Establishment of Labor Unions: Foreign Companies Tremble

The Government’s Policy Shift on the Establishment of Labor Unions

For a long time conflict between labor and management was a non-issue for foreign-owned companies, and wage increases for employees were basically done in proportion with the rate of inflation. The situation of laborers’ rights not being adequately guaranteed by the “labor law” was exploited, especially among companies in Taiwan and Hong Kong. Laborers, in particular migrant laborers were forced into harsh working environments.

Since the advent of the Hu Jintao administration, which has endeavored to create a harmonious society, the government has leaned a more sympathetic ear towards the discontent of laborers. The important policy shift has been demanding the establishment of labor unions within foreign companies. This may lead to a change in direct investment from foreign companies, which have targeted low wages in China (Hong Kong Chamber of Commerce in China). This is because labor unions can carry out strikes if they are dissatisfied with the wages proposed by management. As a result, China’s blue collar wages increase and, in the eyes of foreign companies, China loses its attractiveness as a “factory”.

The companies most apprehensive about the policy shift in China are those in Taiwan and Hong. South Korean companies are also nervous. In the past, fierce labor union movements demanding wage increases brought significant damage to companies in South Korea. To prevent the same from happening in China, the need to “learn from the history of labor unions in South Korea” is being emphasized (South Korean company in Guangzhou).

Developing labor unions that will maintain the rights of laborers is a natural progression when introducing a market economy. The role of these unions is to represent the laborers and negotiate with management in the event that laborers are treated unfairly, and protect the laborers’ rights. What foreign companies fear more than anything, however, is labor unions pursuing radical action.

In other words, the situation of labor unions not being established until now meant that wage increases for laborers were in essence left up to management. If labor unions begin to emerge, wage increase demands can be expected to be intensified and management will be forced to respond. There have hitherto been many small-scale strikes carried out by laborers in reaction to foreign companies not meeting wage increase demands. A portion of these strikes involved differences in the interpretation of labor contracts or compensation for working on weekends and holidays.

In reality, unorganized protests or uprisings by laborers are not constructive to dialogue for laborers and management alike. If labor unions are established and then used to solve problems through dialogue with management, then unnecessary losses can be avoided.

Constructing Good Relations with Labor Unions

Under the current situation of labor unions not being established, unrest among laborers is already at the brink of explosion. Realizing this, the Hu Jintao administration has sanctioned the establishment of labor unions and is endeavoring to pacify laborers. In reality, the object of Chinese society’s discontent is not limited to management; the government is also the focus of deepening disgruntlement. One wrong step and this discontent could easily spread to the government and the communist party.

That being said, the establishment of labor unions cannot be prohibited forever. The likely purpose of the Chinese government permitting the establishment of labor unions is to demand improvement from the foreign companies that force harsh working conditions upon laborers. The government seems to believe that the majority of foreign companies that are obeying the law will not be pushed into a tough position with the establishment of labor unions.

The reality is that, with the exception of a portion of devious companies, the majority of foreign companies are in fact law-abiding. The bottom line for foreign companies is that they want to prevent the souring of labor-management relations even if labor unions are formed. The original aim of expanding business into China, after all, was cheap labor. Hypothetically, if labor unions are developed on a full-scale and begin wage-increase negotiations with management, then profit margins for investment in China will shrink for foreign companies.

On the other hand, the market economy is still young in China, and it is a fact that laborers could take the slightest rumor and run wild with it. The communist party is the representative organization of laborers, and in the event of a laborer uprising it could not unilaterally crack down. There is the likelihood that the impact of the problems caused by a portion of unscrupulous companies would spread wide and far. With this in mind, how to develop good relations with labor unions represents an important issue for foreign companies.

Japanese companies, which carry the problem of inadequate communication between the Japanese management and local employees, lack popularity compared with their European and US counterparts. The foundation of Japanese-style management considers performance improvement to be derived from team endeavors, not the efforts of individuals. In addition, Japanese companies have a strong tendency to retain “dividends” as company profits instead of distributing them in the current fiscal term.

The national character of China, however, is one that values individual performance over group efforts, and this short-term mentality expects dividends immediately when profits increase. It would seem that the individualistic nature of China is in conflict with the collective principle of Japanese-style management.

The company culture of Japanese companies stresses building a sense of shared destiny among management and employees, and, instead of conflict, overcoming difficulties through cooperation. As a premise to the cultivation of this love-of-company mentality, however, it is necessary that management and employees be on the same page to develop mutual trust, and that management be fair and open.