The Disgraced“Golden Bowls”

How is your company? Any plans to cut jobs?” Recently, people working for foreign companies in Hangzhou seemed to shift their attention to how the stock market is going to whether their companies are going to cut jobs.

Truly, the bad economic situation in the world casts great stress on enterprises. Only in this year, many multinationals in IT and home appliance retail all massively cut jobs. In addition, their branches in China are no longer immune to the wave of layoffs as many of them have already listed the plan of reducing workforce in China. Presently, this wave has not hit foreign enterprises in Hangzhou, part of their workers have already planned to leave on their own.

“They sensed the crisis though it is not coming.”

Panic of Layoffs

Wang Ge was once the marketing manager of a Hangzhoubased foreign company. Five years ago, she defeated many competitors and got this well-paid position. However, she never expected at that time that she would give up this job and became an ordinary worker for a public organization in Hangzhou.

“I was contacted by headhunters at the beginning of this year. They told me that a private company was in need of a senior executive and recommended me. At that time, I had the plan of leaving the foreign company,” she said. However, she did not take the job because of disagreements in salary.

“This (leaving the foreign company) is mainly because the stress is too big,” she said. Most of the stress came from herself. “I managed to get this job with great efforts. After that I need to improve myself incessantly lest I would be eliminated. In that way, the stress was bigger and bigger.”

Wang Ge remembered that she worked so hard in the company that she could not find enough time to rest. Her position needed her to have frequent contact with the parent company, which required her to fly to foreign countries many times. After working in that condition for a while, she found some strange bumps on her face, which could not be removed by lotion or skincare products. After consulting the physician, she was told that the bumps were resulted from the fatigue-caused endocrine dyscrasia and could be only removed by long-term conditioning and rest.

It is of course unrealistic for Wang Ge. “The boss thought you were good and expected you to have bigger achievements. I want the opportunities of training and improvement as well as the promotion for higher salaries. These ideas never allowed me to have a break,” she said. Many of her colleagues and friends were in the same condition.

Though the wave of cutting jobs has not come yet, Wang Ge said that several things signaled its imminence at the beginning of this year. For example, her company reduced their traffic subsidies and had stricter requirements for remunerations.

It is known that most of foreign companies in Hangzhou are mainly involved in communications, fast consumer goods, daily products and biomedicine. Though most of them have not been touched by the wave of layoffs, the panic of being fired really made some white collars, especially the ones working for communication companies, smell the approach of crisis.

Zhao Jing is a worker at a headhunting company in Hangzhou. She just finished a deal by helping a private company recruit a vice president of marketing. She found a senior executive in a foreign company but the latter seemed not to be interested in that position. “However, he contacted me actively two months later and suddenly showed great interest in the same job,” Zhang Jing said. “Maybe he was influenced by the wave of cutting jobs. Similar cases are to come out in the future.”

Wang Ge shared the same opinion. Many of her friends have recognized that a stable job is the base for development and they gave up their careers in foreign companies and turned to public organizations, SOEs and private companies.

Labor Force to Be Blamed

In China, jobs at multinationals once represented high salaries and stable positions. However, the depressive economic conditions and the increasing labor cost are changing these things.

Let’s look out of Hangzhou and into the whole country. A wave of cutting jobs has already hit multinationals’ branches in China.

In August, Motorola Mobility announced the plan of cutting 4000 jobs worldwide, accounting for 20% of its total workforce. Its branch in China was also affected as about 700 workers in the offices of Beijing, Shanghai and Nanjing were fired. These people were working with research and development, sales, marketing. Some of the teams were completely removed.

In addition, Nokia-Siemens has already cut jobs in China two times this year. In March, it laid off 350 people, which is followed by firing 320 people in August. Moreover, the list of multinationals that are to cut jobs in China also has Eriksson, LG, Cisco, RIM and Deutsche Telekom.

Experts attribute enterprises’ cutting jobs to economic reasons, structural causes and optimization purpose. Economic reasons refer to the difficulty in operating situation and the decrease in profitability. When enterprises are facing the crisis that might harm their development or even existence, cutting jobs is usually their primary choice.

But multinationals are rarely confronted with the economic predicament. They cut jobs mainly for the consideration of the latter two.

In China, the increasing labor cost should be blamed.

A clothing company in Hangzhou has been serving as the OEM for a foreign brand. Its director Mr. Wang said that the company was now facing great stress. “The workers were paid 2000 yuan per month last year. This year many of workers wanted to increase the salary to 2500 yuan or they will leave. It is hard to find skilled workers in a short while, so we have to increase the salary.”

In the past two years, local authorities of many places have improved the lowest wage standards. Take Hangzhou for example: the lowest wage in that month was 850 yuan per month in 2009. It increased to 960 yuan in 2010 and 1310 yuan in 2011. Meanwhile, the market-oriented salary level kept increasing as well. The investigation revealed that the salary for workers in Hangzhou generally increased by 20%-30% in 2011 over 2010. In some industries the growth even reached 50%. In addition, the trend is to be continued.

Multinationals are sensitive to these things, and many of them have begun to reconsider the distribution of their plants in China. Some of them moved their factories to the inland provinces of China for lower labor cost and land cost. Some of them even moved their production lines out of China to Vietnam and Indonesia.

The stress not only comes from the increasing labor cost, but also the technology side. The lack of technicians, especially the skilled and experienced technicians, is always a problem for multinationals. Therefore, even though there is a large workforce, quite a few people can satisfy the demand of employers.

The Vanishing Demographic Dividend

In August, H&M, Zara and other fashion brands have already launched their new products in autumn. In an H&M store, journalists found that many clothes had the card showing that the clothes are made in Bangladesh, Morocco, India and Portugal. The “Made in China” cards are very rare to see.

Nike that is adored by many young men also followed the pattern of H&M. In 2005, 36% of Nikes’ products were made in China while 26% came from Vietnam. In 2009, China and Vietnam shared the position as Nike’s largest manufacturing as each contributed to 36% of its products. In 2010, the share of Vietnam increased to 37%, higher than the 34% figure of China.

It is not hard to find that the low-cost advantage of China is gradually taken away by others. “The salary increase does not happen in a short while. It is a long course. The root is the demographic structure change,” said Christian Merck, president of the China-US Chamber of Commerce.

The 6th National Census of China revealed that the annual population growth of China was 0.57% from 2000 to 2010, 0.5 percent lower than the previous ten years. The drastic decrease in the population growth rate is accompanied with the high speed of ageing. For example, in Zhejiang, people aged over 60 took 13.89% of the total population in 2010 and people older than 65 accounted for 9.34% of the total population.

Ba Shusong, deputy director of the Financial Institute at the State Council’s Development Research Center, said that the published data showed that China had already crossed the“Lewis Point” and the demographic dividends are going to vanish in China. In his opinion, the changing trend of demographic structure might not bring lethal impact to China in a short while, but it is an onset of the real crisis. Therefore, it is necessary to transform and upgrade the manufacturing to maintain the competitive power.

For Zhejiang and other provinces, how to upgrade “production” to “creation” is an important task.

In the Hanover Industrial Expo of this year, a unique exhibit attracted many people: an automated guided vehicle based on non-contact power supply was driving slowly along the rail. The vehicle carried a solar energy panel, which will be removed by a robot when the vehicle passed that robot. Then the robot gave the panel to the next process for continued production. This is the knockout product of China-based CHINT Group in the Hanover Industrial Expo.

“The integration of many technologies greatly reduced the cost. We can endure even the 60% drop in price,” said Nan Cunhui, board chairman of CHINT Group.

“Now it is hard to keep growing simply based on exporting traditional products. Enterprises have to rely on innovation to energize their exportation,” said a director of an exportoriented company in Hangzhou. In his opinion, improving the productivity is very important for enterprises. “Enterprises will die without improvement,” he added. In the past ten years, the productivity of manufacturing improved by 10% every year. In consideration of the 4% increase of CPI, the enterprises can endure the 14% nominal increase of salaries with that productivity.

Zhang Renshou, headmaster of the Zhejiang Industrial and Commercial University, shared the same idea. When he was interviewed in May, he said that the increasing labor cost could actually bring some benefits, because the production factors are alternative for each other and the increasing labor cost could urge people to replace land and labor force with technologies.

“The key of the problem is to formulate new competitive advantages after losing previous ones,” said Zhang Renshou.

Voices: Foreign companies should abide by the law of layoffs

The wave of layoffs initiated by multinationals also raised the concern of juristic experts. They said that foreign compa- nies should be subject to the relevant regulations in China regarding that matter.

Motorola’s cutting jobs in China was followed by several protests in Beijing and Nanjing. Workers who were laid off by Motorola’s parent company Google gathered in the street and voiced against Google’s actions.

“Layoffs without any forewarnings are forbidden,” said Tang Yi, a lawyer in Shanghai. “According to the Labor Contract Law in China, companies can only cut jobs in prescribed conditions. Firstly, enterprises are to be bankrupt or go through restructurings. Secondly, enterprises encounter extreme difficulties in operation and production. Thirdly, enterprises are going to switch their production lines or have significant technological changes. Eventually, the economic environment has changed so greatly that the former labor contracts cannot be implemented.”

“Even though enterprises meet the condition of cutting jobs, they need to follow certain procedures to reduce the workforce,” Tang Yi added. “The ‘raid without forewarnings’ is illegal.”

The legal procedures include:

At first, they should inform the Labor Union or entire staff of the layoff 30 days in advance and provide relevant documents about production.

Then, they should put forward the plan of cutting jobs, covering the list of these to be laid off, when the layoffs will happen, the detailed procedure and the numeration for those unemployed workers.

After that, they should ask for advices from the Labor Union or the entire staff about the plan and modify it based on collected suggestions. They should submit the plan to local authorities and ask for their advices.

Finally, they could announce the plan and end the labor contract with employees in the list before numerating them.