under the new law employees cannot be forced to sign non-competitive agreements. This belongs only to the realm of senior management.)

Temporary Staff – Deal with all and any temporaray staff that you have in your office or factory. You need to either hire them on a contract or let them go. You may have some leeway on this but any delay is at your own risk. Employees, backed by willing and well-prepared employment lawyers, will be able to claim double salary for months worked without a contract. The limit is 12 months’ salary but that’s not much comfort.

Permanent Staff – The use of employment contracts in China has been the norm for multinationals in China. At the end of the contract they have often been renewed without much thought because the impact of that decision was low.

Under the new law the employer is permitted to enter into only two employment contracts with the employee. After that they are on an open-term contract, which means they leave or stay largely at their own discretion, and of course excepting breach of contract. So every permanent employee needs to be reviewed. Or not. (This should have been dealt with some time ago and can only be seen as a legal loophole. One that you might not want to go through. Chinese professional staff have choices, and under the new law they also have power.)

Employee Council – The new rulings on the issue of unions is still not clear, but what is clear is that companies cannot bar employees from setting up unions.

An alternative is to set up an employee council that represents the employees and solicits their opinions. This body does have a say on issues like your Employee Manual, and it is advisable to have one because it can make the approval of this kind of document easier. If you don’t have an Employee Council you have to get every-single-staff-member to agree to each issue one by one. (The jury is still out on this one.)

It would also be advisable to create an Employee Council as a way of beginning a new kind of conversation with employees. Not having had previous experience of this issue, most Chinese employees do not have the language of employer/employee cooperation, and this council would give them the breathing space to develop that ability.

Public Relations – This may not seem like an obvious department to be involved in anything to do with the new labor law, but according to Image Thief the underlying narrative in China is “Chinese employee vs. callous multinational employer or foreign boss”.

Foreign companies are easy targets, with deep pockets and an aversion to negative publicity. He suggests that you consider the various possible negative PR scenarios that could happen, and prepare a response. It’s all about managing risk.

Clearly the power has shifted in favor of the employee in China. This is not to be feared, as fear tends to be immobilizing. The new labor law really only brings China in line with many other countries around the world. The bonus is that the establishment of the rule of law is an absolute good in itself.

That doesn’t mean you shouldn’t be prepared for the change because the new law may overreach on behalf of employees for a period of time, until employers push back.

GM Buying Out Employees To Hire Cheaper Workers in China

General Motors Corporation has announced that they will be offering buyouts and early retirements to all of their 74,000 hourly workers in the United States who are members of the United Auto Workers union. Is this a good idea, or a very bad one? While it will increase profit for a great American auto manufacturer, it also leaves us wondering if: more of the jobs will be sent overseas; working for GM will no longer be an enviable position; the Union will die off.

The deal does reportedly come with more favorable terms than the 2006 offer that General Motors extended to service and parts workers in 2006. More terms of the buyout are here. We have to ask GM employees to respond here, because we’re clueless on this one. When we posted this article asking the FedEx to support unions, many FedEx workers weighed in that it was possibly not such a good idea (though others said direly needed).

GM hasn’t had the best history with union workers recently, though, and in September 2007 the UAW famously went on strike for the first time in 37 years. It’s also pretty hard to comprehend that they cannot afford to pay our American workers, but they can invest millions in a research center in Shanghai, China.

Detroit’s Big 3 Pin Their Hopes On Chinese and Asian Market Auto Sales

With U.S. auto sales forecast to hit a 10-year low in 2008, Detroit’s Big Three carmakers are aiming to rev up sales in emerging markets.

Developing nations will account for more than 75% of the auto industry’s unit sales growth over the next decade, says market research firm CSM Worldwide. Most will come from the BRIC countries: Brazil, Russia, India and China.

General Motors GM, Ford F and, to a lesser extent, Chrysler hope to grab a big slice. But they’re in for a battle with other global giants as well as local firms like India’s Tata Motors TTM, which is close to buying Ford’s Jaguar and Land Rover brands.

Competition is fiercest in developing countries with their own local producers, says Maryann Keller, head of a Greenwich Conn.-based auto consultancy. China and India are examples.

But emerging markets without local automakers — Brazil, Thailand and Poland — also make attractive targets for global giants and newcomers.

“It isn’t going to be just the Japanese, Americans and Europeans competing for (developing world) sales, it’s going to be Korean, Chinese and Indian carmakers as well,” Keller said. “The automotive world is opening up to greater competition from new emerging companies we’ve never heard of. And there’s no reason to assume foreign companies are going to dominate in Russia, China or India.”

GM has a top-three market share position in China, Russia and Brazil. In 2007, GM’s sales increased 74% in India, 18% in China, 19% in Latin America and the Middle East, and 9% in Europe.

Toyota and GM were neck-and-neck in 2007 global sales. Toyota has been gaining ground in China. Toyota also opened a factory in St. Petersburg, Russia, late last year. The plant will produce 50,000 cars a year, Toyota says.

“The debate going forward is whether GM’s lead over Toyota in BRIC countries is sustainable,” said Lehman Bros. analyst Brian Johnson.

Toyota TM has forecast combined sales of 900,000 vehicles in China and Russia for 2008, a jump of almost 40% from last year.

In BRIC countries, Ford only ranks among the top three foreign companies in Russia.

GM and Ford are well-positioned for global growth, says Michael Robinet, CSM’s VP of global vehicle forecasts.

“GM is doing well in the BRIC countries. It’s focusing more assets on Russia and India,” he said. “Ford is getting stronger in China and it’s well-established in Brazil.”

Chrysler has yet to make a dent in emerging markets. But it’s announced a goal to double overseas sales over the next four years.

“Chrysler is trying to catch up,” said Bruce Belzowski, auto analyst at the University of Michigan’s Transportation Research Institute.

He points out that Chrysler largely lost its global reach when parent Daimler sold more than 80% of its stake in Chrysler to private equity firm Cerberus Capital Management.

“Daimler is gone now,” Belzowski said. “Chrysler is trying to build a B-size (subcompact) car with Chery (Automobile) for China’s market.”

It’s a large and growing market. CSM estimates China’s auto sales will grow 60% to 10.9 million by 2013, up from 6.8 million last year.

Among foreign suppliers in China, Volkswagen leads with 18% market share, followed by GM at 10%.

Toyota overtook Korea’s Hyundai for third in 2007, says Tim Dunne, analyst at J.D. Power & Associates.

Japanese automakers have gained share in China, Dunne says, while European firms have held steady. The combined share of U.S. automakers slipped in 2007, he says.

Chinese firms such as Chery had almost 30% of the market last year, with Japanese companies at 28%.

Chasing The Nano

CSM forecasts India’s auto market will more than double from current levels to 4.16 million cars by 2013.

Korea’s Hyundai leads foreign automakers with about 14% market share in India. GM and Ford trail with 4% and 3%, respectively.

Ford on Jan. 8 said it would spend $500 million to set up a small car factory in southern India. Overall, it’s investing $875 million in the country.

GM is spending $350 million to set up its second factory in India.

Both GM and Ford face an uphill battle vs. India’s Tata, which holds 23% of the market. Tata rolled out the world’s cheapest car — the $2,500 Nano — in early January. The Nano is said to get 50 miles per gallon but lacks power steering and power brakes.

Tata expects to sell 250,000 Nanos a year in its home market. Within three years, Tata plans to export its low-cost, no-frills car to other developing countries.

Analysts say Ford is aiming to produce a car for India’s market with a $7,500 sticker price. GM is said to be working on a sub-$5,000 car intended for emerging markets.

What About Profits?

Ultracheap cars might win Detroit’s Big Three market share, but their profitability is questionable, Keller says. “The growth is in small vehicles, but nobody is going to make money on these (ultracheap) cars.”

Meanwhile, Chinese consumers are already trading up. The average car in China costs about $15,000 vs. $27,000 in the U.S., Dunne says.

Aside from BRIC countries, other fast-growing auto markets include Thailand, Indonesia, Mexico, Poland and Ukraine. Sales also are rising fast in Africa and the Mideast.

While overseas markets beckon, GM and Ford will stay under attack in the U.S.

“Every carmaker still wants to come into the U.S.,” Keller said. “Why? Because we buy big expensive cars.”