LG Stuck by Strike
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Korean company lg has been friendly to China for a long while, but recently it was haunted by numerous accidents. From the great job-cutting in the mobile phone R&D department in Beijing, to the ceased operation of plant in Xiamen and then to the strike in Nanjing, LG’s frequent involvement in disputes in China was put under heavy scrutiny.
At the end of last year, the Chinese employees of LG Display factory in Nanjing held a strike due to their dissatisfaction with the gap between their bonuses and Korean employees’. About 8000 Chinese employees went on a strike, which was appeased within three days. The headquarters of LG had promised to double the bonuses of Chinese employees. But it had also threatened to file a lawsuit against the leaders of the strike and even said it would close the factory in Nanjing if the workers did not return to work.
The Nanjing government took part in reassuring the workers, who were finally persuaded back to work after three days’ strike.
Eventful 2011 for LG
The year of 2011 was the 18th year for LG in China. But it was not an uneventful year. The legal disputes in China have suddenly become closely related with this Korean company.
In addition to the strike in Nanjing, LG had also had a problem in Xiamen, Fujian. It set up Lejie Display (Xiamen) Co., Ltd with Taiwan-based AOC Group, the global largest display producer, in Xiamen. The joint venture’s production was stopped in 2011 even though it was listed as one of the Top 100 Enterprises in Fujian in the same year. Three months before the closure of its joint venture in Xiamen, LG’s mobile phone business had met six straight quarters’ loss and the market value had dropped to one third of the its competitors HTC and Nokia. Repressed by the loss, LG had to cut jobs in its mobile phone R&D department in Beijing– only 10 of the 150 employees of this R&D department can be moved to the plant in Yantai, Shandong while the others will be fired after the collapse of this R&D department. In addition, the production line of 8.5th generation display, which was previously launched in Guangzhou in September 2011, was delayed to an unknown date in the future, leaving an uncertain future for the LGD production line of Guangzhou.
Behind these events is the embarrassing performance of LG. Its LCD TV business, for example, had a decreasing profit along with other panel TV manufacturers due to the decreasing price of LCD panels.
Luo Qingqi from Palor Consultancy Company said that LG’s “disease” is really quicker than other enterprises. “LG has weaker resistance against bad environment and pressure, which could be said to be its personality.” As a company which has newly risen to its current status, LG owns the worst premium price capacity among all the well-established enterprises in the world. This means that it is comparatively hard for LG to increase the price of its products simply based on its brand. This feature forced LG to be highly sensitive to the cost and thus it had to lower its investment in the human resource in its investment destinations. Therefore, it is not surprising for the early appearance of labor disputes in LG.
The Seeming Localization
Since it settled down in China, LG has gone through several transformations. However, it never wavered at its strategy of being friendly to China and Chinese consumers. As its strategy stated, it wants to be “a successful Chinese enterprise instead of a foreign enterprise gaining success in China” and tries to realize the “localization of production, products and talents”. However, the implementation of this strategy was not as firm as stated, at least in the “localization of talents”.
LG was widely blamed for two problems: the first one is that the Chinese employees are hard to get into the core management team of the enterprise; the second one is that the Chinese employees’ salaries are lower than Koreans.
The corporate structure of LG China shows that the Korean company’s Chinese branch has a president and six standing vice presidents. Each standing vice president is in charge of ten departments, whose decision makers are Koreans. Song Rui, analyst from Bayes Consulting (Beijing) Co., Ltd, said that LG appointed some Chinese people as the middle or senior executives of LG China, but it added various kinds of limitations over these local talents. “Even though a Chinese employee climbed into the management team, he/she has no real power and is not fully trusted, thus he/she cannot fully implement his/her talents.”
The salary system also has a problem. “A Chinese employee could only earn one third or even one fifth of a Japanese or a Korean employee even though they are in the same position and doing the same growth of work.” This phenomenon could not only be seen in LG, but also most of the Korean and Japanese enterprises in China.
“Actually, it is quite all right if an enterprise gives different salaries to different employees. However, if the salary difference is simply determined by the employees’ nationality, conflicts must arise,” said Song Rui.
When LG entered China in 1993, the labor cost is really low in this country. Initially, LG planned to build a manufacturing base in China and 95% of its products were to be exported to foreign markets. At this point, what attracted LG was the cheap labor force of China. But now two decades has passed and China has already stepped out of the period when the supply of labor force is larger than the demand. The current economic situation, the power of China and the awakened sense of self-protection of Chinese employees give the Chinese workers a bigger say in their salaries. Therefore, the used-to-be “reasonable” salary gap between Chinese and foreign employees became the root for the contradictions.
Pitifully, the senior executives of LG did not adjust their attitudes and views about the Chinese market and employees in their strategic transformations. They still “look down upon”the Chinese employees. It is reported that LG once threatened to file a lawsuit against the leaders of strike in Nanjing and close the LG Nanjing factory if the workers did not return to work.
“I believe that the Chinese market is the most important market for LG since China could contribute to 30% of the 50-billion income of its electronic section. It should not or dare not snub the Chinese factory or withdraw from the Chinese market. Its threat was apparently to apply stress over local government, which is an obvious discrimination for the Chinese employees.” Liu Bucheng, an analyst in the home appliance industry, was not displeased with pride and arrogance. He said frankly that if LG kept its superior profile towards the Chinese employees, its fame will be further damaged and continuous strikes or similar events could break out even though it really closes or moves the factory.
LG is not the only enterprise having problem of labor cost. Previously, Taiwan-based Foxconn was boycotted and criticized for the extremely low monthly salaries, and was forced to increase the average salary of its employees by 30%.
Analysts pointed out that foreign companies usually encountered the problem of not being fully localized in China. In order to solve this problem, the enterprises would like to show their affinity and hospitality towards China. But it seems that their affinity and hospitality are only staying on the surface. What they care is the return that China can give them, not the basic interest of their Chinese employees.
Weak Labor Union to Be Blamed
The strike in Nanjing, as well as the previous case of consumers smashing Siemens’ fridges in front of Siemens China’s office, shows that the Chinese people’s senses of protecting their benefits are increasing and their method of self-protection is changing. Actually, the Chinese people take those methods to protect their benefits not because they don’t want to appeal to the law; it is because that the legal rights maintenance institutions cannot provide enough support.
As an expert named Yu Bing wrote in his blog, LG’s threat of filing a lawsuit against the“leaders of strike in Nanjing” shows that the current labor unions in China have such small power and influence that its name could not be heard during the case of Nanjing strike.
Yu Bing also questioned the Chinese government. “LG’s actions have already violated several basic rules of the WTO and the labor, civil and contract laws in China. Why did not the law enforcement department of Chinese government stand out, protect the workers’ benefits and investigate the responsibility of LG?”
Yu Bing said that the Chinese labor law had clear clauses requiring the “same salary for the same work”. Since the laws lay emphasis on fairness, the requirements of LG’s Chinese employees are right and legal. Yu Bing stressed that the legal rules should have the same power for all enterprises regardless their types. Therefore, LG should be blamed for causing the unfairness by giving Chinese and Korean employees different salaries.
Yu Bing said that the word “strike” is quite sensitive, but both the government and foreign companies need to think of this incident instead of avoiding it. They should summarize the experience from this incident and work out efficient measures to solve it. In addition, they need to think how to prevent the similar events happening again.