Interesting Forbes Magazine article, by Matthew Kirdahy, entitled, Wal-Mart Strikes Pay Deal With Chinese Union. Article is on Wal-Mart’s having reached wage agreements with China’s official union, the All-China Federation of Trade Unions (ACFTU).
Gist of the article is that Wal-Mart’s agreement was necessary to stay in good with the Chinese government:
Dave Orlins, president of the National Committee of U.S. China Relations, said the agreement is crucial to Wal-Mart’s business. “To expand in China, one needs government support,” he says. “This is what you should be doing in China.”
And Wal-Mart knows as much.
“We support these efforts because of the valuable, mutually beneficial partnership the government-run union offers and because of their commitment to assisting businesses in our growth and development in China,” said Kevin Gardner, a Wal-Mart spokesman.
Wal-Mart’s agreement with its employees calls for an 8% pay increase in both 2008 and 2009 and I found that a bit weird and said so:
Dan Harris, a U.S.-based international attorney who represents businesses in foreign markets with his firm Harris Bricken and writes the widely respected China Law Blog, says an 8% pay increase this year made sense. But the same amount next year sounds “strange,” since there’s no telling what inflation will be a year from now, he adds.
Official figures show consumer prices rose by 7.1% in June, well above the government’s target of 4.8% for the year. Food prices have risen much faster, climbing at annual rates of 20%.
“Is this an admission by Wal-Mart that it wasn’t paying enough? I don’t know.” says Harris.
(I added the emphasis on “widely respected”)
The article then goes on to give a nice, brief, explanation of the role of the ACFTU in China:
All employees in China have the right under law to join the ACFTU, which claims some 170 million members and is controlled by the Communist Party. Party leaders have ensured that the ACFTU has a monopolist position. They don’t want autonomous unions springing up, because of the potential threat to their authority.
Founded in 1925, the ACFTU has increasingly sought to organize at foreign-owned companies as its traditional membership in state-owned enterprises has shrunk with economic reform.
The ACFTU says that as of the end of 2006, 51,100 foreign-invested enterprises had entered into collective contracts, covering 8.1 million workers; a further 17,500 foreign-invested enterprises had entered into special wage collective contracts, covering 2.3 million workers.
Multinationals such as Motorola (nyse: MOT – news – people ), McDonald’s (nyse: MCD – news – people ) and Wal-Mart rival Carrefour all recognize the union, to which they are required by law to pay the equivalent of 2% of payroll to support its activities.
But, apart from the subsidy, there is not much for management not to like. The union does not resemble its counterparts in the West, and labor activists often accuse it of siding with management rather than workers.
On its Web site, the ACFTU says, “Trade unions of the foreign-invested enterprises in China have firmly centered on production and business operation to conduct activities and have given support to enterprises in their operation and management according to law; have educated workers to observe factory rules and regulations and discipline; organized workers to launch labor emulation campaigns; and aroused the enthusiasm of the workers for running the enterprises well, so as to contribute to the sound development of the enterprises.”
During my interview with Mr. Kirdahy, I went off a bit explaining what I saw as the macro ramifications of this deal. This (justifiably) did not make the Forbes article, but since this is my blog, I will set them out here
What happened to Wal-Mart is no surprise. It is just another step in China’s efforts to move away from being a destination for foreign companies seeking super low paid workers. Just as with so much else in China, my law firm’s China employment lawyers are seeing foreign companies getting out in front in terms of going along with what China wants to do with its economy. Domestic companies are and will continue to follow in terms of having to deal with unionized and higher paid employees. China wants to move in a way that creates harmony without disruption. It is moving towards granting workers greater rights and increased unionization is a part of that and it will continue.
It does though bear mentioning that the unions in China do not have the right to strike, which severely limits their power. That right will come eventually, I suspect. China likes to move incrementally, not in big lurches, but anybody who still thinks China will do anything for foreign companies doing business there is living in the past. Times have changed and China is getting more and more selective in terms of the foreign (and even domestic) companies it wants.
What do you think?