In mid-June, Charles “Chip” Starnes, a co-owner of Specialty Medical Supplies (SMS), Coral Gables, FL, a manufacturer of disposable medical products, visited the company’s factory in Beijing, China. He intended to personally lay off and distribute severance packages to about 30 employees of its plastic injection molding division, which was being closed and moved to Mumbai, India. He did not anticipate what came next.
After seeing equipment being packed for shipment to India, and coworkers laid off, rumors within the plant spread that the entire plant was being closed. Those workers who still had jobs demanded the same severance packages that the laid-off workers were receiving. When told that they still had jobs, they threatened to quit, demanded severance pay, and complained about unpaid wages, which Starnes denied. The workers revolted and held Starnes hostage at the factory for six days until he relented and agreed to pay off his captors to the tune of more than half a million dollars, according to reports. And, he says, that he plans on rehiring some of them, which, at this time, remains to be seen.
When questioned by reporters as to how the local authorities have been involved in the situation, Starnes replied: “They really don’t have any involvement at all.”
Starnes revealed that the workers demanded that they all receive severance payments. “They are demanding full severance pay, but they still have a job. That’s the problem,” he said. “I think that this particular situation was kind of fueled by bad information. We were moving a segment of our business, looking to move over to Mumbai, India, where now labor is quite cheaper and the dollar versus the rupee is quite stronger.”
This dispute shines a spotlight on general tensions in China’s labor markets. According to The Washington Post, Chinese workers are sometimes left unprotected when factories close without severance or wages owed. Labor protections are improving, but disputes still occur and local governments have, at times, barred foreign executives from leaving until they are resolved.
In fact, this happens more often than most of us realize. The New York Times reports that, in February, a factory owner in China was kidnapped from a hotel by two contractors who claimed that he owed them $618,000. In December, 14 women died in a fire at a factory in Guangzhou, which the police found had been set by a worker upset over unpaid wages, among other instances. The Times article goes on to say “Western business executives say foreign companies are especially vulnerable to the strong-arm tactics of employees who have little faith in the Chinese legal system.” Diplomats say that they are helpless to intervene when a foreign business owner is embroiled in such disputes, and advisors to US companies on Chinese labor and employment law say that it is better for American executives to stay at home and let their local managers handle layoffs.
Is this the risk of doing business in China? And, what will happen when the cost of Indian labor rises?
Beth G. Sisk
Editor
