Beyond the Iron Rice Bowl: Regimes of Production and Industrial Relations in China 9783593398907, 3593398907

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Beyond the Iron Rice Bowl

International Labour Studies Edited by Klaus Dörre and Stephan Lessenich Volume 4

Boy Lüthje is a Senior Fellow at the Institute of Social Research at the University Frankfurt/Main and Visiting Professor at Sun Yat-Sen University, Guangzhou. Siqi Luo received her Ph. D. from the University of Frankfurt, she is now a professor at the School of Government, Sun Yat-Sen University. Hao Zhang is a Ph. D. student at Cornell University’s School of Industrial and Labor Relations.

Boy Lüthje, Siqi Luo, Hao Zhang

Beyond the Iron Rice Bowl Regimes of Production and Industrial Relations in China

Campus Verlag Frankfurt/New York

Bibliographic Information published by the Deutsche Nationalbibliothek. The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; d­etailed bibliographic data are available in the Internet at http://dnb.d-nb.de ISBN 978-3-593-39890-7 All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the publishers. Copyright © 2013 Campus Verlag GmbH, Frankfurt/Main Cover design: Campus Verlag GmbH, Frankfurt/Main Typeset: Ina Walter Printing office and bookbinder: CPI buchbücher.de, Birkach Printed on acid free paper. Printed in Germany This book is also available as an E-Book. www.campus.de www.press.uchicago.edu

Contents

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 I. Socio-Economic Transformation, Industrial Relations and Regimes of Production in China. . . . . . . . . . . . . . . . . . . . . 15 1. Changing Labor Relations – Conceptual Approaches and Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2. Diverging Patterns of Economic Restructuring and Control. . . . . . . . 19 3. Regimes of Production in Core Industries. . . . . . . . . . . . . . . . . . . . . . 24 4. Research Methodology and Outline of Case Studies. . . . . . . . . . . . . . 30

II. Labor Relations and Regimes of Production in the Automobile Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 2. Industry Structure and Basic Trends of Development. . . . . . . . . . . . . 33 3. Models of Production and Supplier Networks. . . . . . . . . . . . . . . . . . . 40 4. Workforce Structure and Labor Relations. . . . . . . . . . . . . . . . . . . . . . 44 5. Introduction to Case Studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 5.1 Automobile Assembly Case Studies. . . . . . . . . . . . . . . . . . . . . . . . 51 5.1.1 Automobile Assembly Case Study 1. . . . . . . . . . . . . . . . . . . 51 5.1.2 Automobile Assembly Case Study 2. . . . . . . . . . . . . . . . . . . 63 5.1.3 Automobile Assembly Case Study 3 (2 Factories). . . . . . . . . 75 5.1.4 Automobile Assembly Case Study 4. . . . . . . . . . . . . . . . . . . 89

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Beyond the Iron Rice Bowl

5.2 Automotive Suppliers Case Studies. . . . . . . . . . . . . . . . . . . . . . . 100 5.2.1 Automotive Suppliers Case Study 1 . . . . . . . . . . . . . . . . . . 100 5.2.2 Automotive Suppliers Case Study 2 . . . . . . . . . . . . . . . . . . 110 5.2.3 Automotive Suppliers Case Study 3 . . . . . . . . . . . . . . . . . . 118 5.2.4 Automotive Suppliers Case Study 4 . . . . . . . . . . . . . . . . . . 127

III. Labor Relations and Regimes of Production in the Electronics Industry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 2. Industry Structure and Basic Trends of Development. . . . . . . . . . . . 136 3. Models of Production and Supplier Networks. . . . . . . . . . . . . . . . . . 142 4. Workforce Structure and Labor Relations. . . . . . . . . . . . . . . . . . . . . 149 5. Introduction to Case Studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 5.1 Electronics Industry Case Studies: Brand-Name Firms. . . . . . . . 156 5.1.1 Electronics Industry Case Study 1 . . . . . . . . . . . . . . . . . . . 156 5.1.2 Electronics Industry Case Study 2 . . . . . . . . . . . . . . . . . . . 166 5.1.3 Electronics Industry Case Study 3 . . . . . . . . . . . . . . . . . . . 177 5.2 Electronics Industry Case Studies: Contract Manufacturers . . . . 187 5.2.1 Electronics Industry Case Study 4 . . . . . . . . . . . . . . . . . . . 187 5.2.2 Electronics Industry Case Study 5 (3 Factories) . . . . . . . . . 195 5.3 Electronics Industry Case Studies: Electronics Component Suppliers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 5.3.1 Electronics Industry Case Study 6 . . . . . . . . . . . . . . . . . . . 224 5.3.2 Electronics Industry Case Study 7 . . . . . . . . . . . . . . . . . . . 234 5.3.3 Electronics Industry Case Study 8 . . . . . . . . . . . . . . . . . . . 244

IV. Labor Relations and Regimes of Production in the Textile and Garment Industry. . . . . . . . . . . . . . . . . . . . . . . . . 251 1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251 2. Industry Structure and Basic Trends of Development. . . . . . . . . . . . 252



Contents

7

3. Models of Production and Supplier Networks. . . . . . . . . . . . . . . . . . 260 4. Workforce Structure and Labor Relations. . . . . . . . . . . . . . . . . . . . . 264 5. Introduction to Case Studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 5.1 Textile and Garment Industry Case Studies. . . . . . . . . . . . . . . . . 272 5.1.1 Textile and Garment Industry Case Study 1. . . . . . . . . . . . 272 5.1.2 Textile and Garment Industry Case Study 2. . . . . . . . . . . . 281 5.1.3 Textile and Garment Industry Case Study 3. . . . . . . . . . . . 288 5.1.4 Textile and Garment Industry Case Study 4. . . . . . . . . . . . 297 5.1.5 Textile and Garment Industry Case Study 5. . . . . . . . . . . . 306

V. Regimes of Production and Labor Standards . . . . . . . . . . . . . . 315 1. Summary Discussion of Regimes of Production. . . . . . . . . . . . . . . . . 315 2. Auto Industry Case Studies Summary . . . . . . . . . . . . . . . . . . . . . . . . 319 3. Electronics Industry Case Studies Summary. . . . . . . . . . . . . . . . . . . . 322 4. Garment Industry Case Studies Summary . . . . . . . . . . . . . . . . . . . . . 325 5. Diversity of Production Regimes and Instability of Workplace Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329 6. Management Prerogative and Labor Standards. . . . . . . . . . . . . . . . . . 334 7. No New Deal for Workers in China. . . . . . . . . . . . . . . . . . . . . . . . . . 335 8. Regimes of Production and Industrial Conflict: the 2010 Autoworkers’ Strikes in South China. . . . . . . . . . . . . . . . . . . . . . . . . 338 9. Making Tripartism Work? Policies of Labor Reform in Guangdong Province. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340

Table and Figure Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345 Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351

Introduction

This report presents the results of a research project conducted from January 2008 through December 2010 under a grant from Hans-Böckler Stiftung (HBS). The main purpose of this research was to provide a systematic study of the changing shape of industrial relations in China under the conditions of globalization. The project was designed as a broad-based empirical investigation of the emerging patterns of industrial relations in industries which play a key role for a socially balanced, innovation-based society, as proposed under the economic development strategies proposed by the Chinese government since the beginning of the twenty-first century. The study should offer a comparative analysis of industrial relations in the context of new forms of work organization in a relevant sample of modern Chinese manufacturing industries, including multinational corporations, Sino-foreign joint ventures, Overseas Chinese companies, as well as Chinese State Owned Enterprises (SOE). Field work was to be conducted by a joint team of Chinese and German labor researchers, with special support from international works councils and trade union organizations.

Background As opposed to most mainstream and neo-liberal analysis of China’s reform and opening, the project departs from the assumption that China has moved beyond the stage of a transformation economy, in which economic and social development is primarily determined by the transition from plan- to market-based forms of regulation. Rather, a post-socialist market economy has emerged, which is producing its own distinct forms of economic development and institutional regulation centered on a strong developmental state. This historically new formation of market-based capitalism is based in

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Beyond the Iron Rice Bowl

the specific conditions of a country in which socialism had performed the historic task of industrialization and modernization, and indigenous capitalist development had been blocked under semi-colonial dependency before China’s national liberation in 1949. China’s rapid transformation in the course of reform and opening since 1978 has produced widespread insecurity in the field of capital-labor relations. Chinese scholars, therefore, often speak of a “crisis of industrial relations in China”. This perception relates to the increasing social inequality and polarization within the workforce, but also to the vulnerability of the industrial relations system established since the 1990s to the pressure of multinational companies as well as Chinese state-owned and private capital. At the same time, the regionalization of industrial development of competing industrial centers along the East Coast and recently in inner China has produced an increasing variety of industrial relations practices across industries, companies and regions. They range from established Chinese models of union workplace representation in state-owned enterprises over European-style corporatism and bureaucratic paternalism as known from Asian countries to distinctively non-union regimes. This process is accompanied by the adaptation of all kinds of foreign concepts of work organization and human resource management, which bring about new patterns of industrial conflict and regulation especially in leadingedge industries dominated by multinationals. Labor migration and diverse strategies at the local and company level to integrate migrant labor into the production process are adding further varieties as well as social contradictions to this picture. This situation calls for a new view on Chinese industrial relations focused on the contradictions between capital and labor in an advanced post-socialist economy, the divergence and convergence of labor relations in indigenous state-owned and private, mostly foreign-owned enterprises, and the variety of labor policies across regions and industries. Such a perspective has to reach beyond traditional industrial relations research focused on corporate, contractual and government institutions. The analysis of shop-floor and company level labor relations has to be based on a thorough understanding of the changing shape of global production systems. At the same time, the changing organization of work in Chinese enterprises has to be taken into consideration, in order to assess the question whether and how modern forms of work organization can emerge or whether we will see a large-scale return of neo-Taylorist mass production work in China.



Introduction

11

Research Program, Field Work, and Methodology The research project was developed by Boy Lüthje at the Frankfurt Institute of Social Research in cooperation with Prof. Chang Kai, School of Labor and Human Resources of Renmin University of China, Beijing. The research program was based on the existing work of the authors on industrial relations in China and on global production networks. It consisted of three building blocks: (1) A reassessment of current international and Chinese academic research on the development of industrial relations during the reform period in China, in order to sharpen the conceptual framework for the field studies. This included discussions of key concepts of contemporary international industrial sociology and industrial relations literature and their applicability to China. One key question was whether concepts of corporatism can offer a better understanding to describe the contradictory relationship between confrontation and consensus in Chinese industrial relations at the plant, corporate and local level. (2) Empirical research on regimes of production in key manufacturing industries. The research started from a sectoral analysis of labor relations in the automobile, the steel, the chemical, the electronics and the textile and garment industries. The sectoral perspective was accompanied by in-depth case studies of the regime of production in leading companies in each sector, representing the different types of enterprises, ownership and integration into global production networks prevalent in the respective industries. The research covered multinational, Chinese and Overseas Chinese flagship firms in various regions, smaller and medium-sized companies can be considered at a later stage. (3) In-depth discussion of the implications of the changes found in Chinese industrial relations with regard to the relocation of production and employment from developed countries to China, international labor standards in the respective industries and corporations, and trade union cooperation and organizing. This section of the research related to discussions developed in the context of earlier academic and trade union exchange projects supported by HBS. The basic methodology of the project was directed at the extensive gathering of data and analysis of literature of industrial relations in the relevant industries. Factory visits with inspection of major production facilities, interviews with plant management, trade union and workplace representati-

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Beyond the Iron Rice Bowl

ves, were the key activity. Usually, two to five days were spent on site visits and related research for each case, depending on the size of the respective workplace and access. Interviews were directed by the principle investigators with assistance from student researchers and doctoral students. The basic structures of the production system of the respective factories or companies, their impact on work organization and employment conditions, the hierarchies within the workforce, and the regulation of wages and benefits, welfare policies, employee representation were the key topics of our investigations. The main phase of the project was from January 2008 through December 2009. During this time the conceptual framework was developed, basic data and trends were researched, and extensive investigations in relevant companies and locations were conducted. The basic conceptual framework for this project was presented in a working paper in German co-authored by Chang Kai, Boy Lüthje and Luo Siqi and posted on the website of the Frankfurt Institute of Social Research (Chang, Lüthje and Luo 2008). Factory visits mostly took place between November 2008 and May 2009. Field research during this phase was directed by the principal investigators and supported by a team of master and Ph. D. students from Renmin University, coordinated by Prof. Wu Qingjun. Zhang Hao, Shen Tingting, Meng Quan, Lu Xiaolong, Lei Xiaotian, Wang Chao, and Shen Longfei served as research assistants. Luo Siqi, Ph. D. candidate at the Department of Social Sciences University of Frankfurt and Ph. D. fellow of HBS, was an associate member of the project team. The results of the project’s main phase were presented in a draft research report, authored by Boy Lüthje and Luo Siqi. Case studies in this report focused on the automobile and IT-industries. This report was approved by the project supervisory committee in March 2010. The project was extended in 2010 for additional research on supply firms and supplier networks in the relevant industries. This research was conducted by Boy Lüthje, Luo Siqi, and Zhang Hao. It included extensive case studies in mostly small and medium-sized enterprises, with a focus on the automobile, electronics, and textile and garment industries, most of them conducted in October and November 2010. In addition to the research program outlined in the proposal for project extension, the labor conflicts in the automotive supply sector in South China in the summer of 2010 were researched extensively. All data in the present study are as of 2010 year-end, when data gathering for this project was finished.



Introduction

13

The final report, which was submitted to HBS in May 2011, is based on the 2010 draft report and presents the results from the case studies on labor relations among supplier firms in the automotive industry, component suppliers in the IT industry, and textile and garment companies. The results of the field studies of the steel and chemical industries could not be presented, since the quality of important case studies was not satisfactory. The present volume represents an extensively edited version of the 2011 final research report.

Acknowledgements The research team received generous support from leading academic experts in the field in China. We are particularly indebted to Prof. He Gaochao, School of Government, Sun Yat-Sen University, Guangzhou, Prof. Shen Tongxian, School of Law, Suzhou University, Prof. Liu Cheng, East China Normal University, Prof. Zhou Changzheng, School of Law, Nanjing University, and Prof. Xu Xiaohong, Zhejiang Trade Union University, Hang­ zhou. A large number of non-academic experts on labor relations supported our research in China, too many to be named here. We extend our thanks to them, to the numerous individuals we interviewed in companies, trade unions, government offices and NGOs, and to those who arranged and led our factory visits. Without their generous support this project would not have been possible. We are also grateful to the members of the HBS project supervisory committee, who devoted their time to review the sometimes complicated development of this project and provided valuable help and comments. Outside China, numerous academic colleagues supported our research and helped with contacts, suggestions, and critical comments. We would like to name Anita Chan, Katie Quan, Ellen David Friedman, Lee ChingKwan, Mary Gallagher, You-tien Hsing, Jon Unger, Ronald Brown, Wilhelm Schumm, Hermann Kocyba, Stefan Voswinkel, Dieter Ernst, Richard Walker, Florian Butollo, Ulrich Jürgens, Ulrich Voskamp and the late Volker Wittke. Our work was closely related to a joint research initiative developed by the Frankfurt Institute of Social Research and the East-West Center in Honolulu, Hawaii, under the title of Re-balancing China’s emergent capita-

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Beyond the Iron Rice Bowl

lism, proposed by Christopher McNally, Tobias ten Brink and Boy Lüthje. Boy Lüthje is particularly grateful to the East-West Center Research Program and its director Nancy Lewis for providing a most pleasant and inspiring work environment to finish key parts of the present manuscript. Our special thanks go to Klaus Dörre and his colleagues at the University of Jena, where we had the chance to discuss key results of this project in the productive environment of the research group Postwachstumsgesellschaften, sponsored by Deutsche Forschungsgemeinschaft, the German national research foundation. From this interaction the idea emerged to publish this study in the new book series on international labor studies at Campus publishers edited by Klaus Dörre and Stefan Lessenich. We are grateful to Hans-Böckler-Foundation for generously supporting the publication of this volume. David Bacon did a wonderful job as English language editor for this manuscript entirely written by non-native English speakers. The authors wish to acknowledge the invaluable contributions from the staff of the Frankfurt Institute of Social Research, who provided their professional knowledge to make this project work. Pamela Passano extensively supported the editing of this manuscript, Ina Walter made it ready for print, Ela Rojas helped with numerous activities related to this project. Last but not least, we are grateful to our families and partners for their unrelenting support and patience during long periods of hard work and extensive traveling. Frankfurt a. M., March 2013

I. Socio-Economic Transformation, Industrial Relations and Regimes of Production in China

As China has become one of the largest manufacturing economies in the world, a better understanding of labor relations in key industries and factories in China is important. This is particularly true in the light of the ongoing reform of labor laws, the attempts by Chinese trade unions to expand their presence in multinational enterprises, and the social upheaval that has rocked key exporting industries in the wake of the global recession which began in 2008. We have to understand why labor relations in China have proven remarkably stable in spite of the massive social changes during the recent two decades. But we also have to take a sharper look at the prospects and conditions for reforming trade unions, for labor organizing in the growing non-union sectors of the Chinese economy, for collective bargaining, and for democratic workplace representation. Given this purpose, the conceptual framework of this report will be outlined in the following chapter. We start from theoretical reflections, linking and “marrying” Chinese and Western perspectives on industrial relations research and establishing the general framework we use to interpret current labor relations in China. We then trace key tendencies of economic restructuring, determining the development of labor relations in the leading sectors of the Chinese exporting economy. Having established this background, we develop a typology of regimes of production, providing the basic framework for comparative studies of the regimes of production presented in the following three chapters.

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Beyond the Iron Rice Bowl

1. Changing Labor Relations – Conceptual Approaches and Perspectives Debates on the reform of labor policies are a persistent topic among labor experts in China, although not highly publicized and mostly disregarded by Western media. These debates focus on the question of how to create tripartite mechanisms including management, trade unions and government, to ensure harmonious labor relations in an advancing industrial economy. Many aspects of these debates seem surprisingly familiar to Westerners. Chinese scholars often resort to concepts of tripartism, corporatism or social partnership as they developed following the birth of modern industrial relations systems during the New Deal period in the U.S. and Germany’s seminal works council legislation in the early 1920s. Western-based academics have also used such concepts to analyze the current changes in Chinese labor relations – sometimes coupled with the hope that labor systems rooted in European or Japanese coordinated market economies1 may promise a better future to Chinese workers than the market liberal U.S. model.2 However, such an analysis has to deal with two basic difficulties. First, Chinese trade unions (as well as employers’ organizations) mostly lack popular legitimacy and independence from government and capital. These are the basic conditions for representing workers’ interests within tripartite systems of bargaining and policymaking. Second, and perhaps more important, the restructuring of labor relations in China is increasingly taking place under those Western and Japanese models of production and labor management-cooperation that have undermined the prevailing forms of collective representation, industry-wide bargaining and job security. That is, they have broken up the foundations of what was known as the post-War social contract in industrialized countries. In spite of the truly unique characteristics of China’s transformation, globalized patterns of capitalist organization and control have raised some very familiar bread-and-butter problems of trade unionism and labor organizing. Coverage of labor issues in Chinese mainstream media is dominated by neo-liberal rhetoric adopted from Western business schools.3 Yet the more 1 Streeck, Wolfgang, and Kozo Yamamura (eds.)(2001): The Origins of Nonliberal Capitalism. Ithaca, London: Cornell University Press. 2 Chan, Anita (2008): The Evolution of China’s Industrial Relations System – The JapaneseGerman Model and China’s Workers’ Congress. In Labour Relations Journal (1), 52–65. 3 E. g. Wang, Yijiang (2006): Shichang jizhi ke youxiao baohu laodongzhe quanyi (Market mechanism can effectively protect the rights and benefits of workers). In Caijing Magazine (05).



Industrial Relations and Regimes of Production

17

serious industrial relations research in China raises fundamental questions about how labor standards can be legally guaranteed and politically controlled under a rapidly changing institutional framework. These debates begin with the analysis that China’s transformation to a market economy has been mostly completed, but that the regulation of labor relations remains highly incomplete and fragmented.4 Complex questions are raised about the social character of market-oriented management and the new entrepreneurs – whether they represent a new layer of experts and technocrats necessary to run companies in a market economy, or a class antagonistic to the interests of working people. Notwithstanding divergent concepts and definitions, there is agreement that business and corporate interests have become well-represented in political decisionmaking on labor policies. Working people, however, are mostly kept out. This growing imbalance of power is seen as the basic weakness in legislative and government efforts to develop coherent labor policies and to introduce tripartite consultations between management, employee representations and government on minimum wages, wage guidelines, social insurance regulations, and other topics crucial to harmonious labor relations.5 One key question is the role of trade unions. For instance, Chang Kai and Qiao Jian argue that trade unions lack the ability to defend labor standards, since unions are mired in their traditional role as part of state-company management. In that role they mainly administer welfare programs, leisure activities and wedding parties. Trade unions, therefore, are mostly absent in the rapidly growing labor conflicts in the country. These include the sky-rocketing number of labor lawsuits by workers (both individually and as groups) and unofficial “mass incidents”, including many workers’ protests and strikes. Translating this perspective into the language of international industrial relations research, we may characterize China’s current industrial relations practices as tripartism with four parties.6 Tripartite regulation of wages is severely limited by the lack of collective labor standards and negotiations, and 4 Taylor, Bill, Chang Kai, and Li Qi (2003): Industrial Relations in China, Cheltenham: Edward Elgar. 5 Chang, Kai, and Jian Qiao (2009): Zhongguo laodong guanxi baogao – dangdai Zhongguo laodong guanxi de tedian he quxiang (China Labor Relations Report – Characteristics and Tendencies of Labor Relations in Contemporary China). Beijing: China Social Security Press, 1–61. 6 Chang, Kai, Boy Lüthje, and Siqi Luo (2008): Die Transformation der Arbeitsbeziehungen in China und ihre Besonderheiten. Working Paper Institut für Sozialforschung. Frankfurt a. M.: IfS.

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Beyond the Iron Rice Bowl

the fragmented character of trade union representation. Fragmented representation limits union representation of employees’ interests at the workplace, because there are no collective negotiations on key issues such as wages, working hours and working conditions. Trade unions also lack legitimacy in the eyes of many workers. Large sectors of industry are non-union, especially among private and Overseas Chinese enterprises leading to the almost complete lack of collective bargaining at industry or regional levels. Finally, Chinese employers are not forming their own organizations to represent their common interests in relation to workers and trade unions, particularly in collective bargaining. Chinese, Overseas Chinese and foreign capitalists prefer to advocate for their interests in the political process directly, through their guanxi (the Chinese word for relationships) with the state and the Communist party at various levels. The concept of tripartism with four parties refers to critical theories of corporatist labor systems in the West (such as Germany’s or Sweden’s), which have analyzed open or implicit three-party deal making between management, unions, and government as part of modern systems of capitalist regulation. The underlying institutional arrangements are not seen as a fixed system, but as a historic set of power relations between organizations. Consensual arrangements reflect the permanent need to reproduce their ideological and material bases by mobilizing rank and file workers for limited movements. These, however, do not exceed the framework of what is “politically acceptable”.7 The situation in China is different. Under the existing framework workers’ mobilizations tend to be immediately directed against the state, local government in particular. Moreover, these protests are often spontaneous and use militant tactics, as we can read in mainstream Chinese media today. China lacks the cushions and safeguards that a well-developed and institutionalized civil society places between social movements and the state. These are the basic ingredients of what Gramsci would have called a hegemonic state.8 In the absence of such social institutions to mediate labor conflicts, factories are a highly sensitive terrain. Here the social contradictions between workers and management surface and must be regulated. Our analysis, therefore, does not start with a concept of historically established, stable institutions and actors in industrial relations. Rather, we have 7 Esser, Josef (1982): Gewerkschaften in der Krise, Frankfurt a. M.: Suhrkamp. 8 Jessop, Bob (1990): State Theory: Putting the Capitalist State in its Place. Cambridge: Polity Press.



Industrial Relations and Regimes of Production

19

to focus on the transformation of such institutions, and the emergence of new institutional arrangements and best practice models of labor relations. We also must consider the fragmented character of political regulation, especially between central and local government agencies. In this dynamic perspective of changing social power relations, we use the concept of politics or regimes of production, which has been applied in various forms to recent studies of Chinese labor relations as well as to the analysis of work and labor policies in global production networks.9

2. Diverging Patterns of Economic Restructuring and Control In the face of China’s massive industrialization, and the rapid development of modern complex production environments in a broad spectrum of industries, we have to widen our perspective beyond the concept of “old” and “new”, state-owned and private industries, and the related changes in the working class. We need to explore the growing differences in company labor relations, resulting from diverging patterns of socio-economic restructuring. We will examine new Western and East Asian models of production, and the related fragmentation of value-chains. We will look at the re-shaping of regimes of production in major corporations under new forms of labormanagement cooperation, and their amalgamation with traditional Chinese practices of workplace representation. At the macro-economic level, three key elements determine the dynamics of restructuring. –– First, China implemented a gradual privatization and the introduction of the market after the beginning of reform in the late 1970s. This produced a full-scale reversal of the industrial structure of the country, and transformed the forms of ownership and control over capital accumulation. In the wake of accelerated privatization and restructuring since the mid-1990s, private ownership or various kinds of profit-oriented state- or semi-state enterprises became the dominant form of control. The focus of industrial production shifted from the production of basic industrial and consumer goods for the domestic market to the rapidly growing export 9 For extended theoretical discussions see Lee (2007), Hürtgen, Lüthje, Schumm, and Sproll (2009).

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Beyond the Iron Rice Bowl

industries – textiles and garment, shoes, light consumer goods such as toys and home decorations, and electronics in particular. Automobile, chemical, steel, electronics and textile and garment manufacturing emerged as the modern core industries of China’s economy. As the adjacent table shows, the majority of workers in each of those sectors are employed in non-state-owned enterprises. –– Second, the economic transformation is taking place while large sectors of the working population are unemployed. The agricultural sector, on which around 50 percent of the population still depend for their livelihoods, and which supplies, encompasses 120–150 or even 200 million people, depending on various statistical definitions and methods. This is the source of the ever growing workforce of rural migrant workers. In addition, massive unemployment has been caused by the restructuring of traditional industries and state enterprises since the late 1990s. This has added to an oversupply of industrial workers during the first decade of the twenty-first century. Since the beginning of accelerated economic restructuring, the Chinese economy has to generate 8–10 million new jobs in urban labor markets every year, in order to absorb this massive oversupply of labor.10 –– Third, accelerated economic growth is accompanied by a continuous decline in private consumption. Economic growth is heavily focused on capital investment. The share of private consumption as part of the gross domestic product (GDP) dropped from 51.1 percent in 1988 to 38.9 percent in 2005, while the proportion of capital formation rose from 36.8 percent to 44.1 percent. Although disposable income for large sectors of the urban population has increased considerably during the recent decade, the proportion of wages as a percentage of the GDP dropped significantly. This has created rising inequality in income distribution, which is now among the highest in the world. The current regime of growth is one of permanent underconsumption for the majority of the working population.11

10 Lüthje (2006). 11 Hart-Landsberg, and Burkett (2007), Hung (2008).



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Industrial Relations and Regimes of Production

Table 1: China’s core manufacturing industries employment (2007, in millions)

Total

Non State-Owned Enterprises

Auto

2,57

1,61

Chemical

3,09

2,33

Steel

1,88

1,12

Electronics/IT

4,26

3,85

Textile/Garment

4,83

4,22

Source: National Bureau of Statistics of China

Table 2: Structure of demand, percent of GDP at current prices 1988

1990

1995

2001

2002

2003

2004

2005

46.1

47.2

46.5

44.9

46.6

38.9

Government consumption 11.6 12.1 11.4

13.4

13.2

12.6

16.9

14.2

Gross domestic capital formation 36.8 34.7 40.8 38.5

40.2

43.9

50.5

44.1

Net exports of goods and services –1.0 2.7 1.7 2.3

2.7

2.3

3.0

4.6

Private consumption 51.1 49.1

Source: Hart-Landsberg/Burkett 2007 Data: People’s Republic of China, Key Indicators of Developing Asian and Pacific Countries, Asian Development Bank, updated July 21, 2006, http://www.adb.org.

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The key manufacturing industries of the Chinese economy have very different patterns of ownership, competition and organization, and are integrated into the world market in different ways. On the one side, the steel industry and to a lesser extent the petrochemical industry are still dominated by SOE, however, under strictly market-oriented management. The major steel and petrochemical corporations, such as Baosteel, Hebei Steel, Wuhan Iron and Steel or Sinopec and Petrochina, are among the largest companies of their kind in the world, with aspirations for global leadership. In the chemical industry, a rapidly expanding private sector exists, and joint ventures and foreign companies are playing a big role, such as Germany’s chemical giants BASF and Bayer, which operate some of the largest petrochemical complexes in China. The auto industry occupies the middle ground between state-dominated and privately dominated industries. It is led by joint ventures of multinationals with the three large Chinese auto holdings, FAW, Shanghai Automotive, and Dongfeng. Smaller private and local-government-owned automakers or auto holding companies are competitors. The foreign companies control technologies and branding, while the Chinese partners exert a strong influence over management practices. The older joint ventures especially, such as VW Shanghai, to a large extent have adopted the management styles of state-owned enterprises (SOEs). The electronics and the textile and garment industries, China’s two largest manufacturing industries by employment, are mostly privately owned. Their industry structures are dominated by subcontractors, or subsidiaries of foreign multinationals. In electronics, huge vertically integrated contract manufacturers, such as Foxconn or Flextronics, are the largest employers. The industry, however, is highly segmented. The industry includes capital and technology intensive segments such as chip production. Computer and network equipment makers concentrate on design and development. And it includes contract manufacturers and a huge sector of low-tech and lowwage component makers.12 Textile and garment production, the “classical” subcontracting industry, is mostly made up of small to medium-sized enterprises. The concentration of manufacturing expected after the end of the international Multi-Fibre Agreement has remained rather limited so far.

12 Lüthje, Boy (2008): Arbeitsbeziehungen in der chinesischen IT-Industrie – neue Perspektiven in der Diskussion um internationale Arbeitsstandards. Studie im Auftrag der Hans-BöcklerStiftung. ‹http://www.boeckler.de/show_project_fofoe.html?projectfile=S-2007-14-1.xml›



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The diversity of ownership and control is accompanied by a similar diversity of production models. In steel and petrochemicals, large-scale plants have a high degree of vertical integration. Modern technology and relatively stable production flows dominate in the leading companies, favoring longterm employment of mostly urban workers. The auto industry has adapted Japanese and Western models of lean manufacturing. Its once-stable core workforce, especially in the older joint ventures, now confronts outsourcing, flexibilization of work, and competition from migrant workers in the supplier companies and temporary labor agencies. In the electronics and garment industries, the contrast with traditional industrial environments is very visible. Here comprehensive outsourcing and shifting of manufacturing from industrialized countries to China has produced subcontracted mass production on an unprecedented scale.13 In electronics, high-end manufacturing technologies and organization in large-scale factories and industrial parks (some of them with dozens or hundreds of thousands of workers) have become the norm. Garment, however, is dominated by the traditional low-tech, low-wage sweatshop, for which many Chinese exporting industries have become infamous. Different economic conditions have translated into different scenarios for restructuring during recent decades, shaping the composition of the workforce and the experiences of workers. Steel has seen the most dramatic transformation, from the traditional plan to a market environment, but also the most massive resistance of workers against layoffs and the smashing of the iron rice bowl. This transformation was met by mass demonstrations in the Northeast in 2002. During the boom period 2002–2007, the industry saw enormous growth, with an increasing dominance by large corporations with highly modern factories, accompanied by the rapid emergence of smaller steel producers backed by local governments. In the petrochemical and auto industries, the impact of privatization has been less dramatic. Nevertheless, massive changes occur due to the introduction of state-of-the art manufacturing technologies, models of lean manufacturing, and outsourcing. These changes are propelled by growing sub-sectors of mostly privately owned suppliers and service firms. Restructuring in electronics and garment has occurred almost completely under the auspices of global production networks, which inherited little 13 Lüthje, Boy, Stefanie Hürtgen, Peter Pawlicki, and Martina Sproll (2013): From Silicon Valley to Shenzhen – Global Production and Work in the IT-Industry. Boulder, Co.: Rowman and Littlefield.

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from the planned economy. Multinational brand-name firms exert strong market control, and are extremely dependent on the ups and downs of the world market. In electronics, the Chinese government supports the growth of domestic high-tech markets and technologies, while the garment industry does not have much attention from higher levels of the state. However, due to the strong local concentration of the industry in often semi-rural garment districts along the East Coast, some local governments recently have taken the initiative to increase the skills and capabilities of garment companies, sometimes including employment conditions and workforce skills. All of these industries, perhaps with the exception of the petrochemical sector, are suffering from structural overcapacity, reflecting the world-wide situation. Their integration into global cycles of capitalist development became particularly visible during the recent crisis, with some important Chinese characteristics. Exporting industries such as electronics, garment and other light industries, producing the cheap goods for the shelves of Western retail chains, took massive hits. Millions of migrant workers were laid off, and in some cases massive protests followed. Industries primarily producing for the domestic market, such as auto or chemicals, were less hard hit and also benefitted from the Chinese government’s massive spending programs. These industries mostly avoided major lay offs, and tried to keep their core workforce on the payroll, often with drastic reductions in working hours and pay. In the steel industry, this strategy faced major difficulties, however. Many steel companies, especially smaller, local ones, collapsed under the impact of shrinking demand from key customer industries, construction and shipbuilding in particular. Restructuring is now focusing on large-scale take overs of smaller steel producers by the globally oriented SOEs. The recent wave of protests in this industry indicates the social sensitivity of this strategy.

3. Regimes of Production in Core Industries As the contours of production in China increasingly reflect the segmentation of work and the working class in the capitalist world economy, once centralized, labor policies are rapidly becoming more varied as well. Few scholars in China and abroad have seriously tackled this issue. Western-based labor sociology recently produced a number of studies of the Chinese workplace, treating it as a contested terrain between manage-



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ment and workers, where struggles and compromises create certain regimes of production.14 Most notably, Lee Ching Kwan’s studies of labor regimes at factory and local community levels have found profound differences between labor regimes and the patterns of workers’ resistance in traditional heavy industrial areas in the North. Mostly urban workers in former stateowned enterprises were losing their once life-long jobs, while in the new export production bases in South China migrant workers are forming a new workforce under highly instable conditions.15 Different regimes of production are analyzed in China’s rustbelt and sunbelt sectors. In the older industrial areas, workers’ reproduction is heavily dependent on wages, benefits, housing, and social services provided by their urban work units. This is the heritage of the social contract of the Mao-period. To workers it legitimizes their protest and resistance. In the world market factories of the South, workers’ reproduction is completely based on their meager wages from factory work, with no social safety network other than the rural economy and family-based land rights in their home villages. In this environment, workers’ protest is not based on the social values of earlier periods of socialism, but on the newly created laws and legal regulations defining workers’ rights. They are directed at creating a rule of law (yifazhiguo) or Rechtsstaatlichkeit in the workplace. These different institutional settings also result in different forms of protests. Veteran state workers make “protests of desperation”, leveraging a political bargaining strategy by attacking local officials. Migrant workers mount “protests of discrimination” with no bargaining resources from traditional political relationships, but a clear sense of their second-class citizen status as rural migrants. Against the background of the rapid differentiation of conditions of production in Chinese core industries traced above, the analysis of diverging regimes of production needs to be broadened to capture the different conditions in their respective industries and local environment. The regimes of production have to be discussed in the context of different forms of workplace politics inside factories, embedded in models of production, management systems, work organization, factory rules, wage systems, recruitment policies, performance control, bargaining relations and the contractual foundations of employees’ rights and entitlements at the workplace. Such a 14 Burawoy, Michael (1985): Politics of Production. Factory Regimes Under Capitalism and Socialism. Verso: London. 15 Lee, Ching-Kwan (2007): Against the Law – Labor Protests in China’s Rustbelt and Sunbelt. Berkeley: University of California Press.

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perspective must include an analysis of the institutional presence (or nonpresence) of trade unions and their basic practices. Based on our empirical research, five generic types of production regimes can be identified among major manufacturing companies in the five key industries of the Chinese export economy: The most common regime of production resulting from the transformation of state-owned enterprises under capitalist market and management imperatives can be called state-bureaucratic. It is typically found in basic industries such as steel or petrochemicals. This labor regime is characterized by relatively stable conditions of production after often massive restructuring during privatization. These industries have core workforces with medium or high skills, and distinctive “Chinese” pay systems with relatively low base wages. A high proportion of workplace and personal allowances, however, often make up 50 percent or more of a worker’s regular personal income. Labor relations are characterized by rather strict obedience to labor laws and government regulations, a stable, politically-accepted position of the trade union, and sometimes the implementation of foreign concepts of co-management. However, contract-based regulation of wages, working hours, and other employment conditions is rather weak. Usually, collective contracts and their side agreements do not contain precise language on wage rates and job classifications, nor are they made public. The typical regime of production in multinational corporations and Sinoforeign joint ventures (corporate bureaucratic) is comparable to the situation in SOEs. The conditions of production and the workforce are relatively stable, but are distinctively shaped by the management and work systems of multinational corporations. Such regimes of production can typically be found among major joint ventures in industries such as auto or petrochemicals. These companies often pay the highest wages and salaries in their respective regions, and their workforce consists almost exclusively of urban workers. Wage and incentive systems are similar to traditional Western multinationals – relatively high base wages (70–80 percent of the regular personal income), regulated working hours and long-term career patterns related to increasing workforce skills and education. Trade unions usually have a relatively secure position and are coopted into factory management. Contract based regulation of wages and working conditions remains weak. Labor relations are stable, although the number of individual labor conflicts is growing, especially law suits by skilled employees with high aspirations regarding their pay, work environment and career development.



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Production regimes in multinational corporations are shaped by newer Western, especially American philosophies of high-performance management (corporate high-performance). They are similar to the more traditional multinationals in many aspects, especially in their type of workforce. But they impose a much stronger performance orientation on workforce selection, work organization and career pattern. Employment is very flexible. Fixed base wages and salaries contribute to no more than half of a worker’s regular income, and the proportion of bonuses and performance pay is high. Trade unions are usually weak or do not exist at all. An increasing number of labor conflicts, however, are the result of discontent among highly skilled workers. They include collective forms of resistance, such as work stoppages and public protests using media and the internet. These regimes of production exist in U.S. and Western European electronics multinationals as well, in foreign-owned chemical companies, and some of the newer Chinese multinationals in the high-tech industry. These include telecom equipment maker Huawei or Korean and Taiwanese first tier chip makers, such as Samsung or TSMC. An extreme type of high-performance management emerged among large modern mass producers of advanced electronics and other industrial products. Modern manufacturing technologies and organization are combined with large-scale exploitation of low-paid rural migrant workers. Work organization in regimes of flexible mass production is dominated by massive segmentation and flexible employment (neo-Taylorism16), often connected with the housing of workers in factory dormitories. Extremely long working hours, often in violation of existing legal standards, are the rule, driven by very low base wages, usually around the local legal minimum. Wage differences between line workers and technicians, managers and engineers are very high. Trade unions usually have no presence in such factories, with the exception of management dominated employee representation schemes set up in response to recent changes in labor laws. Such regimes of production can typically be found in U.S. or Taiwanese contract manufacturers and component providers in the electronics industry, or some Chinese first-tier manufacturers of consumer goods. The classical low-wage production in technologically poorly equipped factories with low levels of organization (low wage classic) represents the bottom end of the regimes of production. It mirrors traditional divisions 16 Lüthje et al. (2013).

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Beyond the Iron Rice Bowl

of labor between industrialized and developing countries and is found in the production systems of global retailers such as Wal-Mart. Their production networks have shaped conditions in large segments of Chinese export manufacturing. Workers are mostly rural migrants, often housed in factory dormitories. In contrast to technologically sophisticated flexible mass production, control and methods of exploitation are simple, direct and based on authoritarian paternalism. Base wages hover around the legal minimum, and extensive overtime is the rule and a condition of economic survival for most workers. Piece-work systems are widely applied, inducing speed-up and often undermining legal minimum wages. Trade unions are mostly absent from such workplaces, but individual and collective labor conflicts are relatively frequent. Such regimes of production are widespread in large and small factories in light industries such as garment, shoes, toys and other consumer goods, as well as among suppliers of electronics or automotive parts.



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Table 3: Typology of regimes of production Type

Production model

Work/HR

Labor Relations

State bureaucratic

Integrated Med to high-tech Brand name

Stable but increasing workforce segmentation Urban workers

Stable TU, party, government relations Collective contract Weak collective bargaining Few labor conflicts

High wages Low base, allowances

Corporate bureaucratic

Corporate high performance

Integrated High-tech Strong brand Market control

Integrated High tech Strong brand High flexibility

Flexible mass production

Integrated

Low wage classic

Low integration Low tech No or weak brand High flexibility

Med to high-tech No brand name High flexibility

Traditional ideologies of non-adversarial labor relations from planned economy era

Stable employment Urban workers, skilled High wages, benefits High base pay Career incentives

TU, cooperative Mostly collective contract

Flexible employmt Urban workers High wages, benefets, low base, high variable pay and OT

Weak or no TU Employee involvement Often no collective contract No collective bargaining

Flexible employment Rural workers Neo Taylorism Low wages, benefits Long working hours

Mostly non-union No collectvie contracts Occasional labor conflicts, sometimes militant Violations of legal standards

Flexible employment Rural workers Low wages, benefits Personalized control Long working hours

Mostly non-union No collective contracts

Weak collective bargaining Labor conflict few collective, often individual

Occasional labor conflicts

Frequent violations of legal standards

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Beyond the Iron Rice Bowl

4. Research Methodology and Outline of Case Studies In the following analysis of company-based regimes of production, the theoretical framework developed above will be applied to a set of case studies representing the predominant types of enterprises in each industrial sector. The selection focuses on large companies with leading market positions and mostly modern production environments, and adds insights from suppliers. The cases include different forms of ownership, such as state-owned enterprises (SOE), Foreign Invested Enterprises (FIE), Overseas Chinese (OC) companies, Chinese private companies, companies of semi-private and hybrid ownership, collectively owned enterprises (COE) and township and village enterprises (TVE). For a full sample of cases, refer to the adjacent table. The selection of the cases will be explained in the introductions to chapters II, III, and IV. For reasons of confidentiality, the names of the companies and the respective locations are kept anonymous. For the empirical evaluation of production regimes, a set of 25 criteria was created, referring to basic aspects of the model of production, the organization of work and working conditions, and labor relations. The evaluation of these criteria is based on qualitative data from interviews, company visits and relevant external sources. The evaluation criteria will also be ranked on a three-level scale (low, medium, high) related to prevailing industry standards in China, in order to facilitate comparison between cases. Most of the ranking is based on our subjective judgment of qualitative information and observations made during company visits. Some of the criteria involve quantitative data, based on the information we could obtain from companies, such as employment figures, wages and wage scales. Our ranking of wage flexibility is based on the proportion of the flexible elements of wages and salaries (overtime, bonuses, and allowances), related to the average regular monthly income of employees. A proportion of 40–50 percent of flexible income is rated as high, 25–40 percent as medium, and of 25 percent and below as low.



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Table 4: Case studies overview Auto

4 joint ventures: 2 Sino-Asia, 2 Sino-EU Suppliers : 1 SOE, 1 Chinese private, 1 FIE, 1 hybrid

Electronics

2 brand name FIE (EU), 1 brand name Chinese stock company 2 contract manufacturers - 5 factories (1 TW, 1 US) Suppliers: 1 TW, 1 Chinese private, 1 JV Sino-Asia

Textile/Garment

1 SOE, 2 Overseas Chinese, 2 Chinese private

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Table 5: Evaluation scheme regime of production Name of company, production facility, location Item Organization of Production Market control Vertical integration (company) Vertical integration (factory) Product technology (relative to industry standards) Manufacturing technology Stability of production flow Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers Proportion women Proportion of temporary workers Workforce stability Income stability (related to incentive pay and overtime) Piecework type of incentives Employee involvement Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

High/ Strong

Medium Low/ Weak

Comments

II. Labor Relations and Regimes of Production in the Automobile Sector

1. Introduction The Chinese automobile industry, passenger cars in particular, has become a symbol of China’s economic prosperity in recent years. After long years of slow development, during which it had almost no competition, the industry has experienced dynamic growth during the recent decade. Since 2009, China’s car market has become the largest in the world. After China joined the WTO in 2001 its auto sector was opened to global competition. The manufacturing of cars and car parts now fulfills international productivity standards. The auto industry has a reputation as a model for modern workplaces with relatively high social standards. The older joint ventures of large multinational car makers helped to create this image, since they were designed as model companies for China’s modernization during the days of Deng Xiaoping. Trade unions, therefore, have a strong presence, seemingly a good base for the development of democratic workplace relations and collective bargaining in a modern industrial environment.

2. Industry Structure and Basic Trends of Development The Chinese automobile industry and its subsectors have seen tremendous growth during recent years, especially in passenger car production and sales. During the first decade of the 21st century, the compound average growth rate of passenger vehicle sales was 35 percent annually. Growth slowed down considerably in 2008, in the wake of the global financial and economic crisis, but climbed to an extremely high rate of 51 percent in 2009, reflecting the massive stimulus policies of the Chinese government during that period. In the future, a slowdown of overall market growth to annual rates between 8

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and 15 percent (the rate in 2011) is expected by leading market research firms. This is still high compared to mature markets in industrialized countries and translates into large market volumes with stable growth.17 Continuing overcapacity in industrialized countries provides an incentive for multinational carmakers to invest in the Chinese market to compensate for declining growth and profit rates in developed countries. This trend tends to reinforce latent overcapacity in China as well. The Chinese passenger car industry is mainly oriented towards the domestic market. Export production of cars and car components is still relatively undeveloped, but expected to take off rapidly in the future. The auto industry is a key sector for China’s shift towards more domestically centered, quality-oriented growth, under the government strategy for economic re-balancing in the wake of the global financial and economic crisis. The government’s stimulus package during the crisis became a symbol of this reorientation, supporting sales of new and more energy efficient cars through direct subsidies and tax breaks for consumers. In the long-term, growing private auto consumption is being driven by fast urbanization, continuous government spending on a growing network of high-grade roads and highways, declining car prices and a rapidly expanding system of auto financing serving a growing middle-class.18 The Chinese car industry is dominated by large joint ventures between Chinese state-owned holding groups and foreign multinational auto firms. These joint ventures act as manufacturers and distributors of foreign branded cars – almost every major manufacturer in the world is represented. In addition, a rapidly growing sector of Chinese brand-name firms has emerged, owned by private entrepreneurs and/or local governments outside the established industry centers. In recent years, a new type of indigenous enterprise has begun manufacturing electric cars. China has a leading position internationally, due to its command of key technologies in making car batteries. As figure 2 shows in detail, the current distribution of market shares in China is characterized by a relatively balanced presence of major joint ventures, each with a market share between 5 and 10 percent. Volkswagen sticks out, since it is part of two joint ventures holding the largest market shares. It is the leading foreign car maker in China. Each major Chinese holding company

17 Roland Berger Strategy Consultants (2010): Chinese Automotive Market: How long will the Party last? Shanghai/Munich: Roland Berger. 18 China Automotive Association (2009), 250 ff.



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Figure 1: China passenger vehicle sales 2001–2010 (million units)

Source: China Association of Automobile Manufacturers, China State Information Center, Roland Berger

Figure 2: China passenger vehicle market share by brand names (2005–2009)

Source: Roland Berger, based on data China Association of Automobile Manufacturers, CAAM

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Figure 3: Major joint ventures in the Chinese passenger car industry (2008)

Source: South China Morning Post



Regimes of Production in the Automobile Sector

37

cooperates with two or more foreign car manufacturers, sometimes in overlapping and therefore competing configurations (see figure 3). The structure of the Chinese auto industry has undergone massive changes in the recent two decades. Historically, only two auto manufacturing companies existed in China. First Autoworks (FAW) was founded in the 1950s in Changchun. Second Autoworks (better known as Dongfeng) was established as a twin to FAW and a second industrial base in the sector, in a remote area of Hubei province in the late 1960s. Beginning in the 1980s, the auto industry became a top priority in national strategies of modernization. A number of new state-owned carmakers were established, controlled by local governments, such as Shanghai Automotive Corporation (SAIC), Beijing Automotive (BAIC) and Guangzhou Automotive (GAC). Joint ventures between Chinese auto companies and foreign firms such as Chrysler’s Jeep subsidiary and Volkswagen became a key element of industrial policy. The joint venture between Volkswagen and Shanghai Automotive (SVW), established in 1984, became the prime manufacturer of passenger cars in China during the 1980s and 1990s.19 The joint ventures were primarily designed to transfer technology and manufacturing know-how into a domestic market, which had been almost completely closed to foreign competition since the beginning of car manufacturing in China in the 1950s. During the 1980s and 1990s, the Chinese state promoted a development strategy that aimed at the creation of national champion companies in the car industry. Similarly to other late-comers in the auto industry in Asia, such as Japan after World War II or South Korea, China heavily protected its national market from imports of cars and car parts. This provided a stable environment for SOEs and joint ventures, in which high costs for manufacturing and component supply, as well as for lay offs and workforce restructuring, could be passed on to consumers.20 The key strategic goal of China’s industrial policy in the automotive sector has been the development of indigenous national car brands. However, this goal has only been achieved to a very limited extent. The Sino-foreign joint ventures have clearly been the main beneficiaries of China’s auto boom. For the Chinese partners in those joint ventures, participating in the production and distribution of foreign branded cars has been highly profitable, but 19 Harwit, Eric (1995): China’s Automobile Industry: Policies, Problems, and Prospects. Armonk, N.Y.: M. E. Sharpe. 20 Thun, Eric (2006): Changing Lanes in China: Direct Investment, Local Government, and Auto Sector Development. New York: Cambridge University Press.

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their efforts to invest in competitive indigenous product and manufacturing technology has been slow.21 The opening of China’s car market in the wake of its membership in the WTO in 2001, as well as the impact of the global financial and economic crisis, has changed the basic para­meters of this scenario. New opportunities have opened to establish a kind of brand-name control for Chinese car groups. The acquisition of high-end international brands, threatened by bankruptcy during the 2008–2009 global economic crisis, through Chinese car groups (such as Geely with Volvo, or Beijing Automotive with Saab) may be one of these new pathways. The rapid development of new technologies and the mass production of electric cars may be another.22 Regional concentration and clustering plays an important role in the Chinese automobile industry, driven by local government efforts to build a competitive infrastructure for car manufacturing. Beside the traditional regions of automobile production, Changchun in the Northeast and Hubei in central China, Shanghai and the greater Yangzi River Delta (including Hangzhou), the Beijing-Tianjin corridor, and the Pearl River Delta in South China have emerged as the key locations for the car industry. Industrial policies, however, differ greatly in these areas, resulting in different varieties of industrial development with important consequences for labor relations: –– Centrally owned SOEs (FAW and Dongfeng) are based in older industrial areas, with a massive burden of restructuring and privatization. They have a legacy of uncompetitive factories and supply networks, and a massive workforce subject to lay offs and long-term unemployment. As China’s historical national companies, these SOEs have investment and supplier relations throughout China. In their home bases, local government has to cope with the impact of large-scale restructuring and the related shrinking of the historic auto manufacturing infrastructure. –– Newer locally-owned industrial holding companies have a comprehensive array of industrial activities in car and components manufacturing. They are building local supplier networks backed by local governments,

21 Liu, Xielin, Boy Lüthje, and Peter Pawlicki (2007): China: Nationales Innovationssystem und marktwirtschaftliche Transformation. In Frank Gerlach, and Astrid Ziegler (eds.): Innovationspolitik: Wie kann Deutschland von anderen lernen? Marburg: Schüren Verlag, 222–249. 22 Why do prospects only look good for China’s auto market? In People’s Daily, February 16, 2009.



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which act as a strong developmental state in the tradition of the planned economy (primarily in Shanghai). –– Locally-owned industrial holding companies focus on car assembly and develop their supply bases primarily with external partners from other regions in China or in cooperation with foreign multinationals. They have relatively little involvement from local government (Beijing and Guangzhou).23 In recent years, new constellations have emerged, as well as private or semiprivate Chinese car manufacturers, new joint ventures in less developed areas, and an accelerated effort by the Chinese state to develop large-scale industry in central and western China. Clusters of privately-owned car manufacturing are particularly significant in Zhejiang and Anhui provinces. Major western corporations, such as Volkswagen, Peugeot PSA or Ford, are investing in large manufacturing joint ventures in Sichuan and Chongqing. General Motors has pioneered car manufacturing in relatively remote regions with a highly successful joint venture in light vans in Guizhou province. South China’s Guangdong province, mainly known as a location for export-oriented light manufacturing, has emerged as a major base for car production (including for export). This is based on massive investment by major Japanese car manufacturers since 2000, and new investments from Nissan, Volkswagen, Chang’an-PSA since 2009. In addition, the rapid emergence of Shenzhen-based BYD has made South China a strategic location in the electric car industry. The growth of new production regions with diverse industry profiles has been driven by national government efforts to consolidate the relatively fragmented structure of the car industry, to ensure its global competitiveness. As in other industries, competing investment projects by local governments, designed to nurture and protect locally owned car companies, has reinforced overcapacity and prolonged the life of outmoded production facilities. As part of its restructuring policies in the wake of the global economic crisis, the Ministry of Industry and Information Technology announced a strategic plan in March 2009 to merge all state-owned car companies into six groups. It contemplates two or three with an annual production of more than two million vehicles each, and three with annual output of more than one million. The government also expects that the combined production of the ten largest motor groups will account for 90 percent of total vehicle production in China. This plan has spurred a wave of mergers and acquisitions among Chinese 23 Thun (2006).

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carmakers. The larger groups acquire smaller locally owned companies and consolidate lines of business. FAW, Dongfeng, Shanghai Automotive, Beijing Automotive, Chang’an and Guangzhou Automotive are the six groups expected to survive, along with the indigenous car makers Geely and Chery and electric car producer BYD.24

3. Models of Production and Supplier Networks Due to the dominant role of joint ventures in the Chinese automotive industry, the production models are based on the strategies of the respective multinational partners in the joint ventures. Usually, product technology and production management are “imported”, whereas the internal management of the company, particularly finance, governance and labor relations remains the prerogative of the Chinese side. There are varying degrees of experimentation and adaptation of production models to local conditions. Western companies seem to allow more flexibility in this respect, whereas Japanese and Korean carmakers have the reputation of copying exactly.25 The Chinese car industry includes the various models and philosophies of production prevalent among the leading multinationals in the global car industry. To a certain extent it has leapfrogged over Fordist large-scale vertically integrated mass production. Modern production concepts arrived in China in the aftermath of the lean production “revolution” in global car manufacturing of the late 1980s and 1990s. Most of the factories established since the mid1990s have implemented lean manufacturing philosophies. As one indicator, Chinese car factories tend to be relatively small. The largest joint venture production site in China had a workforce of roughly 12,000 in 2006. Most younger factories have 5,000 workers or less,26 much smaller than the workforce of the traditional large-scale assembly factories in industrialized countries. Only the traditional flagship SOEs, FAW and Dongfeng, had workforces of

24 Chang’an deal signals new wave of consolidation. China Daily, November 16–22, 2009. 25 Jo, Hyung Je (2010): The Hyundai Way: The Evolution of a Production Model. www.globalasia.org. 26 Zhang, Lu (2008): Lean Production and Labor Controls in the Chinese Automobile Industry in an Age of Globalization. In International Labor and Working Class History, Spring (73), 24–44.



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several ten thousand workers in individual plants during the 1970s and 1980s. Even those workforces have been reduced as a result of restructuring.27 The variety of production models is also reflected in the structure of firmand region-specific supply networks. All major car makers have localized their supply chains to the extent that most components, with the exception of some key technologies, are sourced and produced locally. However many still import modules and completely-knocked-down (CKD) assembly kits in higher end engines and car models (e.g. automobile industry case studies 2 and 3). The rapid localization of supply chains is a result of the Chinese government strategy to pressure foreign joint venture partners to support the development of a national automotive supply industry. However, the shape of supply networks largely mirrors the production strategies of the respective foreign joint venture partners. –– European car manufacturers have classically relied on arms-length relationships with relatively independent large or medium-sized suppliers.28 China has established global first-tier suppliers in major car manufacturing centers along the East Coast in recent years (with some low-cost manufacturing in inland provinces, e.g. Bosch). In some cases have long-term cooperative relationships with local suppliers, as is the case of VW and SAIC. Those first-tier suppliers manage large networks of independent second- and third-tier suppliers that fiercely compete against each other under various forms of ownership. –– U.S. car manufacturers historically owned many of their supply operations and divested those assets in the 1990s, forming large semi-independent supplier companies such as Delphi (formerly General Motors) or Visteon (formerly Ford). Those companies and other first-tier U.S. suppliers, such as Johnson Controls, have engaged in a number of large joint ventures with Chinese state-owned enterprises, and have built extensive networks of supply manufacturing throughout the country. The supply strategies of the major U.S. carmakers resemble those of their European counterparts, based on cooperation with first-tier suppliers managing networks of independent supply firms “along the chain”. –– Japanese and Korean carmakers have insisted on building their own supplier networks, distinctively similar to their investment strategies in other 27 Thun (2006), 172 ff. 28 Sturgeon, Timothy (2002): Modular Production Networks. A new American model of Industrial Organization. In International Business Review 15 (2), 180–193.

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developing countries. As latecomers to the Chinese market, major automakers from Japan have built their supplier relations in regions with little historical presence of auto manufacturing, such as Guangdong province. Japanese car makers own or co-own most of their key supply factories, often in joint ventures with private Chinese or Overseas Chinese investors, relying on historical ties between Japan and Taiwan since the days of the Japanese occupation during the first half of the twentieth century.29 The automotive supply industry in China has been growing rapidly in recent years and is a “red hot” growth sector for the coming years according to industry experts. The scale and scope of this growth is difficult to measure, since national statistics in China list car supply industry data under different industrial sectors, such as industrial machinery, metal parts, plastic parts etc. This is also a well-known problem in statistics in developed countries. According to private market research firms, the total output value of auto supply manufacturing, including tires, car audio and auto glass, stood at RMB 1,078 trillion (approximately 160 billion dollars) in 2009, the number of companies with more than RMB 5 million (approximately 75,000 dollars) in revenues was 10,788 and the number of employees around 2 million.30 Growth is mainly driven by increased outsourcing from existing and new joint ventures, as cost pressure and structural overcapacity grow. At the same time, the development of Chinese carmakers is opening up new dynamics for industrial development. Until recently, Chinese car makers sought to build “affordable cars for ordinary people”, and relied heavily on low-cost parts from indigenous suppliers. With accelerated upgrading of their production following the financial and economic crisis, Chinese carmakers increasingly rely on global first-tier suppliers for high quality car modules such as braking systems, engine controls or lighting systems.31 This is an important factor driving the massive investment of global suppliers in China, as they seek to localize production and adapt technology development to the needs of local markets. The rapid growth of the electric car industry is opening up new opportunities for component suppliers and contract manufacturers from the 29 Thun (2006), 237 ff. 30 ReportLinker (2010): China Auto Parts Industry Report. Beijing: Report Linker. www. reportlinker.com. These figures are based on a rather broad definition of the industry which includes the following 8 categories: auto parts, engines, tires, car audio, auto glass, auto chassis, auto body, and auto air condition. 31 Yang, Jian (2009): Leveraging global supply base, Chinese OEMs are Striving to Move Upscale. In Automotive News China. www.autonewschina.com.



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43

electronics industry, seeking to become systems suppliers in critical areas of is sector. In 2011, for instance, Foxconn announced an agreement to supply car electronic modules to Geely in its industrial park in Hangzhou.32 The growth of supplier pyramids in various regions of auto manufacturing in China will provide growth opportunities for second- and third-tier suppliers of standardized car parts, mainly small- and medium-sized companies in private, collective or local government ownership. Many of these companies are emerging from producers for the “after market”, i.e. spare parts for the maintenance networks of major car suppliers or the direct sales of car parts through local markets and distributors. In this sector, export plays an important role. Significant volumes of low-cost car parts are shipped mostly to emerging, and increasingly even to traditional industrialized economies. According to recent industry analysis, North America and the EU account for over 40 percent of China’s revenues in car part exports, and the Asia-Pacific region about 60 percent. The largest markets are in developing Asia, with ASEAN markets accounting for 30 percent of export revenues.33 Many car parts suppliers, especially those producing for export, compete heavily on price and labor costs. Ironically, the Chinese car parts export industry sustained relatively decent growth rates during the 2008–2009 global crisis, as customers around the world turned to low-priced Chinese car parts. However, these price advantages have come under pressure from rising raw material prices and wages, especially minimum wage raises in Guangdong, Jiangsu, and Zhejiang provinces. Along with the geographic expansion of car manufacturing, the automotive supply industry has rapidly developed geographic clusters in existing and new production areas. Major centers of car manufacturing such as Shanghai, Tianjin or Guangzhou have developed large industrial parks where car suppliers are located. In addition, local governments in new manufacturing locations have set up extensive greenfield projects, such as the Yantai Automobile Parts Industrial Park in Shandong province, where more than 50 auto parts manufacturing projects have been constructed with an investment of more than 2 billion dollars. The provincial government has formed a new large-scale holding company for the automotive parts sector.34 32 Chen, Jennifer (2011): Foxconn to edge into China auto parts industry. China Business Review, Feb. 8, 2011. www.chinabusinessreview.com. 33 China Sourcing Reports (2010): Automotive Parts Industry Overview and Supplier Profiles. Hong Kong: Trade Media Limited. www.chinasourcingreports.com. 34 China’s Shandong province plans auto behemoth. China Daily, May 26, 2009.

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4. Workforce Structure and Labor Relations The automobile manufacturing industry is one of the major industrial employers in China, although its core workforce is considerably smaller than the predominantly low wage assembly industries of electronics and textile and garment. In 2008, about 2.75 million workers were employed in the “manufacture of transport equipment”, the relevant category in Chinese government statistics. This included the production of passenger cars, vans, trucks and motorcycles (see table 6). Passenger car manufacturing alone employed 1,96 million workers, according to statistics from the China Association of Auto Manufacturers, the official industry association. The workforce of the automotive supply sector is difficult to determine, since the sector is listed under different categories in government statistics. Referring to the above cited figures from market research firms, the overall employment of automobile manufacturing, including trucks and motorcycles and the supply sector, is roughly estimated at slightly below 4 million. As table 6 shows in detail, employment in the industry has expanded continuously since 2005, even during the economic crisis of 2008–2009. Joint ventures and private companies (statistically counted as “others”) employ the overwhelming proportion of workers, while the number of workers in SOEs and collective firms has been shrinking. In 2008, SOEs employed 24.3 percent of the workforce (mostly in truck manufacturing), and collective enterprises 4.74 percent (primarily in light vehicle and motorcycle manufacturing). In 2008, 28.3 percent of the workforce were women, a relatively high proportion compared to industrialized countries, but declining in recent years (from 32 percent in 2005). The average annual wage per employee (excluding social insurance payments) was 31,373 RMB (approximately 4,600 dollars) in 2008, slightly higher in joint ventures and private companies. Compared to other industries, the average wage is rather high. Among major manufacturing industries only the steel industry pays higher wages. Wages have been rising rapidly in recent years. In 2009 the average wage was up by 33.7 percent compared to 2005. The increases in employment and wages, however, have to be measured against the explosive rise in productivity resulting from massive downsizing of outmoded production facilities and the accelerated introduction of new methods and technologies for manufacturing. As figure 4 shows, the overall growth of employment since the early 1990s was severely interrupted between 1997 and 2003, when SOEs were hit by privatization and restructuring, and mas-



45

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sive plant closures occurred especially among the traditional national car and truck manufacturers. Almost 50,000 jobs were lost during that period. Only the very rapid expansion of car manufacturing with a host of new plants after 2005 could reverse this trend, and bring employment back to the levels of the late 1990s. The overall result was a continuous rise in productivity. In 2008, per capita output in RMB was almost 20 times higher than in 1991. During the first decade of the twenty-first century productivity rose by 400 percent. In recent years, productivity and wages have grown more in parallel (36.2 percent and 37 percent respectively during 2005–2008). This reflects booming conditions and labor shortages in key manufacturing centers.

Table 6: Employment and Wages in Manufacture of Transport Equipment (2005–2009) 2005

2006

2007

2008

2009

Employment total (millions)

2.295

2.457

2.632

2.745

2.962

SOE

0.804

0.763

0.730

0.667

Collective

0.16

0.161

0.139

0.130

Others

1.335

1.533

1.763

1.948

Number of women employed (10,000 persons)

0.740

0.769

0.779

0.798

Wages per capita (RMB)

19,805

22,628

26,581

31,475

SOE

18,777

22,483

26,385

31,373

Collective

10,126

11,196

13,594

15,147

Others

21,631

23,954

27,730

32,614

Source: China Statistical Yearbook, various volumes

0.840

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Figure 4: Employment and labor productivity in automobile manufacturing (1991–2008) Employment

Labor productivity

Source: China Association of Automobile Manufacturers



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The older national SOEs traditionally played a role as model companies. Their workforces led the building of the modern industrial base of socialist China. During the 1990s, however, these companies and workers had to cope with the typical problems of downsizing and restructuring, resulting in massive unemployment and heavy burdens on the companies for severance pay, re-employment, social services and housing.35 The legacy of the planned economy is still reflected in the highly centralized character of labor relations in these companies. There is a parallel structure of management and party organization at all levels of the enterprise. The trade union is represented in executive management, corporate departments and factories. The younger generation of SOEs and joint ventures also have centralized trade unions at group and enterprise levels. However, their labor relations systems started with relatively modern features in the 1980s. Auto joint ventures were among the first companies in China to sign collective contracts with the trade unions (e.g. auto industry case study 1).36 Workers in auto assembly factories in China tend to be rather well paid, and working conditions are usually relatively decent, compared to older industries and low-wage assembly firms. The workforce in the older joint ventures, established in the 1980 and 1990s, is something like a labor aristocracy in modern China. These regimes of production are the closest example of “hegemonic” regimes of production.37 They work in relatively modern, technologically advanced factories, which have little in common with the often rough and neglected environments in traditional state enterprises of the socialist era. Their status is relatively protected, since labor relations in most of the joint ventures are politically well controlled. More important, and rarely analyzed in the existing literature, most workers in those enterprises are urban workers from the surrounding regions, with secure legal status. Migrant workers can hardly be found in auto assembly factories in China. However, the newer literature finds stagnating or even declining real wages for auto workers in a number of factories and locations, resulting in a gradual decline of the relatively privileged status of auto workers in flagship 35 Thun (2006), 191 ff.; Xu Xiaohong (2004): Labor Relations in the Chinese Automobile Industry. In Asia Monitor Resource Center (eds.): Automobile Workers and Industry in Globalizing Asia. Hong Kong: AMRC, 51–65. 36 For an extended discussion see Luo, Siqi (2011): Collective Contract, but no Collective Bargaining. In Christoph Scherrer (eds.): China’s Labor Question. München/Mering: Hampp. 37 Burawoy, Michael (1985): Politics of Production. Factory Regimes under Capitalism and Socialism. London: Verso.

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assembly firms. As our case studies demonstrate, auto companies are increasingly using temporary workers, mostly migrants with a rural background. Temporary labor is the channel through which migrant workers have been entering the core factories in Chinese auto manufacturing. The use of temporary workers is more widespread in older factories with established joint venture status and a strong legacy from SOEs, than in younger factories established on greenfield sites with a young workforce and relatively flexible labor regimes.38 Two trends in rationalization have significantly changed shop floor relations in China’s auto industry in recent years. One is the widespread introduction of lean production schemes throughout the industry. Practices copied from the famous Toyota production system include just-in-time logistics, quality circles, workers’ participation programs, and restricted teamwork, promoting neo-Taylorist patterns of rationalization.39 On the other hand, in the newer greenfield sites developed during the last decade workers are very young, and the intensity and speed of work has increased significantly. This places particular pressure on older assembly factories established during the 1980s and 1990s, where workers tend to be older and have accumulated years of seniority. Both factors have been essential for the phenomenal rise in productivity in Chinese auto manufacturing, as cited above. In contrast to the flagship status of auto joint ventures, little is known about labor relations in the car supply industry. Since most companies are not very large, their labor relations do not gain much prominence in Chinese labor politics. In one of the few relevant academic studies, Zhao and Nichols have researched the labor relations in car supply companies in Hubei province, finding widespread disaffection with and indifference of workers towards trade unions.40 In 2011, a critical report on a supplier of car parts for Ford in Dongguan (Guangdong province) has exposed miserable working conditions leading to severe injuries of workers in this factory.41 In the spring and summer of 2010, the car supply industry was the focus of widely reported labor conflicts. These conflicts point to massive cleavages among 38 Zhang, Lu (2008). 39 For an extensive discussion of neo-Taylorism in the context of China and other emerging economies see Hürtgen, Lüthje et al. (2009). 40 Nichols, Theo and Wei Zhao (2010): Disaffection with Trade Unions in China: Some Evidence from SOEs in the Auto Industry. In Industrial Relations Journal 41 (1), 19–33. 41 Institute for Global Labour and Human Rights (2011): Dirty Parts. Where Lost Fingers Come Cheap. Ford in China. Pittsburgh: Institute for Global Labour and Human Rights.



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the workforce “along the chain” of auto manufacturing, as we will analyze in detail in the final chapter of this report. Presumably, the automotive supply sector has experienced productivity growth and rationalization similar to that of the car industry. One example is the manufacturing of car engines. According to the China Automotive Industry Yearbook, the production of gas and diesel engines has grown sixfold between 1998 and 2008, whereas employment only grew from 196,300 to 209,400, i. e. a little over 6.5 percent. Between 1998 and 2005 employment has even been shrinking, from 196,300 workers to 160,500, reflecting massive restructuring in traditional state-owned car and truck manufacturers during that period. Employment growth could only be achieved due to the massive expansion of production after 2005, reflecting the explosive growth of the car and truck sectors in recent years.42 The workforce in the automotive supply industry tends to be increasingly segmented. In first-tier supply companies, conditions are often similar to assembly firms, although with somewhat lower wages and higher work speed. First-tier suppliers also tend to employ urban workers, but also a higher number of migrants than most assembly firms. Most first-tier suppliers make considerable efforts to educate their workforce and have modern systems of professional training and career development, often as part of world-wide HR systems in multinational companies. The situation among second- and third-tier suppliers, and the vast sector of non-brand car parts manufacturers, looks quite different. Here, conditions tend to resemble typical low-wage assembly industries, such as garment or electronics. At the same time the proportion of migrant workers is much higher – in some sectors and companies as much as 100 percent. As in many other countries and regions, the lower level of the auto supplier pyramid is the not-so-attractive downside of the modern working environment in assembly factories, in the age of lean production.

42 China Automotive Association (2009): China Automotive Industry Yearbook 2009. Beijing: China Automotive Industry Yearbook House.

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5. Introduction to Case Studies The following case studies of nine factories represent examples from the various levels of the production networks of car manufacturing in China, split among assembly firms and first-tier suppliers at the “upper”, and secondand third-tier suppliers at the “lower” levels. The case studies in assembly factories were conducted in first- and second-generation joint ventures, between global car manufacturers from Europe and East Asia, and local Chinese automotive holdings, in one case a national group. We did not investigate factories of exclusively traditional Chinese national auto manufacturers and private Chinese car producers. The latter in particular may potentially be an interesting subject for further research, since we can assume a more flexible working environment than in SOE-dominated car makers and joint ventures. The intention of our study is to focus on labor relations in leading companies. National and regional “flagship” joint ventures were selected for case studies. As will be explained in detail in the following chapters, the production models and work practices of these factories mostly reflect the background of the respective national mother companies. In the one case that involved a national Chinese auto holding company as joint venture partner, we did not find many differences between the other factories of this multinational, which involved a locally owned Chinese auto holding company (auto industry case study 3, factory 1). All of the cases represent versions of the “corporate bureaucratic” regime of production. Auto industry joint ventures can be seen as paradigmatic examples of this production regime, which most closely resembles the practices in “classical” multinational corporations in developed industrial countries. The case studies among automotive supply firms represent examples from various segments of this sector. They involve the manufacturing of car core components, such as engines, gear assemblies, and seating systems. The cases represent one Chinese and one foreign (East Asian) first-tier supplier and two second-tier suppliers, one a subcontractor to a large multinational supplier and one a mass producer of car parts and modules, mainly serving car part retail markets. We have also researched major multinational first-tier suppliers, but were not able to conduct a case study. In addition to the case studies presented here, extensive multi-company research on the car supply sector in South China was conducted as part of our investigations into the



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labor conflicts in the automotive supply sector in Guangdong province in 2010 (see chapter IV.6). The case studies cover the different types of workforce at the various levels of the supply pyramid of the Chinese automobile industry, the segmentation of the workforce, and different types of labor relations. We found a variety of production regimes, comprising a wide range of state-bureaucratic, corporate bureaucratic, flexible mass production and low wage classic models. In the European multinational suppliers we were able to research, corporate high-performance regimes seem to prevail. 5.1 Automobile Assembly Case Studies 5.1.1 Automobile Assembly Case Study 1 This company was established in the mid-1980s as the first automobile joint venture since the beginning of economic reforms in China in 1978. The company’s total investment comes equally from its Chinese and European partners. The Chinese partner is a major automobile holding company owned by a local government. The European partner is one of the top automobile makers in the global market. Since its establishment, this joint venture has expanded greatly, with its registered capital growing from 0.16 to 11.5 billion RMB. It has one of the largest automobile manufacturing bases in the country, including four major car plants in eastern China. Three of them are located in a vast industrial area focused on automobile production and development, while the fourth was recently set up in an economic development area about 300 kilometers away. In 2009, the joint venture’s production reached 600,000 cars per year, including eight different model series. By the end of March 2009 it had produced and sold 4.6 million cars. It has aftersale service centers in more than 70 percent of Chinese cities. At the time of this investigation, the company employed about 10,000 workers, dropping from 14,000 in 2003 and 2004 and 12,800 in 2005 according to company information. Its production, however, keeps increasing. Model of Production The central manufacturing complex of this automobile joint venture is highly integrated. It consists of a large assembly shop, two paint shops, a large

52

Beyond the Iron Rice Bowl

body shop, a die and a press shop plus adjacent infrastructure and a soccer field. The factory is relatively old compared to other auto manufacturing sites in China, it features multi-story buildings and therefore lacks the characteristics of newer plants with single-floor buildings accommodated to the needs of just-in-time production. The factory dominates the surrounding town, which resembles a company town. However, most workers do not live in the nearby area, but commute long distances from other areas of the city. This joint venture produces a wide range of products, from economy cars to middle- and high-end ones. New models and design changes for the domestic market have been successfully developed by local engineers. The production model is designed to meet the global standards of the multinational joint venture partner. The in-house assembly process in the main factories includes metal stamping, body shop, vehicle assembly and testing and rework. Engines are manufactured in a nearby factory owned by the joint venture. Major component blocks such as brake systems, dashboards, doors, and seats are delivered as modules from external suppliers. Most of these suppliers are located near the factory or in the region. This division of labor is typical for a European style supply pyramid, with independent, vertically integrated first-tier suppliers and large numbers of independent second- and third-tier suppliers. Most of the first-tier suppliers are multinationals that cooperate with the manufacturer in its home-market and in other countries. The amount of locally sourced parts is growing. The development of this company has produced more than 400 parts and components suppliers. The Chinese joint venture partner owns some of the first- and secondtier suppliers, but there is no preferred relationship with them. The central factory of the main manufacturing complex employs roughly 5,000 people. Inside the factory, work is done on the ground, but car bodies are moved at upper levels. A lifting system helps to shift the products to the second floor. After a specific operation at this position is finished, it then moves the products to the next position. Factory facilities and machinery are modern and up to international standards. Production equipment is directly imported from the home country of the foreign joint venture partner and the design of work flow also follows its original way. Laser welding is an exclusive technology. Machines and robots are used mainly for heavy work, like pressing and stamping, or work with specific requirements. 25 percent of the work in the body shop is automated, less than in similar factories in the multinational car maker’s country of origin. Manual labor is more widely used, since labor costs in China are lower. Hiring large amounts of manual



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53

workers helps to resolve the problem of local unemployment, according to the management. Productivity increase is a major theme emphasized by the management every year. The success of this effort is indicated by the fact that the total workforce has been shrinking over the last several years, while production keeps growing. One important element increasing labor productivity is the introduction of a comprehensive Motion-Time-Measurement (MTM) system for determining work time. This has been used in many automobile factories around the world since the 1960s. The production engineers of this factory have developed their own modification of the system, seeking to ensure that operators follow pre-determined rules designed to save time on routine work procedures. Efforts to increase productivity are not limited to speeding up the work, but include extensive automation, improvement of management methods, and changes in process technology. In some areas, automation allows heavy work to be done more humanely, for instance tilting car bodies to reduce overhead work. At several points of the production process, this company also uses modular assembly to speed up response to demand. For some parts of the manufacturing process, the company has shifted production to suppliers and purchases full assemblies from them. According to a senior industrial engineering expert in this company, the overall monthly labor productivity of this company was 12,123 RMB per capita in 1986, and 104,990 RMB in 1991. In 1985 it took 47.9 work hours to produce a whole car in this factory, and in 1992 only 31.46 hours. The labor productivity of this company in 2002 was 770,000 RMB per worker, ranking among the top five integrated car manufacturing companies in China. Since 2005, the adoption of a modular production system has increased productivity by 17 percent in 2007 and 35 percent from 2005 to 2007. Acquiring parts locally has reduced purchasing and production costs by 30 percent up to 2007, with a target of 40 percent by 2008, according to major Chinese business media. The vehicle assembly line can assemble multiple models. Various models of cars with different designs and colors are produced on the same line. This requires a high degree of flexibility in the production system. The frequency of model changes and the sequence of production depend on orders and logistics, which are usually planned before starting production each day. Work organization is based on a conventional assembly line approach. Work rotation or switching tasks in teams takes place, according to management and the trade union. However, there is no systematic practice of job

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rotation linked to the training, career and wage system. Equipment maintenance is done by technicians. Preventive maintenance is performed by line workers, but integration of assembly and equipment related maintenance work is not seen as a strategic goal. First-line workers are only in charge of operations, while maintenance and rework are done by second line workers with special skills. Workers can develop their skills in order to get promoted to the next job grade or category. The philosophy of lean production is followed in this factory, including just-in-time delivery of parts and electronic display boards for visualizing production flows. Workers can stop the line in case of trouble. Quality management is heavily focused on continuous improvement processes (CIP), which were introduced in this company more than 10 years ago. Workers regularly get together in a group and talk about problems in the production system. In 2008, a special level-2 section, called the industrial engineering section, was set up under the logistics department to guarantee the implementation of CIP. This new section is composed of shop floor representatives selected from each workshop, divided into different groups. Each group has more than ten monitors, two of whom visit one crew in turn on each shift (two shifts per day). Good proposals are awarded with gifts, the value of which depends on the importance of the proposal. Mostly the award is for groups, with rare exceptions for individuals. As in many other automobile companies, there is a strong emphasis on quality. In order to control quality the company has the largest and most advanced comprehensive matching and testing center in China. For years, this company has won many national prizes for quality management. When all new employees are trained on a special “training island”, quality is the first thing they must remember. The factory and its workforce did not experience massive downturns in the wake of the global financial and economic crisis. At the time of this investigation, production lines were running at full capacity. Due to the growing domestic automobile market and the company’s large share of it, production has been relatively stable. Work and Working Conditions In total, 10,000 people are employed in the whole company, 8,000 in the manufacturing department, 1,000 engineers and about 1,000 administration staff for marketing, finance, logistics, and human resources. The design



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department is located in the car plant. Around 20 percent of all workers are women, most of whom work in physically less demanding positions, e.g. in the logistics department. No migrant workers are employed directly by the company. In the past, part-time and temporary workers usually had local hukou (residence permit), because the company hired non-regular workers in response to local government policies of reducing unemployment through creation of short-term jobs. However, today the company hires non-regular workers from labor agencies because of the shortage of operators, and as a way of reducing labor costs. Workers hired through agencies are employed in manufacturing. Beginning in 2005, every year the company has selected a certain percentage of high-performing dispatched workers, and made them regular workers. Some other foreign brand-name companies do the same. Workers are compensated in two ways. One is in cash, including base wages and an annual bonus. The other is through social benefits. Wages are mainly based on position. The annual bonus payments make up about 25 percent of employees’ total annual income, and include individual incentives, group incentives and company incentives. For first line workers, individual incentives make up a relatively high percentage of their compensation. Pay for employees at higher levels, such as managers, is more closely linked to company performance, and they thus receive a higher proportion of the company bonus. According to management, quarterly bonuses and the yearly bonus are paid to all workers. Social benefits, in addition to the legal social security programs, include pensions, complementary medical insurance, complementary provident fund, and others. It is said that retired employees receive an additional pension considerably higher than the standard national social security pension. In addition, the company provides car-related allowances, and every three years it offers cars for purchase to employees at a substantial discount, depending on their rank. When an employee is hired, the company decides the rough amount of wages according to the worker’s technical skills and work experience. The wage based on the position is fixed, but another component depends on the performance of both the company and the individual worker. Each year a percentage of well-performing employees receive wage raises. In a typical case, an ordinary operator who has worked in the company for three or four years earns 3,000 RMB per month. In this region, this is about average, or a little higher. The base wage is about 80 percent of the monthly compensation, and the rest is flexible (for managers, the flexible part is greater). This does not include overtime payments. For operators, overtime pay is

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calculated on the basis of their hours, which must always meet the legal limit of a maximum of 36 hours of overtime per month. The company used to pay a seniority allowance, but this is now regarded as a remnant of the SOE tradition. In any case, seniority allowances were always less than 0.1 percent of total compensation. After the wage reform of 2004, many small items like seniority allowances were combined or changed. Now the compensation system is based on evaluating a worker’s position and ability. Long-term benefits are provided to retain employees. The longer they stay with the company, the higher is the pension they get after retirement. Three major wage categories exist, two for workers, including basic operators and those with more skills, and one for engineers and managers. Employees in different wage categories can earn the same income. For instance, a high level technician may receive the same wage as a lower grade manager. The company has a high degree of autonomy in determining individual compensation and the compensation system. As long as the base wage is higher than the legal minimum wage, compensation can be decided between employers and employees, according to local government policies. Since this applies to the overwhelming majority of positions in the company, government wage guidelines have little impact on compensation. Workers at suppliers usually earn less than those in the company itself. Partially because of this, the idea of setting up a region-wide wage standard for the auto industry is not attractive to this company. According to the human resource management, large companies in this industry know the general level of compensation and informally try to keep similar standards. The categories suggested by consulting firms are used as important references to determine wages in each plant. Work time is relatively flexible. For frontline production workers, including skilled technicians and maintenance workers, an integrated method for calculating working time is applied to these three categories. Similar to the European mother company, a “time account” is set up for each worker. Under this arrangement, workers receive their monthly wages regardless of the actual number of hours worked per month. Extra hours will be credited to the time account and can be used as time off in periods of slow production with less than average hours worked per month. The “credit” and “debt” hours in a worker’s time account have to be balanced within one year. At the end of a year, the total amount of accumulated credit hours should not



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exceed 432; if the debt on the account is fewer than 168 hours, workers can still get full payment temporarily. Evaluation includes two parts. One evaluation comes from managers, focusing on general behavior and attitudes. The other is based on workers’ performance. Criteria for operators include mainly output, quality and safety. There is no direct cash prize for workers with good evaluations. However, training, promotion and selection of model workers are decided on that basis. Three paths of career development, including management, expert and technician paths, are designed for workers and correspond to their positions and individual characteristics. For front line workers, the usual path is towards a technician position. Operators who want to become foremen or shift leaders must pass a technical exam. If an employee wants to advance to a managerial position, he or she must meet certain education requirements. Each position in this company has minimum requirements. Therefore a worker must develop his or her own skills and education, to be promoted. Training is provided accordingly. Employees can take internal or sometimes external training. A Technology-Transfer-Education program offers opportunity to 20 to 30 employees each year to go to Europe for training. The company operates an internal labor market, through which every employee can apply for certain vacancies. This company used to have its own vocational school. It relied on extensive pre-recruitment professional education, and tight integration of shop floor and classroom learning. This is the system practiced by the European mother company in its home country. However, after 2003, the company adapted the principle of school-enterprise cooperation between companies and technical schools, as other firms have in this city. This model is common in China. Employees (usually operators) with two years of study in technical schools or colleges are hired by the company, and then spend the next year as interns. The turnover rate among operators here is very low, about 1.5 percent according to company and local media sources. Once operators are hired, almost no one resigns voluntarily. The turnover rate for technicians is higher. According to human resource, operators prefer to stay because the wages are competitive and the company offers training programs. Due to the long tenure of employees and the legacy from the former SOE, the average age of the workforce is around 32, not as young as in many newer auto factories built in previously undeveloped greenfield locations. When workers get

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Beyond the Iron Rice Bowl

older, they can shift from the assembly line to physically less demanding positions. Temporary workers are employed in positions different from those of regular workers. About 30 percent of all employees are temporary workers, many of whom from local towns and the countryside. Currently all non-regular workers are new graduates from junior colleges and technical secondary schools, recruited through labor agencies. The company and the agencies organize pre-job training for new recruits. Those who pass the evaluation after training can become dispatched workers in this company. They mainly work as operators on production lines. The base wages of dispatched workers are about 2,000 RMB per month and total income may reach 3,000 to 5,000 RMB, if they work ten hours per shift and six days per week. Dispatched workers have no right to join training programs (according to informal sources). They are covered by small town and village social insurance, which is supposed to be paid by the labor recruiting agencies (according to official recruitment advertisements). Complaints from dispatched workers on the local government website say that workers are not consulted about overtime work and the use of the time account. The wages of dispatched workers are sometimes about 50 percent of those of regular workers who do the same jobs. Workshops are generally clean but noisy in some areas. The company complies with regulations covering occupational health and safety in the factory. All visitors must wear protective glasses. There are many canteens in the factory. Two are outsourced to other companies, as are shuttle buses and some logistics operations. The security team is also hired from outside, but its head is a company employee. No dormitory is provided for workers. Only 1 or 2 percent of its employees live near the factory. More than 90 percent commute to work from other areas in this vast city. Labor Relations This company strictly follows Chinese labor laws, as many other medium and large companies do in this area. It has had a trade union since the early days of its operation. The trade union and sometimes the Workers’ Congress are consulted on any policy related to labor, as is legally required. Many practices of the company developed before relevant laws came into existence in China. For instance, signed collective contracts and open-termed employment contracts have been normal practice here for more than 15 years. In



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addition, slogans of the Communist Party are visible in factory areas, which indicates that it plays a role here. Although the foreign joint venture partner has an extensive system of world-wide employee representation, coordinated from its headquarters, the Chinese trade union is not a member of this world-wide structure. According to its representatives, the trade union in the mother company regards the Chinese trade union as part of management, and believes it represents the interests of the Chinese side of the joint venture in relation to its foreign partner. Therefore, labor-management cooperation at this company in China is distinctively “Chinese” in style, with little influence from the foreign model of labor relations. In each workshop, there are trade union groups at department levels, with part time union officials. These groups act as branches of the companylevel trade union. Heads of each group are in charge of announcing union policies to workers and collecting workers’ opinions. Temporary workers belong to the trade union as temporary union members. They do not pay membership dues, but enjoy the same rights as regular employees. In addition, there is a lot of restructuring due to large-scale outsourcing and new production methods. Outsourcing may lead to job reductions. Such issues are decided by the board, on which the trade union chairman has a seat. In case the chairman believes decisions would be harmful to workers, he can put forward his own opinions. The trade union signed the first collective agreement with this employer in 1985, the first among all joint ventures in China. At the beginning, learning from the system in the foreign mother country, the first collective agreement was negotiated by the four top management officials from both the foreign and Chinese sides, and the chairperson and vice chairperson of the trade union. Today the human resource department drafts a proposed collective agreement and sends it to the trade union. The trade union then collects suggestions and comments of workers through union groups in each department. The union may make revisions and send it back to the department. If agreed, the contract is final. Every worker can read the text on the company’s internal website. Generally the relationship between the human resource department and the trade union is cooperative. Workers enforce the contract through the workers’ congress, the factory administration system, and other mechanisms. The collective agreement usually contains one official text and two appendixes – a wage agreement and an agreement on special protection for

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women workers. It only applies to workers who are formally employed by the company. Working hours are mentioned in the contract and mainly follow legal standards. The principles and procedures for wage negotiations are written into the wage agreement, but there is no specific data. Wages are regarded as top secret by the company and decided by referring to reports from consulting firms. Wages are negotiated each year. They can increase, remain the same or decrease, depending on the operation of the company and individual performance. This procedure is written into the agreement. Specific wage categories cover different groups of workers, and detailed grades within each category. A committee, composed of representatives from the trade union, employees and administration can discuss wage categories and grades. Pay grades and the position-based wage system are briefly mentioned in the contract, but there are no fixed rates. Contracts do not cover the material awards from the Continuous Improvement Process system. This company uses various channels of communication. Surveys are conducted regularly to assess the degree of employee satisfaction. If a worker has a question about a policy, he or she may consult the human resource department. The trade union also has channels of communication, such as collecting the suggestions of employees every two weeks, a consulting hotline, workshops and employee meetings. When a conflict regarding performance assessment or pay occurs, the direct manager handles it. If the worker is not satisfied, he or she tends to look for help from the HR department or the union. It is rare that conflicts involve a lawsuit. In one exception, the company sued employees who took jobs with competitors after receiving training in its foreign headquarters, and did not pay any compensation. The company won the case. There has never been a collective labor conflict in this company, according to the human resource management. Harmony in labor relations is constantly highlighted. Conclusion This company is a typical example of a corporate bureaucratic regime of production. It reflects a combination of Chinese SOE culture and practices in the foreign partner’s country of origin, as well as the current rationalization trend in this industry. With a leading role in the automobile industry, this company has advanced facilities, a large market share, and quality products. It uses large-scale outsourcing and modular production, but production is still vertically integrated to a relatively high degree. The introduction of



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multi-model capabilities on the assembly line and the adaptation of lean production practices, have made the work process very flexible. The workforce, however, has remained relatively stable. The company is trying to bring its traditional system of high wages and benefits in line with its competition in the Chinese auto industry, because of the explosive growth of car manufacturers in China, rapid innovation, and potential excess production capacity in key market segments. The workforce is losing its position as a particularly well paid and well trained group in a national model joint venture. The company’s stability is linked to the extensive training and the recrui­ ting of manufacturing workers with an urban background from technical schools. Turnover is very low, thanks to the stable and competitive wage system, well-regulated working conditions, and comprehensive training and career development. The company has a relatively developed and formalized internal labor market, which links pay and career development to skill, training and performance. The trade union is well established and cooperates with management, as is typical in SOEs. The first collective contract among Chinese joint ventures was signed here, although its content hardly approaches collective bargaining agreements in the West. There are huge differences between the industrial relations systems of the Chinese company and its multinational joint venture partner. However, the multinational corporation is not trying to replicate its model of employee representation in the joint venture. Rather, the management of labor policies is left to the Chinese side. Many channels exist to release possible tensions between labor and capital. Reported labor conflicts are very rare. The existing system of labor management consultation has absorbed the increasing pressure of productivity and work intensity, as well as competition with outside suppliers, in a relatively smooth way. However, the division between its core workforce and the non-permanent workforce supplied by dispatch labor agencies is growing. Since the trade union does not actively represent the interests of third-party workers, the system of company-based social partnership is increasingly limited to a core workforce, which is no longer growing. In the long run, this may undermine the relatively comfortable position of the core workforce as well.

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Evaluation of regime of production – Automobile assembly case study 1 Item

High/ Medium Low/ Comments Strong Weak

Organization of Production Market control

X

Vertical integration (company)

X

Vertical integration (factory)

X

Product technology (relative to industry standards) Manufacturing technology

X X

Stability of production flow

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers Proportion women Proportion of temporary workers Workforce stability

X X X no data X

30 %

X

High for regular operators

Income stability (related to incentive pay and overtime) Piecework type of incentives Employee involvement (workplace) Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

X X X

X X

Since 1985 X X

Legal standards

X X

X X X X X

Lower for temporary workers



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5.1.2 Automobile Assembly Case Study 2 This automobile company is a joint venture between a Chinese automotive group owned by a local government in North China and a leading multinational auto manufacturer from Europe, each with a 50 percent share. The company is one of the oldest joint ventures of its kind in China, and was initially a cooperation between the Chinese partner and a major U.S. multinational. After a long process of mergers and separations between the multinationals, the company now produces small and medium sized high-end automobiles for the Chinese market. The company also operates a sizable manufacturing operation for a major Japanese automobile corporation. This production has been moved to another site. The company inherited much from its labor practices from its long history as a joint venture,. Located in a modern economic development area, it has an annual production capacity of 100,000 units in its new plant. At the time of our investigation, there were more than 3,100 employees, 27 percent of whom are white-collar employees and the rest are blue-collar workers. Model of Production The company runs a very modern facility in a newly developed industrial park. After completing the first phase of construction, the size of this factory will reach 210,000 square meters. Only one major manufacturing building out of four was in use at the time of this investigation. Final assembly of various car models of the foreign multinational for the Chinese market takes place in this building. Production consists of the assembly of pre-manufactured kits imported from the multinational’s foreign factories. According to management, 40 percent of the parts and components are actually manufactured in China. This proportion will increase, and the final goal is an integrated process of manufacturing, assembly and sales. This kind of production has a very low degree of integration. The factory does not have many basic elements of automobile assembly, such as stamping sheet metal parts, a body shop, or production of engine blocks and gears. It lacks various stages of the car assembly process needed for complex assembly lines, which are now typical in Chinese auto factories. Production for its Japanese partner, which was previously located at this site, was highly integrated. The company is now planning expansion into fully integrated manufacturing for the car models of the European manufacturer. At the time of our investigation, however, no concrete plans had yet been made. Never-

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theless, at the end of 2009 the multinational announced a major shift of production of its most important car model from its main factory in Europe to non-European sites, including China. The factory appears quite spacious. It has only one floor and all manufacturing is conducted on the ground. Advanced equipment is used in the final assembly area. Robots or lifting equipments move parts weighting more than 25 kilograms, such as tires, seats, and doors. In addition, electronic tools are used to ensure the precision of parts assembly, which may also lower the intensity of physical work in some positions. In engine assembly, work is performed by the workers horizontally, in order to reduce overhead work. L-shaped holding arms are installed along the final assembly line, which keep the car body horizontal and help realize multi-model production on the same line through simply changing tabulating machines. For the purpose of multi-model production, reversible supporting tools and lifting trays are adapted to meet their different requirements. This kind of automation reflects the concepts and philosophy used by the multinational in its European factories and throughout its global organization. There are 49 production sections in the factory, each with 43 workers on average. There are 175 work teams with more than 10 workers. Many tasks are organized and performed in teams, such as attendance check, quality control and further improvement. As the company has merged and separated from other foreign brand names, it has adapted different models of work organization. At present it uses the production system of the foreign company, but is gradually integrating it into a new version for this joint venture. The concept of lean production is used widely, especially in inventory organization and materials handling (kanban). In the assembly area, a Japanese-style andon system is integrated into the production flow. It collects information on equipment, manufacturing and management, and controls indicator lamps and sound alarms. There is a switch at each work position. Problems can be referred to related departments for solution, or to computers for further analysis. At the same time, on the final assembly line the andon system shows information about every single production line on screens, including the status of manufacturing, raw materials, and quality. Real-time data on target output, actual output, time of stoppage and productivity are also displayed on screens in order to improve the efficiency of work as well as to identify problems and the training needs of workers. This company pays a great deal of attention to the working environment. Before an automobile leaves the production line workers install a “tail” besi-



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de the emission pipe at the bottom. This is specially designed to protect the environment inside the factory. Work and Working Conditions This company currently employs 3,175 workers, including 859 white-collar employees. The rest are mostly production workers. The 796 management staff includes more than 50 Chinese mid- and top-managers. 22 are foreign expatriates. About 84 percent of the employees are men, and the ratio of men to women workers is 5.2 : 1. Among blue-collar production workers, more than 1,800 graduated from technical secondary schools. More than 70 percent of all white-collar employees hold a university degree. Some features of the workforce are typical among companies with a Chinese SOE tradition. The average age is 33.1, relatively high for auto companies in China, especially compared to the newer factories in this study. Average age for managers is 37.3, and 31.6 for workers. Most workers are between 20 to 40 years old, while 370 are 20 or below, 542 between 41 to 50, and 189 above 50. The average skill level of the workforce is regarded as high in this industry. There are three professional grades for 330 engineers and five for the production workers, including 22 high-level technicians, 164 middlelevel technicians, 493 high-level workers, 697 mid-level workers and 940 ordinary workers. Two criteria define the division between management and workers – the department to which a worker belongs, and the cadre status of an employee. Usually, management and engineers are cadres, as well as some production workers. Apparently, there are no migrant workers in this company. According to the trade union, in total there are 277 dispatched workers, mostly in subsidiary, temporary or replaceable positions. Some work on production lines, doing the simplest work. Cleaning is outsourced to a service provider. According to the manager, the company signs contracts with temporary workers and dispatched workers for a term of at least one year. Since the introduction of the labor contract law in 2008, most individual labor contracts now last more than two years. This company has a relatively low turnover rate compared to the average in this industry, according to management. Working in the automobile industry usually requires a certain period of training. This is different from many other industries, such as electronics. So far the financial crisis has not had much impact on the labor market in the automobile industry. There

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is an oversupply of graduates from junior college and technical secondary schools, but it is still relatively difficult to find experienced engineers. This company emphasizes education and training, both pre-entry classroom education and on-the-job training. This reflects the approach of this multinational in its home country in Europe. In a cooperative relationship between the company and the Chinese government, the local government builds schools and invests in teaching materials, and the joint venture company provides scholarships, training materials, tools, experimental vehicles, and teachers. In 2006, the company started a program of school-enterprise cooperation. Students study for two years in automotive industrial schools and complete a one-year internship in the company. The ones who perform well then are hired. The feature that sets this company apart is that students are selected from schools before starting any courses. From the very beginning these classes are intended to provide qualified graduates to this company. When selecting students, the company not only checks their technical knowledge, but also their ability to apply it. Teachers from the foreign partner guide the local teachers. Students have the opportunity to learn about the company, which helps their integration later. So far there have been seven classes and some students have completed the internship. If a student does well in the final evaluation, he or she can sign an official contract. It is said almost 100 percent of them stay, because the entrance is remarkably selective. There is neither a special clause on the service period or on the costs of preentry training in labor contracts. In practice, most apprentices are willing to work in the factory. Inside the company, there is training at company, workshop and department levels. When new products are introduced, employees may be sent to the mother company for further training. In addition, there are discussions in the workshops, opening lectures, and degree-related continuing education. The training fund is 1.5 percent of total payroll, following China’s legal requirement. Investment on training is regarded as a positive and indirect way of improving productivity and quality, according to one manager. There is no direct link between training and wages. The wage system is based on position, and positions are assigned according to skills. If a worker can attain a high skill level and performs well, he or she can apply for a higher paid position. An ordinary worker can get training inside or outside to become a technician and the company may promote him or her to a technician position. Consequently the worker would get a higher wage. Among



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production workers, the ratio between the highest income for high-level technicians and those for ordinary workers is about 1 or 1.5 times, relatively low two compared to many other Chinese workplaces. A high level or chief technician can earn wages like those of an engineer. According to management, dispatched workers can earn the same wages for similar jobs as regular workers, since the Labor Contract Law took effect in 2008. Wage levels for specific categories are determined in reference to a market survey by a third-party consulting firm, as well as wage guidelines from the labor department of local government. Generally speaking, the base wage for ordinary production workers is 80 percent of their total income – in line with established standards in industrialized countries, but relatively high for China. This percentage may vary according to employees’ rank. The higher the grade, the bigger the floating part. According to the trade union, the after-tax wage for ordinary workers is above 1,600 RMB monthly, about twice the local legal minimum wage. This makes up for an annual base wage of roughly 20,000 RMB after taxes, excluding overtime and bonuses. According to the management, the total pre-tax annual income for a frontline worker (including bonus, overtime and benefits) is about 30,000 RMB, although pay depends on work categories. Legal requirements mandate five basic kinds of insurance and one fund. The company also provides complementary medical insurance and accident insurance. In addition, the legal paid leave is 15 days for those with 20 years of work experience, but in this company employees above the third job grade receive 25 days. There are also allowances, food subsidies and work meals. Although no exact information on the regular amount of overtime is available, overtime work appears to be limited and does not exceed the legal maximum. Due to the restructuring of production described above, and under the impact of the global economic crisis, a substantial amount of the workforce was on temporary leave at the time of this investigation. About 1,000 workers had to take a leave, and capacity use was reduced to about 50 percent. According to the trade union, temporarily laid-off workers receive basic living expenses (half of normal base wages) full insurances, but no bonuses. Local governments also have policies to encourage companies not to discharge employees. The government of this economic and development zone has started to provide subsidies for training programs since December 2008. It includes employees in companies hit by the crisis, as well as rural laborers who have lost their land during industrialization and urbanization process.

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This company fits the first category. This practice is in line with the policies of many state-owned enterprises during the recent crisis, and with government guidelines. Taking advantage of these policies, the company is trying to maintain its base of highly skilled workers and its related investment in training. However, the situation of the affected workers is highly insecure, since the plans for restructuring and expanding production are contingent on future market growth, as well as corporate decisions on further relocation of production to China. Labor Relations This company follows national labor laws, as do many other large-sized foreign companies in China. There are basically no short-termed labor contracts in this company. However, the company complains that some stipulations in recent laws requirements are raising costs, like the regulation that requires paying compensation at the end of labor contracts. In the tradition of SOEs, this joint venture has a well-established trade union. The union in this factory is part of the union for the Chinese holding group, which belongs to the city’s industrial trade union. Currently the union has 2,581 employed members. The union has 14 branches, divided by factories, with sub-branches and union groups at lower levels. Six special work committees have been set up for wages and welfare, production inspection, women workers, propaganda and activities, technical cooperation and retired employees. Committee members are elected by the Workers’ Congress. So far, there is no employees’ representative on the company’s board of directors, instead, 50 percent come from Chinese and 50 percent from foreign investors. According to the union, the ten major functions of the trade union include helping employees to sign labor contracts, negotiating the collective contract, assisting workers in labor arbitration, mediating labor disputes within the company, occupational training, monitoring the enforcement of the law, inspecting work safety and health conditions, intervening in case of risky working conditions, investigating violations of workers’ rights, and in case of a work stoppage, reflecting employees’ opinions and negotiating with the employer. Generally speaking, these conditions have been clearly stipulated in Chinese laws. In practice, the union has assisted management in many ways. For instance, the union organizes safety training and patrols, which have been able to identify and resolve dozens of possible dangers. It mobili-



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zes its members to lower production costs. In 2008 workers made more than 310 related suggestions and these saved 138 million RMB for the company. The union supports employees in situations of financial hardship, organizes technological contests together with the human resource department, selects outstanding employees every year, and helps build corporate culture by setting up a workers’ activity center. This union says it has good communications with the trade union in the foreign mother company. The union cooperates closely with both top management and human resource department. Since November 2005, the CEO and the union president have officially met twice a month. When there is a special problem a meeting can be arranged at any time. The minutes of these meetings are signed by both sides and distributed to subsidiaries. Up to March 2009, 41 meetings were held and 83 problems resolved regarding work safety and restructuring. The human resource department also seeks the cooperation of the trade union. Important regulations of the company regarding wages, incentives and holidays, are made after consulting with union representatives and six special union committees. The trade union actively participates in raising production thought activities like “reducing deficit and being creative”. This company received awards for harmonious labor relations at both city and national levels. In the former joint venture, collective contracts were regularly signed every three years. At that time, the agreement was circulated nationwide as a model text. The first contract of the current company (the seventh contract if including those of the former joint venture) was signed in May 2007, in both Chinese and English. Before reaching agreement, three official negotiation sessions and 18 informal discussions were held between work groups. In official negotiations all chief representatives were present. Informal discussions were conducted between the vice president of the union and the human resource director. The collective contract is available to all employees and has been printed as a pamphlet. Each work team receives a copy. Every year the trade union and management make an assessment of the implementation of the collective agreement. The inspection takes place at company and grass-roots levels, and is conducted by negotiators from the original negotiation sessions. The results are reported to the company. Problems are discussed, and according to the union many of the problems are resolved, except some related to the company development. The collective contract clearly states that the wage system of the company should be designed and implemented by the human resource department.

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The trade union is consulted on the wages, but they are kept confidential to all employees, which is the case in many companies in China today. Even a senior manager only knows the wages of his subordinates, but not those of his or her colleagues. The contract does not specify wages, or descriptions of wage grades (although the company has this data). Instead, it specifies that each year the company will pay a 2,000 RMB festival bonus, allowances and some benefits, such as one for the shuttle bus. According to the union, the lowest wage level in the company is higher than the local minimum wage. So far, the company has no special wage agreement. Wage increases are not specified either. Instead, the contract states that “when the profitability of the company is good, wages should be increased; when it is not or in deficit, wages should not be reduced”. The reason why wage figures are not written into the contract is that the company may not be able to pay a fixed increase due to low profitability in some years. The union believes that the precondition of workers’ rights is the development of the company, thus it is not good to fix increase rates and restrict the company. In practice, when profits were high in the former joint venture, the union negotiated wage increases. Under the current restructuring, the union actually put the priority on employment, while ensuring that temporarily laid-off workers receive basic living expenses. In case the situation gets even worse, the union insists that the company should pay compensation for severance. Wages for the remaining employees would be subject to discussion between management and the union. Although the union understands the needs for compromise, it is persistent in maintaining wages, and emphasizes the importance of wages in retaining a quality workforce. Regulations on working hours in the collective contract mainly follow legal standards – 40 hours per week, with time arranged according to production needs. Overtime is limited to 36 hours per month, as stipulated by the law. In this company an integrated calculation method for work hours which allows the company to exceed the monthly overtime limit over several months and compensate by time off later, has been approved by the government. There is overtime in busy periods, and overtime payment follows the legal standard of 150 percent during the week and 200 percent on the weekend. In China the law requires the company to inform the trade union 30 days in advance of restructuring or redundancy. The union can demand that redundancy must follow certain rules, such as a proper ratio between Chinese and foreign employees. When this company was established in 2005,



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the union insisted that the new company take over all obligations and rights under labor contracts with the former company. The company is currently restructuring production due to its separation from other enterprises and the upgrading of its own products. Production of new products is expected to take off soon and bring new employment growth. At the time of this investigation, about 1,000 employees had to take a leave for six months or longer (waiting for positions, and later job rotation or job-sharing). In accordance with the contract and relevant government proposals for maintaining growth and stability, with no redundancy, the union asked the company not to permanently dismiss employees. The company basically agreed to this policy. During this time, the company provided four days of training per month for ordinary workers and eight days for core employees. However, affected workers only receive basic living expenses. In this way, the trade union and the company tried to stabilize the workforce and maintain employees’ basic income, hoping the workforce would be available again when production restarted. The union assumed that the size of the workforce for future production would be more or less the same. Management was confident that affected workers would come back to this factory despite of the very low payment during layoff, because workers would be optimistic about the future development of this company, and it would be hard for them to find another job during the layoff period. The trade union believes there have not been many real redundancies in the Chinese automobile industry in the wake of the global downturn. At most the work hours have been cut, and more time has been spent on equipment inspection and maintenance. Total car sales in the domestic market keep growing. In particular, the demand for expensive high-end cars is quite stable in China. The union shows little interest in wage coordination with other companies. Although this industry is represented by an industrial union under the ACFTU, the industrial wage standard is not regarded as relevant, due to huge differences between enterprises. According to one manager, the differences in profitability between enterprises, regional differences, as well as the gap between suppliers and car makers are so great in China that it is not possible to have a single wage standard for the whole industry.

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Conclusion This is another typical case of a corporate-bureaucratic regime of production. Advanced equipment and modern facilities ensure high-quality production of premium products. Production for this world-famous brand-name firm serves a high-end niche in the Chinese car market with relatively stable demand. The long-term strategy of building a highly skilled workforce is especially visible in professional training practices, based on the practice of the foreign multinational in its home country. This strategy creates a stable wage system with relatively few incentive-based elements. The base wage is 80 percent of the total income for ordinary workers and overtime is limited. By Chinese standards, this company provides an extraordinary degree of stability in wages and employment conditions, accompanied by comprehensive insurance programs and benefits. The union at the company has a relatively strong foundation and its contracts have a long history dating from the preceding joint ventures. Wages are determined by referring to market surveys and government guidelines, and are kept confidential, as is the case in many other Chinese enterprises. The collective contract sets no wages, wage grades, or wage increases, but it contains a soft rule that wages should not be reduced in case of low profitability. Nevertheless, during the restructuring of production, most laid-off workers only receive basic living expenses. Work hours follow the legal standard and integrated calculation of working hours is used, which gives the company flexibility. Neither the union nor the company shows any interest in broader wage coordination. In this apparently well-entrenched model of social partnership, instability is created by restructuring from mass production of foreign-brand middle class cars and SUVs to manufacturing a premium brand. Restructuring takes place in the context of the global relocation strategy of the foreign multinational. Management benefits from the fact that restructuring is taking place during the global financial and economic crisis, when laid-off workers cannot find jobs in other companies. The Chinese management and trade union are hoping that production will be relocated to China from the multinational’s mother factories in its home country. Chinese and western trade unions have not worked out a common approach to the conditions and social standards of this relocation process. The company’s work model exhibits the problems of a system based on extensive formalized external training. Such a model risks disconnection with the labor market, since it produces an excess supply of skilled workers



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during phases of economic downturn, and potential shortages during rapidly rising demand. Combined with relatively high base wages, such conditions tend to produce strong upward effects in remuneration in times of high demand, and in periods of restructuring workforce retention becomes a problem. More company-based workforce development and extensive in-house training, seen in the following two case studies, is more flexible and therefore suitable in a rapidly developing market such as China. A high-skill, highwage, high-benefit model of labor relations, such as in this case study, requires a relatively high degree of macro-economic stability and related economic regulation. The massive overcapacity of the Chinese auto industry and increased pressure on profitability weakens such approaches, although they may be advantageous in terms of industrial and workforce development and as a benchmark for industry-wide labor standards.

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Evaluation of regime of production – Automobile assembly case study 2 Item

High/ Medium Low/ Strong Weak

Comments

Organization of Production Market control

X

Vertical integration (company)

X

Vertical integration (factory)

X

Product technology (relative to industry standards) Manufacturing technology

X X

Stability of production flow

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers Proportion women Proportion of temporary workers Workforce stability Income stability (related to incentive pay and overtime) Piecework type of incentives Employee involvement (workplace) Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

X X

Team work X X X

Less than 7 %

X X X X

X X

Since 1980s in former JV X X

X X X X X X

Just legal standards



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5.1.3 Automobile Assembly Case Study 3 (2 Factories) Factory 1 This joint venture is a cooperation between a leading Chinese automotive group and one of the largest multinational automobile corporations in the world based in East Asia. Located in a recently-built industrial area specializing in the electronics and auto industries in northern China, this joint venture has built three factories on a greenfield site, assembling different car models. This joint venture has steadily expanded production, and is now the biggest production base of the multinational corporation in China. The company has a capacity of 470,000 cars per year, and is seeking to gain a 10 percent share of the Chinese domestic market. Established in 2002, it is a relatively young company with about 12,000 employees, whose average age is 26. The operation’s management of factory organization, work organization and human resources follows the model of the multinational partner. The Chinese partner is primarily a shareholder. This form of cooperation is designed to facilitate the transfer of technology and know-how from foreign car-makers to the Chinese auto industry. Model of Production This factory is fully integrated. It has its own body, stamping and paint shops, as well as final assembly. Its major products range from low-end to mid- and high-end cars. Nevertheless, it has not yet developed its own models for the Chinese domestic market. Engineers are mainly engaged in production and maintenance. A new research and development center was recently established, the company’s first step expanding research and development in China. In addition to the three factories, it also owns a component manufacturing plant nearby, which mainly assembles engines. Production is relatively comprehensive; although, engines and other key components for high end models are assembled from pre-configured kits imported from the foreign mother company’s home country (a scheme known as CKD – completely knocked down – assembly). More than 90 parts and components enterprises were set up after the establishment of this company. The supply infrastructure includes an engine factory, which manufactures engines for mid-range models and for export.

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The whole factory has been built from scratch, following the requirements for lean production. The giant manufacturing buildings have only one floor. Inside the plant there is a huge inventory area occupying more than half of the space. All inventories are kept at the ground-floor level. There are no stacking systems or sophisticated equipment to control inventory and material flows. Most material is moved on carts and forklifts – there are no conveyor belts and other equipment for supply flows. Unlike its other factory in China, this plant did not have moving parts supply bins along the assembly line. There is no multi-model manufacturing here. Only one model is manufactured on each line, and assembly is done at the ground-floor level. There is no upper-level movement of car bodies or parts, and therefore no need for lifting equipment. There is relatively little automation. In the assembly area workers mostly use light equipment with few mechanical aids for heavier and complicated processes. There is extensive overhead work, and no mechanical equipment to lift, lower or tip over car bodies to reduce it. According to management, there is no equipment like this in any one of the three factories. The degree of automation in this area seems significantly lower than in the newer factory of the same multinational in southern China. The assembly line displays the characteristic Andon-boards that make the manufacturing flow visible throughout the factory. A particular feature of the assembly line is that workers are encouraged to stop the whole line anytime they notice any trouble. According to the management, the first rule workers learn when entering the factory is to stop the line in case of problems. Work on the assembly line appears segmented into small tasks, but a limited amount of job rotation is organized in work teams and groups. A team consists of six to ten workers, usually covering three work stations. A group consists of 20–30 workers, usually in three teams. Jobs are rotated within the teams on varying time schedules, decided by the group leader. It usually takes two to three months to learn one job, so workers can fully participate in job rotation only after at least six months. Workers with higher skills at multiple tasks can rotate jobs within a group. A team leader needs at least two years of experience, and group leaders need three to five years. Work organization depends on standardization, although there is some flexibility within the work groups, under strict supervision of the group leaders. There is no policy for creating broadly skilled, relatively autonomous crafts workers.



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Work and Working Conditions Managers above the level of division leaders are appointed by shareholders. Management and technicians all have university degrees, most of them achieved in recent years. The majority of operators or line workers are new graduates from colleges and secondary schools in the nearby city, mostly 20 or 21 years old. As a whole, the ratio of engineers and management to operators is around 1:11, with about 1,000 engineers and management personnel, including more than 80 managers from the foreign partner. The company started recruiting workers in 2001. Most of the roughly 12,000 employees have stayed with the company since they were hired – a remarkable achievement in China’s booming urban labor markets of recent years. There are no temporary or migrant workers in this company. According to the human resource manager, the main reason for employing regular workers is the high skill requirements needed to guarantee product quality. For the professional education and recruitment of operators, the company cooperates closely with 15 colleges and technical schools in the city. Due to the city’s rich education resources, the company has no shortage of operators. However, according to management, there are not enough technicians with the needed skills. The wage system also follows the principles of the foreign joint venture partner. Wages are determined in accordance with market surveys from leading international consulting firms, taking into account local cost-of-living standards as well as wage guidelines from the city government. The regular base wage makes up the major portion of workers’ total compensation. The amount of overtime varies in different departments, but is usually not high. The compensation system in this company is designed to provide gradual increases and stable improvements, in order to motivate employees. Thus the wage curve is a gradually rising line. Workers with three to five years can receive a wage higher than the average for this region. Bonus and other forms of incentive pay do not account for a big proportion of total compensation – roughly 15–30 percent of workers’ annual income. However, the bonus awarded to high performing employees may be considerably higher than the income of average workers. This gap is bigger than in the company’s factories in the mother country. According to management, the distribution of incentives has “Chinese characteristics”, since each plant can decide how to conduct performance evaluations and to distribute incentives accordingly. The company is advertising operator jobs

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through recruiting agencies, and offering a base wage of 1,080 RMB, and a regular monthly income of 2,000 RMB. The wage categories in this company are relatively transparent. Line workers are grouped into three categories according to their skill level, as are technicians. The wage system is based on the three skill levels, but has much more detailed classifications, allowing a host of differences in the classification of individual workers. Upgrading from one wage grade to the next depends on the worker’s evaluation, usually by the foreman or group leader. Each worker in the company is supposed to understand this system, and his or her options for career development. In order to keep evaluations fair, they are performed at the workplace and the results are made available to all workers in the area. The company follows the legal regulations on overtime work, observing the legal limit of 36 hours per month. The company does not discuss working hours with the trade union. The work process in this company does not depend on extensive overtime; the management tries to balance the need for flexibility in scheduling with high quality and the need to maintain the loyalty of its employees. Training is strongly emphasized. The training center is the biggest in any of its factories in China, with lots of teaching materials imported directly from the foreign mother company. One slogan of management here is that human resources are the company’s wealth. The company mainly recruits new graduates directly from schools, instead of hiring people with experience. Through a comprehensive training system, these workers achieve much greater productivity and higher quality. Work on the assembly lines is organized through work teams. In the teams, workers have a certain degree of job rotation and are involved in routine functions of equipment maintenance and alignment. Using the continuous improvement process, the teams oversee quality control and improvement. Workers who improve their skills after training are not directly awarded cash or wage increases. Rather, greater skills bring more opportunities for promotion. There is a strict system of in-house promotion and training. Even maintenance technicians (the “workers aristocracy” in auto manufacturing) are mostly recruited from workers on the line. Health and safety conditions in the factory appear to conform to international standards, but they are not perfect. Workers wear safety shoes and helmets. At first glance, equipment and parts are handled carefully. However, the noise level is quite high, and no noise protection gear is used at many work stations with high noise levels. We could not visit any area that typi-



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cally present problems for health and safety, such as welding, painting and stamping. Labor Relations The trade union in this company is well established and accepted by the management. Collective contracts are signed regularly. As stipulated in the Chinese Trade Union Act, the union, as the representative of workers, has a role in handling issues related to workers’ benefits. When the company raises wages, the increase rates must be discussed between the human resource and the union. The union regards itself not just as the representative of employees, but also of the enterprise, and consequently its attitude toward the management is usually cooperative. Labor-management meetings are held every year. Management listens to the opinions of the union and employee representatives about compensation and the work environment. Wages are raised each year in April. Before the increase is decided, the union is consulted, with ample opportunity for discussion. Wage categories and standards are agreed before the collective contract is signed. However, contracts mainly reiterate existing legal standards on working hours, benefits, occupational safety and health and other issues. Wage agreements do not contain concrete figures. According to the human resource manager, it is meaningless to fix the exact figures because the profit situation of the company and the cost of living change from year to year. These conditions must be taken into consideration when making decisions on wage increases. The wage structure at this company is fixed, but raises rely on specific conditions year. Equalization and organization are very important in wage adjustment. The general level of wages in this company is higher than at its suppliers. Suppliers do not necessarily belong to the parent company, but their relationship to it is usually long-term and quite stable. Wage levels at the parent company have an impact on suppliers, and suppliers refer to them in adjusting their own wages, albeit at a lower level. There seems to be no interest in management in standardizing wages at local or industrial levels. The company tracks wages at first tier suppliers and occasionally gives them directions on this issue. Since costs in the supply-chain affect the profitability of the parent company, it is concerned about the wage levels of its first tier suppliers. Nevertheless, it has no interest in wages at second- or third-tier suppliers.

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Conclusion This company is also a typical example of a corporate-bureaucratic regime of production. Completely built on a greenfield site, it is strong influenced by the country of origin of the joint venture partner, taking into account Chinese conditions. Although the production model uses lean production, employment conditions and career patterns are stable. The emphasis on longterm employment and long-term careers, a relatively high base wage, and limits on overtime set the company apart from multinationals with western “high-performance” human resource policies. Compared to many auto companies, the production model of this company is more focused on high work intensity and flexibility. In the Chinese context, its working and employment conditions are rather upscale and stable. It can be assumed, however, that labor standards at supplier companies are much lower, especially among second- and third-tier suppliers. Compared to many neo-Taylorist work schemes widely applied in China (see most case studies in chapter III and IV), assembly line workers in this company have a higher degree of control over the work process. They can stop the whole line when they find problems. The model of limited job rotation and the related learning of a certain spectrum of job-specific skills also compares positively to the extreme segmentation of work in other modern high tech mass production industries, where regimes of flexible mass production prevail. The core workforce in this factory consists exclusively of urban workers. There are no migrant workers or temporary workers, although it can be assumed that non-resident workers are employed in supplier companies. The system of recruiting workers directly from technical schools, with subsequent company internal training, contributes to a well-trained highly motivated and loyal core workforce. This system of professional education and recruitment is compatible with existing practices in China. The trade union at this company is well established and accepted by the management. It is very cooperative and acts as an in-house clearing agency for workers’ grievances and welfare. As in most cases of unionized companies investigated in this study, a collective contract is signed regularly and wage increases are discussed every year. However, there is no contractually binding regulation of wages, wage categories, or working time. The relatively informal handling of this key element of labor relations is similar to the model for labor relations in the home country of the foreign mother company, where contract provisions covering wages and employment tend to be weak. valuation of regime of production



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Evaluation of regime of production – Automobile assembly case study 3, factory 1 Item

High/ Medium Low/ Strong Weak

Comments

Organization of Production Market control

X

Vertical integration (company)

X

Vertical integration (factory)

X

Product technology (relative to industry standards) Manufacturing technology

X X

Stability of production flow

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers Proportion women Proportion of temporary workers Workforce stability Income stability (related to incentive pay and overtime) Piecework type of incentives Employee involvement (workplace) Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

X X X

No migrant or temporary

X X X X X X

No Medium to high

X

SOE tradition X

Yes, signed on a regular base X

Legal standards

X

Legal standards

X X

Legal and extra X

X

Low to med – limited OT X X

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Factory 2 This automobile joint venture is a cooperative relationship between a Chinese automotive group in southern China and one of the leading automobile multinationals in the world. Established in 2004, it officially started production in May 2006. The joint venture has half its capital from the Chinese side, contributed by the automotive holding company of the local government of a major city in southern China. It is located in the most economically dynamic region in China – the Pearl River Delta. This industrial developmental zone is a showpiece for large-scale modern industry, combining diversified industrial production with first-class infrastructure, including container port facilities. Built rapidly on a greenfield site, this company has experienced the fastest growth in the Chinese automobile industry. Unlike comparable companies, it ramped up production quickly and started high volume production at an annual capacity of 200,000 cars. In May 2009 it reached 360,000. By July 2009 the company had more than 5,700 employees. More than 23.1 percent of them hold degrees from junior colleges and higher institutions of learning. Their average age is only 23.9 years, according to the company. The industrial area is also the location of a number of parts and components suppliers, including this company’s in-house suppliers. Model of Production This company uses state-of-the art manufacturing equipment and processes. Every aspect of production is highly automated. In the welding shop 47.6 percent of the operations are automated. The factory uses more than 300 robots. Advanced machines are imported for stamping, and the company claims to have the quietest operation of this kind in the world. In the final assembly area, a number of hydraulic lifting systems have eliminated overhead work for assembly workers. Parts weighing more than 10 kg are moved and assembled by machines. Thus assembly line work is less physically demanding for workers. Production is located on the ground floor of one large building. The assembly line has multi-model capabilities, which means that different models and configurations of cars can be produced on the same production line. Inside the factory, the production line circles the building in several turns. It has truck loading docks on all sides, facilitating just-in-time delivery of supplies to the production line. According to the plant management, this



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is the best logistics system used by the multinational corporation in China. The whole factory is designed as a showpiece for the company’s production system and technology in China. The factory produces three models, and production and domestic sales have grown faster than anywhere else in the Chinese auto industry. Currently there are development technicians and engineers in each department, but no research and development engineers for new products. The company is planning to set up a group for research and development and car body design with 300 engineers by 2015. It outsources many parts and components to suppliers. At the moment, 72 percent of the outsourced parts and components are made in China and more than 50 percent are produced nearby, making this company an important engine of growth for the local economy. The factory uses the lean production system, such as kanban parts supply, andon line-control panels (including the famous stop-button with which workers can stop the assembly line), and moving parts supply bins along the assembly line. Workers can perform their tasks while walking with the line, thereby increasing work intensity. Inventory and assembly areas are separated from each other. Advanced machines and robots are supported by fast transportation of parts and components. High quality and reliability are strongly emphasized, and workers can stop the production line when they see a problem. This is designed to guarantee quality during the production process, rather than leaving quality control and rework to the final stages of assembly. This factory passed the quality standards of ISO9001. In addition, it maintains high environmental standards, recycling water, reducing waste gas emissions, and saving energy. The factory uses team work and a continuous improvement program, which receives more than 6,000 proposals each month from front line workers covering quality, process, technology, safety and the environment. Due to the continuous increase of sales in the domestic market, this company has a relatively stable production flow. In the middle of the crisis in late 2008 and 2009 it introduced job sharing and some workers had to take holidays. However, the company promised not to discharge any employee in 2009, as well as no workforce reduction, no wage decrease, and no halt in production. Nevertheless, workers do not have unlimited employment security. The crisis mainly hit export enterprises. This company mainly targets the domestic market, which kept growing and was further stimulated by government policies. The company hired many temporary workers from dispatch agencies. Their number was not disclosed, and no information was

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given about how many temporary jobs were reduced in the wake of the crisis. The elimination of temporary jobs is not counted as workforce reduction in China. Work and Working Conditions The working conditions in this company are very good. The facility is still quite new and the production environment is modern. There is air conditioning in many areas, an important factor in southern China’s semi-tropical climate. Health and safety conditions seem to be state-of-the-art, as far as could be verified. Modern process technologies reduce the number of potentially stressful or dangerous operations, but, the speed of work is quite high. More than 5,700 employees worked in this company at the end of June 2009, according to official sources. Management, administrative and engineering personnel make up close to 2,000. The rest are front-line workers. Half of the management comes from the country of origin of the foreign joint venture partner. There are no statistics on the numbers of engineers and technicians, since the wage system has no link to professional titles. Workers on the production lines are almost entirely men. They were all hired as fresh graduates from technical schools, in order to be educated in the company’s way of organization and thinking from the beginning. No migrant workers or temporary workers are employed here. The work organization uses a team-based work model, for which the company has become famous. Production groups on the assembly line consist of about 25 workers, headed by one foreman or line leader. As in other plants of this company, the team is not self-directed. Its main feature is limited job rotation at the discretion of the group leader. Production workers have to have multiple skills in order to change jobs within their production area. Workers perform preventive maintenance and participate in an extensive continuous improvement system based on their suggestions. The factory has areas for group sessions to discuss production problems, which are held at the beginning and end of each shift. Management and technicians are recruited from colleges and universities all over the country, including cities where auto factories are concentrated. Production line operators, however, come from the province where the company is located. Before starting work, all new employees are trained in an extensive system that includes training areas in the factory.



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On-the-job training, special training and the company’s system of personnel selection support the development of individual employees. The system does not just provide training for production management and technical leaders in foreign countries or other factories in China. It also enables operators to develop their skills for certain positions. Three types of training programs exist, including compulsory training, promotion-related training, and selective training based on the interests of employees, such as languages. A new employee, with or without working experience, from manager to line workers, must receive training when they are hired, which takes from 6 months to 2 years. The content of this training covers corporate culture, working methods, occupational safety and health, environmental safety, and position-related skills. Outside the factory the company has a close relationship with dozens of technical schools to teach automobile-related skills, especially for after-sale technicians. Wage differences among employees are less significant than in many other companies in our study. Professional titles like technicians or engineers are not important. Wages are determined by administrative levels and posts. Engineers earn wages that are not very different from those of the normal first line workers. Training does not directly affect workers’ wages. Even promotion-related training does not automatically increase them; it just increases the possibility of promotion, or helps a promoted employee to meet the requirements of a new position. Most first line workers come from technical schools, and more rarely from universities. The starting wages for all first line workers are almost the same, and new employees are in the same wage grade. The grades may change according to their performance evaluations later. When workers gain regular status after three months of probation, those with outstanding performance can get a higher wage grade. If there is no overtime work, a production worker could earn 1,700 to 1,800 RMB per month in 2008. According to informal sources, workers received 16 to 18 monthly wage payments within the course of that year, and money was also distributed in festivals. Altogether, without overtime, the disposable annual income for first line workers is about 30,000 RMB. If there is overtime, the total income can reach 35,000 to 40,000 RMB. For managerial staff, the disposable annual income is about 50,000 to 55,000 RMB one year after university graduation. Overtime is relatively limited in this company. Management and the union have agreed that it should not exceed two hours per day, and monthly

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overtime should not be more than 36 hours. Because the Chinese side of the joint venture is a state-owned enterprise, the company strictly follows legal requirements. If government inspectors discover excessive overtime, the penalty is 50,000 RMB for each violation. Moreover, product quality cannot be guaranteed if workers work too much overtime and are exhausted. Therefore although overtime is used in this company, it does not exceed the limit posed by Chinese labor law. The plant operates on multiple shifts. The normal workday is eight hours, and the workweek is 40 hours in five working days with two rest days per week. In the morning and afternoon there are 10-minute breaks. Some sales, purchasing and management employees work more overtime. The company does not provide factory housing. Workers are transported to the factory by buses. Travel times tend to be long due to the size of the industrial area. Only a relatively small number of workers live in dormitories, since the number of migrant workers in the factory is limited. Labor Relations Because of its partial SOE background, the trade union is well established in the company. Union officials carry management titles at the same time. Inside the factory, posters of the Communist Party and trade union are highly visible. Signed collective contracts usually cover a three-year period, laying down the general principles of labor-management relations in the company. The clauses on working time follow Chinese labor law, including the monthly limit of 36 hours. There is no specific regulation on the length of the workday. According to management, work time regulations generally comply with the labor law, so there is no need to copy all legal stipulations into collective contracts. Wages are decided on the basis of the labor law and through collective negotiations. There is no specific figure for hourly wages in the agreement. A wage agreement is supposed to be negotiated once a year, as an annex to the collective contract. Since wage agreements will decide on the specific wage rates, it may also contain wage categories and grades. Due to the short history of this factory, no wage agreement has been signed at the time of our investigation. According to the trade union, a wage agreement would be developed in the following year. According to the management, wage agreement would specify the wage adjustment and the distribution of the annual bonus.



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The company has a well-established system of wage categories, consisting of six grades, with many sub-grades. The wage system is defined by company rules, which determine only the basic structure of the six grades, not the specific wages corresponding to each grade. Union representatives know the specific figures for each wage grade, which are subject to discussion during collective bargaining. However, after signing the collective contracts, the publicized document does not include numbers for each of the six wage grades, which remain hidden to employees. According to the union, the administration decides the wage system and structure, and the union accepts this practice. The union’s function is to enforce general practices and guidelines. The company did not reduce wages during the recent financial crisis, and raises were not lower than a certain figure. According to the union leader, the union does not intervene in administrative affairs. Instead, it protects the continuous development of employees as the means to keep their wages rising, but does not negotiate the wage for each grade. According to the union, wages in recent years have kept increasing, not very fast, but keeping pace with the Consumer Price Index. The union does not monitor wages and working conditions at the supplier companies. There seems to be little information on this subject. Coordinated bargaining along the supply chain is not seen as a task for the trade union. Conclusion Although the company features a distinctively high-performance work organization, for which its production system has become world famous, this automobile joint venture represents the corporate-bureaucratic regime of production. On the one hand, it is strongly influenced by its country of origin in many aspects, including production facilities, work organization, and wage structure. Its concept of lean production is deeply rooted in the assembly process. On the other hand, the regime of production displays many Chinese characteristics. These include the way of cooperation with Chinese technical schools, the co-management of the union, and the collective bargaining system. Typically, the trade union puts itself in the role of both promoting production and protecting workers. Collective agreements contain no fixed figures for wages.

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Evaluation of regime of production – Automobile assembly case study 3, factory 2 Item

High/ Medium Low/ Strong Weak

Comments

Organization of Production Market control

X

Vertical integration (company)

X

Vertical integration (factory)

X

Product technology (relative to industry standards) Manufacturing technology

X X

Stability of production flow

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers Proportion women Proportion of temporary workers Workforce stability Income stability (related to incentive pay and overtime) Piecework type of incentives Employee involvement (workplace) Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

X X X X

Production workers almost all male

X X X X X

Team work

X X X X X X X X X X



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5.1.4 Automobile Assembly Case Study 4 This is a joint venture between a Chinese automotive holding group owned by a local government and a large multinational corporation from Asia. The company emerged from a failed joint venture between the Chinese side and a European car manufacturer, which ended in bankruptcy during the 1990s. The new company was launched in July 1998. The restructuring was regarded as extraordinarily efficient in terms of time and investment. This company started from a relatively small capacity (30,000 cars annually), but has expanded rapidly since then. The capacity at the time of our investigation was 360,000 cars annually, more than ten times the initial volume. This joint venture owns two major factories in the city. Both assemble small to midsize cars and minivans. The newer factory is equipped with very modern production technologies. Both factories are located in South China, in the center of one of its most economically dynamic regions. The local development zones are host to many first-tier multinational corporations. Currently, this company has more than 6,800 employees. The products are four series of cars with 21 models. The joint venture is developing its own brand, which is supposed to be put into production in the near future. In 2007, the company set up an research and development enterprise with the independent ability to make a whole car, including conceptual design, shape design, vehicle testing, and the development of parts and components. Model of Production This joint venture has a longer history than other foreign auto makers in this region. The older factory site, which was taken over from the former joint venture, was originally built in the late 1990s. Today it is a complex of four or five workshops and administrative buildings. Production is highly integrated, including metal stamping, body shop, welding, vehicle assembly, testing and rework. Major components are delivered from outside, mostly from factories co-owned by the foreign mother company or the joint venture. The company runs a factory for automatic gear assemblies in a nearby industrial city, one of four such component plants worldwide. The supply infrastructure mirrors the supply pyramids of the same corporate family, which are based on in-house suppliers – typical for major auto manufacturers from the mother company’s country in East Asia. The company has built a fairly complete manufacturing infrastructure in China in less than a decade, and

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has brought along a number of nearby suppliers. Up to 87 percent of its products are produced locally, according to official data. Learning from the failure of the former joint venture, this company has paid much attention to local production, sales and service, as well as to introducing new car models. It started with a small capacity, concentrating on less input and faster output, rather than the large input and large output of many other companies. It developed rapidly and started making profits after a year. Its mid-level cars rank number one in sales in the domestic market. The main factory is a complex of five workshops and administrative buildings, and also contains extensive recreational facilities, including a gym, dance floors, and family meeting rooms for the employees. Those facilities are administered by the union. The factory has no dormitories since all workers are local. The production system is based on the standard model of the foreign multinational. It features the typical aspects of lean production – just-intime delivery of parts and components (kanban), continuous improvement processes (kaizen), and limited job rotation along the assembly line. This company’s production system is very flexible, and is rooted in its history as an assembler of small engines and motorcycles. Its production is less automated than the other plants in this study, but the assembly lines have multimodel capabilities, the hallmark of the manufacturing system of the foreign joint venture partner. Multiple product line manufacturing is coupled with efficient warehousing and material transportation. In the final assembly area, the machinery and equipment are relatively modern. The plant has a traditional assembly line on the ground floor, which facilitates just-in-time delivery of parts. The foreign mother company has invested hundreds of millions of dollars to implement a flexible global manufacturing system, which can adjust models in production as market conditions change. In all the company’s auto plants around the world it has installed programmable electric welding robots, the heart of the system. Programmed for various models, the robots can switch production from an SUV to a sedan within minutes as part of the daily production schedule. A standardized layout for the assembly lines in all plants also allows workers to build a variety of products efficiently and without interruption, even vehicles that vary in complexity. For vehicles that require additional manufacturing processes, such as four-wheel-drive components, assemblies go to a sub-assembly line for components that fit in with the main line. Standardization of the welding robots and the assembly layout



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also provide plants with similar production capabilities, substantially enhancing the ability to add products from one plant to another when needed to meet customer demand. There are no areas with group work or “manufacturing islands”. From one to three workers are at each work station. According to the trade union, there is little job rotation on the line. However, the content of the work changes frequently, since different car models are assembled on the same line with daily changes of production runs of various sizes. Each worker must have multiple skills in order to make these frequent production changes possible. The production flow is stable due to continued sales expansion, which has not been affected by the financial and economic crisis of 2008–2009. Work organization is heavily focused on quality, following the goal of zero defects in the assembly process. If there is defective product, it must not be allowed to go onto the next procedure. At each position there are standard work specifications, which describe the procedure for each process. Individual workers have a checklist with detailed instructions for inspection. The worker must immediately report to the team or shift leader any abnormal situation to ensure prompt attention to the problem. The emphasis on quality is also shown by the fact that a complete car testing line was imported from the foreign mother company during the early stages of the production in China, to test the positioning of wheels and lights, the weight of wheels, braking, side slide, exhaust and other items. It used a computerized system for testing procedures. The company also tests its products in real-life situation, including a car to car crash test and a pedestrian protection test. This company reportedly has the highest labor productivity in the industry. The major way it improves work efficiency is not by increasing work intensity or overtime, but instead reducing unnecessary work. To accomplish this, the company has improved its technical processes, the standardization of work, human resource practices, administration, and logistics. The company concentrates on its engine technologies. It purchases other parts and components from global sources, assembling them together with its own engines using its own designs. The development of this production system is closely related to its practice of gradually expanding capacity to meet increasing market demand. Management has tried to extend its production line in step with the market, based on the assumption that the company will introduce at least one new model every year. However, after major competitors became established in the area, the company accelerated the introduction of new models and re-

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search and development, as well as increasing investment and market expansion. It started a “4S sales model “(sales, spare parts, service, and survey) in China, and now has more than 210 service shops. The company achieved certification by the ISO 9002 Quality System, the ISO 14001 Environment Management System, and the ISO 18000 Occupational Health and Safety Management System. It has a distinctively “green” approach to manufacturing. Its new factory is the first in China with zero waste water discharge. Trash is collected by category, providing better recycling. During the manufacturing process the company tries to achieve zero emissions of carbon dioxide by reducing emissions and expanding the green zone in its factory area. The new factory also has a specialized automobile exhaust system in the final assembly and testing lines, and 90 percent of the work stations require using engines to collect the exhaust. Work and Working Conditions This company’s employment of 6,800 workers grew from 5,100 in 2006, after the second factory was put into production. Most employees in the new factory came from the older one, and the rest were recruited locally. Every year, the joint venture recruits engineers and management staff from major universities all over China. In 2008 it hired more than 200 university graduates. At the same time, production line workers are recruited from both local and more distant technical schools. Since many employees are new graduates, the average age in this joint venture is quite young – about 26 years old. Relatively few workers remained from the older European-Sino joint venture. Most of the workforce was newly recruited, following the practice of the foreign joint venture in this area. There are no migrant workers among the permanent factory employees. However, the company used to employ a large number of temporary workers from dispatch agencies. According to informal sources, there were more than 1,000 dispatched workers among the total workforce of 5,000 in 2005. After the Labor Contract Law took effect in early 2008, the company ended its dispatch labor system, and signed employment contracts with all workers, according to the union. Working conditions in this company (including safety and noise) seem to be comparable to factories in industrialized countries. Every employee must pay attention to cleanliness. The work pace appears to be steady and efficient, but not visibly stressful. There were no signs of overstaffing in assembly, as is often seen in comparable Chinese factories. The typical sloppiness on



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safety and health issues and use of protective gear, which are common in Chinese workplaces, cannot be found in this factory. The process organization seems to be highly efficient. According to the trade union, there are no areas with overtly hazardous working conditions, even in critical areas like painting or welding. The wage system is distinctive. Wages are not based on positions or seniority. Instead, there is a wide wage range on compensation for a single position, depending on personal ability. Although there is only one leader in each production unit (such as the welding division), another ten employees might earn wages at the leader’s level. Wage levels are the same for university graduates entering the company – close to 3,000 RMB per month. There is no probation period. Wages are raised after one month, but not more than 20 percent. Afterwards the regular wage system applies. Wages are paid in the middle of each month. Employees receive 18.5 months wages in total every year, including double wages for both July and August, as well as another four or five months wages at the end of the year. In addition, bonuses are distributed for festivals. Interestingly employees receive an award of 2,000 RMB for late marriage and childbearing. The company provides all legally required insurance, as well as a transportation subsidy and extra housing fund. These total more than 500 RMB per month. Overtime is paid according to legal standards. The wage for a first line worker is more than 3,000 RMB per month including overtime and bonuses. For newly hired production workers the base wage is around 2,200 RMB. The year-end bonus is relatively high. Its precise amount depends on company performance, and it usually makes up between one third and one half of a worker’s total annual income. The company also subsidizes car purchases, selling them for 15 percent below market price. About 400 workers in the factory own cars. Technical school graduates first work for the company as interns. After a three month probation (at a wage of 800 RMB per month, plus food and accommodation), those who qualify become regular workers. Their monthly wages rise to the normal level, more than 2,000 RMB, including base wage, overtime, allowances, benefits and attendance bonus. For employees not from the local area, a dormitory is provided free. In addition, the company provides free air-conditioned shuttle buses and meal subsides. A welding worker can earn 3,500 RMB per month and 18 months of wages per year. The company also provides subsidies for home purchases and housing, up to 20 percent of the monthly wages. On the whole, the wage system is intended to develop a flexible skilled workforce

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over the long run. It contains strong incentives for long-term tenure and skill and career development. The flexible component of the regular remuneration is moderate, while extensive overtime and exhausting speed-up are not encouraged. The factory has extensive recreational facilities. The company has invested extensively in culture and sports centers for employees, including gyms, dance floors, tennis and basketball courts, reading rooms, and a training base. In the cafeteria, the price of a good-quality standard full meal is 5 RMB. Meals are subsidized by the company, at more than 100 RMB per month. Each employee gets four sets of work clothes and accessories, which can be exchanged for new ones each year. The company also launders these clothes for free. Management usually wears the white-color work clothes. The dormitories for university graduates are shared, well-furnished flats, with very low rents. Some production workers are provided with free dormitory. A variety of training is provided by this company, including professional training in universities, training in its foreign headquarters, and internal training. The company encourages managers at department level or above to attend MBA programs in universities. More than 80 people have done so. The company cooperates with universities in organizing part time classes for employees. Internal training courses aim at improving employees’ skills. Certificates are awarded after training. For new hires, training starts with a threelevel safety course, beginning with proper use of labor protection equipment at work. Usually, in pre-job training the teachers are senior employees from different departments. Suggestions from employees are encouraged. Employees can put forward any improvement ideas. If the suggestion is taken, the worker receives a bonus. Employees form groups according to their interests and research topics. Every year a contest is held at the level of the company, for all of China, and at the global level, where these research groups can show the results of their work. Winning groups may go to headquarters for further contests. This company emphasizes respect for people and tries to develop their abilities. Its workforce structure and its wage and training system contribute to a distinctive style of management and labor relations. In recent years, this company has received many awards as the best employer for Chinese university graduates.



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Labor Relations The industrial park in which the factory is located is administered by the government of the city. Trade union affairs are coordinated by the city district union. Like many joint ventures in the industrial park, this company has a well-established trade union, as well as Communist Party committees. In September 2007, 15 percent of the employees were party members, whose average age was 31 years old. 76 percent of them had a degree above college level. Inside the factory, the roles of the union and party organization are publicized. There were no signs of tensions or blurred lines of decision-making in management between Chinese and the foreign managers, as is often found in joint ventures. Important issues are subject to joint decisions by both sides at all levels, and reported from departments to the general management, including employees’ compensation. In comparable joint ventures in this study, responsibilities were divided between the foreign and the Chinese side along department lines, typically leaving financial and technical management to the foreign and human resources to the Chinese side. The tight integration between the Chinese and the foreign sides in this company includes a high degree of involvement of the union in day-to-day management as well as political representation of the company in the political field. The chairman of the trade union is also the chairman of the party organization in the company. Collective contracts are signed every two years. In 2009, the sixth collective contract was due to be signed. Each time contract renewal is coming up, the trade union and administration negotiate about clauses that need revision. In total, six representatives are present in negotiations. The union chairman is the chief representative, and other workers’ representatives are elected from each workshop. They monitor problems and negotiate with the company. Both sides basically try to follow labor laws. According to management and trade union, there has been no big conflict during negotiations in recent years. The collective contract mainly reiterates the stipulations of Chinese labor laws and government regulations, with the exception of employee welfare. There is only a general clause saying that wages should be determined by both the union and the company, according to changes in the Consumer Price Index, local social wages and the company’s performance. The wage system is based on detailed wage categories, which contain 20 grades in total. For instance, university graduates get the fourth grade when entering the

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company, which pays about 3,000 RMB per month. Wage grades are not written into the collective contract, although the individual employment contract of each worker has clauses such as “the wages of this worker should not be lower than x”. According to the trade union, there is a plan to revise collective contracts, but it has not yet been announced. The collective contract follows the legal standards of 40 hours per week. Overtime must be approved by the union, especially when the legal limit of 36 hours per months is exceeded temporarily. Overtime in the production departments caused by problems of equipment or raw material supply must be reported and the union must give permission for it. Wages and work standards are not coordinated with other companies, or with major competitors in this region, although the wage levels in comparable workplaces are generally known. Possible differences are not regarded as a problem because it is not easy for university or technical school graduates to get a job in this company. It is regarded as a highly preferred workplace among graduates. Individual bargaining and the related upward trend in wages and salaries is much more limited than is typical for many booming urban labor markets in Chinese first-tier cities. Wage differentials with suppliers are substantial. Premium working conditions are limited to the core company by manufacturing essential components at lower labor costs through the system of modular production. Although many suppliers belong to the same company group, and all major suppliers have established trade unions, there is no coordination of wage levels between the core factory and its suppliers.43 The trade unions of the core firm and its suppliers belong to unions at the district, the city, and the government-owned Chinese holding company of the joint venture. But there is little coordination between the unions along the supply chain. The union in the assembly plant is in contact with unions in supplier companies in the industrial park, and at one point it even intervened in their collective labor conflicts. But the union regards different wage levels between the main company and its suppliers as just and necessary under the existing production system. Both the city and the provincial trade unions support centralization of bargaining relations. Nevertheless, individual companies in this production system sign their own collective contracts. Contracts are not negotiated at 43 In China, there are industrial unions for the auto industry under the provincial or city levels. In principle, each company should have its own trade union, and suppliers have different industrial unions at upper levels.



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the level of the local industry or the automotive group as a whole. In the union’s point of view industrial unions are not mature enough in China, so workers have to talk directly to their employers in each single company. As one result, although the core company has stopped using dispatched labor, most workers at suppliers mostly are dispatched, treated worse and paid less. We do not know to what extent “dirty” functions of the assembly process are outsourced, such as stamping or painting, and the exact conditions of employees in suppliers. According to the union in the assembly plants, wages in some suppliers are lower, but the influence of the district union keeps them from going lower. The partnership between management and the trade union does not seem to have suffered from the global financial and economic crisis, which has no negative impact on the workforce. In fact, production has expanded during 2008 and 2009. In case of a severe downturn, the union says it would advocate reducing wages in order to avoid redundancies. Conclusion In spite of its lean production and flexibility, the regime of production in this company can be characterized as corporate bureaucratic, in the sense of more traditionally organized multinationals and joint ventures. The main reasons are its high wages and benefits, and the relatively low proportion of flexible pay. The workforce is relatively young, since graduates from universities and technical schools are recruited all over China. This company provides training and social facilities to employees. Wages strongly depend on personal ability, which also encourages competition among employees. Career development is closely linked to practices in the foreign mother company’s home country. Because there is no seniority or other regulations concerning skill, job assignments and career development follow the management system and labor relations typical in manufacturing corporations in this particular foreign country. This differs from European or North American automobile companies, where extensive rules on wages, benefits, skills, and job assignments are based on union contracts, and heavily influence the wages, labor policies, and behavior of management. The company has relatively easily accepted labor laws stopping the use of dispatched labor. Management negotiates with the union about overtime without seeming to fear that union power will constrain its decisions.

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These labor practices have typical Chinese characteristics. At the same time, they seem to be consistent with the foreign management model. They are the result of joint decision making between the Chinese and the foreign side. The trade union and the party organization play an active role in comanaging working conditions, in order to make the factory a showcase for local industrial development. Collective contracts mainly follow labor laws. The degree of extra remuneration and benefits, as well as the quality of recreational facilities, is very high. As in other cases of unionized companies in this study, the collective contract only establishes soft rules on wages, the wage system, and job classifications. Unlike other cases in this study, there is little individual bargaining or resistance on the part of employees on issues of pay, work quality or working hours. The relatively well-established mechanism of trade-union coordination with management, together with the generally high level of extra remuneration (especially four to five extra monthly salaries per year) minimizes problems. The working conditions at its suppliers seem much worse, but there is not much coordination in the area, and the local industrial union does not play any role.



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Evaluation of regime of production – Automobile assembly case study 4 Item

High/ Medium Low/ Comments Strong Weak

Organization of Production Market control

X

Vertical integration (company)

X

Vertical integration (factory)

X

Product technology (relative to industry standards) Manufacturing technology

X

Stability of production flow

X

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers Proportion women Proportion of temporary workers Workforce stability Income stability (related to incentive pay and overtime) Piecework type of incentives Employee involvement (workplace) Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

X X

No rotation, but changing work content X X

X X X

Medium to high X

X

Medium to low

X X

Since around 1995

X

Legal standards

X

X X

Insurances and subsidies X X X X

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5.2 Automotive Suppliers Case Studies 5.2.1 Automotive Suppliers Case Study 1 This company is a major Chinese state-owned supplier to the auto industry, making gear and gear-related products. The company also develops complete automobile transmission assemblies for major joint ventures and international car manufacturers. The factory, which we investigated, was founded in 1985 in a suburban district of a major city in East China. Like the majority of local automotive suppliers, the company is owned by the local automotive holding group of the city, which is also a partner in two major joint ventures with leading international automobile companies. A broad infrastructure of automotive suppliers has emerged under the dynamic regime of state-led development in this city. This region is the leading hub for manufacturing automotive supplies in China. In recent years, the company has benefited from the trend among automobile joint ventures that seeks to localize their supply-chains, even for relatively sophisticated parts and subsystems such as gears and transmissions. This factory now is a state-collective associated enterprise, owned by a holding group with interests in automotive gear and gear-related manufacturing. This factory is the largest of the 17 branch factories in the group, and it is an independent legal entity. In 2005, its revenues were 176 million RMB. The official company website publicizes a goal of producing 500 million RMB in goods, 1 million RMB per employee. It seeks to be one of the top 33 producers in the automotive supply industry in China during the eleventh Five-Year Plan. In 2009 it employed about 600 workers, slightly more than in 2006. Model of Production The factory belongs to one of the older automotive supply firms in the region, formed in the 1980s soon after the first automobile joint venture was established in the city. The first buildings were constructed in the mid-1980s, and were expanded later in several steps. However, the existing manufacturing space is still too small for its rapidly growing production. In 2009, the factory had a floor space of roughly 50,000 square meters, and a building space of 30,000 square meters. The factory’s major products include transmission assemblies, especially for an older standard car model of one of the local auto joint ventures, which



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is still one of the most popular cars in China. The company also manufactures parts for Chinese military vehicles, elevator shafts for a major multinational corporation, and drive shafts for electromotive equipments. Gears and cylinders for international car and truck manufacturers are produced for export. The plant’s long list of customers includes several major U.S. and European auto companies, domestic auto makers, leading agricultural machinery companies, electromotive companies, and crane makers throughout China. Exports target emerging markets like Brazil. The company is a parts supplier, but also provides integrated systems, such as automotive gearboxes. Within the supply chains of the automobile industry, the company is not yet a first-tier systems supplier. However, with the increasing localization of the automotive supply base and its rapid upgrading, the company seems well-positioned to become one. The main factory has seven workshops located in an older industrial complex, which does not fully meet the requirements of modern just-intime production. The buildings appear rundown, and not fitted for modern logistics. Space is scarce. Inside the workshops, different production lines produce specific kinds of products, such as flexible differential gears, elevator shafts, or military vehicle gear. The factory has spray and paint shops and a logistics area. Much of the machinery comes from first-tier international vendors, such as precision roll forming, lathes, gear hobbing, gear cutting, shaving machines from Japan, CNC grinders, spray equipment, advanced precision measuring equipment from Germany, and testing equipment from the U.S. Quality control is an important concern. Control methods include both statistical process control and optical inspection. In the testing section, each gear assembly goes through an automated testing system. Since 1994, the enterprise has received various international certifications for its quality management system, such as ISO 9001 and 9002 or ISO/TS 16949, as well as Chinese certificates at the local and national levels. This factory also has a research and development etc. team, and complete hardware and software facilities for the development of new products. Product development is based on AUTOCAD design software and sophisticated workstations. This equipment has been used to develop dozens of types of automobile gears and applications for major auto makers. In addition, the company has developed its own brand of transmission systems based on one purchased from a former British automaker, and it has achieved a substantial share of the domestic market.

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The financial crisis had an impact on this factory at the end of 2008 and in the first quarter of 2009. However, it has been limited since the company produces mostly for the domestic market, which was relatively stable during the crisis. Less than 30 percent of the products of this factory were exported, and this proportion has decreased in the wake of the crisis. The customer base can be expanded and further resources may be transferred from the main plant of the automobile group, which would allow the factory to benefit from the stimulus policies of the Chinese government. The production process combines batch production of parts with assembly work for gearboxes and modules. The workshops have both production lines and workstations, which are usually controlled by a single worker. Some workstations have digitally controlled processing, which requires workers to have a relatively high level of experience. Inside the workshops, the noise level is quite high. One or two workshops are air-conditioned, because some parts have to be processed under cooler temperatures. The production process basically has two stages: parts manufacturing and assembly. In parts manufacturing, single parts for transmissions are produced, cleaned, and pre-assembled in various arrangements. Cleaning and pre-assembly is mostly assembly line work along smaller lines of 10–30 workers. The final assembly of gearboxes is craft-type work, performed in highly skilled workstations by about 30 workers. Compared to assembly line work, workstations have a higher degree of autonomy and control over the work flow. Workers must know how to start and ramp up machines and measure parts. Operators oversee basic process control, and must be able to judge whether a produced part is good or not. There are 30 to 50 machines in each workshop, mostly programmable. Each production line or set of machine tools can be used to produce different products. In practice, operators are not allowed to program the machines, which is done by specially trained technicians. However, operators perform simple maintenance and changes in tooling. Since production volumes usually are high, production lines are not changed frequently, usually once every few months or even once a year. Work and Working Conditions The gear corporate group has 17 factories, employing several thousand workers. In this specific factory, there were about 600 employees in 2009, slightly increased from 577 in 2006. The composition of the workforce here is



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complicated. Because the company was a state-owned enterprise, now there are three groups of employees, roughly equal in number. First, long-term employees are mostly directly employed by the mother company and dispatched to this specific factory. Second, there are local peasant workers. Because the factory buildings occupy the land of local peasants, some have been hired to work in the factory. The third group consists of temporary workers from dispatch labor agencies. Dispatched workers are usually very young, mostly younger than 30 years old. Because local workers and those sent by the parent company (all former SOE employees) are older, the average age in this factory is about 42 – old for most auto and motor supply companies in China. Unlike the dispatched workers on short-term employment contracts, the former peasants and SOE employees are regular workers with life-long employment. Most of them are 40 or 50 years old. According to management, SOEs prefer workers over 30 who are mostly married, because they have a greater sense of responsibility and tend to stay longer with the enterprise. Women make up more than 30 percent of the total workforce in this factory. The management believes they are more careful and better suited for working with small parts. Because much of this factory’s production is automated, manual work is limited and not physically demanding. Most women have machine work positions – more than in similar western factories. The general skill level in this factory is relatively high, because of the large proportion of diversified and specialized machine work. Among the 577 employees in 2006, 31 were ranked as “professional cadres” (comparable to engineers in western countries) and 55 were highly trained specialists with technical titles.44 Engineers make up 6 percent of the total workforce. More than 60 percent of the employees have certified professional skills, including 44 Professional title (zhicheng) refers to the traditional cadre system in China and its application to experts in certain trades. Trades are defined in broad terms such as engineering, broadcasting, agricultural technology, school teachers etc. Usually, there are four or five ranks for each trade. Employees can apply for upgrading of their ranks in time periods of one year or more. The general qualification requirements for middle-rank titles are a university degree and more than five years professional working experience. For higher ranking titles, more than ten years of work experience with at least five years in middle-rank positions are required. Academic titles can be substituted by work experience in special positions or by personal merits in terms of moral or performance. The personnel departments of provincial or municipal governments are in charge of the evaluation. The titles are valid nationwide. Today, such titles are still very important in the public sector and to a lesser degree in SOEs. ‹http://baike.baidu.com/view/57035.htm›

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all front line operators in manufacturing. Skills are evaluated according to company-wide criteria, and employees can improve their career opportunities through training. There are three levels of technicians: elementary, midlevel, and advanced. A company goal is to provide technical training to the entire workforce. At present, workers with no formal skills mostly work in supporting positions, such as storage and logistics. Some specialized maintenance workers, like electricians, are provided through a service company that is a specialized subsidiary of the parent corporation. Most of the former peasants have relatively few skills. The factory has made great efforts to train them as operators. Most other machine operators are technical school graduates. Workers are recruited through recommendation from neighborhood committees or from labor agencies. Newly recruited operators are trained on the job. This includes technical school graduates, because their knowledge from school cannot be directly applied in production. Typically, training is conducted through an apprentice-master scheme. The masters help new employees to adapt to the work requirements of their positions. Jobs are arranged according to the skills and experiences of individual employees. More than 95 percent of dispatch workers are hired as front line operators, i.e. machine and assembly workers. This part of the workforce is flexible. Workers sent from the parent corporation are not usually operators. Most are employed in higher skilled and physically less demanding positions, typically in preparation, adjustment and maintenance of production lines. The groups are compensated very differently. Former peasants continue to work under the salary system of the former SOE, which was based on hourly wages, with bonuses and allowances. Their regular workday is eight hours. Wages of these former peasants, who officially are regular workers, are much lower than former SOE employees. However, their wages are still distinctively higher than those of temporary workers. The rest of the employees in this factory, including all front line operators, are paid by piece rates. Piece rates are fixed at a level that under normal conditions allows workers to meet their production goals within eight hours. Higher piece rates apply to output beyond this quota. The piece rate for parts produced within an eight hours shift may be 1 RMB, and beyond that perhaps 2 RMB per piece. Piece rate workers are also guaranteed a minimum base wage to maintain income stability. There are also various incentive systems. Under one system, workers are annually evaluated and ranked with stars. A one-star employee might receive



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a bonus of 100 RMB, while a two-star worker might get 200 RMB. The highest level is three stars. If a dispatched worker gets an evaluation of three stars because of an advanced skill, the worker can become a regular employee. The wage structure for dispatched labor and former local peasants is composed of a base wage, bonuses and allowances based on stars. Excluding overtime, the base wage and the flexible part of the wage are roughly equal. The monthly income of dispatched workers is around 1,600 RMB, not including overtime. Overtime is limited to three hours per day, in accordance with the labor law. However, in special cases overtime hours can be longer, if the workers agree. The resulting income level is below foreign invested enterprises or joint ventures in the city, but better than similar enterprises with this kind of ownership. The wages of temporary and local peasant workers are much lower than those of regular employees sent from the main plant of the corporation. No matter whether those regular employees are operators or managers, their wages follow the standards of the main plant. The base wage for regular operators is around 2,100 Yuan per month, with a performance-based bonus. The bonus is distributed on the basis of an evaluation of individual skills and performance, and of the monthly profits of the factory.45 Workers can earn more than 1,000 RMB per month through this bonus. A year-end bonus is paid to both regular and dispatched employees. Again, the standard for dispatched labor and former local peasants is much lower than for former SOE employees. There are also subsidies or allowances, such as a high-temperature allowance paid when the temperature is over 35 degree Celsius. The factory pays 35 RMB per day as the high-temperature allowance to front line operators, although the legal minimum is only 10 RMB. For second line workers such as those in logistics, the high-temperature allowance is 30 RMB per day. The factory pays further temperaturerelated allowances to all employees, usually several hundred RMB per person during the hot season. Work hours for production workers are based on a two shift model. Sometimes there is one more shift at night, with a higher shift allowance. The 45 As an example, one can assume that the standard quota for an operator is 180 pieces. If an operator makes 180 pieces during one shift, he/she would receive 2 RMB for each piece, so the total bonus is 360 RMB. But if he/she makes 200 pieces, for the 20 pieces extra the operator would get a higher rate than 2 RMB per piece, perhaps 3, 4, or 5 RMB. If it is 5 RMB, the operator would get 100 RMB for making the extra 20 pieces. So the total bonus for the 200 pieces is 360 + 100 = 460 RMB.

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regular work hours for office and non-shift workers are from 7:30 a.m. to 4:00 p.m., including 30 minutes for lunch. Compared to a major automaker nearby, the wage level in this factory is lower, but employees in the auto factory have much longer work hours and higher work intensity along production lines, according to management. Local workers prefer not to work overtime, but workers from outside of the city, including most temporary workers, want to work overtime because of the extra income. Labor Relations National laws are relatively well respected in this enterprise, because the company is a state-owned enterprise. In 2008, this factory was lauded by the local government for its harmonious labor relations. However, the labor standards have become increasingly unequal for different groups of workers, reflecting the segmentation of the workforce and the two types of ownership that exist in this factory. Long-term SOE workers directly employed by the mother company are the core workforce, with relatively decent wages and stable employment. Former peasants from the surrounding area, hired because of the loss of their former livelihoods, have secure employment, but relatively low-wages and bonuses. Temporary workers, who are mostly migrant workers from outside the city, have low-wages and no employment security at all. Although equal pay for equal work is a principle contained in the national law, different systems exist in practice. The company belongs to a transformed SOE, but the factory itself is an independent legal entity owned by a statecollective associate enterprise. The village where the factory is located owns some shares. These two frameworks lead to the different wage structures and employment standards. There is no regulation above the enterprise level, and the only enforceable legal norm is the minimum wage. As long as the wages are not below the minimum wage, the enterprises can fix wages as it sees fit. Like other enterprises with a SOE tradition, this factory has a well-established trade union. The union chairman is a full time officer paid by the company, and the union status is protected in accordance with the Trade Union Act. There is also a Communist Party branch in this factory, but its personnel does not overlap with the unions. The major function of the party branch is to supervise the development of the company, but not to interfere in day-to-day labor practices. In case of severe social problems, the union chairman may discuss issues with upper level party leaders.



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There is also a collective contract in this factory. However, as in most other cases in this study, it provides only very weak regulations over wages and pay systems. The contract stipulates that “wages should follow the proposal of the enterprise”. No concrete figures about hourly or monthly wages and salaries are fixed in the agreement. Nevertheless, wages are negotiated to a certain extent. Sometimes workers think wages are too low, because prices are increasing. According to management, the human resource department considers these complaints in an informal way. The wage guidelines of the city are used as a reference for wage increases. In practice, the human resource department tries to add more incentives to the wage structure. Workers see this as a justification for higher wages when the company is doing well. Often, this puts managers in a difficult position. During meetings of the employees’ congress, workers ask whether the development of the enterprise should be linked to the wages of employees. Management agrees in principle, but tries to avoid raising wages on a long-term basis. Occasionally individual labor conflicts occur, but collective labor conflicts have not been reported. There are no known court cases in which workers have successfully challenged the structural inequalities in the wage system. Conclusion The regime of production in this enterprise can be characterized as state bureaucratic. However, it appears increasingly segmented between three groups of employees, because of the different levels of ownership and political influence in this company. For the temporary workers in particular, employment conditions and incentive systems have typical features of the corporate highperformance and flexible mass production regimes – insecure employment and highly variable pay. In this perspective, this company is representative for the increasing segmentation of employment policies, working conditions, and social status among the workforces within transformed SOEs, as analyzed in other cases in this study as well. As an upper-tier parts supplier in the auto industry, the factory uses relatively high technology and workers have a high skill level. The factory has a strong social and cultural heritage as a state-owned enterprise, especially in terms of human resource policies. Industrial upgrading and continuing SOE traditions reflect the fact that the company has a relatively secure position in the supply chains of the local

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auto industry, since its mother company is also the Chinese partner in the city’s major joint venture auto manufacturing enterprises. This integration of core assembly firms with local suppliers under the same local SOE is a key characteristic of the successful development of the city’s auto manufacturing and supply sector. The regime of production, therefore, has fewer of the tough practices of lean production and “management-by-stress” (Moody 1997) than many factories owned by international first-tier system suppliers or their local subsidiaries. Regular employees from the former SOE enjoy relatively good working conditions, even though the labor standards may not be as high as in auto assemblers due to the cost pressures. Although production is entirely marketdriven, many basic labor practices have not changed. However, the increasing flexibilization of the workforce has engendered strong segmentation. The conditions of regular workers from the former SOE are so different from those of dispatched labor from the labor agencies or of former local peasants that the factory really embodies two systems. The trade union acts as a sub-branch of management and does not attempt to base labor relations and labor standards on collectively bargained contract arrangements. It sees informal consultation over wages and working conditions with the company management as the means to secure relatively decent wages and working conditions for the core workforce. The company increasingly competes in global markets and therefore feels their competitive pressures. But the company and union do not seek new ways to set wages and working conditions. Labor conflicts in the automotive supply sector in other regions in China, however, have not inspired significant reforms of labor policies and management practices in this region. Experiences in other industrial sectors in the city’s garment sector have not been considered relevant to the automotive supply sector.



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Evaluation of regime of production – Automotive supplier case study 1 Item

High/ Medium Low/ Strong Weak

Comments

Organization of Production Market control

X

Vertical integration (company)

X

Vertical integration (factory)

X

Product technology (relative to industry standards) Manufacturing technology

X

Stability of production flow

X

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers Proportion women Proportion of temporary workers Workforce stability Income stability (related to incentive pay and overtime) Piecework type of incentives Employee involvement (workplace) Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

X X

Low to medium

X X

30 %

X

> 30 %

X X X X

Low to medium

X X X X X X X X X X

No data

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5.2.2 Automotive Suppliers Case Study 2 This enterprise is a parts supplier and is similar to other lower-level suppliers in the growing production networks of the automotive industry. Its ownership, however, is not typical. The industry in this region is dominated by small- and medium-sized private companies. Founded in 1979, this enterprise was then restructured in April 1995 as a joint corporation, with 50 percent of its capital from the township government and the other 50 percent from a large industrial corporation. This corporation is owned by the municipal government and has a major investment from a Western first-tier automotive supplier. Officially this enterprise is “privately owned”. But it is also inspected by the local branch of SASAC (State Assets Supervision and Administration Commission), the government holding company for stateowned enterprises in China. The township government manages the plant through an investment company and a SASAC representative is on its board. Factory management has to report to this representative twice a year, but there is no interference in the day-to-day management. This enterprise produces steel wire, automotive interior parts, tools, racks, and especially plastic foam products. The factory is located in an auto manufacturing district in the suburbs of a major city in East China, and has more than 13,000 square meters of factory space. In the surrounding area there are a number of higher tier auto part and component suppliers, as well as global and domestic brand-name car makers. There were more than 300 employees at the time of our visit in March 2009, up from 220 in 2005. Model of Production The company mostly makes foam seats. Its parts have been used in many global brand-name cars as well as in Chinese autos. Production and sales are completely based on the platform of one Western first-tier auto parts supplier, who acts as a system supplier to various brand-name firms. Raw materials are purchased, through the Western systems supplier, from a plant belonging to a world-known chemical enterprise in South Korea. Production volume is high. Every year more than six million foam products and two million covers are delivered to the system supplier. The Western supplier subcontracts this part of production to reduce costs, although it also has its own foam manufacturing operation, perhaps the largest in the industry. The parts produced in this factory – head rests, seat cushions and related products – are delivered to the Western supplier for final assembly in com-



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plete car seats. The factory uses just-in-time production. Production starts immediately when orders come in, and the products are delivered once finished. Trucks wait outside the factory and deliver products every two or three hours. Inventory is kept in the low end supplier factory, a system called vendor-managed inventory. The financial risks of inventory are therefore shifted to the supplier. The factory makes and shapes the foam. The process includes tooling, injection molding (shaping), modifying, and finishing the products. A large part of the labor process is injection, mostly done by injection molding machines. Five machines perform this task. The chemical composition of different parts is complex, and some cutting edge processes, such as vacuum foam molding, have not been mastered by this factory. The company is currently engaged in research to develop this capability. In the tool-and-die shop, workers make and clean the die molds. Robots manufacture headrests on highly-automated production lines, using numerically controlled injection technology. The production line is imported, mostly from Germany. According to management, this is the best production line in Asia, and one of the most expensive ones. Automated production lines have been introduced only recently. If labor costs are lowered effectively by this type of machinery, more work will be performed by these lines. About two million seat covers are assembled in this factory every year. The covers, including head rest covers and pillow covers, are purchased from lower level suppliers. Most work is manual labor, and the assembly process needs skilled operators. According to management, this assembly process is very difficult to automate. Its stitching and sewing operations resemble garment manufacturing, but are more complex. This assembly work is the most difficult and skilled in this factory. Older and experienced workers in these positions, usually at 30 to 40 years of age, are the factory’s key employees. Each worker performs different tasks before the covers and seat cushions are put together. Materials are different for different types of cars and for cars sold at different prices. There is a special area to dry large pieces. The financial crisis has not had a negative impact on this factory. The stable growth of China’s domestic auto market was supported by government subsidy and mortgage policies, during the global financial and economic crisis of 2008–2009. The parent industrial corporation held a meeting in 2008 to plan on reduced production, but total output actually increased during the first quarter of 2009, much more than during previous years. Domestic

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demand grew, and the closing of some factories in Europe and the U.S. shifted some orders to China. However, production was not stable and volumes changed rapidly because the factory is at the lower end of the supply chain. Molding machines often stop, due to the fluctuation of orders. Work and Working Conditions Most work in this factory is physically demanding, even in the skilled sections of production. At the same time, heavy mechanical machinery creates a constant high level of noise. Dust is also widespread, unlike the modern and clean environment in auto assembly plants and many first-tier suppliers. The total workforce in March 2009 was more than 300, including 260 front line operators. The rest of employees are in support positions, offices and research and development, including 30 engineers. 140 workers, about half of the total workforce, are women. The workforce is composed of two different groups because of the history of the company. In 1995, the township government set up this enterprise, in cooperation with a major city-owned industrial corporation of the city. Initially it sought to solve the unemployment problem for local peasants who lost their land in the process of industrialization. An important section of the employees in this factory are those former peasants. Some of the former peasants made substantial financial gains from selling their landholding rights, but they still needed jobs for a stable income. Jobs in this factory are highly valued by the former peasants. If someone is fired, the person loses face in the village. The former peasants therefore try to keep their jobs, although wages are not as essential as they are for others. In addition, these employees have experience struggling for better compensation for their land, and are very hard to control or fire, according to management. Some workers appealed to central authorities in Beijing for help when they struggled for compensation for their land. From the perspective of the local government, providing jobs to this group is important for maintaining social stability. Management, however, considers it a burden to provide stable wages for these relatively old and uneducated employees. Because they are getting older, most around 45 or 50, they are increasingly assigned to support positions rather than front line manufacturing. The other group of employees are migrant workers, almost equal in number to the former peasants at the time of our investigation. Factory managers prefer migrant workers to rebellious peasants, because they could do more



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and heavier work, and are younger and easier to manage. Management expects that within the next ten years the majority of the workforce will be migrants from other parts of the country. At the same time, the children of those rebellious peasants and other local residents may be hired since local employees are considered more stable. Many local young people, however, prefer to work for better known companies or go to school. Most migrant workers are recruited through public and private labor agencies. They come from many regions. They must have a certain level of education (e.g. junior high-school), a willingness to work hard, a solid family background, skills, and good personality. Basic education is required because workers have to fill in work records and other forms, read operating instructions, and communicate properly with quality engineers. For more skilled or specialized operators, like computer operators, the factory plans to hire workers with greater skills and experience. About 10 percent of the operators have higher skill levels. They all work in assembly, which requires flexible and skilled manual labor. Most are migrant workers. It takes a newly-employed operator at least half a year of training inside the factory to become skilled. If a worker passes the training, his or her income may increase two to three times. Skilled operators earn substantially more than other production workers, with few differences among them. Skilled workers are paid by piece rate. The amount of work for those workers is stable, as are piece rates and incomes. Skilled workers usually work in two daily shifts, and do not work overtime. In 2009, some earned 3,500–4,000 RMB monthly. The average monthly salary of all employees in this factory was 2,000–3,000 RMB, slightly higher than the market level, according to management. The majority of operators works in simple test or machine operations, and receives hourly wages with performance incentives. Those workers work on three shifts. About 30 percent of their monthly wage comes from overtime, depending on orders. Certain quotas are fixed for different positions. All workers can achieve those production targets in eight hours. The full hourly and monthly wages are paid when the quota is achieved. This regular wage is set higher than the local minimum wage. In addition, there is also a performance bonus, depending on output, quality, and work speed. If the quantity and quality are more than 5 percent lower than the criteria, the performance rating is reduced. It is quite common for workers to have an above average rating. The total monthly wage of front line workers is over

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2,000 RMB on average, because the local government has a stake in income stability. Work hours are flexible, depending on customers and orders. In busy times, weekend work and extensive overtime is possible. For unskilled operators, the overtime pay can be 50 percent of their monthly income. Social insurance is paid for all workers, but insurance payment for migrant workers is only half of that for local ones, since the level of coverage is substantially lower. Some benefits apply to all workers, such as subsidies for household articles of 600 RMB per year, festival allowances, and subsidies for work clothes and food. Like most companies in this industrial area, the factory does not provide dormitories, because land is too expensive for largescale dormitory buildings. Workers mostly live in private rental housing. The workforce is stable because at least half are former peasants. According to the management, many migrant workers have stayed with the company for more than five years, including the most skilled workers. Because the enterprise is stable, many employees also try to recruit others. Labor Relations Labor relations in this company reflect its status in the community and its special ownership. It follows labor laws and government policies. However, because of its backing from local government, management has some flexibility in interpreting legal rules and regulations. For instance, a highly flexible scheme of work hours is tolerated by the local labor bureau. This includes periodic extensions of the monthly amount of overtime beyond the legal limit of 36 hours, especially for more highly skilled workers. On the other hand, wages are relatively stable and the company tries to keep its wages at or above market levels. Because of the political influence of local government, the company has many institutions typical for larger state-owned enterprises, but not for small or medium ones. A Communist Party branch organization and the trade union are well established. The two institutions together safeguard the rights of employees, primarily the local ones. This includes increasing wages and benefits and arranging social and cultural activities. The ultimate target is maintaining social stability. From 2008 to 2009, there was a 5 percent wage increase. The relationship between the union and the management is very cooperative.



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A collective contract has been negotiated at the company level, but is limited to defining general rules and procedures in the relationship between the employees, the union and the company. There is no language concerning piece rates or hourly wages. Management determines the wages and the wage system, including the piece rates. The standard cannot be lower than the national minimum wage, or higher than wages in surrounding areas. There are no government regulations or collective bargaining agreements that establish wage standards in the area, but there is extensive informal communication among human resource managers. Human resource representatives have a club where they meet regularly. The company, therefore, knows the basic wage levels of neighboring firms. According to management, the 2008 Labor Contract Law has not had a big impact on this enterprise, since the workers already had stable labor contracts before. But some individual labor conflicts occurred in the wake of the law’s enactment. Management generally is concerned about rising labor costs, especially compensation payments in case of early termination of labor contracts. Since the law makes companies legally liable for such payments, one worker sued the enterprise for compensation. As in many similar cases, the operator won the law suit. Management says hiring and firing is no longer as free as before, especially for older workers. The legal awareness of workers has increased. Collective labor conflicts have also taken place. The skilled workers stopped work in 2008, asking the management for overtime payments. The work stoppage lasted for two days. In the end, the company persuaded workers that there was no need to pay overtime for piece rate work. This conflict occurred at the height of the economic crisis, and the bargaining position of the skilled workers was weak, because they could not threaten to take jobs with other companies. As a result, the existing practice was maintained, although the enterprise raised the payment for social insurance. Conclusion The regime of production in this company is low wage classic, although it is different from many other low wage workplaces in automotive parts supply. Due to the special position of the enterprise in the local community, its ownership and the history of unrest among peasants, jobs, wages and employment relations are relatively stable. Wages are clearly above the legal minimum, which usually defines the base wage in small- and medium-sized

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assembly firms. The system of labor relations is well developed, with a stable union and contract. This company, therefore, demonstrates that social and political power at the local level is important to shop floor labor relations. But the company can hardly escape the economic pressures of the auto industry and its weakness facing larger suppliers and brand-name firms. The higher tier multinational companies do not help this company to upgrade production technologies and work organization. The government-holding company does not mobilize resources for this either. It seems primarily interested in maintaining social stability for its local constituency, rather than making ambitious efforts to improve the town’s industrial base. In spite of the sophisticated machinery for core production, the overall technological level remains low and the proportion of manual labor is high. Management hopes to reduce costs by using migrant labor at relatively low-wages, rather than by shifting to a production model with higher levels of technology, quality management, and higher workforce skills. Rapid expansion of local supply networks in the Chinese auto industry does not necessarily result in a shift to more capital-intensive production with higher wages and better working conditions, even under relatively favorable conditions.



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Evaluation of Regime of Production – Automotive suppliers case study 2 Item

High/ Medium Low/ Strong Weak

Organization of Production Market control

X

Vertical integration (company)

X

Vertical integration (factory)

X

Product technology (relative to industry standards) Manufacturing technology

X X

Stability of production flow

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers Proportion women Proportion of temporary workers Workforce stability Income stability (related to incentive pay and overtime) Piecework type of incentives Employee involvement (workplace) Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

X X X X X X X X X

X X X X X X X X X

X

Comments

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5.2.3 Automotive Suppliers Case Study 3 This enterprise is a typical case of small- and medium-sized auto parts and components suppliers – a relatively new generation of companies that has grown rapidly with the phenomenal expansion of automobile manufacturing in China in recent years. The company is privately owned by a mainland Chinese entrepreneur, with a total capital of 35 million RMB. The enterprise is engaged in design, development, manufacturing and sales of auto engine control components, such as ignition coils, sensors, filters and electrical and electronic components and parts. It is headquartered in an auto manufacturing district of a major city in East China. This enterprise has two factories at its headquarters location and one in a nearby province. It controls two subsidiary factories in two cities in that province, which produce parts and filters. The enterprise has a short history. The major factory at its headquarters was built in March 2005, and grew rapidly from a workforce of several dozen in 2008 to about 180 employees in the first half of 2009. Model of Production Like many suppliers of standard auto parts and components, this company occupies a lower end position in the auto sector. Its main product, ignition coils, is an important component of auto engines, but the technology is standard and widely known. The company serves a number of suppliers and car makers, mainly from China. It also produces for the replacement parts market, in which low-cost components from China with no brand name compete with more expensive brand-name products. The company claims a number of international customers. Product variety and volume fluctuates heavily, depending on market demand. The factory mainly manufactures high-volume dry-ignition and pen-type ignition coils, as well as oil-filled ignition coils and ignition modules. In 2006 the company also began to develop sensors, such as crankshaft position sensors, camshaft position sensors, and throttle position sensors. The factory also makes air filters, oil filters, fuel filters, injectors, and auto electrical and electronic mechanical components. The main production site covers 23,000 square meters. Some machines, especially testing and inspection equipment are imported from Germany, the U.S., Japan, or Switzerland. The company has a relatively strong position within the domestic ignition coil industry, with a complete product line and top product quality, according to management. With its own research and



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development team, the factory is able to provide customized development and manufacturing, based upon drawings, samples, and customer specifications. It has won a host of national patents and technology awards. In April 2009 it passed the qualification exams of the German TÜV (a reknown technical certification agency) and introduced the VDA (German Auto Industry Association) quality management system. According to management, the focus of production is gradually shifting from after-market sales to OEM supply for car makers. Major clients among car makers include two joint ventures of leading international corporations in this city. The growth of the OEM supply reinforces the company’s position in national and international aftersales markets. The company is building a widespread customer network, including large global aftermarket brands, multinational first-tier OEM and component clients, large international retail chains for car parts, and other overseas importers and purchasers. The global financial crisis did not have a big impact on this company, since the enterprise focuses on the after sales market, which has relatively long inventory cycles. The owner of the enterprise has several other factories in mainland China. Those factories are financially independent and have no subsidiary relationship to each other. The selection of this location as the company’s headquarters as well as its main factory is due to the central position of this city in automobile manufacturing and proximity to major customers. Due to relatively high labor costs here, some orders may be shifted to other factories, but large-scale orders with high technology requirements, as well as sales and R&D, are mainly fulfilled here. Production processes include stamping, moulding, pressing, coil winding, filling with insulation materials, and assembly. There are also sections for packaging, storage, and delivery. The mould machining and pressing workshops are very noisy, with work performed on individual machines. Work is relatively heavy, and women in this workshop have mostly been replaced by men. Because of frequent delays in this production area, the owner introduced piece rates on an experimental basis. In coil winding there are seven or eight semi-automated winding machines. Workers put coils on the machines and unload them after the winding process is finished. There are two shifts per day - day and night shifts - with more than ten workers, including team and group leaders. Except for one

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man, all are women. Work speed and output are determined by the machines, so there is no plan to applying piece rates. Coil winding is also done manually, depending on the product. Specialized coils can only be produced by hand. Workers put the coil on the winding device and control the process. In this primitive procedure, they identify the parts and carry them to the workplace, usually 200 to 300 in one batch. The machines are operated by a foot pedal. If the wire is not straight, the worker has to take it off and do the job again. The process is controlled visually and requires manual dexterity. Workers in this section are more highly skilled, and receive relatively lengthy training. A skilled manual coil winder can receive up to 240 RMB in performance bonuses per month. However, the range of performance bonuses varies greatly, from 20 to 240 RMB. They are based on evaluations of workers by the production manager. Each work station operates individually, and there was no plan to apply piece rates here at the time of our investigation. Nevertheless, a certain quota is given to each position, so production volume is incorporated into calculating the performance bonus. There are many different products, depending on the types of wire and the numbers of windings, and frequent changes in the production process. Team and group leaders are in charge of equipment setup and maintenance. Operators do routine work and simple cleaning. In most workshops, there is only one person, the team leader, who does maintenance. In the coil winding part, this person is recruited from another company. Considering the shortage of such personnel, the factory has begun to let some technicians learn this work. If operators are interested and capable, the manager also allows them to learn. The injection molding workshop has smells and fumes from plastic processing. The noise level is high, but not excessive. The shop has ten smaller injection molding machines, most of them Chinese made. Most workers are women between 20 and 30 years old. Workers put individual pieces into the plastic mold and supervise the quality, a standard work procedure in injection molding. Product quality of work mostly depends on the quality of the tools. The inspection is basically visual and depends on the care the individual workers take for it. In total, there are 24 workers in this section. Machines are adjusted for different products by shift leaders on both day and night shifts, and by the workshop manager. These three are in charge of machines. According to management, this department is also planning to implement piece rates.



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The assembly department includes pre-assembly, filling and sealing, final assembly, and testing. There are three or four assembly lines, each with about 20 workers sitting on both sides. Workers are all women between 20 and 30 years old. The work is classic Taylorist assembly line production. In principle, job rotation is possible and workers are learning more than three positions. But there is no job rotation within a shift or among certain assembly procedures, although the work is highly demanding on workers’ eyes and fingers. The production lines often change from once a week to sometimes every day, depending on orders. A new factory manager is experimenting with a system of rapid changing lines, which is supposed to facilitate logistics. Materials are delivered directly to the workers, so that they can change products immediately without leaving the line. At the time of our investigation this kanban-type system was about to be put into practice in the production of two different products. Coil assembly is followed by welding and filling. Welding, a key process in this workshop, is done by semi-automated machinery and relies on the skills of workers with relatively long experience. Filling is also critical to product quality. It includes packaging coils into plastic housings. Products are heated inside a machine, filled with resin and then re-heated to solidify them. There are ten workers in this area. Three workers are required to operate this production line. Machines run 24 hours a day and have to be monitored around the clock. This highly technical process includes extensive adjustments to the machinery, and a technician is the leader of the production team in this area. There is extensive manual and optical inspection at the final stage of the production process, followed by commissioning and packaging. Most of the work is manual, too, although much of it could be automated, which is often the case in bigger factories. Work and Working Conditions The working environment meets the standards of other enterprises in this field in the region. The company provides amenities, such as a cafeteria with low-cost meals. There is no dormitory for operators, but for managers the owner offers them his own apartments. According to management, many workers from outside the city have families in the area. It is impossible and not practical for them to rent a place by themselves and work in the factories.

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The factory is noisy in certain areas, but not extremely so. In some places like injection molding, the smell is also strong. Protections for workers do not meet western standards, but are common in China. Women in such workplaces have been replaced by men. On production and assembly lines most work is performed in a seated position. The chairs are of good quality, comparable to cushioned and movable office chairs. Many jobs for men are heavy and tasks are especially demanding on eyes and fingers. A strict division of labor between operators and technicians makes skill improvement for the former unlikely. The total number of employees has increased rapidly from several dozens in 2008 to 180 in early 2009. In the factory, the number of women is twice that of men. In departments like assembly, the workforce is almost completely female. In early 2009 the factory began to hire temporary workers from a local labor agency. More than 80 production workers are dispatched labor. About 100 front line operators are employed directly by the company. Managers and technicians are regular employees with employment contracts. The company is considering outsourcing the human resource department completely to a labor service company, since it is relatively small with only one employee. All dispatched workers come from outside the city. 90 percent of the workers are not of local origin, including most technicians and research and development personnel. Technicians mostly have college or university degrees, whereas dispatched workers have a junior high-school education or above, usually from technical schools. As most work is simple, it takes only two weeks to train a new employee. A small number of workers receive additional training for jobs with higher skill requirements. Management says the overall turnover rate is very high, especially for dispatched workers. Temporary and regular workers are mixed in different workshops. In assembly the majority are dispatched workers, who usually sign a two-year contract. If a worker does not perform well, the factory can return the worker to the labor agency. In practice, this has not happened, although some dispatched workers left for personal reasons. For dispatched workers, both wages and insurances are paid by the labor agency, and this company is one among many customers of the labor agency. The factory provides a list of wages for each worker and the agency pays according to the list. On occasions such as hiring, dismissal, and training, a representative of the agency comes to the factory. Pre-hiring training for dispatched labor is done by the labor agency, too.



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The use of temporary workers expanded in reaction to the 2008 Labor Contract Law. The company sought to avoid long-term tenure and senioritybased severance pay in case of contract termination. The company offers the possibility to dispatched workers for becoming regular employees. For good performance, the factory raises their bonus. But promotions from temporary to permanent positions have rarely taken place. Migrant workers tend to improve their wages by changing job assignments. In this factory, there is no difference between the wage level of dispatched and regular employees, according to management. The wage structure includes a base wage, usually the city minimum wage for production line operators, plus overtime and a performance bonus. All dispatched workers received the same base wage of 960 RMB at the time of our investigation. The performance bonus is based on skill levels. For unskilled workers, it varies from 20 to 120 RMB per month. For those with skills, it can range from 20 to 240 RMB. Team and group leaders may receive 500 RMB monthly. The performance of operators is evaluated based on quality and quantity of their products. Inspectors check the quality. Both are evaluated by front line foremen and the manager of the production department. A third criterion is labor discipline, evaluated by the human resource manager. Workers are informed how the system works. Overtime is worked regularly, and there is little difference between busy and not busy seasons. For an ordinary operator, the take-home pay, including overtime, is about 2,000 RMB per month. However, technicians often receive higher wages. Employees in the technical department get about 4,000 RMB each month, including performance pay and bonuses. For employees in management, finance and logistics positions, the salaries are all different, depending on individual ability and experience. The company pays high-temperature and night shift allowances. Piece rate work has been a major issue in this factory since 2008. It was introduced in the pressing and injection molding sectors to remedy frequent product delays. Management determines the work quota of how many pieces must be produced within eight hours for the monthly base wage of 960 RMB. After implementation, each worker receives a document about the daily piece rate targets. Those workers who work fast can double their daily wages. Workers who cannot reach the minimum quota are fired, according to the human resource manager.

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Labor Relations As a relatively young privately-owned company, the factory has no institutionalized system of labor relations. Nevertheless, basic laws and government policies are respected. In the eyes of management, the 2008 Labor Contract Law has not brought much change, particularly no cost increases, since most provisions of the law were already observed. But the company has begun to use temporary labor since 2009 to avoid signing long-term contracts with workers and paying severance compensation, in reaction to that law. There is no trade union in this enterprise. Neither the city nor the district trade unions require the company to set up one, as is usually the case for larger enterprises in that city. In this industrial zone, there is no trade union committee for small- and medium-sized enterprises. Nevertheless, the enterprise has signed a collective contract. The management prepared a draft and submitted it to the district government for ratification. Then, the contract was signed by the workers’ representatives. Under existing laws, representatives are elected by workers, but no details were given about this procedure during our investigation. In case of workers’ grievances, management communicates with the workers directly. Problems related to dispatched workers are handled by the labor agency, with no role for workers’ representatives. According to management, there have been very few labor disputes in this factory. This was confirmed by independent external sources. Occasional conflicts occur over the calculation of wages. If mistakes are found, the human resource department adds the missing payment in the following month. In some departments workers have engaged in slow-downs, such as one in the pressing and moulding workshops that lasted several months. The management described this as a reaction by the workers against the implementation of piece rates. There is no wage coordination with other auto suppliers in the area. According to the human resource manager, the enterprise has some knowledge about wage standards in other companies, mainly through employees recruited from the labor market. Conclusion The regime of production in this company is low wage classic. Although labor laws are mostly respected, the production model of this company is heavily dependent upon the use of low-skilled and low-paid labor. These characteristics of the production regime have been reinforced through rapid expansion



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of temporary labor and the introduction of piece rates. This shift in labor practices was described as a reaction to the labor contract law and inefficiency in production. However, it is also the result of economic pressure in the wake of the financial and economic crisis of 2008. While the auto sector remained relatively stable during that period, the temporary oversupply of low skilled labor enhanced the opportunities for increased speedup and pressure on employment conditions. The crisis did not result in upgrading technology and labor practices. On the contrary, the low-wage classic model has enabled the company to make the workforce even more flexible. With half of the employees from a dispatched labor agency, the workforce is highly unstable. Since some production processes are complex, a few technicians and team leaders control the manufacturing operations. This is the only group of employees who benefit from upgrading technology and learning. Simple and repetitive work is the everyday routine for everyone else. Segmentation of this kind is typical of flexible mass production. The collective dispute over piece rate work in one of the manufacturing department indicates the social tensions inherent in this process.

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Evaluation of regime of production – Automotive suppliers case study 3 Item

High/ Medium Low/ Strong Weak

Comments

Organization of Production Market control

X

Vertical integration (company)

X

Vertical integration (factory)

X

Product technology (relative to industry standards) Manufacturing technology

X

Stability of production flow

X

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers Proportion women Proportion of temporary workers Workforce stability Income stability Piecework type of incentives Employee involvement (workplace)

X X X X X X X X

Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

Expanding X

X X X X X X X X X

X



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5.2.4 Automotive Suppliers Case Study 4 This company manufactures passenger car engines. It was established in February 2004 in a major city of South China. It is a joint venture between a major state-owned Chinese holding company in the automotive sector and a leading automobile manufacturer from East Asia. With a total investment of 2.2 billion RMB, the foreign partner owns a controlling share of 50.5 percent. The investment company of the automaker in China owns 19.5 percent, and the Chinese auto corporation has 30 percent. This company is the first cooperation between the two sides in the automotive components sector and the first auto engine company in China that targets overseas markets. It is part of the production network the East Asian multinational has established in the region over the last few years. It does not produce for the open market. It is a captive supplier to its mother company. Within this production network, this factory occupies a position as a first-tier supplier. As is typical for auto companies from this foreign country, engine manufacturing is concentrated in a separate subsidiary which is tightly integrated into the production system of the assembly factory.46 In November 2009, the company had more than 1,200 employees. Model of Production The factory is located in the development zone of a major industrial cluster in South China, and occupies 320,000 square meters. The first factory building set up during the first stage of development was 39,000 square meters. The greenfield site was developed on the principles of lean production. The main factory and the supplier factories are integrated in one industrial area with first class infrastructure, including freeways, rail transportation, and a major container port nearby. The building of the engine factory is located back-to-back with the assembly plant. It has only one floor, in order to ease movement of materials and inventory. Major products are engines for midrange cars of the foreign mother company. As the first export-oriented engine factory in China, it has expanded rapidly. It manufactured one million units in the first three years of production. In 2009, the factory had an annual capacity of 500,000 units. Two thirds of its annual production volume is exported. The rest is provided to 46 The assembly factory has also been investigated in this project (see auto industry case study 3, factory 2).

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the assembly plant next door and to another assembly operation of this multinational in North China.47 Exports supply factories of the foreign multinational in the U.S. and other parts of Asia. The factory in China, therefore, is integrated into global production networks, unlike many comparable firsttier suppliers in China, which mainly serve the domestic market. The production facilities and processes meet the highest international standards. Advanced production lines have been introduced from the country of origin. Most materials are purchased from local suppliers, with about 10 percent from suppliers in the foreign home country. The company has built a highly integrated supply network within this region of China in a matter of years. In the components manufacturing shop, major processes include casting, both with high pressure and low pressure equipment, and machining. 70 machines produce engine parts, which then go to the assembly shop and finally to engine assembly lines. In the assembly shop four groups do the same work, named A, B, C, and D. The factory uses the systems of production organization from the foreign home country, including kanban and other logistical systems. Many parts come into the assembly shop as completely-knocked-down (CKD) pre-assembled kits, including many domestically made parts. The warehouse also occupies a large area. Parts from local suppliers and from the foreign home country are stored separately. The testing area is closed and products are tested inside it. Before arriving here each department also is responsible for checking unqualified products. There is a control alarm system. Whenever a worker finds a problem, he or she can stop the production line until the problem is corrected. This is part of a comprehensive system of total quality management. 90 percent of the employees participate in quality circle activities, including technological competitions. In the first half of 2009 there were 10,687 improvement proposals from employees, including 187 about the quality control system. Assembly lines in the final assembly area are located at ground level, and workers have to stand during operation. The noise level is high, so that workers must wear ear plugs. About 630,000 RMB have been invested by the company in noise reduction. Gloves and work shoes are also required when entering the workshops. In 2009 roughly 600,000 RMB were invested to lower the temperature inside the workshops from 28.9 degrees to 26 degrees Celsius. Ten production lines have become air-conditioned. Comprehensive 47 See auto industry case study 3, factory 1.



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systems for eliminating oil mist have been installed. The targets of “green, clean, lean, zero accident, zero emission” manufacturing are propagated extensively. With full certification under ISO 14001, it is claimed as a model of an environmentally friendly factory. Work and Working Conditions The factory had a total of 1,274 employees at the end of 2009. The average age is very young, between 23 and 24 years old. This is common in auto factories co-owned by East Asian multinationals in this region. About 50 percent of the workers are local urban citizens; the rest comes from outside of the city. About 30 percent of the employees are temporary workers; the other 70 percent are regular. Following the regulations in the 2008 Labor Contract Law, university graduates and regular workers first sign contracts of three years. Limited term and temporary workers receive open term contracts after the third renewal of their contracts, in line with the Labor Contract Law. Production workers are mostly recruited from major technical schools in the province, while engineers and administrative staff are mostly graduates of leading universities with a bachelor’s degree and above. In the department of product technology and machinery mostly mechanic related majors are employed. Requirements also include university-level English tests, as well as good listening, speaking, reading and writing skills in English. This company emphasizes training. There is a comprehensive range of training programs, including pre-entry training for new employees, training for management skills, team leaders, foreign languages, as well as technologies and skills. Regular programs also provide employees the chance for overseas training. Inside the factory, each workshop also has training areas. Starting in 2009, regular employees could receive a 1,000 RMB training fee per year, agreed between the company union and the administration. With this fee, workers could attend external training, such as getting a driver’s license or skill training. In September 2009, the company spent 340,000 RMB on this program. The organization and management style of the foreign home country has been completely adopted in this factory, including continuous improvement and talent cultivation. The company slogan is that the enterprise is the employees’ life-long home. Work hours are a standard eight hours per day and five days per week. Overtime is less than one hour per day and the total amount in a month less

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than 36 hours. Overtime is paid at 1.5 time the regular rate, following the national law. Wages for temporary and regular workers are not different, according to the trade union, which applies the principle of equal pay for equal work. The average monthly wage for a production worker is more than 3,000 RMB. The wages for dispatched workers are paid by the labor agencies. In order to have wages for temporary workers fully paid by the agencies, the company produces detailed lists and records of the wages every month. Each year, 5 percent of the dispatched workers can become regular employees. Wages are regularly adjusted in April of each year. In April 2009 the company increased wages for all employees according to the rise of the Consumer Price Index of 2008. At the same time, the wage structure was improved, seniority-based wage components were adjusted, and wages were coordinated with the current market salaries in the same industry (based on market analysis by consulting firms). In 2008 the company paid 18 monthly wages, and in 2009 19 monthly wages. There are 34 types of benefits and welfare for regular workers. Dispatched workers enjoy 24 of them. There are two free meals during overtime work at night. Besides legal social insurances, the company also provides supplementary medical insurance for employees, up to 471 RMB for each person per year. Employees receive a daily allowance of 4 RMB for after-meal drinks, as well as education subsidies. In addition, the company provides dormitories for employees, usually two or three bedroom apartments with one shared living room. Single rooms are provided on request for a rent of 400 to 600 RMB. For a shared apartment, the monthly rent is about 200 RMB. Airconditioners have been installed in every dormitory. Under the impact of the global financial and economic crisis, the sales of this factory in 2008 decreased by 40,000 units, mainly due to the high proportion of exports in its sales. From January to April of 2009 the output fell by about 20 percent compared to 2008. The annual output in 2009 was originally set at 30 percent of capacity, and then raised to 50 percent in June 2009. During this period no redundancy took place and wages were fully paid, according to management. Different activities were organized, such as 5S training, quality circles and enhanced activities under the Total Productive Maintenance scheme. Special groups were set up to improve technology and production. At the same time, new factories inside the local Chinese auto group helped to absorb some extra employees.



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Labor Relations As a joint venture of a global auto maker and a first-tier Chinese SOE, this company obeys national laws and policies. Both the chairman of the board and the general manager are from the foreign home country. It has a goal of becoming a world class factory, and uses the management methods and human resource practices from the foreign home country, and also tries to adapt to Chinese practices. The joint venture contract clearly stipulates that the company accepts a trade union. The union was established in February 2005, immediately after the beginning of production. The union president can attend board meetings and the weekly meetings of company directors. All the employees are union members, based on voluntary membership. The trade union has six grassroots committees, 64 union groups, and seven representatives in charge of tasks including labor protection, labor disputes resolution and “open factory fair democratic management”. Bimonthly and quarterly reports are submitted by union committees to the company-wide union. It is funded by the legally mandated 2 percent deduction from the general payroll, of which 42 percent is transferred to higher bodies of the union, as stipulated by law. In addition, membership fees are paid directly to the union by all members. The chairwoman of the union is a former union cadre of the local Chinese auto corporation. She is also the chairwoman of the Party Disciplinary Inspection Commission in the company. The Communist Party and the union are closely interconnected. On May 18, 2010, more than 110 employee representatives took part in the second union congress and workers’ congress, attended by the union president of the Chinese corporation group. Union leaders were elected afterwards. The union at the company is mainly engaged in production management and annual planning, policies regarding labor rights and benefits, assisting management in using the employees’ welfare fund, and coordinating labor relations. During peak demand, the union must be consulted on overtime work. The general activities of the trade union include organizing the workers’ congress (the annual meeting of workers’ delegates in the factory) and the annual congress of trade union members, convening meetings with employees every month, helping employees and their families in situations of hardship, holding labor contests, and building a corporate culture. A special subsidy of 47,500 RMB was provided to seven employees in 2009 who were in financial difficulties or had family members with serious illnesses. The union reports achievements and problems to its members and higher trade union bodies, and sets up plans for major activi-

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ties on an annual basis. On the 15th of every month, the union collects employees’ opinions and transmits them to the management. The management is obliged to resolve problems within a set period of time. Some complaints, for instance, have come from workers about the oil mist in the workshops. As a result of the union’s activities on this issue, the enterprise invested 2.89 million RMB to reduce the density of oil mist below national standards. Democratic management and collective contract negotiations are the major content of union work. Collective contracts have been signed in this company beginning in 2006. Each contract is valid for two years. The second round of negotiations took place in 2008 and the third in 2010. The basic documents are prepared for the negotiations first, and then each side selects five negotiators. On the union side there are representatives from administrative clerks (including management), women workers and workers’ representatives. Both sides negotiate and discuss the clauses of the contract. Further meetings are held until agreement is reached and the contract is signed. The collective contract has 12 chapters and 75 clauses, including employment conditions, obligations of employees, wages and benefits, work hours, rest, holidays, occupational safety and health, protection of women workers, training, praise and punishment, cooperation and negotiation, contract implementation, and inspection and violation of responsibilities. The trade union chairwoman believes that workers’ wages can only increase if the enterprise develops. Based on this principle, the trade union educates employees, and contract negotiations are very cooperative with the goal of establishing harmonious labor relations. In 2009 the company was involved in a major wave of labor conflicts in the automotive supply industry in this region. Several first-, second-, and third-tier suppliers of this joint venture were hit by strikes. Production in this factory was also affected by work stoppages at parts and component suppliers. However there were no strikes reported in this factory. The union said its role in this situation was to keep social peace and mediate between workers and management. Through the trade union bodies at the group and district levels, the factory union was kept informed about conflicts at the suppliers and their causes. The unions at the factory and company so far have not tried to coordinate wages and working conditions among the various companies. The central trade unions in this city and province, however, are considering establishing mechanisms for industry-wide wage negotiations in the region’s auto industry in the future.



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Conclusion This company is a typical case of the corporate-bureaucratic production regime. Because it is a captive first-tier supplier, part of a major joint venture, the working conditions and labor policies are similar to major assembly firms in the auto industry. Wages are slightly lower and workforce flexibility is higher than in the adjacent factory of the mother company, especially its relatively high proportion of temporary workers (30 percent of the workforce in this factory). However, temporary workers enjoy the same pay as regular workers. This sets the factory apart from other cases in this study. The wage system features relatively low proportions of output-related incentive pay. Instead the company relies on annual bonuses and extra payments of monthly wages. The strict observation of laws, a well-established trade union organization, and numerous communication channels between workers, trade union and top management are distinctive features of this type of production regime. With a strong cooperative orientation, the administration and union are not far apart in their basic targets and practices. The relatively high labor standards are based on this culture of paternalist cooperation, rather than on mobilizing the capacity of the union. The working conditions in this first-tier supplier company are very different from the second- and third-tier suppliers in the production network of this company, as well as in the automotive industry in general.

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Evaluation of regime of production – Automotive suppliers case study 4 Item

High/ Medium Low/ Strong Weak

Comments

Organization of Production Market control Vertical integration (company)

Captive X

Vertical integration (factory) Product technology (relative to industry standards) Manufacturing technology

X X X

Stability of production flow

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers Proportion women Proportion of temporary workers Workforce stability Income stability Piecework type of incentives Employee involvement (workplace) Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

X X X X X

30 %

X X X X

X X

2006 X X X X X X X X

III. Labor Relations and Regimes of Production in the Electronics Industry

1. Introduction In the ongoing global restructuring of the information technology industry, China has emerged as the most important location worldwide for the manufacturing of electronics hardware products. In 2006, China had by far the largest workforce in IT production in the world.48 In the wake of the global downturn in the IT industry in 2000–2001, the deepest recession in the sector’s history, production was shifted to China by global corporations and their contract manufacturers. This relocation was accompanied by the transfer of much of product development in software, hardware, and chip design. China became one of the most important locations for “innovation offshoring”, i.e. the relocation of product development to low-cost locations in emerging economies. In contrast to the automobile industry, the IT industry in China mostly produces for international markets. But the domestic market has rapidly gained importance for multinational players. The industry plays a key role in government strategies to foster China’s international competitiveness, and to become a global player in technology development. IT manufacturing now is by far the largest modern manufacturing sector in China. Yet this modern manufacturing base has not produced major improvements for the majority of workers. The workforce is polarized between large numbers of low-wage mass workers in manufacturing and well-paid employees in the technical, engineering, and service professions. Migrant workers make up the largest part of the workforce in hardware production. In most areas of manufacturing, management exerts heavy control over a highly flexible and relatively low skilled workforce. 48 International Labour Organization (ILO) (2007): The Production of Electronic Components for the IT Industries: Changing Labour Force Requirements in a Global Economy. Geneva: ILO.

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The consequences of this labor regime, which functions almost entirely without unions, have resulted in a number of labor conflicts and tragic incidents, such as the series of suicides in the spring of 2010 among young migrant workers at Foxconn, the largest electronics contract manufacturer in the world.

2. Industry Structure and Basic Trends of Development During the last three decades, the electronics industry, information technology in particular, has undergone permanent structural change. The definition of industry boundaries and of statistical data covering different sectors remains difficult to obtain, and subject to changing analysis. China’s electronics industry has been deeply involved in changing the global industry structure. The shift of large-scale manufacturing to China was a key element of this transnational restructuring. As modern electronics manufacturing in China essentially was driven by transnational production networks,49 the shape of the industry mirrors the contemporary global industry, and inherits little from the planned economy. The production of IT systems and devices, such as computers, network switches and cellphones, takes place in complex networks of technology development firms, component suppliers, and assembly service companies. The shape of electronics manufacturing in China is very different from earlier periods of capitalist development, when vertically integrated brand-name firms dominated the industry. Vertical specialization on the part of brand name produced the concentration of production within relatively independent subsectors of components such as microchips, motherboards, hard drives and storage systems, graphics chips and cards, displays, and radio and audio components. The leading producers usually in these subsectors are very large enterprises, but they are often not identical with the major brand-name firms known to consumers.50 The model for this structure was the PC in49 Borrus, Michael, Dieter Ernst, and Stephen Haggard (eds.) (2000): International Produc­ tion Networks in Asia: Rivalry or Riches? London: Routledge. 50 For a comprehensive analysis see Lüthje, Boy (2001): Standort Silicon Valley – Ökonomie und Politik der netzwerkbasierten Massenproduktion. Frankfurt a. M./New York: Campus. Lüthje, Boy, Wilhelm Schumm, and Martina Sproll (2002): Contract Manufacturing: Transnationale Produktion und Industriearbeit im IT-Sektor. Frankfurt a. M./New York:



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dustry, where the two major component suppliers – Intel for microprocessors and Microsoft for the operating software – became the dominant players, with monopolistic control. Referring to the brand names of these two companies, this industry model was called “Wintelism”, as opposed to older models of industry organization and rationalization, such as “Fordism” or “Toyotism”.51 Since the mid 1990s, the IT sector has become structured along horizontal lines. Although the Wintel model has not become dominant over every sector of IT production,52 a modular structure of manufacturing uses a sophisticated division of labor between various subsegments. Chinese national statistics take account of this development. It defines the “information electronics industry” as the production of computer systems, notebook computers, handheld computers, computer networking equipment (routers, switches, modems etc.), computer peripherals (hard disk drives, printers, monitors, scanners etc.), telephones and mobile phones, digital telecommunications infrastructure equipment, digital TV sets and monitors, and integrated circuits (commonly known as chips).53 Table 7 presents the sectoral structure of IT manufacturing in China, and its development from 2007 to 2010. In 2010, production volume reached 5.69 trillion RMB (approximately 850 billion U.S. dollars at 2010 end-ofyear exchange rates), probably the largest volume of its kind in the world. Communications electronics (847 billion RMB), computers (1.74 trillion RMB), electronics components (1.04 trillion RMB), and components for Campus. Hürtgen, Stefanie, Boy Lüthje, Wilhelm Schumm, and Martina Sproll (2009): Von Silicon Valley nach Shenzhen. Globale Produktionsnetze und internationale Arbeitsteilung in der IT-Industrie. Hamburg: VSA. Lüthje, Boy, Stefanie Hürtgen, Peter Pawlicki, and Martina Sproll (2013): From Silicon Valley to Shenzhen. Global Production and Work in the IT Industry. Boulder, Co.: Rowman and Littlefield. 51 Borrus, Michael and John Zysman (1997): Wintelism and the Changing Terms of Global Competition. Prototype of the Future? BRIE Working Paper 96B. Berke­ley, California: Berkeley Roundtable on the International Economy. 52 Voskamp, Ulrich, and Volker Wittke (2008): Chancen für Hochlohnstandorte in globalen Produktions- und Innovationsnetzwerken der High-Tech Elektronik: das Beispiel der HandyProduktion. Draft Report. Göttingen: SOFI/Hans-Böckler-Stiftung. Lüthje, Boy (2007): The Rise and Fall of “Wintelism”: Manufacturing Strategies and Transnational Production Networks of U.S. Information Electronics. Firms in the Pacific Rim. In Andreas Moerke, and Cornelia Storz (eds.): Institutional Frameworks and Learning Processes in Information Technologies in Japan, U. S. and Germany. London: Routledge, 220–247. 53 MII – Ministry of the Information Industry (Xinxi chanyebu) (2008): 2007 nian dianzi xingxi chanye zhuyao zhibiao wancheng qingkuang (Information Electronics Industry Main Indicators 2007). Beijing: MII.

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electronic devices (i.e. passive components and parts, 853 billion RMB) were the largest subgroups. About 4.12 trillion RMB or 72.5 percent of revenue, is held by foreign investors or Overseas Chinese companies. This gives an extraordinarily strong position to non-Chinese capital in this strategically important sector. State-owned enterprises account for less than 10 percent of revenue. These figures are the result of continuously rapid expansion since the late 1990s, particularly between 2001 and 2007. In 2001, the Internet bubble burst and declining growth rates in advanced industrial countries pushed enormous foreign investments in IT production in China. According to data from the Chinese Academy of Social Sciences, the average annual growth rate of the information electronics industry reached 28.8 percent between 2000 and 2005, significantly higher than the average growth for all manufacturing of 10.9 percent. According to the Ministry of Industry and Information Technology (MIIT), strong growth continued during the years afterwards. The global recession of 2008–2009 was perceived as a massive crisis by most companies. Severe employment reductions during the winter of 2008 and 2009 interrupted the fast growth rates as industry-wide revenues contracted by 2.7 percent in 2009. However with revenue growth of around 30 percent in 2010, the rebound was fast and strong. 54 In 2010, the export volume of IT products stood at 534.8 billion U.S. dollars, about 80 percent of total production. IT products accounted for 34.1 percent of China’s total exports. But the import of IT components is also high, amounting to 377 billion dollars, or 30 percent of the country’s total imports.55 The high import ratio results from the large volume of imported components, reflecting China’s role as a global assembly hub. China’s focus on assembly and components manufacturing is often been cited as an indicator of its weak position in the global IT industry.56 However, such a view tends to underestimate the increasing integration of manufacturing and product development as a source for innovation and competitiveness.57 54 MIIT – Ministry of Industry and Information Technology of the People’s Republic of China (Gongye he xinxihuabu) (2010): China National Information Electronics Industry Economic Development Indicators, January-November 2010. Beijing: MIIT. ‹miit.gov.cn›. 55 MIIT (2010). 56 Hart-Landsberg, Martin, and Paul Burkett (2007): China, Capital Accumulation and Labor. In Monthly Review (05), 17–38. 57 Ernst, Dieter (2003): The New Mobility of Knowledge: Digital Information Sys­tems and Global Flagship Networks. In Richard Latham, and Saskia Sassen (eds.): Digital Con­nections in A Connected World. Published for the Social Science Research Council.



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Table 7: China IT manufacturing revenues by subsectors (2010)

Entire industry

Components

Revenues in billion RMB

Revenue growth (percent)

Percentage of total (percent)

5688.03

28.5

100

Telecommunications equipment

847.74

14.9

14.9

Radar and radio equipment

172.81

46.1

3.0

Broadcasting & TV equipment

433.89

32.5

8.0

Electronic computers

1739.56

25.2

30.6

Video and audio home equipment

402.74

21.5

7.1

Components for electronic devices

853.72

44

15.0

Electronic components (chips)

1044.61

33.4

18.4

Electronic measuring instrument

82.68

35.7

1.5

Special-purpose electronic equipment

198.73

36.4

3.5

Electric machinery for electronic information systems

166.08

33.5

2.9

Others By ownership Foreign invested enterprises State-owned enterprises

291.50

35.6

5.1

4120.29

26.9

72.4

455.85

28.1

8.0

Source: Ministry of Industry and Information Industry

Princeton, NJ: Princeton University Press. Liu, Xielin, Boy Lüthje, and Peter Pawlicki (2007): China: Nationales Innovationssystem und marktwirtschaftliche Transformation. In Frank Gerlach, and Astrid Ziegler (eds.): Innovationspolitik: Wie kann Deutschland von anderen lernen? Marburg: Schüren Verlag, 222–249.

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Regarding ownership and political-cultural background, there are four types of enterprises in China’s electronics production: –– Foreign multinational companies, mostly with direct foreign investment, and in some cases in joint ventures. Joint ventures were mostly formed in telecommunications manufacturing during the 1980s and 1990s with global vendors such as Siemens, Alcatel, Ericsson, Lucent and NEC. Joint ventures play a much smaller role than in the automobile industry. Most foreign multinationals such as Nokia, IBM, Intel and Samsung have set up their own large-scale operations, which include manufacturing, sales, and technology development. –– Overseas Chinese companies from Taiwan, Hong Kong or South East Asia. This group is led by multinational contract manufacturers such as Foxconn, component manufacturers such as ECS and AU Optronics, chip foundry, and development and assembly firms such as TSMC, Mediatek and ASE. This group also includes a large number of Taiwan- and Hong Kong-owned small- and medium-sized enterprises, offering no-brand name components and manufacturing services. –– Chinese state-owned enterprises and hybrid enterprises. This group forms the strategic core of the Chinese high technology industry. Most of these companies emerged from former state-owned enterprises, or as commercial offshoots from leading research institutes and universities. Stateowned enterprises under control by SASAC are mainly national telecom operators like China Telecom and China Mobile. In IT manufacturing, the leading companies are mostly hybrids, with capital from international financial markets via Hong Kong, such as the computer manufacturer Lenovo, telecom vendors Huawei and ZTE, consumer electronics multinational TCL, and SMIC, China’s most important chip manufacturer.58 –– Chinese private companies. These are mostly small- and medium-sized companies, many of them with capital from Hong Kong. Most of these companies are small component suppliers and contract manufacturers, using low levels of technology and often facing precarious financial conditions. Some of the most innovative start-up companies in chip and

58 Ernst, Dieter, and Barry Naughton (2008): China’s Emerging Industrial Economy. In­ sights from the IT-industry. In Christopher McNally (eds.): China’s Emergent Political Economy. Capitalism in the Dragon’s Lair. London: Routledge, 39–59.



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software design, however, are also privately owned, such as Techfaith or Celestial Semiconductor.59 IT manufacturing is highly regionalized. The main industry clusters have emerged because of large-scale investment by foreign and Overseas Chinese companies. South China’s Pearl River Delta is the largest, and historically the oldest, location for export-oriented IT manufacturing, and Hong Kong- and Taiwan-owned companies are concentrated there. The region specializes in assembly of electronics components and large-scale contract manufacturing for mass consumer products, such as PCs or cellphones. The leading Chinese technology development companies from the region – Huawei, ZTE, Konka and TCL – specialize in telecommunications, television, and multimedia products, often in cooperation with contract manufacturers. As table 8 shows, Guangdong province has by far the highest revenues from IT manufacturing in China, followed by Jiangsu, Shandong, Fujian and Shanghai. The Yangzi River Delta – Shanghai and Jiangsu province – is the second largest location for IT manufacturing. Shanghai has a particularly high concentration of multinational brand-name firms, including many of their Chinese headquarters, whereas Jiangsu (the city of Suzhou in particular) is home to a large concentration of Taiwanese contract manufacturers. In recent years those manufacturers, along with a number of multinationals, have begun large-scale manufacturing operations in western and central China, Sichuan and Chongqing in particular. This trend has not yet been reflected in any significant regional redistribution of manufacturing volume and revenue until 2010.

59 Liu, Xielin, Boy Lüthje, and Peter Pawlicki (2007).

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Table 8: Regional distribution of IT manufacturing revenues (2010) Revenues in billion RMB

By province (top ten)

Annual growth (percent)

Percentage of total

Total

5688.03

Guangdong

1797.66

29.3

31.6

Jiangsu

1347,36

27.4

23.7

Shanghai

582.60

23.1

10.2

Shandong

434.18

21

7.6

Zhejiang

277.14

35.3

4.9

Beijing

245.72

13.6

4.3

Fujian

222.26

33.3

3.9

Tianjin

165.01

23.8

2.9

Sichuan

119.52

47.4

2.1

Liaoning

97.41

44.4

1.7

Source: Ministry of Industry and Information Technology

3. Models of Production and Supplier Networks The growing scale and scope of IT production in China is reflected in a diversity of production models at various levels of modular production networks. These models are one aspect of the integration of industry segments and companies into global production networks. They determine the conditions of capital accumulation and production of individual companies. Production models are not necessarily associated with the national or regional origin of the companies involved. There are also a variety of models of production and corporate organization among Chinese IT companies,



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independent of their legal status as state-owned, hybrid, or private. China is the largest and one of the youngest global locations for IT manufacturing. That makes it a testing ground for various ways of organizing advanced industrial production. As discussed extensively in the relevant literature, the restructuring of global production is a result of the rapid vertical disintegration and specialization of technology leaders in the IT industry over the last two decades. Driven by the desire for short-term profit among financial markets and venture capital investors, brand-name companies have increasingly specialized in highly profitable leading products or product lines, such as Apple with its iPods and iPhones. This has produced a massive concentration among no-brand-name manufacturing companies and component suppliers. Specialization at the top is accompanied by a vertical integration of production resources at the bottom, in manufacturing companies and their facilities in developing countries. In China, this produces a complex spectrum of production models, with four main types among multinational and national companies:60 (1) Brand-name companies with vertically integrated production, relying primarily on in-house production. This group is led by traditional multinational electronics companies from Europe, North America and East Asia. Historically, this group includes vertically integrated companies such as Siemens, Philips, IBM, Motorola, Toshiba, NEC and Samsung, and major international chipmakers such as Intel, AMD, Infineon and Elpida. Most European and North American companies in this category have outsourced a great deal of production. In many areas they act as factory-less or fabless companies. Typical examples are Nokia and Hewlett-Packard and the former mobile phone production unit of Siemens, which was sold in 2007 to BenQ, a contract manufacturer from Taiwan. Japanese and Korean corporations follow a vertical integration strategy, owning large or very large manufacturing complexes in China, like Samsung’s in Tianjin and Suzhou. Vertical integra60 This analysis has been developed in a previous research project under the title „Global Production, Innovation and Work. Why is Chip Design Moving to Asia?” conducted by IfS Frankfurt and the East-West Center Research program, Honolulu, Hawaii. For further reference see Ernst (2003); Ernst, and Naughton (2008); Lüthje (2007), and Pawlicki (2010): New Industries and Locations in Semiconductors – The Role of Industry, State and Markets. The Case of the Taiwanese Fabless Chipdesigner Mediatek. Paper for international workshop: Understanding the Emergence of New Industries. Between Path Dependency and Path Plasticity. Department of Economics, Universtiy of Torino, Collegio Carlo Alberto. Oct 7–8.

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tion is also favored by some newer Chinese multinationals such as Haier, TCL, or Konka producing mainly consumer electronics. (2) Fabless systems and component manufacturers, which focus on the design of hardware, semiconductors and other components, but do not operate production facilities under their own names. Two major types of enterprises are in this group. Some companies have their own brand names and final products, which have a strong presence in the Chinese market and cooperate extensively with contract manufacturers for production. This group includes major vendors of PC and data networking equipment like Dell and Cisco. A number of leading Chinese IT companies like Huawei and ZTE use this model. There are also fabless design houses for high-end components with no final brand-name products. These include chip and software design companies like Qualcomm, Broadcom, Nvidia and ARM, their Taiwanese and Chinese counterparts like Mediatek, and Techfaith, as well as design automation companies like Cadence and Mentor. These companies do not do much manufacturing in China, but they play an important role in global technology networks. (3) Large-scale contract manufacturers of electronics systems and integrated circuits (so-called chip foudries) with no brand name of their own. Electronics contract manufacturers form the largest segment of IT-production in China measured by revenue, production facilities and employment. This group is led by Foxconn, Flextronics, and Taiwan companies Compal, Asustek and Quanta (see table 9). The most important Chinese chip foundry is Semiconductor Manufacturing International Corporation (SMIC), headquartered in Shanghai, followed by world-market leaders TSMC and UMC from Taiwan (operating through China-based subsidiaries). There are also a number of smaller Chinese companies or joint ventures like NEC-Huahong and Grace. (4) Suppliers of electronic and non-electronic components without extensive contract manufacturing capability. In this group there are very large companies with mass production facilities and smaller- and medium-sized enterprises with simple technology, manufacturing organization, and customer relations. Large-scale component manufacturers mostly produce computer motherboards, assemble specialized printed circuit boards, and manufacture components like computer displays and graphic cards. This group overlaps the contract manufacturers, some of whom have their own ability to manufacture electronic and non-electronic components. Foxconn, for instance, was initially a manufacturer of computer metal frames and cables. This



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145

group is heavily dominated by companies based in Taiwan, and some of its largest industrial groups, such as Tatung in displays, and Poucheng, owner of ECS, one of the largest motherboard makers in the world. Small- and medium-sized companies dominate the manufacture of nonelectronic components, such as connectors, cable assemblies, metal and plastic parts. This sector is very large, but most enterprises are family and privately owned companies and their networks, often described as Asian Business Networks.61 In connectors and cable assembly, China accounts for almost 40 percent of world production.62 The largest concentration of these companies is in the Pearl River Delta – about 2,700 companies of this kind, according to industry experts.63 Significant concentration of capital and manufacturing resources has taken place in recent years among producers of non-electronic components. The manufacture of metal frames and parts for computers and mobile phones is increasingly performed by large-scale mass manufacturers from Taiwan, who are comparable to the large providers of electronics components. This highly complicated landscape has emerged from a process of massive restructuring. As a result, most production of IT hardware is performed by contract manufacturers. Companies from Japan and Korea represent an exception to this rule, since they still rely on extensive in-house manufacturing and supply networks within their own corporation or group. Japanese and Korean electronics multinationals, however, increasingly use contract manufacturers, exerting great pressure on their internal supply networks.64 Within the contract manufacturing sector, there are three models of production, named - OEM, EMS, and ODM (table 10). –– OEM (Original Equipment Manufacturing) is the classical type of outsourced manufacturing. The contract manufacturer produces a product according to the exact specifications and guidelines of the brand-name company. In this model the contract manufacturer does not provide any product design and development services. The manufacturing process is directly controlled by the brand-name company, and the manufacturer does not provide logistics and distribution.

61 Hsing (1998). 62 ILO (2007). 63 Hürtgen et al. (2009). 64 Hürtgen et al. (2009).

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–– EMS (Electronics Manufacturing Services) is a term for integrated manufacturing services. The contract manufacturer takes part in product design, organizes the manufacturing process, and runs extensive logistics networks for product distribution, often on a global scale. This model was created by major companies from Silicon Valley during the 1990s. The contract manufacturer becomes a provider of a full range of manufacturing services, based in factories that feature state-of-the-art production technology and a high level of capital intensity. –– ODM (Original Design Manufacturing) is similar to the EMS model. ODM providers also supply the full design of the final product, including electronics and exterior design. This model is used for products produced in high volumes with frequent design changes, such as low- to medium-priced mobile phones and notebook computers.



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Table 9: Top 10 electronics contract manufacturers (2007) Rank

Company

Total 2006 Revenue (Milion US-$)

Dominant type of production

1

Foxconn (Hon Hai) (Taiwan)

40,527.2

EMS

2

Flextronics (Singapore/US)

17,707.8

EMS

3

Asustek (Taiwan)

17,195.7

ODM

4

Quanta Computer (Taiwan)

16,503.4

ODM

5

Solectron (US)

11,200.0

EMS

6

Sanmina-SCI (US)

10,955.4

EMS

7

Jabil (US)

10,300.0

EMS

8

Celestica (Canada)

8,800.0

EMS

9

Inventec (Taiwan)

7,890.3

ODM

10

TPV Technology (Hong Kong)

7,176.3

NN

11

Wistron (Taiwan)

6,800.0

EMS

12

BenQ (Taiwan)

6,094.0

ODM

13

Elcoteq (Finland)

5,677.2

EMS

14

Benchmark Electronics (US)

2,907.3

EMS

15

Cal-Comp Electronics (Thailand)

2,050.0

NN

Quelle: Electronic Business, www.edn.com

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Table 10: Types of production in electronics manufacturing Name/Term

Abbreviation

Key Features

Original Brandname Manufacturing

OBM

“Classic” in-house production: core capacities of product development, component purchasing, manufacturing and logistics are in the hand of brand-name company

Original Equipment Manufacturing

OEM

“Classic” contract manufacturing: manufacturing of a brand-name product by contractor, product and manufacturing process developed and controlled by brandname company, purchasing of supplier materials and components by brand-name company

Electronics Manufacturing Services

EMS

Production of brand-name products by contract manufacturers, product development by brand-name company, manufacturing processes and supply chains under control of contract manufacturer, including production-related engineering, component purchasing, after-sales services (e.g. installation, repair); contract manufacturer as manufacturing partner with comprehensive, independent production know-how

Original Design Manufacturing

ODM

Like EMS, but with comprehensive technical system development by contract manufacturer; IP of brand-name company is reduced to key elements of brand development (particularly product design, logos, user interface)

Source: Lüthje, Luo and Zhang (2013)



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4. Workforce Structure and Labor Relations Information electronics is one of the largest manufacturing industries in China. As Table 11 shows in detail, 3.25 million workers are employed in the category “Manufacture of Communications Equipment, Computer and Other Electronic Equipment”.65 Most of these employees work in privately owned enterprises. State- and collective-owned enterprises make up less than 10 percent of industry employment. Employment has been growing rapidly during recent years. There have been no prolonged periods of employment decline due to the restructuring of state-owned enterprises, like that in the Chinese automobile sector in the second half of the 1990s. During the recession year 2008, when the sector was hit hard by the slump in global demand and ten thousands of employees were laid off, employment growth stagnated, but overall employment did not drop significantly. Economic recovery caused employment to rapidly resume its growth, adding another 200,000 jobs between 2008 and 2009.66 Average wages in IT manufacturing are above the national manufacturing average, but are lower than in automobile and other high wage manufacturing industries. In 2008 the average per capita annual wage (excluding social insurance and other benefits) in IT manufacturing was 29,915 RMB, compared to 24,404 in manufacturing in general, and 31,658 in automobile manufacturing. However this figure masks the vast differences in incomes between manufacturing workers on the one side and technicians, engineers, and research and development personnel on the other. Salaries among manufacturing and product development engineers are comparable to those in IT services and software development, where the average wage is around 75,000 RMB – two and a half times higher than in IT manufacturing. As

65 This definition in employment statistics from China’s national statistics office is similar, but not identical to the definition used in the above cited statistics of industry output and revenues provided by the Ministry of Industry and Information Technology. For our purposes, the differences are negligible. However, the different scope of industry boundaries does not allow for computation of productivity, defined as output per employee. Since there is no unified industry association for the IT industry in China, there are no industrywide statistics provided by industry associations. 66 Year end figures in employment statistics, however, mask the depth of the downturn in employment. As the following case studies show, major contract manufacturers layed off thousands or even ten thousands of employees per factory during the winter 2008–2009, but resumed extensive hiring during the second half of 2009.

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our following case studies show, the polarization of incomes is a defining element of production in most areas of IT manufacturing. Table 11: Employment and wages in IT manufacturing (2005–2009) Years

2005

2006

2007

2008

2009

Employment total (millions)

2.269

2.543

3.043

3.047

3.251

State-owned enterprises

0.148

0.128

0.142

0.124

Collective-owned enterprises

0.038

0.036

0.034

0.030

Others

2.083

2.379

2.867

2.893

Number of women employed (millions)

1.369

1.548

1.727

1.642

Wages per capita (RMB)

20,299

23,153

26,116

29,179

SOE

14,765

16,901

19,598

23,890

Collective

12,094

12,934

15,226

17,459

Others

20,872

23,665

26,587

29,521

Indices

1.732

Source: China Statistical Yearbook, various volumes

Wages, working conditions and labor markets are very different among the various segments of the industry, reflecting the way they are integrated into production networks and the world market. The conditions of production and capital accumulation in each sector are related to different forms of work organization and workforce recruitment, and local and regional labor policies in each location. The major differences in production regimes are the result of the type of workforce the companies seek to hire, the proportion and role of migrant workers, the human resource practices and related internal labor markets, and the strategy for coping with labor shortages.



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Work and employment practices can be characterized as follows: (1) Among brand-name companies with vertically integrated production and in-house manufacturing (multinational companies, joint ventures and SOEs), international standards of human resource policies are the norm. Production facilities in this sector are mostly small- and medium-sized operations for manufacturing technologically sophisticated products, like displays, chips, and opto- and electro-acoustic components, or volume production of advanced mass products such as digital televisions. Factories of this kind are mostly located in northern and eastern China (Beijing-Tianjin and Shanghai-Jiangsu). They are not common in southern China, with the exception of TCL’s and Konka’s production operations in Huizhou and Shenzhen. Within this category, major differences exist in wage levels between western and Japanese first-tier multinationals and companies from Korea and China. Korean companies like Samsung have a reputation for relatively low-wages, long work hours and strict control over workers. That makes them a second choice for employees in urban labor markets, compared to western and Japanese firms.67 Employment in most of these facilities is not dominated by migrant workers, although they work in most areas. Significant amounts of skilled and semi-skilled manufacturing work takes place at specialized producers of chips and components. In mass production, work organization is usually very standardized. Relatively stable employment with formalized wage and career systems are the rule, including extensive internal and external training. Most companies have to compete for skilled workers, especially in major urban centers. Workers have significant bargaining power, often resulting in rapidly rising wages and salaries. Groups of mostly salaried employees have made spectacular collective protests against corporate restructuring, like the closure of Siemens Mobile’s development center in Beijing in the wake of its sale to BenQ in 2007.68 (2) The employment situation among fabless multinationals and Chinese brand-name companies is dominated by skilled technical labor and the absence of large concentrations of manufacturing workers. These companies are mostly located in metropolitan high-tech zones, especially in Beijing and Shanghai. Their employees are among the best paid in the industry, 67 Wong, Monina (2006): Samsungisation or becoming China? The Making of the Labour Relations of Samsung Electronics China. In Asian Monitor Resource Center (rds.): Labour in Globalizing Asia – A Portrait of Struggle. Hong Kong: AMRC, 37–72. 68 2008, 2009, 2010 interview data.

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and they are regarded as trendsetters on salaries, skills and career patterns. Their human resource policies are similar to those of large multinational brand-name companies, although they are more competitive and have fewer social benefits. Human resource practices mostly are very informal in small start-up companies in software and chip development. In this sector unstable employment is widespread, causing competition among workers and often questionable employment practices. This is particular true for small start-up companies run by recent college graduates. Employment in these companies is often regarded as a first step into careers with large multinationals or Chinese high-tech employers.69 (3) Contract manufacturers in systems and printed circuit board assembly are by far the largest employers in the Chinese IT industry. Large factories sometimes employ tens of thousands, or in one case several hundred thousand workers, in assembly processes involving typical industrial labor. The working environment in EMS- and ODM-factories is modern, and the level of technology and organization is similar to that in industrialized countries. Workers carry out standardized volume production, as well as manufacturing of an increasing array of specialized products in smaller volumes, and introduction of new products. Assembly line production is dominated by the division of labor, especially in areas of manual assembly such as final assembly of cell phones, PCs, or computer printers. Control along assembly lines is highly personalized through direct supervision of workers by foremen and managers. Most workers in these factories are migrants, often recruited from distant rural provinces in inner China and housed in large dormitories. Wages are low. Their base wage is usually the local minimum wage. (4) Among suppliers of electronic and non-electronic components and small contract manufacturers, the wages, workforce and employment conditions are similar to those of the previous category. Most small companies have no modern manufacturing technology or work organization. In those companies, factory management is family-style and despotic, often without formalized human resource practices. Companies have extremely strict rules for behavior at the workplace and in dormitories, while they also disobey basic legal and government regulations. Their work environments often lack

69 Zhu, Fei (2005): Gaokeqi qiye guyong guanxi biange tezheng yanjiu – yi Zhongguancun gaokeqi yuanqu qiye weili (Research on the Special Characteristics of the Changing Labor Relations in the High-Tech Industry – The Example of Zhongguancun). PhD. diss., Beijing: Renmin University of China. Unpublished manuscript.



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basic protection for workers’ occupational safety and health, and there are frequent industrial injuries and illnesses. Labor relations in the information electronics industry are very diverse and polarized. At higher levels, companies usually respect existing labor laws, and provide employment conditions and social benefits that exceed legal minimum standards. Among contract manufacturers and component suppliers, labor relations tend to be unregulated, while legal requirements are frequently violated or subject to “flexible interpretation” by company management and local governments. As a general rule, the influence of trade unions in the information electronics industry is very low. Non-union workplaces are the norm. Similarly, the influence of the Communist Party inside the industry is very limited. Party organization is non-existent in most companies, with the notable exception of some major multinationals from Korea. The weakness of trade unions and party organizations is a result of the history of information electronics – a very modern industry with very little legacy from the planned economy. Relatively little is known about workplace relations in IT companies in China. A few studies have been conducted about the new workforce in urban high technology start-up enterprises.70 The problematic working conditions in contract manufacturers and component suppliers have been subject to numerous critical studies by NGOs and academics. Electronics companies of all sizes have been criticized for sweatshop-like practices.71 Most of these studies have been conducted by organizations or individuals based outside of mainland China. However, the dramatic events at Foxconn, where twelve 70 Liu, Fudong et al. (2001): Zhongguancun rencai ziyuan (The Human Resources of Zhongguancun). Beijing: Economics Press. Zhu (2005). Ross, Andrew (2006): Fast Boat to China. Lessons from Shanghai. New York: Pantheon. 71 CAFOD – Catholic Agency for Overseas Development (2004): Clean up your computer. Working Conditions in the Electronics Industry. London: CAFOD. Wilde, Joseph, and Esther de Haan (2006): The High Cost of Calling. Critical Issues in the Mobile Phone Industry. Amsterdam: SOMO – Center for Research on Multinational Corporations. AMRC – Asia Monitor Resource Center (2007): Preliminary Report on Industrial Relations and Working Conditions of IMF-related TNCs in China. Commissioned by the International Metalworkers Federation. Hong Kong: AMRC. For academic studies see Lee, Ching Kwan (1998): Gender and the South China Miracle. Berkeley/Los Angeles: University of California Press. Chan, Anita (2001): China’s Workers Under Assault. The Exploitation of Labor in a Globalizing Economy. Armonk: ME Sharpe. Brown, Garrett D., David Sharpe, and Dara O’Rourke (2007): Lean Manufacturing Comes to China: A Case Study of Its Impact on Workplace Health and Safety. In International Journal of Occupational and Environmental Health 13 (3), 249–257.

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workers at its main campus in Shenzhen committed suicide in 2010, have spurred widespread reactions in China, including public statements from academics at leading universities. As a result, independent academic investigations of working conditions at Foxconn and similar companies have been conducted, led by a joint study by 20 leading universities from China, Taiwan and Hong Kong.72 In reaction to growing public criticism outside and inside China, a number of large well-known electronics firms and contract manufacturers have introduced unilateral codes of conduct. The Electronics Industry Code of Conduct (EICC) was initiated by Hewlett-Packard, Dell, and leading U.S. contract manufacturers. Codes of conduct and related schemes of Corporate Social Responsibility (CSR) have become widespread in the Chinese IT industry. Their impact on day-to-day workplace relations, however, is limited.73 After a first wave of critical media reports about work practices at major contract manufacturers in 2006, some companies introduced trade unions in a number of factories. This was also a reaction to the introduction of the Labor Contract Law enacted in 2008, for which some major Taiwanese contract manufacturers publicly declared their support. Other leading Chinese electronics companies, however, such as Huawei, led employer opposition to this law and openly declared their refusal to comply with basic rules on employment security.

5. Introduction to Case Studies The following case studies of twelve factories represent typical examples of production regimes at various levels in the production networks of the information electronics manufacturing industry in China. Following the analysis of production models just presented, these case studies include examples from vertically integrated manufacturers, contract manufacturers, and component suppliers. Since the focus of this study is on manufacturing, we have not included factory-less design and technology firms. Readers can refer to earlier research projects on this subject.74 72 Liang An San Di Gaoxiao (Cross Straits Universities) (2010): Fushikang yanjiu baogao (Foxconn Research Report). Manuscript. Beijing: Beijing University. 73 Hürtgen et al. (2009). 74 Lüthje (2007); Pawlicki (2010).



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The first group of brand-name firms (5.1) includes a global first-tier electronics company, a multinational chipmaker and a manufacturer of lighting systems. The last product category is not strictly information electronics, but is included in information electronics in Chinese government statistics. Lighting systems are changing rapidly from a traditional electrical goods industry to an electronics industry due to the transition to LED lighting technology. Working conditions in this Chinese state-owned enterprise are comparable to other Chinese companies in consumer electronics manufacturing. The second group (5.2) consists of two leading global electronics contract manufacturers. The second case study includes three factories of one company and therefore permits a comparison between labor regimes of the regions where the factories are located. One case study includes a factory which uses an ODM model. We can therefore ask whether the greater integration of product development in ODM manufacturing supports any upgrading of work and working conditions on the shop floor. The third group (5.3) includes various types of component suppliers. There are a large multinational company under Overseas Chinese ownership, a joint venture between an electronics multinational from East Asia and a local government, and a small privately owned Chinese company. The first example is typical of the massive concentration of manufacturing resources and workers that has occurred in recent years at lower levels of non-electronic component manufacturing, among companies that supply major contract manufacturers. The case study traces the extreme forms of workforce flexibility caused by this vertical reintegration. The second example highlights the situation at component suppliers that are part of the in-house supply networks of East Asian electronics companies. This case study also provides a rare example of a union-represented electronics supplier with a remarkably strong system of workplace representation. This has been held up as a model of labor relations within the All Chinese Federation of Trade Unions. The last case is typical of small low-tech and low-wage manufacturers. These still dominate labor-intensive segments of IT component manufacturing and contribute to the perception of widespread sweatshop working conditions in China.

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5.1 Electronics Industry Case Studies: Brand-Name Firms 5.1.1 Electronics Industry Case Study 1 This is a wholly foreign-owned electronics company, headquartered in Europe. The company was recently spun off from a well-known multinational corporation. A major international private equity investment group is now among the main shareholders. The company has produced audio components (loudspeakers, microphones, and related products) for several decades. It develops, manufactures, and sells acoustic components for cell phones, as well as for portable music and video players, game consoles and other portable media. The communication-related speakers of this company have a top rank in the global market. Since production in China started in early 2001, the factory’s capacity has grown rapidly, reaching 300 million mini-speakers in 2006. It expected to achieve a capacity of 500 million by 2010. By early 2008 this company had produced one billion speakers. With support from the city government, this factory is located in the electronics area of a wellknown industrial park in North China. In this park, it is surrounded by major brand-name electronic corporations from around the world, including many of its customers. A new factory is under construction in a new development zone in a suburban industrial area of the city. The company is planning to move there in one or two years. Due to its high-tech production, most of its workforce of 550 employees at the time of our investigation (down from 600 a year before) were experienced and well-trained machine operators and technicians. Model of Production This company designs, produces, and sells electronics acoustic equipment, mostly for first-tier brand-name mobile phone makers. Other customers include producers of MP3 and navigation devices, notebook computers, sound panels, and automotive electronics systems. Since acoustic components are fragile and are a key part of products like cell phones, the company has a strategic position in the production networks of the electronics industry. It is important to determine the quality of the final products. Nevertheless, due to specialization and vertical disintegration in this industry, market cycles often cause massive fluctuations in production volume. The factory is embedded in the just-in-time production networks of major electronics



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companies and contract manufacturers, which require precise delivery and production schedules. The factory is located in a three-floor building. On each floor, workshops are located in the middle of the space, surrounded by glass walls. The offices of production managers, engineers, and other staff members are separate rooms at the edges of workshop windows. They have a good view of operators and the production process. At the same time, production managers are visible to workers. The factory manufactures high volumes using high technology and automation. Workshops are not large, unlike the large assembly plants of other electronic manufacturers in China. More than 20 fully automated production lines produce massive volumes of standardized parts for global mobile phone makers. The machines use the most advanced technology. Products with special configurations requested by Chinese or foreign customers are usually manufactured at local subcontractors. Inside the workshops, technicians and engineers research and develop new features and product designs. In normal times the machines run 24 hours a day, seven days a week. Workers usually work twelve hours shifts. The manufacturing environment is modern; the workplaces are clean and in good order. Assembly work is done by highly automated equipment, which performs the basic steps of pressing and molding sensitive membranes into their small metal frames and casings. There is almost no manual assembly in this shop, unlike many low-end manufacturers of similar products. The high degree of automation, which requires substantial investment, guarantees higher quality and uniformity. As is typical for mechanical production, the level of noise is high, but not unbearable. Employees use the necessary protection, including earplugs and work shoes. The organization of work is based on an assembly line model with single workplaces at each assembly step. Operators perform semi-skilled or highly skilled machine work, which requires workers to have substantial knowledge of the process and experience with the equipment. Usually, a worker operates one piece of machinery on an assembly line with three to six stations. There are no group workstations, but there are work teams, usually one per line. Preparation, calibration, and preventive maintenance of the machinery are integrated into the work process. Since assembly is fully automated, those tasks are the main occupation of line workers. Only complex maintenance and repair work is performed by specialized technicians, called supporting engineers, who are usually in close communication with teams on the lines.

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The financial and economic crisis had a serious impact on this company. Major global mobile phone makers went through a big recession in the second half of 2008. This led directly to a 50 percent loss of orders. At the time of our investigation, the company was still running at a very low capacity. During the recession period, the company tried to keep its workers employed, and organized training, equipment maintenance, and cleaning activities while paying them monthly base wages. According to human resource management, however, this policy could not be sustained for more than another six months before the management would have to take action, such as dismissing employees with low performance. The human resource department actively identifies core employees with the help of department directors and tries to minimize their feelings of insecurity. Work and Working Conditions Among all 550 employees there are only four expatriates. At the beginning expatriates were a substantial part of the workforce, including management, engineers, maintenance mechanics, and line leaders. As Chinese workers and engineers learned rapidly, and the company made protracted efforts to hire more local workforce, the expatriates almost entirely left after working two to five years in the factory. About 400 machine operators are called line engineers (LE). The company does not require them to have higher education degrees, but does require two to three years of work experience before they are hired. Other workers include project engineers (PE) and supporting engineers (SE) who take care of the machines. They have degrees from colleges or universities, are highly skilled, and have greater work experience. 57.2 percent of the workers have graduated from technical schools, 13.2 percent from junior colleges, 22.2 percent from universities, 4.2 percent have masters degrees, and 0.2 percent have PhDs (1 person). The remaining 3 percent are middle school graduates. The workforce is relatively young. 55 percent of the employees are 20 to 30 years old, 40 percent are 30 to 40 years old, and only 4.5 percent are between 40 and 50. The vast majority of employees (88.1 percent) are men, while only 66 workers are women. This is different from many electronics factories in China. Among the line engineers (machine operators), there is not a single woman. The company says there are fewer women in technical schools. In addition, workers put in 12 hour shifts, which do not attract many women workers. Most employees come from the city and the



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surrounding province. The company helps workers with the potential for developing very high skills to obtain city residency status (hukou). According to management, operators are not usually interested in the local hukou. The company also employs migrant workers as long as they have the required skills and experience. There are no temporary workers on the production lines, although the factory outsources cleaning and security services to outside firms, which saves up to half the costs. Most operators are hired from the labor market, although some employees are new graduates from technical schools. Hiring graduates is not an optimal way of recruiting workers, according to human resource management. The company advertises extensively on internet job hunting web pages. In addition, employees can recommend good candidates among their colleagues and friends. When the candidate has worked in the company for six months and performs well, the recommender can be rewarded. High turnover rates are a general problem in the electronics industry. Many operators here gained their work experience in other electronic factories in the city. The company has therefore designed a special retention program, including a bonus for all employees who have worked in the factory more than two years. Workers’ duration of employment is relatively long by the standards of the local labor market. In 2008, 19.2 percent of all employees had worked in the factory for more than five years, 24.4 percent between three and five years, 47.9 percent between one and three years, and 8.5 percent for less than a year. The quality of the workforce in the labor market is satisfactory to human resource management. Since unemployment is high among less skilled workers, it is usually easy to find operators. The company’s salary package is relatively attractive. Nevertheless, the situation is different for support and project engineers, since they have to be more skilled, knowledgeable, and experienced. These engineers also need to work 12-hour shifts due to the continuous flow of production, whereas other factories only require work during day time hours. It is not easy for the company to find people meeting these requirements. It attempts to match openings with candidates in its internal online job bank, and tries to train workers internally for technician and engineering positions in order to promote them. A system of internal mobility is being developed to promote employees from LE to SE and PE. Due to the short history of this factory, this system has not yet made much progress.

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Work hours on the production lines are based on calculating working time for a one-year period. Overtime in one month can be compensated by fewer hours in another. The factory works on a two-shift schedule. Every day the two shifts run from 8:00 a.m. to 8:00 p.m. and from 8:00 p.m. to 8:00 a.m. Based on seven days of continuous work, the total weekly worktime for one shift is 12 hours times 7 days, or 84 hours per week. Production workers work seven days in a row and have one week off. This amounts to an average working time for each employee of 177 hours per month, calculated over the year. However, this exceeds the maximum monthly work hours allowed under the labor laws by three hours.75 In addition, the legal limit of 36 hours of overtime per month is exceeded frequently. In order to abide by government regulations, the company controls overtime strictly. Employees in other positions, such as sales, finance and human resource, work a standard eight hours per day, five days a week. Compensation is based on different salary grades for different groups of workers, as well as within groups like Line Engineers. The salary grades are clearly defined in company manuals, and workers usually know their own salary grade and corresponding work category. The wage package for operators includes a basic wage of about 2,000 RMB, a shift allowance 22 RMB per day, and overtime payment of 150 RMB per day. Overtime pay is calculated at time-and-a-half. There are lots of bonuses, such as recognition bonus, referral bonus, and retention bonus. The retention bonus is 5–10 percent of the regular base wage every month. The performance-based bonus depends on the Key Performance Identity, evaluated for every operator each month. Sometimes it can be 60 percent of the base wage. As a whole, the regular wage of an LE consists of three components: 45 percent is the regular base; 45 percent is attendance pay; and 10 percent are benefits. Each year there are twelve monthly wage or salary payments. This company considers itself a performance-driven organization, so flexible payment accounts for more than 30 percent of total income. One major problem of such a flexible wage structure is its relative instability. If there is not enough work, the money a worker can earn drops dramatically. This was the situation when the global financial and economic crisis hit in late 2008. The workers’ income was suddenly reduced by half. The performance orientation of the compensation system also results in large wage differenc75 Government calculations of monthly working times are based on 21.75 workdays per month. Multiplied by 8 hours of daily working time, the monthly working hours are 174.



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es. For non-expatriate employees, the difference between management and front line workers can be more than ten times. In addition to compensation, the company provides government-mandated social benefits, such as annual leave. Like many others in this area, the company does not provide dormitories, but operates shuttle buses to employees’ residential areas. Due to the relatively high skills required for production work, this company provides comprehensive education and training programs. New employees receive orientation training during their probation period. For LEs there is a continuous program of on-the-job training. A reward called Weekly Star encourages good performance. Usually, the supervisor selects the best performing workers each week, who receive a free dinner or other social award instead of a financial bonus. Work categories or grades are not fixed, and if an LE’s performance is good, the worker can be promoted to PE or SE. In addition, under the Person-Performance Management (PPM) procedure, the performance of employees is reviewed every year and salary levels are adjusted accordingly. This leads to differences in wage increases. Employees receive training handbooks, which list all the training programs required for each position and specify the knowledge and skills required for different compensation levels. Regular training can take place during work time or after work. After workers finish at 8 p.m., the supervisor can use half an hour to coach them. Employees can receive internal training certificates after completion of certain programs. Nevertheless, the company does not issue publicly recognized certificates. Nevertheless, its own certificates are desirable because they can provide an easy and trustworthy assessment of the actual skills of candidates when they apply for jobs, according to human resource management. There is no external standardized training center in China. When the company has specific requirements, it goes to schools or agencies, where they can send people to be trained and get the certificates. This only applies in a few cases and not for LEs. There are also other training programs such as the Blackbelt Project which sends experts from headquarters to train workers to improve techniques and efficiency, and other training for the continued improvement process (CIP). Labor Relations This company set up a trade union in 2006, responding to requests from the local government and to increasing awareness of workers about labor policy issues in China. The union was created top-down by management. The un-

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ion chairman is the manager of the system control department. All union representatives work part-time for the union, while they still have to work part of their time in their regular jobs. The union has a special account for receiving union fees directly from the company finance department. It is not clear whether all employees are union members, but all employees receive gifts and welfare from the union. According to management, the basic function of the union is to serve as a bridge between employees and human resource managers. Sometimes the human resouce people talk with the trade union leader to find out what employees think about the company’s development and about possible improvements for workers. A major function of the trade union is to provide welfare to employees. The union has funds to support employees who encounter difficult situations. On traditional public holidays and festivals, the union distributes shopping cards to all employees. Sometimes it organizes activities like bowling or badminton. At the time of the investigation, the company did not have a collective contract. There were no negotiations to reach one, nor were there negotiations between the union and management over wages, work hours, or performance evaluations. Management decides on the wage system and its grades, and the human resource department tells the union about the regulations. The union basically has no influence on wages. Because of the recent changes in labor laws, the human resource department carefully studied the Labor Contract Law and made proposals to change individual labor contracts accordingly. Some changes were also made in the employee handbook, of which each worker has a copy. The labor practices of this company fulfill legal requirements and government regulations, and the labor contract law is not cited as a source of cost increases. In spite of comprehensive management control over the wage system and employee representation, labor relations in this company are not stable. With a booming urban labor market and a shortage of skilled industrial workers and engineers, widespread individual bargaining takes place between workers and management. Skilled workers have long used their bargaining power successfully to extract substantial pay raises and promotions. The company’s extensive retention program is a reaction to this situation, but it has not been able to hold back the continuing upward trend in compensation. The financial and economic crisis had a dampening effect on workers’ bargaining power, however. But given the dependence of this factory on its



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relatively skilled workforce, conditions for individual bargaining are likely to improve after the recession. Management of this company complains that workers have a demanding attitude. They see the lack of pay standards in the local labor market for skilled workers as a major problem, especially because in the company’s home country comprehensive and stable wage standards are defined by trade union contracts. Nevertheless, like many other companies in China, it does not seem really interested in industrial or region-wide wage standards. Managers point to the problem of standardizing the labor costs because of different living standards in different areas. The only way of benchmarking salary categories is through informal consultation with other European and U.S. multinationals. Other than in a few other cases in this study, there are no established mechanisms for consultation between companies and local labor bureaus in the industrial park. To determine wage and salary standards, the company has to rely on an expensive annual market salary survey by a big consulting firm. The relationship between the union and the human resource department is very cooperative. So far there has been no major conflict between them. The company did experience an unofficial work stoppage in several production departments during the period of the labor shortage in 2007. Workers stopped production lines for several days to demand higher wages and overtime payments, and negotiated through spontaneously selected representatives. The main spokesperson later was fired. During the conflict, the company was contacted by the district trade union, but it did not intervene or offer help to mediate the conflict. Conclusion In the context of our typology, this company has a typical corporate highperformance production regime, characterized by modern technology and organization, relatively decent wages, and a highly individualized system of pay and performance control. The production model mixes skilled industrial work shaped by European-style manufacturing traditions with performance policies from “ultra-lean” non-union companies in the high-tech industry. Within the global organization of the company, the Chinese factory is a testing ground for new high-performance work schemes. This philosophy is present in every element of the organization, such as a performance-driven wage structure, selective career development, flexible employment, and high

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turnover rates. Trade union and employee involvement practices do not have much influence on labor practices. There are potential shortcomings in this system. This company demonstrates that a sophisticated high-performance work organization cannot restrain the bargaining power of skilled workers during strong economic growth in China and tight labor markets in first-tier cities. Rather the system of individual performance evaluation and the lack of skill and wage standards reinforces individual bargaining. This threatens the cohesion and loyalty of the workforce. Informal labor conflicts highlight the lack of any legitimate representation of employee interests, and the absence of trade unions from the workplace. As a result, the tripartite regulation of labor relations prescribed by labor laws and government labor policies is undermined. Any substantial change in this situation only seems possible through regulating basic standards of compensation, job classification, skills, and se­ niority in contractual arrangements or enforceable legal requirements backed by strong government control. This case also shows the negative impact of performance-oriented wage systems on workers’ income, especially in times of crisis. Obviously, a 50 percent drop of monthly real wages, in spite of continuing employment, has a negative impact on workers’ purchasing power. Regulating wages through contract bargaining or legal regulations is also a basic requisite for stimulating economic growth through increased spending by average workers’ households.



Regimes of Production in the Electronics Industry

Evaluation of regime of production – Electronics industry case study 1 Item

High/ Medium Low/ Comments Strong Weak

Organization of Production Market control Vertical integration (company)

X X

Vertical integration (factory) Product technology (relative to industry standards) Manufacturing technology

X X X

Stability of production flow

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers

X X X

Proportion women Proportion of temporary workers Workforce stability Income stability Piecework type of incentives Employee involvement (workplace)

X X X X X

No

X

Since 2006

X

No

X

Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

88.1 % male

X X X X X X X

X

2007 work stoppage

165

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5.1.2 Electronics Industry Case Study 2 This factory is a joint venture between a European-based multinational and a local Chinese government holding company in the semiconductor industry. It specializes in manufacturing memory chips. Its foreign mother company was part of an integrated world-famous electronics corporation. The chipmaking arm was spun-off in 1999. In 2006, the memory chip business, with its internationally leading manufacturing and research and development facilities, was further separated and became a company on its own. In the field of DRAM chips, the standard products for computer memory, this company has five facilities for 300 mm wafer production and five major research and development centers. It has 12,000 employees worldwide, including 1,800 research and development personnel. Ranked among the top three manufacturers in the world DRAM market, the new company had net sales of 1.79 billion EUR in 2008. Due to declining prices and the erosion of its capital base in the stock market, and the lack of financial support from government agencies, the company had to file for bankruptcy protection in its home country in 2009. At the time of our investigation, the bankruptcy proceedings were still going on. Located in a major city in East China, this factory was established in 2003 as the company’s biggest production and research and development site in China. It started production in 2004. The semiconductor sector in this well-regulated industrial park accounts for 16 percent of China’s total national output. Like most of the other chip manufacturing facilities in this area, the factory is mainly focused on the final assembly of memory chips and related products, such as pre-assembled chip modules and memory cards. This specialization reflects an international division of labor with long traditions in the chip industry. The final assembly of chips with many standardized, sometimes manual processes was originally located in emerging industrial countries. The strategic core process of wafer manufacturing and the related research and development in product and process development were located in high-tech centers in industrialized countries. In the case of this factory, the international division of labor is organized under a particular ownership model. The factory operates as a legal entity owned by the multinational and the local government. The company in China has to buy the wafers it processes from the mother company in Europe, and sells chips directly to its customers in China and other Asian countries. Because of the bankruptcy, the mother company owed substantial amounts of money for undelivered wafers to the Chinese subsidiary, causing



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serious concerns on the part of the local government over potential heavy losses. Due to the difficulties face by its foreign mother company, factory employment declined from about 2,000 employees in early 2008 to only 850 in May 2009. At the time of our investigation, the future of this factory was unclear. Model of Production The multinational company operates as a fully integrated manufacturer of memory chips under its own brand name. This model of production is known as Integrated Device Manufacturing (IDM), as opposed to newer business models in the chip industry such as design houses with no manufacturing capacities of their own or contract chip makers with extensive manufacturing operations but no brand name (chip foundries). The manufacturing system of the company includes front-end and back-end production. Wafers are manufactured in capital intensive plants. Assembly and testing takes place in separate entities, which have become highly automated in recent years, although still at significantly lower levels of capital intensity than wafer fabs. Such a production model can only be sustained with continuing large investments in the development of new products, production processes, and factories. Manufacturing volumes have to be large, manufacturing organization has to be highly integrated among distant locations worldwide, and workforce skills have to meet the hightest international standards. Factories in emerging markets are therefore set up with state-of-the-art manufacturing technology and organization, making them flagships of industrial modernization in their respective locations. This factory site is specialized in back-end manufacturing of DRAMchips, the final assembly and testing. The factory assembles a variety of products and applications, namend computing DRAM, graphics RAM, consumer DRAM, and mobile RAM/MCP. Many of these products have been manufactured using the latest wafer manufacturing technology, which processes a wafer size of 300 mm or 12 inches. The manufacturing equipment in the assembly plant has to be adapted to this level of technology, needing costly investment in equipment and processes. In normal times this factory can handle 60,000 12-inch and 8-inch wafers per month. Each wafer holds a specific number of DRAM-chips, which have been printed onto them by previous processes of wafer manufacturing. In the assembly factory, the chips are cut from the wafer with highly sophisticated

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micro-sawing equipment, wired, bonded, soldered, and packed into small cases usually made of plastic or ceramic. All these processes are performed in clean rooms on highly automated equipment. Today, automation is used for quality reasons, since the automated handling of micro-sawing, micro-wiring, and micro-soldering guarantees better product quality. Output quality is strictly monitored, since failures in the assembly process result in losses of expensive wafers and disruptions in just-in-time schedules for manufacturing and shipping. Inside the factory, workshops are arranged in a line according to the production process. The preparation section handles pre-assembly, dicing, and laminating. Then assembly includes grinding, mounting and peeling, die bond and wire bond. At the end of the line are plasma cleaning, molding, post mold cure, plasma activation, solder ball attach, and singulation operations. In addition, in one production segment, completely assembled chips are placed on printed circuit boards, which are sold as prefabricated memory modules or cards for computers and other applications. This operation is performed on automated placement machinery, known as SMD. The workshop resembles a printed circuit assembly plant like those belonging to brand name and contract electronics system manufacturers. Since the production is sensitive to dust, the factory is completely sealed by walls and glass-windows. All workers must wear cleanroom clothes and caps, known as bunny-suits, exposing only their eyes. In the pre-assembly and assembly sections, workers also wear glass masks, since no dust is allowed. As other parts of the manufacturing process, testing in this factory is almost completely automated. With the exception of printed circuit board assembly, there is almost no optical inspection or related manual rework left here. Automated testing equipment is imported from top international vendors, from Japan in particular. Such equipment is usually operated by technicians or engineers, based on computerized testing programs developed for specific applications. In the various processes of dicing, soldering, and wiring – once the domain of semi-skilled women workers with considerable experience – manual work no longer exists. Most processes are carried out inside automated equipment and work stations. Lights signal malfunctions or quality problems. The main task of operators and line leaders is troubleshooting. Operations have mostly been simplified to a degree that semiskilled workers with relatively short training periods can perform most of them.



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At individual work stations each operator is usually in charge of one or two machines. Inside the cleanroom they load materials and operate the machines, monitor the results, and finally unload the products. Space is limited and there are few workers in each room. Communication between them is limited by the cleanroom situation and often not allowed. Processes are highly standardized and repetitive, and the work therefore can be boring. According to production managers, operators do not do preventive maintenance, and they do not have to understand how the machines work. They oversee basic operations and perform simple daily maintenance and cleaning routines. Most problems with machinery are taken care of by technicians and engineers, who are in charge of programming. Although workers wear complete sets of protective clothing, they can easily distinguish whether each person is a technician or operator by the colors of their clothes. Different colors are worn by workers in different categories, usually blue for technicians and white for operators. As a result of the global economic crisis and the bankruptcy of the mother company, overseas orders at this factory dropped rapidly. At the time of our investigation, only 20–30 percent of its production capacity was being used. For instance, in the SMD section, 400 operators would normally work in four shifts of twelve hours per shift. During the downturn, there were only three shifts of eight hours each. There were rumors that the factory might shut down or be sold to another company. The bankruptcy situation produced great insecurity on the shop floor. The factory was not even in the restructuring plan of the foreign mother company. Local management and owners were looking for investors, particularly among overseas Chinese companies in the region. Changing ownership might also mean fundamental changes in the model of production – particularly transforming the company into a provider of assembly and testing services for other manufacturers or chip foundries.76 Work and Working Conditions The manufacturing process and technology in this factory are state of the art. Nevertheless, advanced machines and full automation also deskill work. In 76 As of the end of 2010, no long-term arrangement for the continuation of production had been found. The factory had been taken over by the local government holding company, but only the local employees in the higher job categories were still employed. The local government was hoping for a new investor from outside.

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spite of the clean and modern work environment, work in this factory mostly consists of simple repetitive tasks. The division of labor between operators and engineers is very strict. The workforce has gone up and down during the short time of the plant’s existence, from 600 employees in 2005, to 1,400 in 2006, to 2,000 in March 2008, and then only 850 in 2009. Since late 2008 there have been lots of lay offs, including the shutdown of the whole R&D center. By May 2009, nearly 550 direct labor (DL) employees had left. Most operators graduated from technical secondary schools and come from rural areas of this province. Very few are from other provinces. The majority of operators have no local city residency status (hukou). About 300 are indirect labour (IDL), 2/3 of whom are engineers, including foreign expatriates and a third of the support staff. In 2006 there were 60 expatriates. At the time of our investigation only eight or ten expatriates remained. The engineering workforce is mainly Chinese, recruited from all over China. Because of the discriminative migration policies of many Chinese cities, it is very easy for engineers to get a local city hukou. Campus recruitment, internet advertising, and internal reference are the main recruiting methods. Employees who used to work in the R&D center were recruited from the top science- and technology-based universities in China. About 80 percent of the workforce is recruited through the human resource website of the industrial park. The well-regulated working environment and special public provident fund of this industrial park make working here attractive to many young people, according to management. Young employees can get loans to buy an apartment, while expensive housing price has become the biggest burden for most people in China these days.77 Many people like to work in brand-name companies, like this factory. Training programs are comprehensive. For newly-hired operators, training takes one or two months. They need to learn general company philosophy and work discipline, such as Six Sigma. Technical skills are taught on the job under the guidance of a skilled and experienced worker. Once workers get certified, they can work without supervision. Work requires substantial language skills since all programs and manuals for the machines are in English. During the first training program for new employees, the workers are 77 The Public Providence Fund is a special scheme of mandatory social insurance in operation in this particular industrial park. As an experimental project modeled after the national social insurance system in Singapore, it substitutes for the national social insurance system under a special authorization from the central government.



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taught the meaning of the English words they contain and need to memorize them all. The Lean/Six Sigma concept of quality management and workplace discipline is used and advertised throughout the factory. This concept was originally developed by Toyota, and its goal is to get the right things to the right place at the right time in order to limit defects in the work process. Every quarter workers are evaluated and placed in several categories, such as champions, black belts, and green belts. Wages are another factor attracting and retaining employees. The general structure of the compensation system consists of base pay, 13th-month pay, and MBO (Management by Objective) bonus. To get an MBO bonus, individual employees set a target in communication with their immediate supervisors. The bonus is distributed if they meet this target. For different posts the objectives are different, but the system is the same. In addition, there are advanced payments, retention payments, a sports club membership, an education assistance program, and other benefits. During the two years of expanding business and a relative shortage of skilled labor, engineers received a base salary, 13th-month pay, and an extra two months of base pay, resulting in 15 monthly base payments per year. The flexible wage amounts to four monthly base wages or salaries per year. Compared to other semiconductor and electronics companies in China, this flexible compensation is relatively low. It differs from Korean and Taiwanese companies that usually maintain a 50 percent to 50 percent relationship between base wages and bonuses. According to management, the turnover rates in those companies are substantially higher. Many employees of the company under investigation had previous work experience with Korean and Taiwanese companies, and compare their present situation positively to their previous employers. There is usually not much overtime in this factory. DRAM production is highly automated and continuous. The factory runs 24 hours a day, seven days a week. There are four shifts, with eight hours for each shift. There is no room for overtime in the regular shift schedule. Nevertheless, in 2007 and 2008, the company used 12-hour shifts. There were four different shift groups. Each day two of them would be at work. Seven overtime hours per worker per month are calculated into the shift schedules, resulting from the difference between the legal monthly average work time and the actual numbers of work hours during a month. In addition, overtime results from special production needs or a shortage of workers. This part of the working time is calculated on an annual base as Integrated calculation working time.

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Although the company could pay overtime on a yearly base, it is actually paid monthly. According to the law, the legal monthly work time is 21.76 days, or 167 hours. If in one month the worker works 200 hours, then he or she gets 33 hours of overtime payment (twice the hourly wage). The overtime payment can reach 25–30 percent in this case. In practice, the lack of overtime is regarded by many operators as a disadvantage. Operators earn base wages and incentives, consisting of the 13thmonth pay and one-and-a-half-month bonus, according to their grades. Usually, operators want more overtime in order to get more pay. When there is no overtime, workers complain that there is too much time to spend money, but too little time to earn it. In contrast, in Taiwanese or Korean companies the base wages for operators are not high, but with constant high amounts of overtime, the total incomes are more or less the same as in this European company. Engineers generally accept the existing compensation system. Some technicians might work overtime to maintain the machines. Overtime is not paid for technicians and engineers, however, and is compensated instead with time off. According to management, these policies are accepted. Many engineers believe this balances their work and life better. Different perceptions also reflect differences between local residents, who prefer regular work hours, and migrant workers, who are more interested in overtime. Wage grades are clearly defined. For operators, the grades include A, B, C, D, and E, from the highest to the lowest. The category for each worker is decided by their years at work, work grade, and other factors. Workers at C grade receive the average bonus, one or one and half-month pay every year. At the lowest level E, operators get 1,100 RMB as their base wage. The average is about 1,400 RMB per month. Including the 13th-month-payment and bonus, the total annual income is 1,400 x (12 + 1 + 1–1.5), which amounts to around 20,000 RMB. Bonuses range from 2–2.5 to 14–14.5 percent. Among other incentives, all grades get different monthly bonuses with an average of 100 RMB. Dormitories are provided in this factory, but they are not popular among workers, according to management. The reason is the dormitories are located in the industrial park surrounded by factories. Workers prefer to live in rural areas near the city, where housing is cheap and they can socialize. During the bankruptcy and subsequent downsizing, cost-saving became the major task of Human Resource management. The company laid off some employees and adopted a work schedule of four work days per week. Unpaid



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leave was considered as the next step, according to human resource management. The company made detailed plans for layoffs, called Voluntary Separation Scheme. The head of each department talked to individual workers. At the beginning employees did not want to leave. For several years almost no one left voluntarily, but after early 2009 many started to leave. The severance package follows legal standards. The company calculates the service years of individual employees and pays one month wage for each year. As an incentive for voluntary resignation, the company also offers a 13th-month bonus, additional training support of 4,000 RMB, and an extra month pay in case the legally mandated notification period of 30 days cannot be honored. The human resource department looked for employment opportunities for laid-off employees in other companies in the industrial park. Due to the general recession in the semiconductor sector, however, opportunities were limited. Some engineers found jobs in other sectors of the electronic industry, and some left for other major cities. The market for operators was different because there was a shortage of them. Many companies in the area could not find enough workers. Migrant workers would go home to get married when they reach certain ages, and government programs for supporting self-employment for migrants in their home provinces were attractive. In addition, city living is getting more expensive and current wage standards can hardly meet workers’ living expenses. Migrant workers in this company are mostly from the same province. Labor Relations Chinese laws are strictly followed by this company, like many brand-name multinationals. A trade union was established in 2007. No managers are in the union, a point emphasized by the CEO. Every employee has been asked whether he or she would like to become a union member. At the time of our investigation, all employees were union members. There is neither collective bargaining nor a collective contract in this factory, however. The human resource department decides basic working conditions and labor standards, such as wages and work hours. In order to determine wage standards, as in many other large companies in China, the company purchases industry data from consulting firms. In addition, the industrial park has an annual wage survey that each company can buy from the government.

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According to management, there have been no individual or collective labor disputes related to lay offs, because department heads talked to employees early on and explained the severance package. Employees were generally reluctant to leave, especially the higher skilled ones. When the large-scale redundancy began, two or three appealed to the government of the industrial park. Because the company followed the legal requirements in the process, there was no further conflict, according to management and external sources. In this park there is a special human resource club, whose major function is sharing information. Managers from similar enterprises, mostly European and American rather than Taiwanese, share best practices with each other. Sometimes they also invite government officials to talk about hot topics. There is informal coordination on employment. The human resource manager of this factory talked to colleagues about outplacement options for laid-off employees. Because of this experience, coordination of labor standards at the industrial level is seen favorably by the human resource managers involved. Conclusion This factory indeed inherited many practices from the traditional brandname multinational in the West, but its work organization and labor practices are moving toward a corporate high-performance regime. The strong orientation toward high performance is evident in the simplified front line work, strict division of labor, and flexible employment. Unlike many Taiwanese or Korean companies, the wage structure is relatively stable. Lack of overtime is regarded as a disadvantage rather than an attraction to operators. Engineers tend to stay with the company and their long-term commitment leads to stable employment. Engineers also like the regular work schedule with less overtime, since they can easily get a local city hukou and have families in the city. In spite of the relative stability of wages and employment, employment conditions are very different between engineers and technicians on the one hand and operators on the other. This problem seems to be endemic in the Chinese electronics industry, not only for regimes of flexible mass production, but also for first-tier brand-name companies. These patterns of polarization have developed since the 1970s in the regimes of production in the chip industry on a world-wide scale. A distinctive fact about this company is the bankruptcy. The vertical disintegration of the electronics industry has aggravated the impact of the



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financial crisis on major companies in the chip industry. Companies with highly specialized production portfolios have become extremely dependent on very narrow markets with their cyclical ups and downs. In spite of its unique connection with the local government – a crucial lifeline in the bankruptcy situation – the future of this factory remains unclear. Massive lay offs were going on at the time of our investigation. The trade union played no real role in determining labor standards or redundancy procedures. The human resource department unilaterally made decisions about employees’ welfare. Individual labor conflicts in the wake of the redundancies demonstrate the need for employee representation in such a situation.

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Evaluation of regime of production – Electronics case study 2 Item

High/ Medium Low/ Strong Weak

Comments

Organization of Production Market control Vertical integration (company)

X X

Vertical integration (factory) Product technology (relative to industry standards) Manufacturing technology

X X X

Stability of production flow

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers

X X X

Proportion women Proportion of temporary workers Workforce stability Income stability Piecework type of incentives Employee involvement (workplace) Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

Mostly from same province

X X X X X X

X X X X X X X X X X



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5.1.3 Electronics Industry Case Study 3 This is a leading Chinese company in the field of electric lighting. It has been in operation for 50 years and is called “The Lighting Champion of China”. It started as a state-owned enterprise in 1958 and became the first joint-stock enterprise in this city in 1992. It was designated a key national exporter in 1990. In China, the company is one of the better known national brand names with an extensive sales and distribution network all over the country. The company also has a history as a non-brandname Original Equipment Manufacturer (OEM) for brand-name companies. Its biggest single shareholder (13.47 percent) is a major European multinational in this industry. In the past the European company had a higher stake and used the company as a subcontractor and partner for the penetration of the Chinese market. Technical and management personnel were also recruited from the Chinese partner. In recent years, the relationship has been reduced to a financial one, and the company is completely run by its Chinese management. In 2008, its total sales were 1.3 billion RMB, with a profit of eight percent. Headquartered in a major city in South China in the heart of the Pearl River Delta, this company has three factories in the area. At the time of our investigation, it had 8,000 employees, down from approximately 9,000 in the pre-crisis years of the early 2000s. This company manufactures and sells a complete range of electrical lighting products and light fittings used in homes, offices, shops, roads, docks, stadiums, and vehicles. They includes incandescent lamps, tungsten-halogen lamps, compact fluorescent lamps, fluorescent lamps, high intensity discharge lamps, automotive and motorcycle lamps, LED lamps and electronic ballasts, and lighting fixtures. In recent years, it provided research and development of high quality luminaries for the Green Light Project initiated by the National Development and Reform Commission and the Ministry of Finance. This was an effort to lower electrical consumption and is the major focus of this company, recognized and encouraged by the Chinese government. Its green light products are listed in the mandatory energy-saving procurement catalogue of the Chinese central government. Beyond China, this company has many long-term customers from Europe, America, Asia, Australia, and Africa. The failed partnership between this company and a top global lighting producer has set back its development of market and technology. The financial and economic crisis also had an impact at the end of 2008. Nevertheless, it has rapidly recovered, partly by opening new sales channels and expanding

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domestic sales. The company benefited from subsidies and other favorable policies of the Chinese government. Energy-saving products like T5 lamps have been promoted in five provinces, and its successful bids for the 2008 Olympic Game Project won it a good image. Revenues in 2009 kept increasing, and by the end of the year production had reached previous peak levels. The ratio of exports to all output is now 30 percent, down from 40 percent in the past. Facing the challenge of a growing numbers of competitors in this field, this company is now focusing on high-tech development, such as LEDs and lithium carbonate in the field of new energy. Model of Production The model of production of this company is own-brand manufacturing (OBM), based on vertical integration of research and development, sales and marketing, and manufacturing. The company therefore resembles traditional vertically integrated mass manufacturers. In spite of extensive subcontracting in this industry, this is still the dominant production model among leading corporations in the lighting industry. Due to its history as a contract manufacturer for major international brands, the company also has the legacy of being a subcontractor, providing mass manufacturing based on cheap labor. This is still present in the production model and culture of this company. It still performs substantial amounts of OEM-manufacturing, but the exact proportions of this business are not disclosed to the public. Encouraged by the Chinese government, this company has invested massively in the area of new energy-saving lamp technologies. At the same time, in order to reduce possible pollution, it has developed a way to accurately calculate the content of mercury in each lamp. This company has gathered 117 patents from the National Intellectual Property Rights Bureau. It operates a lighting test center under the auspices of the China National Accreditation Services (CNAS), equipped with an 1,800 square meters fully-equipped QC Laboratory. In addition, this company passed the ISO 9001:2000 certification in 2005. On top of approval from the Chinese Standards Bureau, its products have also received certifications from European and U.S. organizations. The conditions of production within the company vary greatly between workshops. The newest factory meets relatively high standards in terms of production technology and environmental sustainability. The older factories are more low tech, often with problematic working conditions. The organi-



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zation of production, therefore, mirrors the transformation of the company from an export-oriented OEM-manufacturer into a national leading brandname company benefiting from China’s rapidly growing domestic market. The company’s newest factory is located in an industrial park about 40 minutes by car from headquarters. It is close to major port facilities and to a highway that directly connects to the major city and traffic hub in this region. Since substantial amounts of raw materials and fuel are used for the production of light bulbs, such a location offers convenient and cheap transportation. The factory produces T5 and T8 types of high-efficiency energysaving fluorescent lights, glass tubes, and other fluorescent lamps. Construction of this factory had not been completed at the time of the investigation. In the new factory, the workshops are spacious and bright, and the factory looks pleasant, with clean roads and wide green areas. The roof is partly transparent, so that in day time production goes on without lighting. This was designed to save energy in response to national calls. The level of automation is quite high. The production lines combine the various stages of light bulb production, from glass melting, tube forming, application of phosphor to sealing, venting and testing. Most work is performed by machines, and the products are very standardized. The major task of front-line operators is to inspect and control the production lines. In the workshop where T8 lamps are manufactured, there are 24 full production lines. More than 600 workers work there, producing 180 million pieces per year. Since energy-saving lamps are becoming the major market trend, the company has invested mostly in T8 fluorescent lamps due to their high quality, low cost and reasonable prices. However, all 24 production lines in this area were using liquid mercury as a production material. Compared to solid mercury, liquid is much cheaper and requires less costly production equipment, but liquid mercury vaporizes easily. Thus, during the production, workers may inhale mercury vapor, especially when protection is lacking. In the glass tube workshop, from the raw materials to the finished glass tubes, production is completely automated. The first segment in this production process is the melting furnace, in an area about 36 by 48 meters. The main work in this section includes mixing the chemicals, mixing quartz and glass bits, and heating the mixture in the furnace. The next process is coating. The major work in this section includes cleaning the light tubes, checking quality, and cleaning the tubes with sulfuric and hydrochloric acid. The assembly department is perhaps the biggest in this factory. In 2008 there were

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2,000 workers there. Another 200 workers work in the storehouse on two or three shifts. Their basic task is managing stock and finished products. The production of light bulbs seems simple and fast, but there are detailed technical requirements. In certain key operations, advanced machines, like air exhausters, are installed to guarantee product quality. Many facilities here are built for large-scale production. Each glass furnace has a daily capacity of 500 tons. In the older workshops, which still perform the bulk of production, the level of automation is much lower. Here an earlier generation of standard products – regular light bulbs of all kinds – are manufactured in large volume. In this area manual labor on relatively simple production equipment prevails. For these products automation has not been pushed to improve quality, as some first-tier multinationals have done in their factories. The factory environment in these workshops appears neglected. Buildings are much older and usually lack air conditioning. There is no advanced just-in-time organization of material flow, and quality inspection is only using mostly optical or simple electrical testing systems. Work and Working Conditions The factories of this industry are typically noisy and hot, with lots of mechanical movement and high temperatures inside the machines. The use of poisonous chemicals, especially mercury, often leads to occupational diseases. This also describes the newly-built factory. Although the new factory has spacious workshops, new machines, and well arranged material flow, extreme heat in the workshops remains a problem, especially in summer. The factory only provides fans and opens windows to reduce the heat. Often workers do not wear cotton masks because of the unbearable heat. Another big problem is exposure to corrosive chemicals and metal powder. In November and December of 2009, after 23 workers appealed to the inspection departments of district, city and provincial governments, 143 workers were found to have high levels of mercury in their urine, exceeding the legal limit. Nine workers probably had occupational chronic mercury exposure. After this incident the company was forced to use solid mercury as raw material on all production lines, according to local media. The conditions in older factories of this company are even worse. The degree of automation is far lower, and lots of demanding and poisonous work has to be done by hand. Work is highly segmented. Operators perform very



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limited mechanical tasks, such as loading and unloading machines with trays of light bulbs or glass cylinders, operating pressing or stamping equipment, or simple troubleshooting on mechanical equipment. There is no job rotation along most assembly stations. In the glass melting area, about 1,000 workers work in three shifts. Day shift goes from 8:00 a.m. to 5:00 p.m., afternoon shift from 5:00 p.m. to 1:00 a.m., and night shift from 1:00 a.m. to 8:00 a.m. There is a 30-minute meal break on afternoon and night shifts. Workers take turns having meals. The team leader, vice team leader, and some replacement workers sit on the production line when workers leave for meals. In final assembly, workers work twelve hours a day and have only 30 minutes for meals. Day shift goes from 6:00 a.m. to 6:00 p.m. and night shift from 6:00 p.m. to 6:00 a.m. Management is hierarchical and authoritarian. According to interviews with former employees, workers have to strictly follow the orders of their supervisors, and have no chance to express their own opinions. There is no workplace communication or group organization. As interviews with managers and workers reveal, there are massive communication problems between first-line supervisors and operators. These result in frequent disputes on the production lines. Managers particularly blame the youngest generation of workers for lacking discipline and bad behavior. According to the interviewed managers, newly hired young migrants between 18 and 23 years old are infected with ideas of pleasant lifestyles in urban environments, not appropriate for the harsh working conditions in factories like this one. Most workers here are young migrants from other provinces. The turnover rate of these workers is around 10 percent annually, much higher than the target of five to eight percent set by human resource management. Migrant workers usually have only middle school or high school certificates, and they do not necessarily have training or work experience in this industry. They have no special loyalty or interest in certain companies and do not mind moving among different factories. Job hopping is very common. The flexibility of the workforce is further enforced by the cyclical character of production. The low season is usually between June and September, and busy seasons are related to shopping seasons in major export markets, Christmas in particular. During the busy seasons, workers have to work ten hours a day, clearly more than the legal limit of eight hours. This company used to pay hourly wages. On average, a front-line worker, working ten hours per day, would receive 1,400 to 1,600 RMB monthly, including base wage, overtime pay, and allowances. The legal minimum wage

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in this city was 770 RMB per month at the time of our investigation. Most workers in this company received a base wage equal to, if not less than, the legal minimum. Even though the company provides free dormitories to workers, it is not very attractive to them. In order to counteract the impact of the crisis, this company did a lot to reduce costs. First, to control production costs it attempted to increase the percentage of higher value-added products and to reduce the prices of raw materials. Some workshops were combined, and excess employees, including management, were either reassigned to other positions or made redundant. In the human resource department at headquarter, there were only two employees at the time of the investigation, but three before the crisis. The compensation of managers also decreased, for top managers by 50 percent, mid-level managers 30 percent, and shop floor level managers 10 percent. In addition, the company started to use piece rates in the wake of the dramatic economic slowdown in 2008. This has caused a major wage decrease. According to workers, those who used to receive a monthly wage of 1,800 RMB only earned 1,200 RMB after the piece rates were adopted. They now have to work twelve hours per day and often without a day off on weekends. In addition, the food allowance of 1 RMB per meal was also canceled while each meal costs 3 RMB more than before. Among production workers, the adoption of piece work rates provoked large-scale discontent, resulting in a massive collective labor conflict at the end of 2008. The company then decided to contract a certain quantity of products to each workshop. In effect, workshops became subcontractors to each other. The company fixed a piece price for each workshop, and each workshop then decided on a piece rate for its workers. Labor Relations The Labor Contract Law had a major influence on labor practices in this factory. Beginning in the autumn of 2007, the company started to study this law, participating in legal training organized by the Ministry of Human Resources and Social Security. It did so because the practices of the company in the past did not meet the requirements of the new law, according to human resource management. Management criticizes the Labor Contract Law and its implementation rules. Human resource managers characterize the open-termed labor contract promulgated by the law as a return to the iron rice bowl of former



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periods. Companies would be at a disadvantage, since only the employee could terminate the labor contract. Legal obligations to pay contributions for pensions would hurt the interests of migrant workers, since these workers do not want to deduct pension payments from their wages. Some even ask the company for a refund. Migrant workers move from one place to another, but the insurance requires years of payments. Many migrant workers just want immediate benefits and cannot really plan long-term. There has been a trade union in this company for many years, as in most former SOEs. However, the union hardly functions. According to media reports, the former union chairman, who resigned in May 2007, was also the employee representative on the supervisory board, as well as the deputy secretary of the party committee in this company. Before becoming a union and party cadre, this person worked as a manager, a workshop director, and later a factory director. At present, there is still no full time union official. The chairman of the trade union is also the vice president of the company, and the director of the human resource department is vice chairman of the trade union. This union is only visible in the accounting report of the company, in which it holds a percentage of the stock. Due to the lack of grievance channels and the long-standing history of management despotism, there have been many individual labor conflicts. In 2008 several cases went to labor arbitration or court regarding wages, transfer of workers to other positions, compensation for occupational diseases, and similar issues. Five cases have been resolved by mediation, mostly regarding wages. The adoption of piece rates finally triggered the accumulated grievances in a major labor conflict in December 2008. Work stopped for six days, and more than 400 workers blocked the road. They protested long work hours and declining wages. Before the adoption of the piece rate system, workers could earn monthly wages of 1,800 RMB, with one day of rest every two weeks. The company also paid a meal allowance of 1 RMB per day. After October 2008, work hours were extended to twelve per day, but workers only earned 1,200 RMB per month. The meal allowance was canceled while prices in the cafeteria increased. During the strike workers demanded rest on Sundays, 15 days of paid holidays during the Chinese New Year festival, and restoring the meal allowance. Under the pressure of the strike, management accepted these demands. However, 33 workers were arrested, including two organizers, 25 and 26 years old, who were charged with mob actions disturbing traffic and assaulting a police officer. In the end, most of the arrested

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workers were forced to leave the company, and two were held in custody for several weeks. Human resource managers concluded that the major causes were the crude management methods of the workshop director where the strike started. The workshop director inflicted severe punishment for defects and forced workers to work overtime. Another problem was communication between the workshop director and team leaders. The trade union played no role in this situation. During the strike the city federation of trade unions came to investigate the situation. Union representatives gathered the strikers inside the company and gave them lectures. According to management, the company finally resolved the problem by following government guidance. For the managers, it is still not clear how the workers organized themselves. In spite of media publicity about the conflict in China and internationally, the multinational shareholder and the union representing the workers of the mother company did not react to the situation. Conclusion Despite its self-proclaimed title as “The Lighting Champion of China” and the related industrial upgrading promoted by the government of this province, the production regime of this company clearly is in the low-wage classic category. The long-standing connection with its multinational shareholder has not contributed to any significant upgrading of management practices and working conditions. Equally, the support from the Chinese government for research on LED and new energy sources has not produced better conditions or a more humane human resource model. The company is caught between its tradition as an OEM-contract manufacturer on the one hand, and its failed attempts to upgrade technology and work processes through cooperation with a major player in the global market on the other. Many problems of technology development and a strong brand in the national and the global markets remain unresolved. The company continuously resorts to its traditional low-skill low-wage labor practices. As is typical in a low-wage classic regime, the majority of the workers are unskilled young migrants who are housed in factory dormitories and change employers frequently. The labor practices of this company are strenuous. Authoritarian and crude practices of control have led to ongoing individual labor disputes and occasionally collective industrial actions. The company union, a legacy from the former SOE, has no actual function at all, and



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the union officials overlap with the top management. The introduction of piece rates during the crisis represents a behavior typically seen among small and medium enterprises in this region, intended to undermine the legal minimum wage during the crisis. In this sense, the case demonstrates the weakness of tripartite regulation of basic working conditions. Although the institutional ingredients for such a model, an established trade union and strong government relations on the part of the company, seem to be present, workers have no way of creating meaningful bargaining relationships.

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Evaluation of regime of production – Electronics industry case 3 Item

High/ Medium Low/ Strong Weak

Comments

Organization of Production Market control Vertical integration (company)

X X

Vertical integration (factory)

X

Product technology (relative to industry standards) Manufacturing technology Stability of production flow

X

Low to medium

X

Low to medium

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers Proportion women Proportion of temporary workers Workforce stability Income stability Piecework type of incentives Employee involvement (workplace)

X X X No data No data X X X X

Labor Relations Trade union presence and stability

X

Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

As a heritage of SOE X X X X X

X X X

X



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5.2 Electronics Industry Case Studies: Contract Manufacturers 5.2.1 Electronics Industry Case Study 4 This factory belongs to one of the world’s leading Electronics Manufacturing Services companies based in Taiwan. The company is among the largest players in the industry, with annual revenues of roughly 55 billion U.S. dollars (2008). The factory is a large-scale industrial park, and performs high volume assembly of information and communications electronics systems for a variety of leading global brand-name companies. These also include major non-electronic supplies such as metal and plastic parts and cables. The factory is located in a big city in the Pearl River Delta, a center of export production with a large migrant workforce. The factory employed about 220,000 at the time of our investigation and before the recession about 300,000. At the time of our investigation, the company employed another 70,000 employees in other factories in the same region and about 600,000 in all of China. The factory is the largest of its kind in the world. Model of Production The production model in this facility is predominantly Electronics Manufacturing Services (EMS). Some large-volume products are also manufactured under the OEM model, with very little or no engineering input from the contract manufacturer.78 The facility is designed as a large-scale industrial park of several square kilometers, consisting of roughly 15 multi-story manufacturing buildings, each designated to manufacture products of one major brand-name company. The main products are computers, data networking equipment, cell phones and other mobile communications devices, and a variety of consumer electronics products like game consoles. The industrial park also houses large-scale facilities for metal manufacturing, especially stamping, plastic injection molding, and cable assembly. In addition, the complex has extensive warehouse and loading facilities, which form part of a bonded zone permitting on-site customs procedures. Multi-story dormitories and a variety of shopping and leisure facilities of relatively good quality are also located on the premises. These include a library, swimming pools, extensive sports facilities, a stadium, shops, restaurants and cafes, a cinema, internet cafes and electronic game rooms. The in78 For a systematic explanation of these production models see chapter III.1.

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dustrial park provides an almost complete living environment for its workers – a city within the city. At the time of our visit, tens of thousands of workers were housed on the premises. Most of the rest live in company-provided dormitories and rental housing in the neighborhood. The living environment provided by the factory forms an essential part of the company’s compensation system and production regime, and gives it a competitive advantage in attracting young migrant workers. Product and production technologies meet the highest international standards and quality requirements of global brand-name customers in most areas. The core manufacturing process of printed circuit board assembly is performed by automated machinery. Manual labor prevails in final assembly, configuration, and packaging of products. The manufacturing of metal and plastic parts is also highly automated, often to a higher degree than in most comparable factories. Cable assembly is mostly based on manual labor. Although EMS companies are very large and have a highly integrated knowledge of advanced technology, they have no control over end-user markets. In spite of their size, contract manufacturers are vulnerable to sudden market changes or shifting of customer orders to competitors. The global market for electronics manufacturing services is extremely competitive, causing permanent instability throughout global production systems. Contract manufacturers operate at low profit margins, which can only be stabilized by integrating engineering, procurement, and logistics services in manufacturing contracts. Because the flow of production is highly unstable, the combination of advanced mass production with extreme flexibility is a hallmark of this production model. Work and Working Conditions The factory offers a modern work environment with conditions above most other medium or large factories in the area in light industries such as electronics, toys, or textile and garment. The extraordinarily large workforce is made up of rural migrant workers, hired as operators in production departments, and urban employees, mostly recruited from other areas in China, hired as technicians, supervisors, engineers, and administrative and sales personnel. Women predominate in electronics assembly departments. The physically heavier work in metal and plastics manufacturing and in the warehouses is mostly performed by men. About 50 percent of the employees are line operators. Most of them are very young, between 18 and 25 years old.



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Skilled workers and technicians make up about 20 percent of the workforce, while engineers with college degrees account for about 15 percent. The rest are administrative and sales personnel. Until the recession the growth of the workforce was extraordinarily fast, expanding by 40 to 50 percent each year since 2000. Work in the production departments is mostly assembly line work or highly automated machine work. Workers supervise routine functions of automated equipment. Work on the assembly lines and in metal and plastic parts production is highly segmented, and structured along Taylorist lines. There is almost no task rotation or job enrichment. Work appears massively deskilled. Working conditions in most areas appear relatively good. The widespread use of air conditioning throughout the factories is required to protect the products from extreme temperatures. Occupational health and safety measures seem up to modern standards in most areas. The highly segmented work, however, along with long work hours and high work speed in some areas, have a negative impact on workers’ health. The assembly line character of production and the strict segmentation of the labor process leave little room for workplace autonomy and skill development among production workers. Although education is encouraged and learning programs of all kinds for employees are advertised, the organization of production provides few incentives for skill development, such as better pay or better quality workplaces, or a greater variety of tasks. The work system is designed to facilitate large-scale employment of migrant workers with little work experience. The often dehumanizing working conditions and the absence of skill incentives are justified by saying that migrant workers are not interested in learning and would rather make money through extensive overtime. Most of the company-provided training is about factory rules, company values and basic work procedures. New hirees receive three to five days of orientation and one week of on the-job-training in their work areas. Workforce flexibility in production is high. During the prerecession years, the company reported a turnover of 30 to 40 percent among operators. The recession did not lower these figures substantially. From the point of view of management, the young ages of the operators and the generally high mobility of migrant workers are the main causes of high turnover rates. Management also cites long commutes for workers living in external dormitories. External sources point to heavy workloads and long work hours. During the recession there were massive job reductions. About 60,000 employees left the factory after the second half of 2008, according to manage-

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ment, with no mass layoffs and with compensation as stipulated by the labor contract law. Most employees who left were migrant workers returning to their hometowns. The wage system is formalized and regular throughout the company. It is based on hourly wages, with no direct bonuses related to individual performance or work quota. However, the relatively low base wages create a permanent incentive for overtime. New hirees are paid slightly above the local minimum wage of roughly 900 RMB at the time of our investigation. The base wage can be increased by up to 50 percent with extensive overtime work. Overtime is paid at time-and-a-half according to the law, but total monthly work hours often exceed the legal maximum of 36 hours. Work weeks of 50 to 60 hours are standard, and shift plans are calculated on this basis. Management does not deny its non-compliance with labor laws in this area, but points out the difficulties organizing production efficiently while complying with the existing legal regulations of work hours. Obviously, this system can only operate with tacit approval of the local labor bureau. Dormitories, meals, and many leisure activities and services in the factory complex are free – an important part of the wage package. Wage differentiation among operators is relatively limited. As is common in Chinese industrial workplaces, there is a variety of task and workplace related allowances. These reflect the technical requirements, work intensity, physical requirements, and health risks of each job assigned to a worker. In addition there are shift allowances for night time work. These allowances are assigned to workers individually by supervisors, along with job assignments.79 Generally the base wage for operators is around 1,200 to 1,300 RMB per month including basic allowances, and around 1,800 RMB including overtime. For technicians and supervisors in production, the base salary is 1,600 to 1,700 RMB and 2,600 to 2,800 RMB including overtime. For technicians, engineering, and management personnel, the differentiation of salaries is much greater. There is a skill-based allowance assigned to each person related to their personal skill level. The company has a system of pay grades for different positions. Advancement in the job hierarchy is the most important way to increase one’s salary. Since there is usually less overtime work in engineering departments, overtime pay plays a less impor79 Allowances are widespread and complicated, they do in fact substitute pay grades based on workplace evaluation as known from Western work systems. Since they are assigned directly by the supervisor or human resource department, there is a high degree of arbitrariness in the system. There are no contractual regulations.



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tant role increasing individual income than among operators. In addition, there are massive pay differentials between mainland Chinese and Taiwanese engineers. The latter are usually paid by Taiwanese or U.S. salary standards, whereas the pay for Chinese engineers at the company is relatively low, particularly by comparison to western companies in China. In general, the work situation in the engineering and administrative departments is very different from the production floor. The company has extensive cooperative arrangements with technical colleges and universities throughout the country, including top engineering schools. There is also a relatively developed system of in-house training and education, called the company university. The company will bear most fees for education of this kind after three years on the job. Labor Relations The company honors basic legal standards and laws. Since 2007 compliance with labor laws has been advertised within the company and in public. In 2008 the company chairman publicly declared his support for the Labor Contract Law, setting this company apart from many Chinese and foreign IT firms. Newly hired operators get a labor contract lasting two years, and management and technical personnel contracts last at least three years. About 60 percent of the employees have an unlimited labor contract. According to management, the company does not experience substantial competitive disadvantages because it honors the labor contract law. Additional labor costs are only a fraction of its revenues for a company of this size. The company has a trade union with a relatively comprehensive presence and organizational resources. The trade union was only set up in 2007 after negative publicity about the working conditions in manufacturing an imagesensitive flagship product of one of its leading U.S. brand-name customers. After massive criticism of these conditions and the behavior of the company towards the public and the media, a trade union was set up on the initiative of the city trade union. This was also an important step forward in establishing trade unions in large multinational companies, a goal put forward by the ACFTU after 2007. Before that, the company was completely non-union, which was the preference of most of its multinational customers. Trade union presence in a factory of this size, with a mostly migrant workforce, is a model for the ACFTU’s efforts to increase union representation among migrant workers.

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The trade union sees its task in representing workers and their rights. Representation takes place through various communication channels with management. Workers can visit the union or consult one of its hotlines. There is also a grievance arbitration committee in the company. The union works in a harmonious atmosphere with the human resource department. It plays an important role in organizing leisure activities and administering company-provided services in this field, as well as in workforce education and social services such as marriage counseling for young migrant workers. The union has signed a collective contract with the company, regulating union and management relations. The contract is modeled after the guidelines issued by the city trade union. As in most cases, the collective contract is limited to procedures and does not contain substantial regulation of wages and work hours. Basic employee benefits and social insurance are regulated in the contract. An additional agreement on wages was said to be under negotiation at the time of our investigation, but detailed information was not available on this subject. Work hours and overtime pay are regulated according to legal requirements, notwithstanding the above mentioned flexible interpretation of existing legal regulations. There are no contractual regulations over working conditions, training, or Occupational Safety and Health standards. In recent years, the concept of Corporate Social Responsibility has played an important role in company labor policies. The company has joined the Electronics Industry Code of Conduct (EICC), a voluntary industry initiative of major IT brand-name firms and contract manufacturers, most of which are based in the U.S. Major customers frequently visit the company and discuss working conditions with management and the trade union. The union sees compliance with EICC rules as an important goal. However, basic norms of acceptable working conditions, working hours, and occupational health and safety are only loosely defined in the code of conduct, and important requirements are even below existing legal standards in China. In the case of work hours, the trade union refers to the EICC-defined limit of 60 hours per week, citing this standard as a point of reference excusing the company’s violation of existing legal limits on overtime. Given the size of the workforce and the constant turnover among workers, there seem to be relatively few labor conflicts. No collective labor conflicts, strikes, or unofficial mass actions have been reported in recent years. External sources point to a growing number of individual labor conflicts in local courts, but their number cannot be checked. According to our informa-



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tion, the company has not been involved in the numerous work stoppages in the area in the wake of the recession. Some tragic incidents, however, have highlighted desperate attempts by workers to escape the pressure of management control and work-related stress. In June 2009 a young technical worker killed himself by jumping off a high-rise building inside the factory, after he had been blamed for leaking prototypes of a highly sensitive brand-name product to interested parties outside the factory. In 2010, after our investigations were concluded, a series of suicides among young migrant workers took place, which gained broad media coverage nationally and internationally. Conclusion The company offers an impressive example of a rapidly growing mass manufacturing organization based on large-scale recruitment of migrant workers. The company has changed its labor strategy in order to cope with potential social unrest in this scenario. The work organization in manufacturing is typical for new models of flexible mass production using foreign management schemes, as analyzed by some Chinese industrial sociologists.80 Within our typology of production in Chinese export industry, the case represents a paradigmatic example of a regime of flexible mass production. Tripartism in labor relations exists to a certain extent between management, trade union, and city labor authorities. It includes, however, deliberate non-compliance with some basic legal regulations. The unionization of the company occurred from above, with the legitimacy of the trade union not yet seriously tested. The case also illustrates the problematic impact of international codes of conduct and schemes of Corporate Social Responsibility.

80 Tong (2006).

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Evaluation of regime of production – Electronics industry case 4 Item

High/ Medium Low/ Strong Weak

Comments

Organization of Production Market control Vertical integration (company)

X

Vertical integration (factory)

X

Product technology (relative to industry standards) Manufacturing technology

X

X

X

Stability of production flow

X

Work and working conditions Specialized and skilled labor

X

Segmentation of work Proportion migrant workers

X

Proportion women Proportion of temporary workers Workforce stability Income stability Piecework type of incentives Employee involvement (workplace)

X

X X X X X X

Labor Relations Trade union presence and stability

X

Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

Assembly low, but many technicians and engineers

Since 2007 X X X

X X X X X X

OT exceeds legal standards



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5.2.2 Electronics Industry Case Study 5 (3 Factories) This case study includes three major factories of a global electronics contract manufacturer based in the United States. The company has about 20 production sites of various sizes in China, including supply operations manufacturing plastics parts and metal enclosures. Our case studies include the largest and strategically most important production sites of the company in China. They focus on the assembly of printed circuit boards and final assembly of electronics systems, such as computers, cell phones, and data servers. The production model is based on the concept of Electronics Manufacturing Services (EMS), a model for subcontracted manufacturing that has emerged in key sectors of the IT industry since the 1990s. EMS companies not only perform subassembly of certain components or systems, but offer manufacturing as an integrated service through networks of factories around the world. Services include important elements of product design, procurement, logistics, and after-sales services such as repairs. A key element of the EMS model is the centralization of production in large-scale factories and strong vertical integration. The basic production process consists of assembling printed circuit boards with highly automated equipment known as SMD technology. The company also manufactures non-electronic components, especially metal parts, does plastic injection molding, and assembles cables and cable harnesses. Factory 1 Among the company’s more than 20 factories in China, this industrial park is the flagship operation. It represents its biggest manufacturing base in the world, with more than 40,000 employees at the time of the investigation. First established in early 1997, it has developed to the size of an industrial park through continuous expansion and acquisition of new production capabilities. Until 2008 employment growth continued rapidly, from roughly 12,000 in 2002 and 16,000 employees in 2003 to the present size. Located in a high-tech development zone in the Pearl River Delta, this factory is the biggest foreign-owned enterprise in this city, and it plays an important role in the economy. With developed sea, land, and air transportation, the high-tech zone is focused on assembly of consumer, computer and communications electronics and their components. The area has a double preferential status as a nationally designated high-tech zone and one of China’s four

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original special economic zones. These designations result in very low costs for land lease, water, and electricity. Model of Production The industrial park has six million square feet, very large even by the standards of the EMS industry with its highly integrated factories in low-cost locations. The total investment is nearly 500 million US dollars, including its first research and development center in a nearby city. This site actually includes more than ten branch companies, specialized in printed circuit board assembly, metal stamping, molding, module making, and production of raw printed circuit boards. The logistics and distribution center inside the park is one of the largest of its kind in the world. The factory features a broad spectrum of products, including communications devices, network equipment, consumer electronics, PCs, industrial products, electronics monitoring products, and auto parts and components. Production is dominated by mobile phones, PCs, recorders, and cameras. These products are manufactured in many factories throughout the region, which features the largest production base in the world for digital communications and consumer electronics. Since products and manufacturing technology are relatively standard and widely available, there is intense competition among contract manufacturers, especially between this company and the industry’s number one company based in the same region (see the preceding electronics industry case study 4). Consequently profit margins are slim and manufacturing volume changes frequently, even for very large customers. The key customers of this company include the major brandname cell phone, notebook, and PC firms and other electronics and communication multinationals. In this site, machines and technology are world class. In the far-flung operations of this industrial park, there are hundreds of production lines, especially automated printed circuit board assembly (SMD) and final product assembly lines, most of which feature extensive manual or semi-automated labor. Workers have to stand along the lines carrying out simple and repetitive tasks. It is a rule in the EMS industry that there are no seats in the workshops. Another common feature of the workshops is that air conditioning is widespread and runs 24 hours a day, maintaining the best conditions for machines and products. Workers benefit from it to some degree.



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The PC factory was established in February 2001, with 76,000 square meters and an investment of 4.5 million U.S. dollars. Among its 1,200 employees, 170 are managers including twelve foreign top managers. The rest are manufacturing workers. Its major products are enclosures for PC and game machines for two major brand-name companies. Most raw materials, such as ABS plastics, galvanized steel, tinplate, wire, and stainless steel coil are imported. There are 51 injection molding machines, ranging from 400 to 1,000 tons, 14 pressing machines of 200 to 800 tons, and an automated loading system and assembly machines. The production process and technology are very modern. These factories have received many certificates, such as ISO 9001, ISO 14001 and TL 9000. The strategy behind the development of this mega factory was explained by the CEO of this global company in a media interview. According to his view, the best way of doing this business in contract manufacturing is to buy a piece of land in an area with low labor costs, close to major markets, and concentrate all suppliers in surrounding areas. By building six industrial parks of this kind in the world, this company has kept its total costs at least 1 to 4 percent lower than competitors. In the seven years since 2000 this company has grown more than 60 percent annually, according to China EBusiness Journal. During the financial crisis 2008–2009, this factory and the company as a whole were seriously hit. Since it produces for the global market, and a large proportion of the products are exported for overseas clients, orders shrank rapidly during the crisis. As a result, two sites of this company in China were closed, as well as several others in other Asian countries. This site was not threatened by closure, but it experienced redundancies of around 20 percent of the workforce, as did most of the company’s other sites in China. During 2009, there were many signs of economic and industrial recovery. In October 2009, it was reported the company would hire more than 6,000 migrant workers in one month, as production began picking up to meet Christmas orders. Due to optimistic expectations for 2010, this company plans to hire another 1,000 workers in the first two months of that year. Work and Working Conditions The factories and their equipment are modern and up to international standards. Working conditions are basically good, with clean workplaces, cool temperatures, orderly production, and a clear division of labor. However, the

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high level of automation gives little control to operators over the work speed, and the direct result of such a detailed division of labor is the deskilling of jobs and repetitive simple work. In addition, most operators have to stand while working. Together with long work hours, jobs can be physically and psychologically demanding. Shop floor based quality management is designed to support the Taylorist organization of production. With the exception of some areas of flexible high-volume production, cell or group based work organization is rare. Quality and work-speed are usually checked through direct personal supervision by line leaders and foremen. Most areas in PCB and systems assembly have one supervisor per line and a number of shift leaders and managers in charge of work assignments, organization, and discipline. The high degree of work segmentation is adequate for the presumably low-skill level of most workers. Direct personal control also seems to fit Chinese work culture, characterized by hierarchical thinking and the traditions of a planned economy. In the relatively limited areas with higher integration of work, such as final assembly and configuration of telecommunications network equipment, complex and frequently changing process configurations were introduced successfully with a limited autonomy of task execution. However, the wages in those areas are not higher, in spite of the higher requirements for skill and experience. Yet these positions were attractive to many workers since they provide a less monotonous and stressful work situation. The widespread use of Western or Japanese systems of quality management in production contributes to top-down work organization. A system used globally by the company to organize material flow, called Demand Flow Technology, contains detailed rules for the design and organization of each workplace and a standard description of work procedures. Basically, every worker has to check on the quality of the previous work step before beginning the next. Another system of this kind is Six Sigma, originally developed in Japan, which consists of a simple set of basic rules for workplace behavior, especially on orderliness and timeliness. Individual employees can earn awards and degrees – in China mostly limited to foremen and management personnel. In early 2009, this facility employed up to 40,000 workers. About 90 percent of them workers are migrants. According to management, those migrant workers are mostly not recruited from the province where the plant is located, but from provinces further away, such as Hunan, Hubei, Guangxi and Guizhou. The turnover rate is high in this factory, as is typical for con-



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tract manufacturers. During the peak time before the crisis, the number of employees reached 50,000. During the crisis it dropped to slightly over 30,000. According to the trade union, many of these workers left voluntarily as soon as the amount of overtime dropped. According to the trade union, the average wages for operators in 2008 were around 1,500 to 2,000 RMB monthly, although there were large differences among individual operators. A large proportion of the regular monthly income of operators is overtime, although the company generally schedules 40 hours per week and overtime is limited to three hours per day. Wages are grade-based. Legal social insurances and paid leaves are generally provided. The structures are quite different for operators (direct labor) and management, technical, and administrative personnel (indirect labor), including skilled technicians and repair workers. For direct labor, there are base wages for standard work hours, a living allowance, a full-attendance bonus, a shift allowance, and overtime payments. Overtime is calculated at 6.2 RMB per hour on weekdays, 8.2 RMB on weekends, and 12.4 RMB on official holidays. According to a job advertisement in September 2009, new employees receive a base wage of 1,000 RMB per month, and 935 RMB during a 3-month probation period. In normal times, the night shift allowance for individual operators is 75 RMB every month. In total, employees can receive about 800 to 900 RMB per month in overtime payment and night shift allowance, which.roughly equals the average monthly base wage. Together with social insurance of 150 RMB, a housing fund of 80 RMB, a housing subsidy of around 50 RMB, and 100 RMB of the 13th-month wage divided by 12 months, the total remuneration for operators is around 2,100 RMB or 310 dollars per month (2009 year-end exchange rate). The company provides free dormitories with a ten RMB monthly administration fee, including water and electricity. Workers who do not live in the dormitories can apply for a housing subsidy, which varies from 300 to 1,500 RMB depending on job grades and marital status. For operators, the subsidy is 300 RMB. Food is not free in this company. If employees eat in the canteens inside the industrial park, the average cost is about 200 RMB per month. Usually indirect labor employees like technicians have better conditions. According to former employees, the base wage for mid-level technicians is 1,500 RMB monthly. For a skilled worker, total wages can reach 2,500 to 4,000 RMB including overtime. Engineers can earn a monthly wage of

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4000 RMB. Newly-graduated assistant engineers with bachelors’ degrees usually are employed in job grade 10, at a monthly base wage of 1500 RMB with a 500 RMB of subsidy. Engineers were formerly paid overtime if they worked in the production area, but this has been replaced by a quarterly performance bonus. This bonus varies from one department to another, depending on individual performance and the assessment of supervisors. On average, this bonus can equal, and even be four or five times the base wage. Moreover, if employees work for more than three years, they receive a 300 RMB contract-based bonus every month. Engineers have opportunities for promotions twice a year and 6 to 10 percent annual wage increases. Employees at higher grades believe that the company’s work environment is pleasant, with a humane management. Although wages and salaries are not higher than its competitors in the region, this company seems to have a much better reputation among workers. The workforce is recruited in three ways: internal promotion, recruitment through external labor markets, and campus recruitment. Partly due to the large number of employees, this company does not always require work experience for operators or low-level technicians. Lots of new graduates and interns are hired every year. In 2006 more than 700 university graduates were recruited as well as many more graduates from lower-level colleges and technical schools. The company provides ample training although opportunities for skill development are very different for operators and higher-skilled employees. The skill and training system is designed along globally uniform company guidelines. Training is mostly on the job. For newly hired operators there are two or three days of orientation on the work environment and company values. For more specialized tasks, new employees receive up to eight weeks of training. For indirect labor, the pre-job or new-hire training lasts 24 hours, with an exam afterwards. Within the company there are multiple training programs, including the global e-learning university, core competence training, professional skill development, management school, and outdoor training. There are also opportunities to rotate jobs inside the company at the global level and below. Two channels for professional and managerial promotion exist. In addition, the company has also set up a special fund for individual training. For each position, the required competencies are clearly listed. With this fund employees can attend both compulsory and elective courses, leading to eligibility for higher-skilled and better-paid positions.



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The industrial park provides comprehensive living facilities. There are relatively decent dormitories inside the park. An apartment in the dormitory includes four air-conditioned bedrooms with a balcony, and two bathrooms. Usually, four operators or two engineers share one bedroom. Managers and above have single rooms. There is one wardrobe and one small desk for each person. Canteens provide cheap meals for employees, which cost a monthly average of 200 RMB for operators. Since it is in a rural area far from the city center, there are twelve shuttle buses from the company during off-work time and weekends. A round-trip ticket to the city costs 6 RMB or a monthly ticket 220 RMB. Buses run every half hour, and it takes an hour to get to the city. Labor Relations As a leading multinational in China, this company follows labor laws. Different from the fact that lots of enterprises in this city and region do not pay social insurance for employees, this is not a problem in the company’s industrial park. In addition, this company has a housing fund for employees, at least for indirect labor employees, in order to retain talent. Nevertheless, work hours are a common problem in this industry. This company says that every workday should not be more than eleven hours but the amount of OT in a normal month is definitely much higher than the national limit of 36 hours. This is somehow accepted by the local government. It is justified by referring to the Electronics Industry Code of Conduct (EICC), a voluntary proclamation of labor and environmental standards by major IT brandname and contract manufacturing companies. The Labor Contract Law is not criticized for raising costs. According to the union, the labor standards at the site are higher than those required by national laws. Generally, the company follows the legal requirements on open-termed contracts and the legal minimum wage. There is a trade union in this site, established in December 2007. It is no coincidence that it was set up just before the Labor Contract Law took effect on January 1, 2008. There are nine full-time union officials, and others are all part time. The union at the industrial park level has the same administrative rank as the human resource department. A major function of this union is organizing recreational and sports activities. Employees can borrow tennis rackets from the union. In addition, the union set up communication channels for employees, such as e-mail, a hot line, and suggestion boxes. Union

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representatives attend the training program that covers employees’ rights organized by the Fair Labor Association (FLA). This is an employer-dominated organization providing paid labor standard monitoring services with some participation from NGOs, based in the United States. Like other major electronics manufacturers, this company is a member of the FLA. There is no collective contract in this company. The trade union was set up only recently, the same as in other sites of this company; so many tasks are still in preparation. Publicly available sources list several individual court cases filed against the factory, and some appear to be collective. In 2008, 35 newly recruited university graduates went to the resource and development center in South China and found their contracts had been terminated. Starting in early 2008 and continuing during the crisis, there were more cases like this. There are large-scale activities involving Corporate Social Responsibility in this company, involving many departments. According to the union, CSR work overlaps with union work, in terms of soliciting donations and helping employees in difficulty. The company donated 10 million RMB to help victims of the earthquake in Sichuan, as one part of the CSR movement. Conclusion This is a typical case of a flexible-mass-production regime, characterized by large-scale, highly integrated, and flexible mass production, lean production logistics, standard work operations, and a detailed division of labor. It uses advanced technology and modern machines, but the workforce consists of many low-skilled operators with low wages and high turnover rates. There are many similarities to other major EMS contract manufacturers in the country – not just the production model and the company’s size, but also the difference in treatment between operators (low wages, high amounts of overtime, and boring work) and higher level employees (relatively better wages, annual wage increases, comprehensive training, regular promotion, and career development opportunities). The major players in the industry seem to have adopted similar approaches to labor laws, the formation of trade unions, and the integration of CSR and voluntary industry codes of conducts into the corporate system of labor relations. However, key labor practices do not meet the legal requirements in China, yet exceptions are tacitly accepted by local governments.



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Evaluation of regime of production – Electronics industry case study 5, factory 1 Item

High/ Medium Low/ Strong Weak

Comments

Organization of Production Market control Vertical integration (company)

X

Vertical integration (factory)

X

Product technology (relative to industry standards) Manufacturing technology

X

X

X

Stability of production flow

X

Work and working conditions Specialized and skilled labor

X

Segmentation of work Proportion migrant workers

X

Proportion women Proportion of temporary workers Workforce stability Income stability Piecework type of incentives Employee involvement (workplace)

X

X X X X X X

Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

Operators low skill

X

Since 2007 X X X

X X X X X X

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Factory 2 The company has more than 20 production sites in China. This factory is in an internationally known industrial park in East China, where a significant cluster of electronics companies is located. This industrial park not only provides first-class infrastructure and well-regulated administration, but also is close to several major industrial cities with convenient transportation, roads, and ports. The company has expanded rapidly in this region through several takeovers, including two other factories in this industrial park. This factory used to be a leading site for a former major EMS manufacturer from the U.S., which was acquired by the current owner company in 2007. According to management, the takeover did not impact production and employment. At the time of the investigation, this factory had 5,000 employees. Model of Production Under the previous owner, production in this factory focused on high-end computer servers and network equipment for mobile communications, especially base stations. During that period, production developed from simple assembly of standard printed circuit boards (high volume – low mix) to a model of production that combined high volume with increasing flexibility in product configuration (high volume – high mix). This was the result of requirements by corporate customers and telecommunications operators for specific configurations of hardware systems and software. Under the present owner, this factory is undergoing a new round of respecialization, with a focus on printed circuit boards for complex printers, scanners, and copiers for commercial use, and on automotive products. These products are mostly low volume – high mix. This factory produces for the global market, not just China. For some products, such as one brand of scanners, this is the only production site in the world. Although sizable, the factory is much smaller than the large mass production sites in South China described in this chapter. Of the two factory buildings, the newer one is a large one-story building that only houses assembly operations. The older one is a three-floor building, with administrative, engineering and training departments as well as large workshops on each floor. Inside the workshops, a material center stores materials close to the assembly lines. As part of lean manufacturing practices adopted from major Japanese automobile manufacturers, the management of this factory emphasizes its quality control system for incoming materials and efficient or-



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ganization of material flow. After purchasing parts and components from suppliers, all materials are sorted and stored in the material centers. Through the material flow improvement program, all materials are prepared an hour before production. The concept of lean production and the related just-intime delivery of materials (kanban) was introduced five years ago when the factory still belonged to the former company. There are more than 40 automated lines for printed circuit board assembly in this factory. From heating and welding to finishing, advanced machines do the work. Machines run 24 hours a day, seven days a week. There are three shifts per day: from midnight to 7:00 a.m., from 7:00 a.m. to 3.30 p.m., and from 3.30 p.m. to midnight. There are four teams of workers and three work shifts each day. Some machines are Japanese, suitable for high volume production. The main production process is done inside the machines, and experienced employees check details of the boards produced. At the primary stage of SMT, the parts are placed manually, mostly by women workers. At the end the function of each part and component is tested. The factory’s high-mix – low-volume production is relatively new for China. A few years ago, this kind of specialized manufacturing was only performed in European or American factories. More than 500 types of products with different modules are produced here. On one single line, seven or eight modules can be produced. Each day the production lines may change many times, since EMS clients usually require specific features. Line changes depend on the size of the orders. If the order is small, the lines may need to be changed frequently. In addition, the testing equipment can test 378 different models. Automotive products are manufactured in another workshop on the upper floor. There are twelve production lines with the same high-volume – high-mix or low-volume – high-mix production found in other areas. At each work station materials are loaded and work is done inside the machines. The work for operators is simple and narrowly defined. Operators for each machine perform low skilled activities, while engineers are in charge of maintenance. According to the human resource director, operators are asked whether they would like to learn to work with more complex technology and processes. After working in all the different sections and categories of a given process, they can apply for a training course of three months to certify their skills. However, this does not happen very often. Because of the emphasis on training in this factory, workshops have special areas called study centers,

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with books, one or two computers, and desks. According to the human resource director, this encourages culture exchange and communication. When employees have a break or during interruptions of work, they can read books. Work and Working Conditions The workshops are clean and everything seems in order. Since products are dust-sensitive, workers wear work clothes and protection equipment inside the workshop. As in most American and Taiwanese EMS companies, the division of labor is strict and very detailed. Because of the high level of automation, operators do not have much control over the work flow, and the narrowly-defined work content is repetitive and boring. There are about 5,000 employees in this factory, but the number changes almost every day, due to frequent turnover and new recruitment. The total workforce was 5,600 in June 2006. Technicians, engineers, and administrative workers are mostly hired from local labor markets. The city and the industrial park have technical colleges and universities that provide ample talent. A number of foreign engineers from the former company’s large operations in Malaysia played an important role in setting up the factory and upgrading its production. However, after 2008 all of the foreign engineers left. Regular workers are mostly from the city. Among the 5,000 total employees, about 1,000 are dispatched from labor agencies. These are migrant workers, in the sense that they come from outside this city, from either the rural area of the same province or from other provinces. Dispatched workers work as operators. Some of them have worked in the factory for more than four years. According to the human resource manager, they have certain skills and are eager to learn and take on greater responsibilities. During the financial crisis, the number of dispatched workers decreased, since they were the first to lose their jobs. Returning workers to the agencies saves severance pay, although the Labor Contract Law, which took effect January 01, 2008, stipulates that companies must pay severance to temporary employees. The company has different recruitment channels for direct and indirect labor. It recruits from temporary labor agencies, offers internships, and gets referrals from experienced workers. Generally speaking, production workers, are recruited through labor agencies. These agencies have a close connection to technical schools all over China, called member schools. They provide operators to many companies. Applicants have to pass exams at the recruit-



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ment agency, including a physical exam and a pre-entry training test of the company where they will be hired as operators. For indirect labor, i.e. technical and administrative workers, the company regularly attends public job fairs and labor markets, and recruits on campus. Interviews with promising candidates are arranged through the internet. New university graduates are hired as interns and may stay after their internship as technicians, depending on their performance evaluation. In some cases, operators can be trained and promoted to engineering positions. According to informal sources, the outside recruitment of technicians and engineers instead of internal promotion causes frequent complaints from operators. Many employees stay with the company for a long time, according to management. This is especially true for white-collar workers. The turnover rate of direct labor, however, is much higher. During difficult times, this is regarded as an advantage, since the company does not have to pay severance to operators who leave voluntarily, and severance pay is low for employees with a short tenure. Since indirect labor tends to stay, management regards severance pay for these workers as a big burden. The wage structure is position-based. Pay includes a base wage, a skillrelated wage, and a performance bonus. At each work station wages are different. A newly-hired technician gets a starting wage of 1,500 RMB monthly. With one to three years experience, a technician may earn 2,000 to 5,000 RMB, depending on skill levels. Both direct and indirect labor has salary increases every year, resulting in higher pay for workers with longer tenure. The annual salary increase was about 8.5 percent in 2007, and 11 percent in 2008. The performance bonus is paid quarterly based on the general profitability of the company. The personal bonus for employees is not very high, a little more than 5 percent of the quarterly base salary. In addition, there are other incentives. Line leaders receive a performance bonus of 100 to 250 RMB per month. There are also annual leaves, paid at base wages. According to the management, in the course of a number of takeovers of factories throughout China, the compensation structure for indirect labor at different sites was unified. The wages for direct labor remained different, however. Creation of a company-wide wage system in this area would be a major task for human resource management. Operators at the lowest level may earn only minimum wage, 50 percent less than the higher level. Sometimes regular operators earn wages similar to technicians. There are three grades of technicians – junior, mid level, and senior. The minimum base wages for technicians is about 1,500 RMB, which

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is quite high for this industry. Line leaders’ pay is quite similar to that of junior technicians. Shift leaders can make at least 1,800 RMB as a base wage, like mid level technicians. For regular operators with three to five years experience, the average base wage is about 1,300 RMB. Social insurance payments of 22 percent are deducted from this amount. In addition, there are a thirteenth monthly salary at the end of the year and other kinds of benefits for regular employees, including commercial insurance. To keep skilled operators, the company also offers an allowance of 50 to 100 RMB per month. The structure is very different for temporary employees (dispatched workers). Their wages include a base wage, which is the legal minimum wage of this city, 850 RMB in 2009, plus overtime pay. Temporary workers have to work overtime to earn more income. Since the labor law is generally better implemented here than in South China, the minimum wage of 850 RMB is the net income, and overtime pay comes on top of it. Temporary labor agencies do not provide regular wage increases or paid annual leave. Dispatched workers are not regarded as formal employees of this company. Therefore their social insurance should be paid by the labor agencies, but sometimes this does not occur. Each year 30 percent of dispatched workers can become regular employees. Depending on their performance, the line manager may recommend some of them. Sometimes the company also hires interns from technical schools and colleges, paying them hourly wages and overtime. Some interns are operators, and others work as technicians. If the interns in technician positions perform well, they can become regular workers. Usually 95 percent of them become regular. Otherwise the company asks them to leave. One intern became a labor agency worker here. Workers work overtime during periods of normal business. Operators and technicians are eligible for overtime payment, but engineers are not. The legal limit of 36 hours per month is generally followed, but overtime is calculated on a quarterly basis. This means every three months overtime can total 108 hours, which gives the company flexibility to allocate more than the legal maximum of 36 hours in months with particularly strong sales. The attitudes of employees toward overtime are different. Regular workers, who are mainly from the city, may reject too much overtime. At the same time, dispatched workers and even regular workers from other areas outside the city want more overtime to increase their income. If overtime declines or the company controls it strictly, those workers may resign and go to other companies.



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Besides wages, there are systematic incentive plans for regular employees, such as career planning and development. As a standard practice in this industry, there are many technical and managerial training programs. Apart from pre-entry training, employees can get promotion training, new product training, and other types. According to the management, the takeover of this factory from the former EMS company did not have much impact on manufacturing volume or employment. The global financial and economic crisis did have some impact, however. The factory had layoffs affecting about 100 employees. About 10 percent of the staff left because of other job plans. Since there are a considerable variety of products in this factory for medical uses, automobiles, and computers, slow sales for telecommunications equipment were largely alleviated. Nevertheless, nearby factories belonging to this company laid off about 20 percent of their workers. One site was closed, because its operations duplicated others. Most employees there were transferred to other sites, according to the human resource manager. Factories making mobile phones suffered sharply during the crisis, while others with mixed production were more likely to survive. Labor Relations This company generally complies with legal standards, like most foreign companies of this size in China. There are codes of conduct and Corporate Social Responsibility activities that the brand-name customers usually require for their EMS contractors. The Labor Contract Law has caused some changes in labor practices. If the company does not want to renew employment contracts with certain employees, it must pay compensation. According to management, such payment has become a big cost. The company faces more legal requirements. If an employee leaves, the company has to pay his or her social insurance before conducting the legal separation procedure. In addition, such procedures have to be completed within seven days after the employee’s departure, and wages must be paid in full. In this company, 200 or 300 employees leave every month, leading to problems of wage calculation and distribution, and of adjusting the payroll computing system. In addition, the new law requires that employees who have worked in the company for ten years or have signed fixed-termed contracts twice are entitled to sign open-termed contracts. To postpone signing unlimited contracts, this company decided to have three-year contracts with

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all regular employees, instead of the two-year ones for non-management personnel it had in the past. There are exceptions or flexible handlings of legal requirements. According to the law, monthly overtime should be limited to 36 hours. This company calculates three months together, making the limit 108 hours in a quarter, no matter how many hours in a single month. This may be approved by the labor bureau of the local government in many areas of China. In addition, the legal principle of equal pay for equal work is not fully applied regarding dispatched workers. Chances to become regular workers are so limited that some have worked here for more than four years. Yet they remain dispatched workers and earn only the legal minimum wage plus overtime pay. In July 2007 a trade union was set up in this company. The union is factory-based. All members are from the shop floor, and union cadres are all part-time. By August 2008, more than 2,000 members had joined this union. Its basic policy is both to promote enterprise development and to serve employees, in order to have a harmonious enterprise. The major task of this union is organizing entertainment activities for employees, such as a chess competition. The union also signs collective contracts with the management. The contracts contain general rules on wages and work hours, but have no specific figures for hourly or monthly wages or for wage grades. According to management, different employees have different wages. Wage grades for each employee can change after some time. Regulation of these topics in the contracts is not possible and will not appear in them anytime soon. Although job grades in this company do not determine the salary structure, neither do collective contracts, according to management. This company also has employee handbooks, which explain employee rights in general terms. A worker’s job title, job grade, and wages are written only in the labor contracts for individual employees. When individual wages are increased, the human resource department sends a letter to the employee about the new grade and bonuses. As typical in U.S. high-tech companies, wages are considered secret, and employees are not allowed to discuss them. In the view of management, the general policy and salary structure should not be written down in collective contracts or employee handbooks. It would be too troublesome to hold employee meetings every time policies change. Since this is not required in Chinese law, it is not likely the company will put wage grades and levels in collective contracts in the near future.



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The company consults employees on policy changes about benefits. Following the new law, a new policy about employee benefits needs to go through the union. In this company, management had to revise its annual leave policies in line with new regulations from the local labor bureau. Management consulted with the union and got its agreement before carrying out the policy. Generally, only the union is involved in these negotiations, while the district or city unions are not. Several mechanisms for handling grievances exist inside the company, some through the union, but others through the employee relationship program (ER). The company has human resource business partners. Employees are appointed by the human resource department to act as facilitators on a part-time basis, communicating human resource issues to employees. If employees have a problem, they can complain to the union, to the ER manager, or to the human resource business partner. A part-time human resource business partner is present in each business unit, especially for operators, and they attend round table meetings and staff meetings. Human resource business partners inform front line managers of new human resource policies. Supervisors and line-leaders pass the information to operators and other employees. In the monthly round-table meeting, employee representatives can report problems related to production lines or canteens, and question human resource policies like annual leave, wage increases, and performance evaluations. These questions and answers are publicized on poster boards. In addition, there are also suggestion boxes or employees’ complaint boxes. Due to the various communication channels, employees usually do not appeal to higher levels of company management, government authorities, or the trade union. Court cases are very few, according to management. Following the public discussions of the Labor Contract Law in 2007, many employees developed greater legal awareness. During the recent redundancies, human resource managers found it very hard to deal with laid-off employees. They often would argue against the decision and refer to many legal provisions. According to informal sources, there were several strikes in November 2006 in this company, one of which involved several hundred workers. It started because after the takeover of the former company, the wages here were lower than at other factories of the new company. Employees asked for a wage raise to equal their wages with other sites. Some workers went to argue with production managers, and work was stopped. Afterwards more than 20 workers who had all participated in the strike were fired without any legitimate reason.

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Companies in the industrial park coordinate labor policies. Human resource managers from many electronics factories meet regularly at what is called a human resource club. Within this circle a gentlemen’s agreement says that companies should not poach workers from other companies by promising excessively high salaries or similar incentives, unless the person resigns voluntarily. These policies mostly apply for higher level talent, including skilled technicians and some line leaders. The companies do not care much about wage competition for operators, since it usually takes only a week to train one. However, human resource managers in this company believe it would be good to have established wage and benefit standards at an industry level. Conclusion Manufacturing at this EMS company features large-scale, highly integrated and flexible production, lean production logistics, standardized work operations and a detailed division of labor. It uses advanced technology and modern machines, but employs low skilled operators at low-wages with a high turnover rate. It is a typical regime of flexible mass production. Nevertheless, the relatively well-regulated environment in this industrial park seems to have a positive impact on working conditions and labor relations, including strict implementation of legal requirements on labor policies and human resource practices, and also the presence of a factory union and collective contracts. However, neither the district nor the industry union interferes with company issues. Inside the company, the union plays no real role. Collective contracts and consultations remain a formality, as in most Chinese enterprises. The main function of the union is to organize activities to entertain employees, and sometimes to sign documents that management delivers to the union as required by law. This case also provides ample evidence of the widespread unjust use of dispatched workers in China. With its relative stability in employment and compensation, some elements of the labor policies of this factory resemble the corporate highperformance model, used by multinational brand-name firms. The factory and its workforce have upgraded skills remarkably during recent years, setting it apart from most other large contract manufacturing facilities in this company and throughout China. Most others focus on highly standardized volume production. But development towards flexible volume and even specialized low-volume production does not necessarily result in a sustainable



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upgrading of skills, employment conditions, and remuneration, nor does it encourage more employees’ participation and better labor relations. There is a separation between a relatively stable core workforce of permanent employees, mostly local residents, and a substantial number of temporary workers with mostly rural origin. This seems to be a common pattern in higher-end factories in East China. The company-wide wage system is tailored to the needs of flexibly hiring and firing low skilled operators, and has no rewards for skill upgrading. Under these circumstances, the aspirations of operators remain unfulfilled for acquiring greater skills that may give them access to technician and engineer positions. The company provides a good example of the way how working conditions could be improved, if legal regulations on contractual determination of wages and pay grades existed. The company has a relatively elaborate system designed to smooth the legally required process of employee consultation. This partly substitutes for the trade union. The company seeks to establish a system of labor representation that fulfills legal requirements, but avoids any role for the trade union beyond the legally required minimum. The labor conflicts in 2006 illustrate the instability caused by the arbitrary application of internal wage standards and the lack of labor standards at regional or industry levels.

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Evaluation of regimes of production – Electronics industry case study 5, factory 2 Item

High/ Medium Low/ Comments Strong Weak

Organization of Production Market control Vertical integration (company)

X

Vertical integration (factory)

X

Product technology (relative to industry standards) Manufacturing technology

X

X

X

Stability of production flow

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers Proportion women Proportion of temporary workers Workforce stability Income stability Piecework type of incentives Employee involvement (workplace)

X X X X X X X

No

X

Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

20 %, at least X

X X

Newly signed X X

X X X X

X

Different for regular and temporary workers



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Factory 3 This factory has been taken over by a leading U.S. EMS company from a major Taiwan contract manufacturer. The takeover in early 2008 included the whole department of notebook computers and servers, and its factories, equipment, technology, inventory, and major customers. The Taiwanese company operated under an Original Design Manufacturing (ODM) production model (see III.2). The takeover marked a strategic move of the U.S. company into the ODM field. The factory is expanding rapidly. At the time of the takeover, the capacity of this business was supposed to grow massively (from 300,000 notebooks in early 2009 to 8 to 10 million at the end of that year, and then to 20 million by the end of 2010). Located in a major IT manufacturing center in East China, this factory is in a new export processing zone with many large Taiwanese companies. The area is well connected to major cities and has highly developed supply chains and infrastructure. The local district government is eager to attract new investment to compete with other industrial parks nearby. At the time of the investigation, this factory had 2,800 employees. The company was planning to expand the operation to 10,000 employees within a year. Model of Production This factory is very large, surrounded by several other factories of the former Taiwanese owner, in a setting similar to an industrial park. At the time of our investigation, the facilities basically remained in their previous condition. Machines and the workforce were taken over from the former owner, and construction and rapid expansion were underway. The technology and processes of the Taiwanese ODM-company were advanced, and the production was on a large-scale. In this factory a new research and development center was under construction, which was expected to be completed within several months. Construction of other new factories on this site would be complete within a year, to achieve a nearly seven-fold growth in annual capacity. The factory has a full spectrum of production capabilities, including automated assembly of printed circuit boards (SMD), final assembly and shipment. All processes are performed at the factory site. In the SMD section there are 700 to 800 direct manufacturing workers. The rest of the then1,000 employees are in final assembly. New product introduction (NPI) also takes place in this factory with engineers specialized in this field, rather than direct workers. Design Flow Technology (DFT), the global system for materi-

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als and manufacturing management used by the U.S. company, has not yet been introduced in this factory. This system specifies the regulations for each job or position, as well as standard operating procedures used in other factories of this company. The company had no experience in notebook manufacturing, and the DFT system was not yet adapted to this environment at the time of our investigation. In terms of management and technological team work, this factory was learning from other first-tier Taiwanese companies recognized for having the best practices in this field, rather than the former owner of this factory. The U.S. company has also poached the former CEO of a successful Taiwanese ODM to be the GM of this business unit. The former Taiwanese company had an annual capacity of 350,000 notebooks and 20,000 servers. In the current company, this factory will focus on notebook computers, but server manufacturing will be shifted to other sites. In February 2009 the products for one key customer were put into mass production, which accounted for 80 percent of the factory’s output. The company was still in negotiations with its other major customer at the time of our investigation but expected to receive orders. Generally, the company has high expectations for this business. Work and Working Conditions Although the former owner adhered to the Electronics Industry Code of Conduct and customer requirements about sustainable production, the working conditions and labor standards in the Taiwanese company were low, compared to other major industry players. According to former employees, work was repetitive and stressful, while wages and benefits were lower than in comparable European or American firms. After the takeover many changes were needed in the work system to bring it in line with existing legal standards, as well as those in other branches of the company and in many other large western firms. According to management, all former employees of the Taiwanese company were integrated into the new operation. The number of employees used to be 3,500, but the actual workforce at the time of the investigation was 2,800, including a small number of employees from other branches of the company like those in the human resources department. Due to the usual high turnover rate in the electronics industry, this difference of numbers does not necessarily mean there were redundancies in the wake of the takeover.



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Among the 2,800 employees, there are 1,550 in the direct labor category, which in this company only includes manufacturing workers directly in contact with products. In this scheme indirect labor includes other employees in the workshops, such as warehouse workers or line leaders, as well as engineers and managerial staff. Under this expanded definition of indirect labor used here, the proportion of indirect to direct labor in the factory is about 1:1 or 1:1.5. The ratio of 1:3 is normal in most comparable factories using more common definitions. The company announced a plan to hire more employees for this business, particularly manufacturing workers. Within a little more than half a year, it predicted the total workforce would reach 10,000. In this facility, the research and development team accounts for 5 percent of all employees – around 200 people. The major research and development center of the acquired company is located in Taiwan. Thus, generally research and development employees here report to the Taiwan center while those in Taiwan support the development here. Most research and development employees in this factory site are from mainland China and many are new university graduates. The direct labor workforce has special characteristics in this development zone, since companies use many interns, i.e. students from technical schools dispatched for training and work in the companies. In this site the percentage of interns is about 30 percent of the total workforce. The average rate in this zone is 20 to 30 percent, while it is only about 5 percent for the whole city. The district government acts as a labor agency for companies and interns. It has centralized the administration of these interns. The government organized a commercial insurance scheme for them, instead of legally-mandated social insurance. The commercial insurance is cheaper, and is paid by the companies that hire these interns. Companies use interns to reduce their labor costs and gain greater flexibility in employment. The company signs internship agreements rather than formal employment contracts, which say that when the production volume goes down, the company can terminate the internship without any compensation. Interns may come from local or more distant schools. This factory has contacts with more than ten schools under the national Ministry of Education. Each year human resource representatives go to other provinces to recruit interns. After the internship, the interns can become regular workers if they pass a performance evaluation and internal exams. Hiring interns has become a normal practice for companies in this area.

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The remaining 70 percent of the direct labor workforce is hired from labor markets. These workers can come from anywhere in China, and the majority are from outside this city. They are migrant workers, either from the same province or from other poorer regions. Due to the transitional situation of the factory, as well as the changes in the labor law, the human resource work is complicated. Before the change in ownership, human resource policies and company rules were not well regulated. Now the company tries to formalize them in detail. Labor contracts have been updated. The standard labor contract in the former Taiwanese company contained only three pages, providing only simple and rough stipulations on the employment relationship. After the Labor Contract Law took effect in 2008, the U.S. contract manufacturer updated its employment contracts on a company wide basis. The contracts in this particular factory have been adapted to the standard version of this company, which is more concrete (seven to eight pages). They specify the duration of the contract, the position of the worker, the probation period, and other basic items of individual employment. It took three months to implement this standard employment contract for the whole workforce in the factory. The work hours changed too. In the former company, as in many other Taiwanese firms, “playing edge balls” (i.e. a flexible interpretation of laws taking advantage of their loopholes) was common, according to human resource management. Before, the work shift was from 8:00 a.m. to 5:20 p.m. including a one-hour lunch break, one ten-minute break in the morning, and another one in the afternoon. Because the regulations on break times are quite obscure in Chinese law, many employees had no objection to this arrangement. Now the human resource department is trying to bring work schedules into line with legal requirements. The compensation structure is changing substantially. In many Taiwanese companies wage structures for relatively simple work are very complicated. The total wage may be 3,000 RMB per month, but the base may be only 1,000. A large proportion, often more than 50 percent, of the regular monthly wage is made up of incentives, allowances, and overtime pay. In the new company, although there still exist different wage structures in each factory, the basic principles are the same. To simplify the employment contracts, the wage structure was changed to include two basic components, base wage and bonuses. This does not exclude the possibility of other benefits. Some workers in this factory complained about the loss of allowances, but according to



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management, after some time they accepted the changes because their total wages and overtime pay actually increased. The base for calculating overtime pay was fixed in the new employment contracts. This practice did not exist in the Taiwanese company. According to Chinese law, overtime pay should be calculated on the basis of the total compensation of the individual employee, based on a 40-hour work week at the regular hourly pay. In the former Taiwanese company, this led to low overtime pay because of the low base wage. Now overtime pay is fixed in the labor contract, and the base is set at 80 percent or lower of actual compensation. This is legal under provincial regulations, which allow the employer and employee to agree on the base for overtime even though it may be lower than the level of actual total compensation. Generally speaking, operators in this factory have a base wage no less than the legal minium wage in this city, 850 RMB. Wages are paid by the hour, not piece rates, since work is done on production lines with a constant speed of materials and work flow. There is regular overtime, and a bonus related to the performance of the company. In addition some operators receive position-based allowances. An operator can earn 1,600 to 1,800 RMB per month, according to management. In regard to overtime, the company follows the Electronics Industry Code of Conduct, which stipulates that monthly overtime should not exceed 86 hours. According to management, the company is trying to control overtime in order to meet this limit. Global auditors may also be exerting some pressure. At the time of this investigation, large-scale recruitment had been going on for months. According to an official job advertisement, operators were required to be between 16 to 25 years old. Priority was given to those with high school, technical school, or technical secondary school certificates. The wage offered for both probation and regular employment was 915 RMB monthly, including a base pay of 850 RMB, full attendance bonus of 40 RMB, and 25 RMB performance bonus. The regular work time is eight hours a day, five days a week. Overtime on week days is paid at 7.6 RMB per hour extra, on weekends 10.15 RMB, and on statutory holidays 15.23 RMB. There are also night shift allowances from 4 to 6 RMB per shift. In three months after being hired, employees can participate in a contest called Quarterly Star, in which the winners receive a bonus of 150 RMB or other rewards. In addition, workers receive eleven days of paid annual vacation, and regular workers also have legal holidays. The company may also give subsidies to employees

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in special situations, such as 200 to 600 RMB for a wedding, 150 to 200 RMB for a funeral, and 150 to 200 RMB as a maternity payment. According to informal sources, after the takeover employees above the level of assistant engineer had wage increases, although the wages were still not comparable to those in other factories of this company. In the former Taiwanese company, the base wage of assistant engineers was about 1,200 to 1,500 RMB, with a housing subsidy of 200 RMB monthly, free meals, medical insurance, and an annual bonus. Including overtime, the after-tax income was between 1,800 to 2,500 RMB, depending on overtime hours. A large part of income was from overtime. Without it, the take home pay was only 1,000 RMB. After the takeover, the wages of assistant engineers increased 300 to 500 RMB monthly, resulting in take home pay (after deducting payments for insurance) of 1,200 to 1,300 RMB, excluding owertime pay. In all sites of this company, for engineers and above, there is no payment for owertime. Inside this large factory, there are four dormitory buildings, taken over from the Taiwanese company. Eight people live in one standard room, with shared shower, toilet, laundry area, balcony, closet, and fan. Each person pays a daily fee of 1.5 RMB for electricity, water, and other utilities. About 90 percent of the direct labor workers live in dormitory rooms, whereas indirect labor employees live outside the factory, and some have their own apartments. There are living facilities nearby, such as canteens which provide free lunch, dinner, overtime meals, and supper, as well as shops, TV and movie halls, a clinic, ping pong tables, basketball courts, football fields, reading rooms, multimedia classrooms, a hair salon, and an internet cafe. Different activities and entertainment are organized for workers in their spare time. During the financial crisis, major PC brand-name firms generally suffered which resulted in massive reductions of work for contract manufacturers. In this factory, hours at one point were reduced to four days of eight hours, from six days of twelve hours, due to the loss of 50 percent of the factory’s orders. Dependence on orders from global customers led to the swings in production. In the restructuring process, this site was less affected by redundancies and low-paid holidays, since the company was eager to expand its ODM production even during times of crisis. As a result, after the Chinese new year of 2009, factory management started to recruit again. Still, according to informal sources, feelings of insecurity over employment and wages were common among employees. The lack of training opportunities became a problem for many employees, especially new hires. According to external sources, the turnover rate in this facility is very high.



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Labor Relations Laws are generally followed by this company. However, in this particular factory, due to the history of Taiwanese companies as well as the local environment, some common practices actually violate national laws. The typical violations are excessive work hours and the large employment of interns. In addition, the codes of conduct and CSR apply pressure to this company from many brand-name customers. However, these codes are weak, and labor standards are loosely regulated. There was no trade union in the former company, like in many other Taiwanese companies in this industry. After the takeover the new owner prepared to establish a union. At the time of this investigation, there was no collective contract. Nevertheless, according to human resource management, if a trade union was established and a collective agreement would appear useful, the company would think of signing one. In practice, the human resource department is leading the preparation for establishing the union. Conclusion Compared to other production sites in electronics assembly in China, the situation of this factory is special, since both manufacturing and the workforce were in the process of expansion and upgrading at the time of this investigation. The production regime can generally be categorized as flexible mass production, although changes in labor practices from the former Taiwanese company are substantial in some aspects. In particular, the formalization of labor contracts and labor relations under the new owner has reduced the extreme amount of flexible pay and allowances prevalent under the former owner. However, operators still have to rely on extensive overtime to earn a wage above the legal minimum. The organization of work shows the typical features of neo-Taylorist mass production – high segmentation of work, excessive working hours, and low-wages for mostly migrant workers. The organization of working schedules violates existing laws on working hours, but is tolerated by the local government and legitimized by the global code of conduct in the electronics industry. As a typical response to recent changes in Chinese labor laws, the company plans to set up a union in this factory, as unions also exist in many other of its factories. Nevertheless, the union was being set up at the initiative of the human resource department, rather than shop floor workers. This clearly would limit its future role.

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The case reveals the impact of the Labor Contract Law on corporate pay systems, and the underlying political and legal imperative to bring existing employment practices into line with the law. It also shows the blurred relationship between models of production and labor practices. Although the ODM production model integrates a certain spectrum of higher value-added elements in the factories (elements of product design integrated with manufacturing) and thereby can be considered a way of upgrading electronics manufacturing in China, the treatment of production workers is substandard. The distance between direct and indirect labor in this factory appears even greater than in the U.S. company. The wage system, with very low base wages and a host of allowances, is part of this picture. These factors bring many Taiwanese manufacturing facilities in this industry segment close to the low-wage classic regime of production.



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Evaluation of regime of production – Electronics industry case study 5, factory 3 Item

High/ Medium Low/ Strong Weak

Comments

Organization of Production Market control Vertical integration (company)

X

Vertical integration (factory)

X

Product technology (relative to industry standards) Manufacturing technology

X

X

X

Stability of production flow

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers Proportion women Proportion of temporary workers Workforce stability Income stability Piecework type of incentives Employee involvement (workplace)

X X X X X

Interns X X X

No

X

Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

5 % R&D

X

Just established

X

No

X X X X X X Turnover high No reports

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5.3 Electronics Industry Case Studies: Electronics Components Suppliers 5.3.1 Electronics Industry Case Study 6 This company is one of the largest suppliers of mechanical parts and metal frames for information technology equipment in the world. Headquartered in Taiwan, this company was set up in 1984 and began to build factories in mainland China in 2002. In recent years, 90 percent of the company reve­nues were generated in mainland China. Starting from very simple mechanical work, today this company produces a comprehensive spectrum of enclosures and mechanical parts for computers, mobile phones, digital music players, and cameras. The company is little known even among industry experts, but it uses leading-edge technology in large-volume production facilities, particularly magnesium die casting. It is the supplier to major ODMand EMS-contract manufacturers, producing for most major brand-name firms. For a small percentage of its products, the company delivers directly to the service centers of those brand-name companies. Developing at an explosive speed, a massive manufacturing complex has been built in a wellregulated industrial park in East China, comprising three factories and a host of administrative, warehouse, and dormitory buildings. Starting in 2009, the company built a fourth factory in a less-developed city of the same province. In 2009 the three factories had 28,000 employees. The workforce fluctuates greatly, as will be explained in detail in the following chapter. Model of Production Within the global production networks of the IT industry, manufacturing non-electronic components such as cables, connectors, or metal enclosures is usually regarded as a low-end activity. Nevertheless, mechanical work of this kind, especially combined with high-volume mass production and justin-time logistics, requires substantial knowledge of manufacturing processes and materials, as well as organizational skills and capital resources. The manufacturing of metal components has become highly concentrated and capital intensive in recent years, along with the growth of electronics contract manufacturing. This company represents every aspect of this transformation. It devel­ oped from batch production of simple mechanical parts to highly integrated mass manufacturing of sophisticated enclosures with fashionable designs. Its market share has increased substantially. However, this element of the



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information technology global supply chain is extremely vulnerable to market cycles, since it almost exclusively caters to the consumer segments of global information technology markets, such as cell phones, music players, smart phones, notebooks, and tablet PCs. The management of extreme fluctuations in production, therefore, is a key ingredient in the manufacturing know-how in companies like this. The factories have several buildings specializing in different products. Production volumes are very large. For certain machines, the scale is comparable to only four or five other companies in the world, including the top electronics contract manufacturers. The production process consists mainly of four stages: (1) pre-processing and die casting of metal parts; (2) CNC (Computerized Numerical Control) processing; (3) spray painting; (4) final assembly of metal parts and frames, including packaging. While the first two stages are highly mechanized and capital-intensive, the final stages of the production process are labor-intensive, employing the largest part of the workforce. In the metal processing and die casting sections, production is performed with a large array of mechanical and semi-mechanical equipment, including top-level high-precision machinery. Die casting is the core technological competency of this company. It is a process that forces molten non-ferrous metals like zinc, copper, aluminium, or magnesium into a mold cavity under high pressure. The mold cavity is created by hardened steel dies, which are machined into shape and form an injection mold. The casting equipment and the metal dies represent large capital costs. Economies of scale, therefore, are achieved by increased production volume. The tooling shops, where the dies are made, are the key areas of the production process. Work here is mostly performed on individual work stations, rather than production lines. Work in this shop requires relatively high skill levels, and workers here are paid somewhat higher wages. CNC processing – cutting, turning, and sawing die cast parts – is performed by scores of CNC machines. The machines are positioned in long rows of a dozen or more on large manufacturing floors. Work on each machine is performed individually. It is standardized and mostly deskilled since the machines are numerically programmed and operated automatically. Workers load and start the machines, move material to and from inventory, and perform basic cleaning and maintenance. Since production changes are infrequent due to the high volume, not much skill and experience is required to manage the ramp-up of various product configurations. Adjacent to CNC

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milling is a large section named product modification, where the finished parts are shaken out of the dies, separated if necessary, and ground, filed, and cleaned. This part of the work is mostly manual, and most workers here are women. Spraying and painting is mostly done with semi-automated machinery at individual workplaces in relatively large manufacturing areas, or with fully automated machinery in closed areas. Semi-automated and hand spraying requires some experience with the equipment and materials. In fully automated painting, workers mostly load and supervise the machinery. This segment of the production process also includes surface finishing – another key production process, in which the company specializes. Surfaces of metal parts for final products, such as laptop computers and music players, receive metalization with special substances that produce colored metallic surfaces with a fashionable look and design. This process is performed in large semiopen systems. Workers load trays and containers of die cast parts into bins with metallic and galvanic substances. This work is heavy and severely endangers workers’ health because of the high temperatures and widespread fumes from the use of toxic substances. In the assembly section, die cast parts are assembled, and connectors, encapsulations, screws and bolts are attached. Die cast components can be delivered as preassembled modules ready for further processing in the systemassembly factories of electronics contract manufacturers. This often includes packaging die cast modules into specific types of boxes, racks, or frames used in the materials management process of the customer firms. The assembly process is very labor-intensive and employs a large number of workers. Work is mostly manual and highly segmented on large-scale, technologically simple assembly lines. The work process includes the handling large numbers of very small parts, which can often strain eyes and fingers. In some of the pre-assembly areas production is organized in work cells of eight to twelve workers. This is presented as a major step upgrading work. However, the main reason for this organization is product related, since cell production is mostly used for relatively complicated enclosures of small to medium volume with frequent changes of product configurations. In many Taiwanese companies, many elements of work organization have been adapted from Japan, such as the concepts of lean production, total quality management, and Six Sigma. Since the beginning of 2009, this company has carried out extensive experiments in this field under the guidance of a former manager of a well-known Japanese multinational. Cell production is one



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experiment, and in the future the experiments may also include some forms of job rotation. Work and Working Conditions Workforce flexibility is a key feature of employment in this company. In 2009 the company had 23,000 employees in total. Before the financial and economic crisis of 2008–2009, employment was more than twice of that. By the end of 2010, the workforce in the main factory complex had increased again to 28,000. The company was planning to hire more than 20,000 people in a new factory site about 400 kilometers away. At the peak of the crisis, from December 2008 to January 2009, orders dropped by more than 40 percent. The company did not have large lay offs, and many workers left voluntarily, according to management. The company employs a significant number of administrative, sales, and engineering personnel (indirect labor). This workforce numbers about 5,000, including 2,000 engineers. 350 employees are from Taiwan, half of whom work in management. In departments like personnel and finance, most managers are from Taiwan. Upper management consists of about ten mainland Chinese and 30–40 Taiwanese. The company recruits skilled and experienced employees in large numbers from the labor market in mainland China. Every year it hires 400 to 500 such people with degrees above junior college. The company is also extending its recruitment to the top 50 universities in mainland China, mainly for university graduates with bachelor degrees in engineering and finance. About 80 percent of the workforce is classified as direct labor (DL), most of whom are factory workers. Operators are recruited from all over the country, many from distant provinces such as Sichuan, Guizhou, Hunan, Hubei, and Gansu. Only a few higher skilled workers and technicians are urban workers from the city. The majority of operators have few skills. The low-skill character of the work is advertised by the company in its job recruitment. According to one advertisement on headhunting websites in different provinces, operators should be 16 to 35 years old, must have graduated from junior high school or above (priority is given to technical school graduates), and must be physically healthy with good eyesight and a minimum height of 160 cm for men and 150 cm for women. There is no particular preference for male or female workers. As long as the basic requirements are met, labor

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agencies in the rural provinces will send a candidate to the company, and initial employment is guaranteed. The turnover among production workers is very high, as is common among large contract manufacturers and component suppliers in the IT industry. At the time of our investigation, the turnover rate was roughly 15 percent of the workforce per month, a total turnover of more than 150 percent per year. The wage system includes base wages and incentives. The target for a worker’s total monthly wage is midway between the highest and lowest wages in the regional labor market for each occupation, as determined by major human resource consulting firms. The base wage for new employees is the local minimum wage of RMB 960 at the time of our investigation. This wage may be adjusted individually after a certain period of employment. The company has a system of twelve pay grades for all categories. The lowest wage is 1,200 RMB, which includes bonuses and overtime. For production workers, there are three wage grades, with an average monthly base wage about 1,500 RMB. The base wages for group leaders and section supervisors are 2,000 and 5,000–6,000 RMB per month respectively. Incentives are composed of monthly rewards and a year-end bonus. The year-end bonus usually equals two monthly wages. Bonuses are paid to all workers on the basis of their positions. This wage system is accompanied by performance evaluations. Workers’ performance is evaluated by their group leaders and section supervisors, mostly on work discipline, attendance, and behavior. As a result, workers in similar positions can get different wages. More sophisticated performance-based incentive systems are under development, in which the performance of a whole team or group will be evaluated, and a bonus will be distributed among the group’s members. Group leaders will be able to adjust the distribution by about 20 percent for each individual worker. Under normal circumstances, extensive overtime is the rule in this company. In production, there are two different sets of work hours for engineers and operators, based on regular shifts of twelve hours per day. Engineers and technicians usually work from 8:00 a.m. to 8:00 p.m. Work hours from 8:00 a.m. to 5:00 p.m. are considered normal work hours, while work after 5:00 p.m. is paid as overtime according to legal requirements. For operators, there are two shifts: a day shift from 8:00 a.m. to 8:00 p.m. and a night shift from 8:00 p.m. to 8:00 a.m. Work after 5:00 p.m. and during night hours is paid as overtime.



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Regular work hours are formally defined as an eight hours day, but overtime work is assumed to be part of regular work schedules. Under normal conditions, the factory operates seven days a week. Weekend work is also paid as overtime. Overtime varies heavily, according to fluctuations in production. Overtime pay usually accounts for more than 40 percent of total monthly income, for both operators and technicians. The long work hours and high work intensity are major reasons why both unskilled and skilled employees leave. For employees at the basic level, the average income is 2,200 RMB per month, including social security payments. The range for operators is from 1,600 to 2,500 RMB. For engineers, the average total income is between 3,500 and 4,000 RMB per month. On the tenth of each month wages are paid directly to the bank accounts of each employee. Wages may be increased yearly. Operators can be promoted internally. Some migrant workers have become section supervisors within five or six years. Due to the high turnover rate, the company is considering extended salary incentives for job retention for well-performing or highly-skilled employees. Social insurance payments are made to the local provident fund, a special type of social benefit developed especially in this industrial park under the supervision of the national government. Compared to the standards in other nearby cities, contributions are quite high. Employers have to pay 14–18 percent of the total monthly workers’ income, and employees twelve percent. The management of this company hopes that the local government will lower the percentage of the employers’ contribution. Migrant workers are also included in the provident fund. If they leave for employment outside this industrial park, they can take a lump sum payment of 80 percent of the total amount of contributions paid during the period of their employment. Accrued funds can also be left in the system, or used in combination with other social insurance. The company provides a number of benefits, such as allowances for meals (the standard is 4.5 RMB per meal) and low rent for its dormitories. Eight large dormitory buildings are located next to the factory. There are showers, air conditioners, toilets, 24-hour hot water, and small cooking facilities in each dormitory. Normally eight people share one bedroom. The rent is 100 RMB per month, including water and electricity. About 20,000 employees can live in the dormitories. There are also large cafeterias on the factory campus, as well as medical clinics and ATM machines. The company provides free shuttle buses to the nearby city.

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The overall working conditions appear acceptable, due to the modern factory environment. However, in many production areas noise levels are high and workers have to wear earplugs. In the spraying and metalization departments, workers are endangered by toxic fumes and substances. Occupational health and safety conditions in these areas are clearly unsatisfactory. Labor Relations The labor relations system of this company is hierarchical and authoritarian, although the factory is located in an industrial park generally known for relatively decent working and social conditions. The company honors labor laws in regard to individual labor contracts, and pays wages and social insurance contributions in line with the law. However, there are frequent and systematic violations of legal standards on work hours and occupational safety and health. The amount of overtime regularly exceeds the legal limit of 36 hours per month. Safety conditions in certain areas do not meet the relevant government requirements (although no detailed investigations on specific workplaces could be made for this study). Such flexible interpretations of laws and regulations are possible because the company exerts considerable political influence, along with other large Taiwanese contract component suppliers and contract manufacturers in this city. Local government representatives criticize the company for its poor working conditions, but at the time of our investigation, no action had been taken to change this situation.81 The increased public debates in China on reforms of labor laws and social policies, especially the Labor Contract Law of 2008, have had an impact on workplace relations. According to management, workers’ awareness of their basic legal rights has increased significantly. In day-to-day conflicts over work practices and working conditions, workers increasingly cite the labor laws, even if most of these laws do not contain provisions related to this field. 81 It should he noted, however, that in the year after our last investigation of this case, in the fall of 2011, the local government closed down this factory for an indefinite period due to citizens’ complaints over massive environmental pollution and unsatisfactory conditions of workers’ health and safety. This was the first time that a factory of this size in electronics manufacturing has been closed by a local government in China. The case was triggered by the massive public discussions in China in the wake of the tragic suicides of young migrant workers at Foxconn in Shenzhen in 2010. However, the closure was not published widely, and the compliance reports of the relevant global brand-name companies did not even mention this factory as a major supplier.



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When the company changes the work content at a specific workplace, the worker may complain and regard it as a violation of his or her labor contract. This has increased the pressure on human resource policies, according to management. In 2008, there were four court cases, including one collective dispute, regarding labor contracts. One typical cause for complaint is the calculation of overtime work. According to local rules, overtime pay should be calculated on the basis of hourly wages, with the local minimum wage as the bottom line. However, according to the national law, the calculation base for overtime should be the total regular monthly wage of an employee (including regular overtime and bonuses). This results in a significantly higher hourly pay rate. Workers sued the company over this issue. In this case, the court supported the company. The city government then issued a citywide guideline which confirms the calculation of overtime pay based on a certain sum of wages agreed between employers and workers. The number of such conflicts has increased significantly, according to management. Besides workplace conflicts, considerable tensions exist in the dormitories. According to management, conflicts over dormitory conditions and rules, and also between workers and groups of workers, have increased in recent years. The company tries to control this with a strict set of dormitory rules, enforcing them with private security personnel. According to management, this has been quite successful. One result is a relatively low rate of suicides among workers. Since 2002, only two suicides have occurred, according to this source, although the dormitories held about 20,000 people at peak times. There is no trade union in this company. The company has created its own version of a workers’ congress, the traditional institution for workers representation in Chinese state-owned and private enterprises. Workers, who have worked in the company for more than six months are entitled to be elected as representatives. These elected representatives form an assembly of 200 members. Meetings are held at least once a year. Six or seven representatives out of these 200 join consultations about workers’ opinions and suggestions. The workers’ congress is consulted for revisions of company workplace regulations. Upon agreement by the workers’ congress, a new policy is announced. There is no written agreement between the representatives and the company, but the minutes of the meetings are publicized in the factory. Discussion of wages and other labor standards are subject to such consultations and are not included in public records.

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Conclusion The regime of production in this company is an example of flexible mass production. It combines highly integrated volume manufacturing at advanced levels of technology with a large low skilled workforce of mostly rural migrants. It uses hierarchical management, has long work hours, and features high turnover rates. Extreme workforce flexibility is achieved in an institutional setting where trade unions and collective contracts are absent, and violations of legal standards and government policies are endemic. The company is engaged in significant efforts to upgrade production organization and quality management. Improved working conditions are not part of these efforts. Upgrading faces severe financial and economic obstacles, since the company is experiencing constant price pressure from its customers – major electronics contract manufacturers and brand-name companies. The company benefits from the recent trend of accelerated concentration and centralization of production in the lower ranks of the global production networks of the IT industry. The company can therefore leverage substantial economies of scale. Restructuring production is primarily targeted at increasing its scale rather than improving the quality of work and working conditions.



Regimes of Production in the Electronics Industry

Evaluation of regime of production – Electronics industry case study 6 Item

High/ Medium Low/ Strong Weak

Comments

Organization of Production Market control Vertical integration (company)

X X

Vertical integration (factory)

X

Product technology (relative to industry standards) Manufacturing technology

X X

Stability of production flow

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers

X X X

Proportion women Proportion of temporary workers Workforce stability Income stability Piecework type of incentives Employee involvement (workplace)

X X X X X X

Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

X X X X X X X X

OT mainly X X

233

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Beyond the Iron Rice Bowl

5.3.2 Electronics Industry Case Study 7 This company is a joint venture between a global brand-name electronics corporation from East Asia and the local government of a major city in East China. The foreign corporation is the majority shareholder, with 78 percent of the company’s capital. The factory is a captive supplier to the foreign corporation and part of its internal global production system. It manufactures a relatively broad spectrum of parts and components for electronic machinery, including current relays and commutators, and a small number of finished systems in medical electronics, such as X-ray amplifiers and ultrasonic diagnostic devices. It also produces consumer electronics, particularly vacuum cleaners. Established in early 1992, this factory is located in a central district of this city, close to world renowned tourist attractions and shopping areas. Throughout its history, the company has had a workforce between 700 and 1,400 employees, depending on production and seasonal demand cycles. Most of the workers are migrants. The company features a model of labor relations which is unique in the Chinese electronics industry, based on a stable trade union with a comprehensive presence in the management hierarchy and at the workplace. Model of Production The company is a parts and components supplier at the lower-tier of the global production system of a multinational corporation. The foreign mother company is a world known brand-name manufacturer of consumer and industrial electronics, including PC and notebook computers, TV and home multimedia systems, home appliances, industrial electronics, and microchips. Like most of the major electronics brand-name companies of this foreign country, the company has a relatively high level of vertical integration, and has resisted the trend of vertical segmentation despite short-term profit pressure from financial markets. The company has a relatively integrated portfolio of in-house manufacturing and technology development. External contract manufacturers are only used to a very limited extent. Rather, the company relies on a network of internal suppliers within the corporate group of its home country and throughout Asia. These supply companies usually operate under low profit margins and with modest wages and employment conditions. But they are a key element of the lean production model of electronics and other manufacturing companies from this country.



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This role as a captive supplier shapes the production model of this factory. It sets it apart from the large number of commodity parts and component suppliers, typical in export-oriented electronics manufacturing in China today. The company’s operating philosophy is described in Chinese as “both sides out”, which means the raw materials come from outside and the products are completely intended for export. Raw materials are purchased from other enterprises inside the corporate group, and all products are supplied to other companies within this network. In this way it is difficult to calculate its true revenues or profits, since prices and costs are based on internal transfer prices. Information about this mechanism could not be obtained during our investigation. The enterprise is mainly managed by the foreign side. The general manager is also a vice director of the board. The head of the finance department is from the multinational mother company. On the board there are six members from the foreign side and only two from China, both of whom are part time. The local government, as a minority shareholder, does not intervene directly in day-to-day operations of the company. However, Chinese political institutions exert an influence through the special role of the trade union in this company. The union chairman is appointed by the Chinese side and has a management position as consultant to the general manager. Although the union chairman is not a member of the board, he is regularly present in board meetings. The production process in this factory is labor intensive. The product spectrum is relatively diverse and has seen major changes during the company’s history of nearly 20 years. The factory has a variety of production capabilities covering major stages of electronics components manufacturing and systems assembly. This is significantly broader than is typical for most small- and medium-sized components suppliers in China. The main processes are assembly of printed circuit boards, wiring and assembly of coils, production of resin and plastic parts, and final assembly. –– Printed circuit board (PCB) assembly is performed on small automated lines for parts placement (a technology known as SMD), and on manual assembly lines. At the time of our investigation, there were three SMD lines. Their number varies with production volume and products. Manual PCB assembly is among the areas with the largest number of workers. PCB assembly also includes a smaller area for testing and optical inspection.

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–– Coil winding is performed in a special workshop with a dozen semi-automatic coil winding machines, and an equal number of more sophisticated winding machines for transformer thread coil. Manual coil winding is minimal. –– Resin forming includes heating resin parts and forming them in molds, surface patching, precision cutting, and insertion and sticking components on patches and surfaces. These processes require specialized machines, and most work is automated. –– In systems assembly, where most workers are employed, the major part of the work is done by hand, mostly by women. At the time of our investigation, vacuum cleaners were the main product, but the production lines can also handle medical devices and other products. Due to the variety of products, production changes are relatively frequent. For certain products, there is also a low-grade clean room for dust-free assembly. Most of the manual work is done in PCB and systems assembly. Assembly line work is highly segmented, deskilled, and repetitive. Although the degree of automation is low, workers have no control over the speed of production. Work procedures are very standardized, and organized under the proven methods and rules of the foreign mother company. This includes personal control by supervisors on the assembly lines. The main source of productivity is the strict standardization of the workflow. In certain positions, long periods of work are demanding on the eyes and hands. There is no system of job rotation or job enrichment. Occupational safety and health standards generally appear acceptable. The work environment is modern and air-conditioned in most areas. Noise, dust, and toxic fumes appear on a limited level. Inside the clean rooms, workers have to wear dustproof clothing. On the more sophisticated machinery in the resin processing areas, protective equipment is­installed. Seating at assembly lines and machines is modern and in line with government health standards, according to the trade union. The organization of work and the work environment are fully certified under international norms (ISO 9001 and ISO 14001). In addition, the company has won numerous awards as a model enterprise in environment protection and an enterprise with safe production from Chinese government agencies. Although the mother corporation limits the use of outside suppliers, the company faces massive pressure from competitors, especially from low-wage locations in other parts of the province and the country. Prices of external suppliers are used as a benchmark to push down production costs. At the



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time of our investigation, the company considered relocating the production of vacuum cleaners, which accounted for 50 percent of sales revenues, to a factory in South China. During the world financial and economic crisis, orders declined drastically. China’s gradually rising currency exchange rate also exerts pressure on profitability. In addition, the government adjusted the tax rates for enterprises with foreign investment and for local private companies, which further squeezes profits. Work and Working Conditions The general working conditions in this company are relatively decent, and significantly better than among many other low-end suppliers of electronics components in China. However, work organization is based on a rigid Taylorist division of labor, which produces typical problems, such as stress, deskilling of work, and relatively low wages. At the time of our investigation, the factory had a little over 600 employees. Most of the assembly line workers are women, who account for 80 percent of the total workforce. Most of the workers, about 80 percent, are migrants from remote rural areas of 15 different provinces. They are relatively young, with little or no education beyond high-school graduation. As is typical for small suppliers employing migrant workers, the turnover rate of this company is quite high, usually around 30 to 40 percent of the work force per year. According to the trade union, many of these workers do not have much awareness of their basic rights at the workplace. The wage system basically follows the principles of the foreign mother company with important modifications, mostly due to the influence of the trade union. Wages consist of six elements. The base wage contributes about 70 percent of regular monthly pay. An incentive component depends on performance evaluation, which makes up about 30 percent of the monthly income. In addition to the monthly pay, the company provides several kinds of bonuses and allowances. There is a semi-annual bonus, which under certain circumstances can be as high as three monthly wages. The company also pays allowances for festival days, such as spring festival or autumn festival. There are various types of cash incentives. The general manager will award a special prize to individual workers who make special contributions to the company. Finally, the company pays the standard social security benefits under Chinese law, including five social insurances and a housing fund for

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regular workers. Wages are paid regularly on the fifteenth of every month. Seasonal and year-end bonuses are paid at the appropriate times. The annual income for individual workers is 29,000 RMB on average, including social insurance payments. Excluding the latter, the actual take home-pay is about 27,000 RMB per year, which is a monthly pay of more than 2,000 RMB. Clear regulations exist for each part of the wages. The monthly performance pay, for instance, is based on a monthly evaluation of each worker by his or her department. The key indicators include output, product quality, and work discipline. Each department nominates workers for the annual bonus and the incentives for model workers. The trade union takes part in the selection of candidates for special bonuses. Model workers are elected by the workers’ congress. Bonuses are awarded both to individual workers and to groups. The money is paid directly to workers’ bank accounts. Non-cash awards such as a food bag from a supermarket are also given, but not frequently. Labor Relations The company has a well-developed system of labor relations, in which the trade union plays a central role. The union was established in October 1993. From the beginning, it has made extensive efforts to establish a complete system of labor relations. There is a full range of mechanisms for employee representation, including a workers’ congress, access by the trade union to basic economic data, a collective contract and wage negotiations, proposal of worker representatives, labor-capital dialogue, and tea gatherings for discussions of important matters. At least once a year, the general manager reports to the workers’ congress about the situation of production and company operations. Negotiations over the collective contract and wages are held every year, based on an agreement signed by trade union and management in May 1994. The agreement contains extensive regulations on wage negotiations, including scope, content, procedure, participants, and the legal status of a wage agreement. The practice of wage negotiations in this company received a prize from the national trade union as a model case. Compared to collective contracts, which do not contain any substantial content in this company, wage negotiations and wage contracts are specific on every part of employees’ compensation, including wages, work hours and welfare. The first wage negotiations were held in 1994. At that time the union put forward 45 topics related to



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labor standards and labor relations. These included questions concerning the payment of subsidies and medical allowances in case of contract termination, implementation of legal regulations on paid leave, calculation of overtime pay, electrical radiation in the workshops, and special protection of women workers. The trade union asked the company to sign collective contracts, to return “entrance deposit” and ID-cards to workers after hiring, to stop requiring employees who had voluntarily resigned to pay back training fees, and to consult with the trade union in cases of dismissal or punishment of employees. After investigation by the company into specific issues, almost all the demands were met. There are three negotiations every year, mainly regarding wage increases, the annual bonus, and workers’ welfare. Two months before the wage negotiation the trade union researches relevant economic and technical data. On this basis, operations, profitability, and labor productivity are analyzed, and the targets in wage negotiations are decided. The third step is to draft the “Outline of employees’ wage levels for negotiation” and submit it to the congress of union members. Normally, the chief representatives of both sides – the general manager and the union president – start talking and sharing information before formal negotiations begin. Workers are informed about this process at every stage, and the target and draft of collective contracts are discussed with workers’ representatives. Following these consultations, the contracts are finally signed. The union spends considerable effort on the methods for determining its demands for wage increases. For many years, it used a formula based on labor productivity, operating costs, and other cost factors. This formula, however, proved too complicated, and was a burden in wage negotiations. The union tried to find a simpler method that would directly reflect the value workers had created. In this formula, called “average profit created per capita”, it was generally assumed that 25 percent of the company’s annual profits should be spent on wage increases. This created the problem of obtaining accurate information on company profits, since production costs and revenues are defined by transfer prices with other units of the corporation. Although the company provides all necessary data to the union, the accuracy of such information remains questionable. The trade union, therefore, resorted to more general indicators, such as the consumer price index, to determine the workers’ real income related to the cost-of-living, and to wage guidelines from local and provincial governments. The collective contract stipulates that wages should increase at least once a year. The average increase has been

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over ten percent in the last several years. Compared to ten years ago, the average wages have doubled. The lowest wage in this company is significantly higher than the local minimum wage. Nevertheless, in the view of the trade union, real wages in the company are still too low. This is a fact for all migrant workers in China. The contract regulates every aspect of compensation, including social insurance, vacation and holiday pay, and working hours, including overtime. Overtime is paid in line with the legal requirements of the city, which stipulate pay rates of 150, 200 and 300 percent of the normal wages for extra hours during day time, night time, and weekends. The trade union has some control over overtime work on the shop floor. Each department has to submit a list to the trade union representative with the schedule for overtime for each day. The request for overtime can only be forwarded to the human resource department when the department representative of the trade union agrees. During the economic crisis of 2008–2009, the union negotiated a package of social provisions to limit the impact on the workers from sudden declines in orders. Several days of on-the-job training were guaranteed to each worker, with fully-paid wages and bonuses. In order to stabilize wages, time accounts were established. Workers receive their regular pay during production shutdowns, and the lost working hours are registered in a personal time account. After production has resumed, workers work longer hours with no extra pay to compensate for the time lost during the downturn. The law plays an important role in wage negotiations and daily labor practices. The trade union frequently refers to article four of the 2008 Labor Contract Law, which stipulates that all issues related to the workers’ wages, welfare, and working conditions should be decided in consultation with the trade union. In an earlier case, the union won significant concessions from management over breaktime pay. Before 1998 there was a ten-minute break both in the morning and in the afternoon, but both were not treated as working time. Upon complaints from some workers, the union found out that regular work schedules of 8 working hours must include breaks, according to the 1994 Labor Law. After twelve rounds of negotiations, management accepted this suggestion. Since 1999 the daily eight-hour work day includes both morning and afternoon breaks, and the company paid 300 RMB to each worker as compensation for their extra work in past years. The trade union also points to some limitations in the law. For issues not written in existing laws, the union often feels a lack of legitimacy or



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support. It may intervene in cases of dismissal, for instance, but since there is no definitive legal regulation of this issue, the final say is still in the hand of management. Certain regulations and procedures for such issues can be achieved through collective negotiations, but this is often a difficult process. Furthermore, finding substitutes for the lack of legal regulations overburdens collective negotiations, which primarily should serve to improve workers’ wages and benefits. According to the trade union and external experts, there are almost no labor disputes in this company. The union sees this as a positive outcome of wage negotiations – a way to achieve harmonious labor relations and business operations. Wage negotiations are regarded as a win-win situation for both sides. As wages increase, workers are motivated to work harder. If the trade union does not act in accordance with the expectations of the workers, workers will not be as motivated. This logic is completely accepted by management, according to the trade union chairman. Conclusion Since the labor relations in this company represent a rare case in China, the regime of production is not easy to categorize within our typology. It combines the basic features of a classical low-wage model with characteristics of state-bureaucratic and corporate-bureaucratic regimes of production. The latter are related to the production model of the multinational mother company, the former – characteristics of state-bureaucratic regimes – to political influence from the local government as a shareholder. It has to be noted, however, that the relative strength of the trade union does not automatically result from state ownership of the company. Local government influence can often result in increased control of management and heavy segmentation among different groups of workers, as a number of other cases in this study demonstrate. In this case, the union has been able to exploit the specific power relations in the company to its advantage, without changing the capitalist domination of economics and culture in this workplace. The special aspect of this production regime is certainly the mechanism of wage negotiations. In the Chinese context, this is a model of relatively effective collective bargaining at the company level with enforceable contractual regulations. This mechanism is compatible with the cultural background of the foreign management and its mother company, although labor relations in the home country usually are not based on strong contractual regulations

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at workplace level. The employer tends to accept the trade union’s interpretation of labor laws, and maintains various communication channels. The union has established significant influence and control over wages and working conditions in this company. Compared to the typical nonunion workplace among small electronics components suppliers (see the following electronics industry case study 8), wages are higher, employment is more stable, and working conditions are better. However, the average annual wage of workers in this company, roughly 27,000 RMB, is still below the average for IT manufacturing in China (29,179 in 2008, see table 11). The union has been able to limit or regulate the flexible parts of wages in this company. The flexible element of monthly pay is around 30 percent of the regular wage plus overtime and bonuses. This is closer to the pattern in corporate bureaucratic production regimes than to the typical low-wage model. Overtime work is relatively controlled and performance evaluations and bonuses are subject to negotiation and oversight from the union. This production regime relies heavily on bonus payments on certain occasions during the year, which is a widespread practice in the foreign company’s mother country as well as in China. The strength of the trade union seems primarily rooted in management paternalism, rather than in the mobilization of workers and democratic control from below. The key representatives of the trade union, who also created the system of collective bargaining, are members of upper management. The trade union is primarily funded by the company rather than through members’ dues or by higher trade union bodies. Under these circumstances, labor relations in this company are harmonious and have not undergone the stress test of extended labor conflicts. There may be doubts about whether the existing labor-management cooperation would survive such a situation. It also has to be noted that there is no effective coordination among trade unions in this city and industry above the company level, whereas management has extensive communication with similar enterprises. Although there is a local industrial trade union, which has organized more than 100 enterprises and holds regular meetings, there is no communication related to collective bargaining. According to the union in this company, collective bargaining or wage negotiations have to relate to the specific situation of each company. Therefore, this model of wage negotiations does not have much impact on the labor standards at an industry or regional level. Its ability to be a model for the future development of collective bargaining in China seems limited.



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Evaluation of regime of production – Electronics industry case study 7 Item

High/ Medium Low/ Strong Weak

Comments

Organization of Production Market control Vertical integration (company)

X X

Vertical integration (factory)

X

Product technology (relative to industry standards) Manufacturing technology

X X

Stability of production flow

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers Proportion women Proportion of temporary workers Workforce stability Income stability Piecework type of incentives Employee involvement (workplace) Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

X X X

80 %

X

80 % X X X X X

X X

1994

X X

Legal standards X

X X X X X

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5.3.3 Electronics Industry Case Study 8 This is a small subcontractor in the electronics industry. Established in 2003, this private company is owned by an individual Chinese entrepreneur. Its major product is battery chargers for mobile phones, manufactured with low-end technology and production processes. This enterprise is located in an industrial city in South China, a common location for factories of this kind. There are several thousands enterprises like it but their exact number is unknown. The factory’s total employment was around 170 at the time of our investigation. Model of Production This factory mainly assembles battery chargers for cell phones and media devices. As a small OEM (Original Equipment Manufacturer), it produces according to customer demand. Customers provide the basic specifications for product design and functionality, and the internal circuitry is designed by the factory. The company maintains a small engineering office for this purpose, which employs two engineers. The company owner also takes part in design work. In rare cases, the company also provides the design for the enclosure. Since the circuitry for cell phone chargers is quite simple, the engineering content of the products is not very high. The enterprise, therefore, cannot be considered as Original Design Manufacturing (ODM). The company also assembles accessories, including power cords and connectors. Integration with vendors and customers is simple and personal. On the purchasing side, mostly non-electronics components like coils, resistors, and cables are sourced from outside vendors in the region. The company maintains relationships with many small producers and trading companies, often through the huge electronics parts markets in the city. More complex parts are also purchased through these channels. Integration with customers is mostly a trade-type relationship, but does not involve co-engineering and integration of supply-chain management with customers. Unlike large-scale contract manufacturers, the company does not provide just-in-time delivery and inventory management for its customers. Most production is batch manufacturing with relatively low requirements for product quality and delivery. Unlike other small-scale assembly factories in this region, especially those with Overseas Chinese ownership, this company does not have an assembly license for processing imported parts (jiagong). It therefore does not have to



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engage in often complicated schemes of export permits and taxation rules with government agencies. This makes the company’s delivery and production schedules more flexible, compared to many export-only assembly firms. The major markets for the company’s products are in Southeast Asia, the Middle East, and the former Soviet Union. The majority of its customers are electronics retail chains and trading houses. Most of the connections with those customers are made through electronics wholesale trading markets in the city. The company maintains an office with a full range of its products in one of these markets. Sometimes a low-end brand from Europe or the U.S. wants a subcontractor like this. Most of the customers operate at low profit margins. Price pressure is a constant issue and manufacturing volume is very unstable. In spite of the low profit margin, the company survived the 2008–2009 economic downturn relatively well. Orders were down during the second half of 2008 and the first half of 2009. Nevertheless, the major markets for this factory – Southeast Asia and the Middle East – were less affected by the financial crisis than industrialized countries. The basic products of this company were less affected by declining consumer demand than high-end brand-name products. The factory was also able to take over orders from a number of competitors in the region, which had to close down due to financial difficulties. This compensated for the 30 to 40 percent drop in orders from its old customers during the crisis. The factory also hired workers from those factories at lower wages. The factory is located in an older industrial district, where many lowend assembly companies are located. The relatively large factory building is owned by the company, and was purchased five years ago for a low price. The city has not yet put much pressure on manufacturing firms here to move and make room for more profitable investments in service industries and real estate. This is expected, however, and the company’s real estate therefore is a potential source of profit. The production facilities are located in one large building, which provides more space than actually needed. The building and most of the equipment are relatively old. The work environment is dark, and there is no air conditioning. The main production processes are printed circuit board assembly, product assembly, and attaching cables and accessories. Workers perform manual labor, and the assembly work is segmented and demanding on their eyes and hands.

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Printed circuit board assembly, the main production process, is mostly performed by hand. There are no automated assembly machines (SMD lines) and no automated welding lines in this shop. Workers sit at assembly tables or simple conveyor belts and place parts such as resistors, connectors, and coils on small printed circuit boards. The parts are relatively large compared to advanced printed circuit boards. There are no multilayer circuit boards or other state-of-the-art technology. Assembly work in this factory looks like it was during the 1960s and 1970s, before automation took off in printed circuit board assembly. Parts are moved manually between work stations and from inventory. Inventory accounting is done by simple hand lists and Excel files on a personal computer. Assembly work is highly segmented. Each worker only performs one or two simple work steps. The work speed is relatively slow. The work is boring and a strain on workers’ fingers and eyes. The work environment is unhealthy because of insufficient lighting, uncontrolled emission of potentially toxic fumes, and poor seating. Workers do not wear protective gear for fingers or eyes. In some areas, minimum safety standards are disregarded. Soldering coils on printed circuit boards is done by hand and produces toxic fumes. The hot parts are put by hand into a water bucket to cool. If parts are too hot, workers use a salad tong. There is almost no skilled work in this factory. Two or three technicians per shift set up and maintain the assembly equipment. Since no sophisticated equipment is involved, the work does not require much technical knowledge. Production is supervised by a dozen workers per shift. Supervisors stand behind the workers and control their work and behavior directly. Work and Working Conditions The company’s workforce consists entirely of migrant workers. Managers, technicians, and administrative personnel come from outside the city. In May 2009 there were 170 employees – about 20 managerial staff and 150 workers. The workforce was not reduced significantly during the financial and economic crisis, and as orders increased in 2009, more workers were needed. The crisis eased the usual difficulties for the company in recruiting workers. Electronic factories are rare in this city district. Since many garment and shoe factories had closed, unemployed workers were searching for jobs. Employees are almost all young operators from rural areas of various provinces. Most of the office and management staff employees are also mi-



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grants. Workers are usually recruited directly from the local labor market. The company does not use recruiting agencies to hire workers from distant rural areas. For most workers in the factory, this is their second or third job since coming to the city. Most of the new hires have no skills in electronics assembly, but the factory offers internal training. As the jobs are very simple, it takes less than a week to learn the basic work procedures. According to management, the turnover rate is 10 to 20 percent per year. Compared to traditional industrial companies this is high, but it is lower than many other assembly companies in the area. Employees sign individual employment contracts with the enterprise. The enterprise has made some revisions, and added rules and restrictions to the model contract issued by the local government. The contracts say that workers should not arrive late or leave early. The normal term of employment contracts for operators is only one year, and for most managerial staff, three years. Wages are paid on a monthly basis. Wages are determined by the local minimum wage. For normal operators, the average monthly income is 1,300 to 1,400 RMB. This average wage can only be achieved if an operator works every day, including weekends and three hours overtime per day. It is a very low hourly wage. The company employs a mixture of monthly salary and piece rate wages. According to management, there is a guarantee of a minimum of 800 RMB per month, even when there are no orders at all. At the time of our investigation, this was below the legal minimum wage in this city, which was a little over 1,000 RMB. The company also pays piece rates. Overtime and weekend work is paid at regular wage rates, rather than the 150 or 200 percent rates required by the labor laws and regulations. According to the company handbook, overtime work before 10:30 p.m. is regarded as “normal work”. The management admits openly that it does not pay workers the legally required standard, under which workers would earn more than 2,000 RMB per month. It blames the company’s low profit margin. Wages are directly tied to performance evaluations which use seven criteria: discipline (20 percent), obedience to group leaders and managers (10 percent), personal performance (10 percent), production quality (20 percent), team spirit (10 percent), care in handling equipment (10 percent), and work efficiency and skills (20 percent). Legal regulations covering rest periods and holidays are not followed either. Management claims that workers are not opposed to work extensi-

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ve overtime, since this is the only way they can increase their income, and during rest time they are not earning money. After the Labor Contract Law took effect, this enterprise had to pay social insurance contributions for its workers – a minimum of twelve percent of payroll from employers and eight percent from employees. Management believes the company’s total monthly wage of about 1,400 RMB is a medium or high one for this region. This wage is not even enough to support the basic living expenses of the workers, so the compensation includes free meals and dormitory. The quality of both meals and dormitory is not good. The dormitory is an old four-story building. The ground floor is the cafeteria. Eating and cooking facilities are messy, and vegetables and other food items are stored in big boxes in a dirty area behind the building. Dormitory rooms are 20 to 30 square meters. Some are air-conditioned. There are five bunk beds, and ten workers share one room. Besides beds, the only furniture is a table. The dormitory area is damp and dirty. At one end of each floor, there is one toilet and bathroom, with old dirty tiles. Several water faucets are installed on the wall, which is the “shower”. The hygienic conditions of the toilets are beyond description. The company provides subsidies for renting rooms outside the factory. A couple may get 50 RMB per person per month. Since the rent in nearby countryside districts is usually only around 150 to 160 RMB per month, many workers prefer outside housing. Labor Relations Labor laws and policies are not followed in this enterprise. The company has not made any effort to meet legal requirements for minimum wages, overtime pay, or open term contracts, even after the Labor Contract Law took effect in 2008. Only the payment of social insurance contributions was brought into compliance, since the central government and the public have emphasized this issue. The Labor Contract Law is seen by management as a huge burden, increasing costs at least ten percent. Management admits this is only a rough estimate, and says that if a small low-margin enterprise like this has to follow legal requirements, it would have no choice but to close. The local government does not enforce labor standards. The labor inspection department comes to the factory from time to time, but nothing changes. The rules and regulations, which do not meet legal standards, are public, but the company has never been cited. According to management,



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conditions are relatively good compared to other factories in this region, which do not provide free meals or a dormitory. There is no trade union or collective contract in this factory. There is also no pressure from the local government or the district trade union to set one up. Company rules are unilaterally decided by the employer. Very harsh regulations on attendance and work discipline are part of the daily workplace regime. Workers are strictly forbidden from leaving the workshops without special release permits during work hours, not even to go back to the dormitory or to meet visitors. No individual or collective labor conflicts have been reported. Most migrant workers in this enterprise see their employment as temporary and wait for an opportunity to change employers. Conclusion This is a representative case of the low-wage classic production regime, which is the model for the majority of enterprises in light manufacturing in this region. Although economic growth in this region was produced by low-cost and low-margin production, it has become less and less beneficial for the development of the Chinese economy. Rather, it often creates a low-wage trap where workers cannot develop their skills, and enterprises are not able to grow or even survive. Within global production networks, these suppliers and subcontractors are located at the very bottom, where the profit squeeze has not left them much room. In spite of the unfavorable working conditions and labor standards, many low skilled migrant workers still have no choice but to work in this type of enterprises. In order to safeguard their basic rights, industrial and regional unions must take some action. Employees are mobile, and enterprises are often small and short-lived. Both central and local governments have begun to demand industrial upgrading. But this case study demonstrates that the proclaimed change in policies has not produced much change at the shop floor level. Rather, it shows that many low-end manufacturers not only survived the 2008–2009 crisis, but continue their illegal labor practices without interference from the government and trade unions.

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Evaluation of regimes of production – Electronics industry case study 8 Item

High/ Medium Low/ Strong Weak

Comments

Organization of Production Market control Vertical integration (company)

X

Vertical integration (factory)

X

Product technology (relative to industry standards) Manufacturing technology

X

Stability of production flow

X

X

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers Proportion women Proportion of temporary workers Workforce stability Income stability Piecework type of incentives Employee involvement (workplace)

X X

100 %

X X X X X X X

Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

X X X X X X X X X X

IV. Labor Relations and Regimes of Production in the Textile and Garment Industry

1. Introduction Along with electronics, textile and garment manufacturing is China’s largest and perhaps best-known export industry. By employment, the textile and garment sector is the largest manufacturing industry in the country. A major proportion of the workforce is made up of migrant workers, especially women workers. Wages are relatively low. Poor working conditions in garment factories producing for global brands have earned textile and garment manufacturing a reputation as a sweatshop industry in many developing countries, such as China. The industry was hit hard during the 2008–2009 recession, when tens of thousands of migrant workers lost their jobs due to factory closures. Garment manufacturing was among the first industries in which production for the world market gained importance in China. Export production was established in the Special Economic Zones and designated areas in coastal provinces, beginning in the late 1980s. Garment manufacturing has been one of the main growth engines for the development of export-oriented production in its initial phases. The industry was also involved in the very first stages of the economic reform and opening policies after 1978. Textile production was among the first industrial activities of rural townships and villages enterprises (TVE) and collective-owned enterprises (COE). As an industry with a long tradition in China, garment manufacturing was a large industry even during the period of the planned economy. Restructuring and downsizing of state-owned enterprises, therefore, is part of the social history of this industry. In contrast to information electronics, textile and garment production is a low-tech industry. Garment manufacturing is performed in small- and medium-sized enterprises using labor-intensive processes on simple machinery. Production networks are led by brand-name fashion and retail companies.

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Some are global, but most focus on regional or domestic markets. Large-scale global technology leaders and their component suppliers, like those in the electronics industry, do not play any role. However, the supply chains of the textile and garment sector are complex, and involve various industrial sectors such as weaving, spinning, knitting, as well as the supply of dyes (textile colors) from the chemical industry and automation equipment from textile machinery vendors. Although not at the center of dramatic technological changes, China’s textile and garment manufacturing industry has undergone a deep transformation in recent years, due to changes in production models, the rapid growth of a sophisticated national and local supply infrastructure, expansion of modern logistics, and automation and new production concepts inside the factories. These changes, which have not been discussed extensively in academic research, are shaping production regimes in Chinese textile and garment manufacturing today. They define the lines of conflict between capital and labor in this industry.

2. Industry Structure and Basic Trends of Development The textile and garment industry is one of the largest industrial sectors in China. In 2009 the gross output of textile products reached 2.3 trillion RMB (around 337 billion U.S. dollars at 2009 year-end exchange rates) and of garment products 1,045 trillion RMB (around 153 billion U.S. dollars). Growth has been rapid and continuous during most of the recent decade. During the world financial and economic crisis, growth rates slowed down, but overall production revenue did not drop. Like many other industries, textile and garment manufacturing is supported by China’s large domestic market, which was relative stable during the world economic crisis. However, the share of textile and garment manufacturing in total industrial production has been declining, from about 7.9 percent in 2003 to 6.5 percent in 2007, although output volume has increased in absolute terms. This reflects the rise of technologically more advanced manufacturing industries with higher productivity, such as electronics and automobile manufacturing.82 82 Globalization Monitor (2010): Investigation and Monitoring of the Post-MFA Impact in China. Hong Kong: Globalization Monitor.



Regimes of Production in the Textile and Garment Industry 

Table 12: Textile and garment production revenues 2003–2009 Textile Gross output (billion yuan)

Value-added (billion yuan)

Profit to cost (percent)

2003

772.52

190.67

3.42

2004

1165.51

N/A

3.09

2005

1267.17

324.02

3.68

2006

1531.55

396.30

3.95

2007

1873.33

491.39

4.46

2008

2139.31

N/A

4.74

2009

2297.14

N/A

5.15

Garment Gross output (billion yuan)

Value-added (billion yuan)

Profit to cost (percent)

2003

342.60

91.65

4.28

2004

466.85

N/A

4.14

2005

497.46

141.99

4.54

2006

615.94

183.37

4.90

2007

760.64

226.51

5.20

2008

943.58

N/A

5.74

2009

1044.48

N/A

6.46

Source: China Statistical Yearbook

253

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Textile and garment production in China covers the full spectrum of apparel, home and industrial textile products at various price and quality levels. The industry is supported by a highly developed infrastructure of cotton and chemical fibers, dyes, and machinery production. Production volume of chemical textile fibers grew from roughly 6 million tons in 2000 to 24 million tons in 2007, yarn from 5.7 million to a little over 20 million tons, and cloth from 27 million to 67 million meters.83 Extensive logistics in sea, road, and air transportation forms part of the manufacturing infrastructure in China. However, the industry is extremely vulnerable to fluctuation in global commodity markets, raw cotton in particular. China has to import substantial proportions of the cotton needed for garment production.84 Unlike the automobile and electronics industries, textile and garment is dominated by small- and medium-sized companies. According to the China Statistical Yearbook, the number of textile enterprises grew continuously from roughly 11,000 in 2000 to 27,000 in 2007, while the number of garment enterprises increased from a little over 7,000 to 14,000 during the same period. As entry barriers to textile and garment manufacturing at the lower and labor-intensive levels of production are quite low, the number of enterprises grew in parallel with output volume. During the crisis of 2008–2009, however, thousands of textile and garment companies disappeared. According to government and industry experts, the large number of enterprises produces latent overcapacity, especially in textile production. By the end of 2009 two thirds of the companies in cotton spinning were believed to be unprofitable.85 The low level of capital concentration is reflected in the relatively small size of China’s largest textile and garment enterprises. In 2005 most of the leading groups in both the textile and garment sectors had revenues below 500 million U.S. dollars, and a workforce between 2,000 and 30,000 employees. Only Weiqiao Corporation was an exception. As China’s largest textile and garment group, and the largest manufacturer of cotton products in the world, it had revenues of 17.9 billion RMB in 2010 (around 2.7 billion U.S. dollars at 2010 year-end exchange rate) and a very large workforce of 160,000 workers (about 115,000 in textile and 45,000 in garment 83 Globalization Monitor 2010. 84 Xinjiang nongmin yu Niu Yue yueqisuo de mianhua tange (Xinjiang Peasants and New York Commodity Exchange Cotton Tango). Nanfang Zhoumo, November 18, 2010. 85 Two thirds of China‘s cotton-spinning enterprises unprofitable. People’s Daily, December  2, 2009.



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manufacturing, see table 13). This is due to its strategy of large-scale vertical integration, including textile spinning, weaving, dyeing, manufacturing of household and industrial garment products, and wholesale. The company has numerous factories in Shandong, one of China’s main cotton producing provinces. On the other hand, some of China’s leading garment groups are pure fashion design and marketing houses, following the strategy of leading Western brand-name firms. Bosideng, for example, is the largest supplier of down-filled garment products, with 38 percent of total production in this category in China in 2009. But it had a small workforce of only 1,926 full time employees in 2010, considering its relatively high revenues of 5.7 billion RMB.86

86 Annual Reports Weiqiao Textile Co. Ltd., 2010, and Bosideng Holding Co. Ltd. 2009– 2010.

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Table 13: China top-ten textile and garment manufacturing enterprises by employees (2009) Textile sector Weiqiao Group Sunshine Group Huafang Group Dahai Group Ruyi Group Sunvim Group Tiansheng Group Junma Group

115,000 15,000 30,000 5,000 30,000 18,000 3,800 4,500

Jifa Group Aoyang Group

15,000 10,000

Garment sector Bosideng Heilan Group Zongyi Group Hongdou Group Shenzhou Group Senmir Metersbonwe Esquel Group Sinoer Dayang Group

1,926 20,000 1,460 20,000 25,000 30,000 1,893 23,000 12,600 11,000

Source: 2010 China Yearly Industrial Reports Textile [online] http://www.doc88. com/p-77632907258.html, posted Feb 24, 2011



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A major change in this scenario was expected in 2005, when the international Multifibre Agreement (MFA) expired. This global trade agreement regulated the industry through export quotas between developing and industrialized countries. It induced multinational brand-name companies to spread orders over a large number of low-cost countries to meet quota requirements. When the MFA expired, and the WTO rules were applied to textile and garment production, a large shift of global production to China was expected, accompanied by a significant concentration of capital and production in the Chinese garment industry.87 China, in fact, benefited from growing orders as a result of the change in global market regulations. These also gave rise to ongoing controversies over tariffs and anti-dumping measures, targeting cheap Chinese exports to the U.S. and Europe. Within the Chinese textile and garment industry, however, capital concentration remained low. Between 2001 and 2004 some larger Chinese textile and garment groups started to expand and acquire smaller competitors, to enhance their production and logistics capacities. But large integrated textile and garment groups remain rare. Vertically integrated contract manufacturers, such as in the electronics industry (see chapter III) or in manufacturing sports shoes, have not emerged in textile and garment manufacturing. Global brand-name vendors prefer the existing structure of smalland medium-sized companies for reasons of cost, flexibility, and power.88 The Chinese textile and garment industry is relatively diverse in its ownership structures. The overwhelming majority of companies are private. Stateowned (SOE) and collectively-owned enterprises (COE) together accounted for less than ten percent of total employment in the sector in 2008 (see table 15). Private ownership by Chinese or Overseas Chinese entrepreneurs is the typical form of business in export production. There is also a substantial 87 Zhou, Changhui (2006): Seizing the Big Pictures in the Post-MFA Era: Managing Competitiveness through Strategizing in Integration, Coalition, and Internationalization. Powerpoint presentation, Guanghua School of Management, Beijing University. 88 This phenomenon has not found much interest in recent academic research. In a broader context, it can be interpreted as a major characteristic of China’s economic rebalancing in the aftermath of the global financial and economic crisis. The resilience of small-scale capital in sectors such as garment seems closely related to the shifting of industrial production to inland regions, where much of, the labor-intensive patterns of economic development from the recent decades in coastal areas, see Lüthje, Boy (2013): Why no Fordism in China? Regimes of accumulation and regimes of production in Chinese manufacturing industries. Institut für Sozialforschung Working Papers No. 2. www.ifs.unifrankfurt.de

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legacy from the planned economy in many textile and garment enterprises. A fair number of private companies are former SOEs, COEs or township and village enterprises (TVE). Therefore, management traditions and labor practices from previous periods have survived to some extent. State-owned textile and garment companies have been subject to massive restructuring since the 1990s. Since many production units were owned by cities and provincial governments, they were not very large, compared to centrally owned companies in heavy industries and other manufacturing sectors. Many textile and garment enterprises were privatized under the guiding principle of “holding on to the big, and letting the small go”. At the same time, a fairly large number of township and village and collective-owned enterprises were among the first to enter the market in the early stages of economic reform, mainly in the countryside. Their absolute number is not very large, but such companies are concentrated in certain rural and semirural regions, which have emerged as key exporting clusters for certain garment products. Regional concentration plays a key role in the industry’s organization in China. Clustering compensates for many of the disadvantages of small- and medium-sized production units. The industry is therefore highly regionalized. As table 14 shows in detail, the four leading provinces for export manufacturing, Guangdong, Jiangsu, Zhejiang, and Shandong, are also the largest garment producing regions in China. Some rural inland provinces like Jiangxi or Hubei are catching up rapidly, and even older industrial regions in the North such as Liaoning and Hebei also have substantial garment production. This regional distribution includes significant patterns of specialization and clustering. Highly specialized garment clusters focus on certain products in cities and rural communities in coastal provinces, such as Shengzhou in Zhejiang for ties, Xintang and Xiaoshan in the same province for down-filled products, Jinjiang and Shenhu in Fujian province for underwear, and Xintang and Zengcheng in Guangdong province for jeans.89 As a typical case, the rural community of Datang in Zhejiang province has gained a reputation as the world capital of socks – here a workforce of 100,000 migrant workers produced 13.5 billion socks in 2009.90

89 China Prepares to Clothe the Planet. New York Times, January 3, 2005. 90 Datang Socks it to the Financial Crisis. China Daily, March 4, 2009.



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Table 14: China garment production by region (2009) Garments

Tatted garments

Knitted garments

Output (billion pieces)

Percent of national total

Output (billion pieces)

Output (billion pieces)

National total

23.750

100.00

10.167

13.583

Guangdong

5.762

24.26

2.155

3.607

Zhejiang

4.230

18.06

1.809

2.481

Jiangsu

3.788

15.95

2.307

1.480

Shandong

2.894

12.19

0.695

2.199

Fujian

2.377

10.01

0.919

1.459

Jiangxi

1.034

4.35

0.337

0.697

Hubei

0.515

2.17

0.305

0.210

Hebei

0.512

2.15

0.256

0.256

Liaoning

0.431

1.82

0.308

0.123

Shanghai

0.391

1.64

0.206

0.184

Provinces

Source: China Statistical Yearbook 2010

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3. Models of Production and Supplier Networks Along with the electronics industry, garment and, to a lesser extent, textile manufacturing has often been cited as a model of network-based production.91 Referring to theories of Global Commodity Chains, extensive studies have been made of garment factories in developing countries, their inclusion into global commodity chains, and the potential for industrial upgrading. Jennifer Bair, in particular, has highlighted the changes in garment production in emerging economies like Mexico.92 She and other authors make a distinction between assembly subcontracting and full-package production. The latter includes a broader portfolio of manufacturing-related functions, where design, distribution, quality control, and supply chain management are somewhat similar to the EMS-model in electronics (see chapter III.2). Bair and Peters suggest that Chinese garment production is based on fullpackage models, rather than mere subcontracting.93 Such perspectives have superseded the analysis of older studies from the late 1970s and early 1980s. The now classical theory of the New International Division of Labor described textile and garment production as the ultimate example of a complimentary division of labor, with high-end functions of design and development located in industrialized economies and low-end labor-intensive manufacturing in the “third world”.94 Some current studies on working conditions in the Chinese textile and garment industry reflect such perspectives.95 However, it has to be said that the Chinese textile and garment industry has undergone a significant process of diversification in recent years. This includes widespread integration between textile and garment manufacturing and its supporting industries, such as textile machinery manufacturing, dye production, research and development, and logistics.

91 Bonacich, Edna, Lucie Cheng, Norma Chinchilla, Nora Hamilton, and Pau Ong (1994): Global Production. The Apparel Industry in the Pacific Rim. Philadelphia: Temple University Press. 92 Bair, Jennifer (2002): Beyond the Maquila Model? NAFTA and the Mexican Apparel Industry. In Industry and Innovation 9 (3), 203–225. 93 Bair, Jennifer, and Enrique Dussel Peters (2005): Global Commodity Chains and Endogenous Growth: Export Dynamism and Development in Mexico and Honduras. In World Development 34 (2), 203–221. 94 Fröbel, Folker, Jürgen Heinrichs, and Otto Kreye (1977): Die neue internationale Arbeitsteilung. Reinbek: Rowohlt. 95 E.g. Globalization Monitor (2010).



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China is also developing its own design capabilities, with a number of highly touted fashion labels gaining national and international recognition.96 The patterns of vertical integration and specialization in the Chinese garment industry are very diverse. Assembly subcontracting and full-package production services co-exist in many different ways. Some older Chinese garment companies with SOE traditions featured widespread vertical integration. This encompassed broad portfolios of resources and factories in textile production, garment production, design and related industries such as dyes. Such companies have undergone massive restructuring, and little is left of vertical integration. On the other hand, we see a large sector of small- and medium-sized assembly subcontracting firms. These firms have little or no design capabilities or vertical integration, they manufacture to orders based on design and materials prescribed by the customers. The middle ground is occupied by some mid-sized manufacturers, with relatively widespread vertical integration and some brand-name production, at least in the Chinese domestic or so-called secondary export markets in developing Asia. Parallel to this, a number of rapidly growing Chinese “fabless” fashion and design houses imitate the strategy of global brands. The various models of production in subcontracted manufacturing, Original Equipment Manufacturing (OEM), and Original Design Manufacturing (ODM) play an important role in the textile and garment industry. As explained in detail in chapter III.2, OEM stands for the traditional model of subcontracting (assembly subcontracting), in which the subcontractor merely assembles the product according to the exact specifications of the brand-name customer. ODM refers to the inclusion of design functions into the manufacturing service. Ideally, the garment assembly firm designs the product while the brand-name firm only determines the general character of the garment and its fashion characteristics. It should be noted, however, that the differences between the various production models are much less clear-cut in textile and garment manufacturing than they are in other industries like electronics. The more sophisticated garment companies in China try to achieve full-package capability in a variety of ways. One pathway is integrating textile manufacturing into the production portfolio. Another is specialization on smaller volumes of high96 We are particularly indebted to Enrique Dussel Peters on this point, who shared many insights on his research in China during our field research.

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end fashion products (or quality imitations of such products). A third is increased vertical integration of the garment manufacturing process, accompanied by automation and quality management. For most of the companies we studied, the process of upgrading was not primarily about a full-scale strategic shift towards a certain manufacturing model. Rather companies sought incremental improvements in their production capability on a trialand-error basis. This relatively diverse scenario is reinforced by two factors that characterize the division of labor in garment production in China in general. The first is the strong role of trading houses as intermediaries between global first-tier brand names and retailers. The largest of these companies, such as Hong Kong-based Li and Fung, have set up sophisticated data networks for order placement, in which assembly firms fiercely compete in price and delivery schedules.97 Such trading systems, however, severely limit the integration of customer-specific services in design, materials management, and logistics, since they reduce competition between firms to standardized criteria of cost and time. The second is the tight integration between many small- and mediumsized garment companies at the local level, with frequent subcontracting arrangements between firms. The purpose is to meet tight delivery schedules, or to outsource certain steps of production for which the company lacks skilled manufacturing or design capabilities and personnel. This kind of flexible specialization has often been cited as a competitive advantage of networks of small- and medium-sized companies. It can be seen as the driving force behind clustering of certain products in certain localities. On the other hand, this kind of inter-company integration creates significant disincentives for the integration of design and manufacturing within companies. Evidently, the key to upgrading production models in the garment industry is in the relationship between the assembler and the brand-name customer. Significant upgrading of design capabilities on the part of the supplier requires intense interaction with the brand-name company. This was suggested in many of our interviews.98 This necessarily implies longer-term 97 Magretta, Joan, and Victor Fung (1998): Fast, Global, and Entrepreneurial: Supply Chain Management Hong Kong Style. An Interview with Victor Fung. In Harvard Business Review (9/10), 103–114. 98 The general manager of one of the more sophisticated companies in our sample (cf. garment industry case study 4) described this relationship as follows: “Draft ideas by designers are passed to the supplier’s R&D centers and factories, the supplier will make



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ties between both partners, which are severely limited by the often extreme forms of price competition in this sector. Only a small number of garment companies in China seem to be able to create stable relationships with customers. Among the companies we studied, these were also the ones with the best employment relations. In some locations, local governments try to support the development of manufacturer-customer relationships by establishing wholesale trading centers, sometimes integrated with consulting and training activities on technology and organization. Large-scale complexes of this kind have become a common sight in many garment producing locations. However, in the cases we studied, they mostly functioned as market places for orders and subcontracting relationships, rather than as bases for supporting quality-related cooperation.99 An important element in this scenario is the drive for new models of supply chain management under the paradigm of lean production. In China, such schemes have been propagated extensively by consulting firms and international brands, following earlier initiatives in the garment industries in industrialized countries during the 1990s. Lean production schemes for the textile and garment industry particularly try to improve material flow and quality control within global production networks. Lean production is a key concept that is combined with just-in-time production, quality improvement, and team-oriented work organization, e.g. in the automobile industry. Another key element in the garment and textile industry is the reduction of excess inventory in garment workshops. Insufficient coordination of workflow between workstations and workshops results in large piles of unfinished garments. A third element is improved coordination of time-cycles between manufacturers and the logistics operations of brand-name producers and retailers. Yet another is quality improvement on the shop floor through team-

suggestions on revision and fabric selection and produce samples in its typing room. After a discussion they pass the final design to the typing room. The typing room then makes several counter samples. The sampling process may also involve several rounds of discussion and re-revision. The final approved sample with a production order will be passed on stream. The whole process until the delivery sometimes even takes one or two years, which means the factory is well-informed the fashion tendencies much earlier than the consumer market.” 99 Field research protocols Dalang and Humen in Dongguan City and Xiqiao in Foshan City, Guangdong province. We are indebted to Florian Butollo for his cooperation and comments during field research.

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work-based work organization and implementation of continuous improvement processes.100 Concepts of lean production are meeting considerable criticism and resistance among managers in many garment suppliers, expressed frequently during our interviews. Companies say they are already making efforts to improve manufacturing quality, workflow, and working conditions by their home-grown methods. At the same time, they believe new schemes of work organization from outside do not deal with the complex realities of dayto-day shop floor management, which often depends on personal cooperation and trust between workers and supervisors. Instead of standard work schemes, the key element for improving work organization at the shop floor level is developing trust-based relationships with brand-name companies in order to end price pressure used against suppliers.101

4. Workforce Structure and Labor Relations Textile and garment manufacturing employs more workers than any other industrial manufacturing sector in China. According to national labor market statistics, 4.59 million workers were employed in the whole sector in 2008. Textile manufacturing employed a little over 2.5 million, of which 8.9 percent worked in state-owned and 3.2 percent in collective-owned enterprises. Garment manufacturing had 2.06 million workers, with 2.5 percent of the workforce in state-owned and 3.7 percent in collective-owned enterprises (see table 15). Employment in textile manufacturing grew slightly during the first years of the twenty-first century, but decreased after 2006 due to continuing overcapacity in textile production, the continued downsizing of state-owned enterprises, and the impact of the financial and economic crisis in 2008–2009. In garment manufacturing, employment grew until 2008 and leveled off during the crisis. Although thousands of workers were dismissed in the winter of 2008–2009, these figures did not appear in yearend statistics in the national system (similar to the electronics industry, see chapter III.3). 100 Tiwari, Ashutosh, and Shilpa Wanjari (2008): Lean Manufacturing in Apparel Industry. Research paper NIFT Bangalore/College of Engineering Maharashtra. www.fibre2fashion.com. 101 2008, 2009, 2010 interview data.



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Wages in the industry are comparatively low. The average annual wage per employee in 2008 was 16,222 RMB in textile and 18,572 in garment manufacturing. This is much lower than the general average for the manufacturing sector (24,192 RMB) or high-wage industries such as automobile assembly (32,614) or steel (34,064).102 Wages in state- and collective-owned enterprises are even lower than in the private sector. Garment manufacturing has seen relatively rapid wage growth due to labor shortages in some key production regions and the increases in the legal minimum wages in those locations between 2005 and 2008. Low wages reflect gender discrimination, since a very high proportion of the workforce are women, about 65.5 percent in the sector as a whole, 69 percent in garment, and 63.3 percent in textile manufacturing (table 15). Table 15: Employment and wages in textile and garment manufacturing (2005–2009) Years Indices Employment total (millions)

2005

2006

2007

2008

2009

4.434

4.741

4.693

4.591

4.399

SOE

0.443

0.367

0.324

0.277

Collective

0.255

0.229

0.189

0.158

Others

3.736

4.145

4.181

4.15

Number of women employed (millions)

3.089

3.270

3.157

3.026

11,310

12,880

15,106

17,277

SOE

9,693

10,854

12,232

14,013

Collective

8,221

9,711

11,285

13,405

11,726

13,244

15,503

17,648

Wages per capita (yuan)

Others

Source: China Statistical Yearbook 2010 102 All data for 2008 from China Statistical Yearbook 2009.

2.883

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Although the textile and garment sector by far employs the largest numbers of workers among Chinese manufacturing industries, the average factory workforce is between several hundred and a few thousand. Integration of companies and their workforce largely results from the centralization of capital and regional agglomeration, rather than concentration of means of production and manufacturing volume, such as in the electronics industry. The workforce is highly segmented. In the export production regions of Eastern China, the majority of the workforce consists of migrant workers from rural areas. Industry experts believe the proportion is approximately 80 percent.103 Hiring is very seasonal, following fashion cycles and peak demand periods of markets in developed countries. There is no statistical analysis of workforce flexibility in the industry in China, but in most of the factories we studied the core workforce was two thirds of the total or less. At least a third of the workers were hired seasonally. However, the workforce differs from other light manufacturing industries, since there is a substantial proportion of older and relatively experienced workers, who often are the backbone of the work process in many companies. In terms of production networks and supply chains, there is much less vertical segmentation between workers in first-, second-, and third-tier companies as in automobile manufacturing, or between production facilities of brand-name firms and contract manufacturers, as in electronics. Hierarchies within the workforce are more horizontal, between more and less skilled workers within individual companies. In-house production facilities of global brand-name manufacturers are rare in China and usually very small. Although production regimes are mostly in the low-wage classic or flexible mass production categories, there is considerable diversity in employment and working conditions between factories. As the following case studies illustrate, these differences result from the specific forms of integration of companies into global production networks, clustering and regional development strategies, ownership and ownership histories (including stateowned and collective-owned enterprises), and different regional systems of labor relations and government. The different production regimes converge on one essential point – the wage system. In garment manufacturing and many small textile enterprises, piece rates are the standard form of compensation. Usually, piece rates are set 103 IUD (2009): Zhongguo fangzhi chanye ditu (Mapping the Textile and Garment Industry of China). In Lingdao Juece Xinxi (Information for Leadership Decisions (6), 30–31.



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by management and supervisors. Different companies have different methods and systems of varying sophistication. However, much of the determination of piece rates for specific jobs and tasks depends on first-line supervisors who evaluate the skill content of the tasks and assign them to individual workers within a production team or department. The minimum monthly income of piece rate workers is mostly determined by the local minimum wage. Some companies, however, do not even meet this legal requirement. Under piece rate regimes, experienced workers and those with special skills can increase their income considerably over the minimum wage, sometimes by two times or more. The regulation of piece rates and the assignment of jobs, therefore, are key elements of production management. In China, it is up to the unfettered prerogative of management in most cases.104 The organization of production and work in the Chinese textile and garment sector is increasingly subject to change because of increased internal and external pressures on cost, particularly driven by the financial and economic crisis of 2008–2009. Our investigation identified four general strategies for coping with these pressures, which are often inter-related: –– Automation: An increasing number of textile and garment manufacturing companies have invested in advanced manufacturing machinery, often premium systems from leading international vendors in Europe or Japan. This trend is accelerated by local and national government subsidy schemes, which provide financial support and tax breaks for the purchase of new machinery. –– Internal reorganization: Companies are experimenting with new forms of workshop organization, often referred to as modular production. Workshops are designed as business units (modules) with responsibility for profits and losses. Supplier relationships between workshops and sub104 Calculation of piece rates is highly complex. In one of our case studies the following example was provided. For a pair of jeans the contract price from a customer is 50 RMB. 40 percent of it – 20 RMB – is granted to the workers as a general piece-rate, after deducting the enterprise’s profit, and costs of materials, production costs, and out-contracted parts and procedures. The 20 RMB are divided by average production time, e.g. 2000 seconds, determined by the managerial specialists. Therefore, the price for one second of work is 0.01 RMB. A button sewer, for example, would need 10 seconds to sew a button to a piece of product, as determined by the specialists. The worker will therefore get a price of 10 cents for sewing a button to a pair of jeans. This minute price is also applied to certain parts of work outcontracted to other suppliers, e.g. a zipper manufacturer. The zipper workers in that factory often would get an even lower price, since the zipper factory also wants to keep its profit margin.

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contracting units are measured in financial terms. In one company we studied, a Hong Kong-based OEM and brand-name manufacturer (not included in the following selection of case studies), workers’ wages and bonuses were also linked to workshops’ profitability. –– Lean production and just-in-time manufacturing: The implementation of these systems is designed to improve workflow and reduce inventory along the production chain. They thereby improve production time cycles and reduce cost. Implementation of these concepts often goes along with automation and fundamental redesign of the wage system, including replacing piece rates with hourly wages combined with productivity bonuses. –– Relocation to locations with lower production costs: As a result of increasing land, labor, and environmental costs in coastal regions, which are established centers of export production, global brand-name and retail firms have started to shift production contracts to other countries in Asia with lower cost like Vietnam, India, and Bangladesh. Chinese textile and garment manufacturers typically respond to increased cost pressure by relocating production to lower-cost regions in inner China, often through long-standing relationships based on family networks or labor migration. In our opinion, these rationalization strategies are fundamental and will significantly affect labor-management relations in the Chinese textile and garment industry in the near future. These new trends have not been analyzed systematically in recent academic research, but some fundamental contradictions in this process are plain. Basically, the drive for automation and lean production is at odds with the existing systems of piece rates, which have been the dominant mode for regulating factory work. Both automation and just-in-time production require significant standardization of the work flow and product designs, and a significant reduction in piece rate work on the shop floor. Work on automated sewing or knitting machines is mostly paid by hourly wages, and requires little knowledge and experience. Just-in-time workflow concepts require close coordination of individual work steps between workers and workshops, which is often incompatible with the different individual work speed of piece work operators. In one factory owned by a European sports fashion brand-name firm, which served as a model factory for the company’s lean production concept, piece rate work was completely abolished and replaced by hourly wages. This move caused considerable resistance among



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older and more experienced sewing machine operators, who feared a substantial loss in income. In the overwhelming majority of textile and garment companies, the wage relation on the shop floor is mostly unregulated, and trade unions are usually non-existent. Historically the textile and garment industry in China was one of the few industries with an industrial trade union, which was set up at the beginning of the People’s Republic of China during the early 1950s. As in other industries, the industrial union did not play a big role during the days of the planned economy and the early period of economic reform. Industry-wide collective bargaining does not exist. However, the presence of an industrial organization within the ACFTU hierarchy made possible certain forms of industrial organization at the local levels, in some regions and cities.105 In a number of major garment manufacturing centers in East China, such as Wenling and Yiwu in Zhejiang province, the Luhe district in Nanjing, Jiangsu province, and the Putuo industrial district in Shanghai, industrial unions have made substantial efforts to establish industry-wide wage regulations, especially for piece rates. They did this as part of the city or district trade unions. These wage regulations are based on a price list for standard work procedures negotiated between the district or city trade unions and the employers associations, usually in conjunction with local labor bureaus. The city of Wenling is a model for this kind of bargaining, which has been widely analyzed in Chinese labor relations literature.106 In the region’s wool sweater industry, the first industry trade union for private companies was established at a city district level in 2003. This was triggered by widespread dissatisfaction among mostly migrant workers, high labor turnover, and a rising number of labor conflicts. The local trade union and employers association set up a mechanism for bargaining over piece rates, which included a fixed basic 105 Shanghai Shi Fangzhi Gonghui (Shanghai City Textile Trade Union) (2005): Zujian quyuxing fangzhi xingye gonghui de shijian yu sikao (Reflections on Practice of Establishing an industry-wide Regional Textile Trade Union). In Gonghui lilun yanjiu (Trade Union Theory Research) (1), 11–15. Dong Youde (2011): Xingyun zhong de Yiwu gonghui: weiquan moshi de chixu chuangxin (Yiwu Trade Union in Action: Empowerment Model as Persistent Innovation). Presentation at SYSU-FES Workshop Collective Bargaing and the South China Experience, Sun Yat-Sen University, Joint Center for Comparative Labor Research, Guangzhou, April 10–12. Unpublished manuscript. 106 Xu Xiaohong (2008): Jijian gongzi wenti yu jiti xieshang jishuxing duice (The Problem of Piece Rate Wages and Methods of Collective Consultation). In Beijing gonghui ganbu xuexiao xuebao (Beijing Trade Union Cadre School Journal), 57–73.

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salary of 800 RMB (similar to the legal minimum) and fixed rates for dozens of standard procedures. The agreement covers 116 enterprises, employing around 12,000 workers. The industry association submits its pay and bonus proposal at the beginning of each year, and a delegation of 100 worker delegates, most of them migrants, reviews it and makes counter proposals. After several rounds of negotiations, a binding contract is concluded between the trade union and the employers association. The Wenling model has recently been criticized within the ACFTU for its top-down approach, and its lack of democratic participation by workers. Some see it as an arrangement in the interest of local entrepreneurs, who want to maintain social peace with migrant workers. In the larger context of labor relations in the Chinese textile and garment industry, however, collective regulation is an important departure from the usual model of unregulated labor relations. In another model of this kind we studied extensively, in Jiangsu province, we observed similar effects and shortcomings.107 In this negotiation system, the union conducts extensive research on the labor process to gain systematic knowledge about work procedures and their specific skill requirements, difficulties, and hazards. This is an important step, questioning management’s prerogative in determining piece rates. However, these models have not been widely adopted so far. Especially in Guangdong province, the largest region for garment manufacturing, there are no consultation mechanisms for piece rates. While the democratic character of district-based trade union representation and bargaining is subject to discussion, the new rationalization strategies applied in garment manufacturing during recent years pose new challenges to union representation. If automation and lean production undermine existing piece rate systems as the dominant form of wage regulation and work organization, collective negotiations and agreements over piece rates will lose their importance. On the other hand, hourly wages and bonus pay will certainly highlight the need for industry-wide collective bargaining systems and contracts.

107 Nanjing Luhe district trade union and employers’ association interview data 2010.



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5. Introduction to Case Studies In the course of this study, we explored the situation of more than 30 textile and garment factories. We conducted six in-depth studies of individual companies, five of which are presented here. Two of these case studies involve multiple plants of the respective companies, and one with integrated textile and garment manufacturing, focusing on the textile factory. In addition, we visited a number of logistics centers and one factory owned by a major European brand-name company in apparel and sports wear. We also conducted three multi-plant investigations in major garment districts in Guangdong and Jiangsu provinces, including group interviews with representatives of companies, employers’ associations, and trade unions at district level. Ample information was obtained about a variety of factories. The following selection of case studies explores the variety of labor relations in the Chinese textile and garment industry, and the various forms of integration into global, national, and regional production networks. It covers production models, company history and ownership, the workforce, and labor relations. In contrast to the chapters on the auto and electronics industries, we make no distinction here between suppliers and first-tier assembly or brand-name firms. This reflects the horizontal division of labor in this industry. Case study 1 features a typical small- and medium-sized OEM supplier to brand-name and retail companies, with some vertical integration between textile and garment manufacturing and mostly traditional forms of shop floor management and work organization. Case study 2 represents another low-end OEM supplier, but this company has employed a high degree of automation and technology. Case study 3 represents an integrated OEM manufacturer of textile and garment products, with some brand-name products in niche markets. This company acts as an integrated contract manufacturer of textile and garment products, including research, purchasing, and logistics management. To a certain extent it is similar to EMS contract manufacturers in the electronics industry. Case study 4 is an integrated Chinese manufacturer of higher-quality garments, which is developing from OEM into ODM production. This company features high-end working conditions and an extraordinary degree of workforce stability by Chinese standards. Case study 5 is a state-owned textile and garment company, which has undergone massive downsizing since the late 1990s and has been transformed into a fabless fashion brand name and trading house. This is certainly not a widespread

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phenomenon, but indicates the wide range of production regimes in the Chinese textile and garment sector. 5.1 Textile and Garment Industry Case Studies 5.1.1 Textile and Garment Industry Case Study 1 The company is a small- to medium-sized Original Equipment Manufacturer (OEM), typical for the garment industry in export production. It is owned by a private Hong Kong company with one textile and one garment factory, located in a major city in South China. The garment factory belongs to the first generation of Overseas Chinese enterprises in this city, founded in 1993. The products of this factory are all kinds of standard apparel in low to medium price ranges, mostly made from cotton. Blue jeans are the main product. In recent years, after the financial and economic crisis 2008–2009, about 50,000–60,000 garments were manufactured per month by a workforce of 200–300 workers. Before the crisis, production volume and employment were four times higher. The urban environment in which the company is located is changing rapidly. The suburban industrial district of this metropolitan city in South China emerged from a rural background during the early 1990s, when dozens of textile and garment factories sprang up in this village. In recent years, the local government has tried to move factories out of the city to promote the development of service industries. A large airport is located nearby, and the area has seen rapidly increasing real estate prices, which put a burden on small and medium manufacturing companies. The owner of the company is shifting business from manufacturing into real estate and financial investments. The following investigation focuses on the garment section of the company. Model of Production Garment production in this company is part of global production networks belonging to international brand-name and retail firms. This is typical of the garment industry in South China. The company is highly dependent on its international customers. There is almost no production for the Chinese domestic market – 98 percent of production is exported. Major customers



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are very large retail chains based in the U.S., Great Britain, and France, for which it makes mostly no name, low-end brand or in-house label products. Production volumes and flows depend on orders from these companies, which reflect seasonal fluctuations in global markets. Sometimes orders are received through garment trading companies in Hong Kong, which also participate in marketing and quality control. However, the role of these trading companies in the production network is diminishing, according to company management. The organizational and technical methods of integration into global production networks are simple. Typically, a customer issues a production order by e-mail. The factory then organizes production accordingly. The basic parameters of product design, materials, and production are known from experience. Although the company has a product development department, the factory almost never participates in design. Product development is mostly for sales samples and for revising sizes. The company provides Outgoing Quality Control as a standard part of production. Limited vertical integration exists at the company level between its textile and garment manufacturing operations. Cotton fabric is supplied by the textile factory of the same company. In recent decades most of the raw cotton was imported from Pakistan and India, since the quality of cotton from those countries is superior to that from China. Because of the economic crisis, the Pakistani and Indian governments adopted protectionist policies, imposing taxes on cotton exports because of lobbying by domestic textile enterprises. The company, therefore, had to switch its supply source to the domestic market in China. As a consequence of massive speculation in global commodity markets, the price for cotton soared in China – from 12,000 RMB per ton at the beginning of 2009 to 25,000 to 26,000 in late 2010. This imposed severe financial problems on the company, as well as on its quality management. The quality of domestically supplied cotton is lower than previous imports. Because of supply shortages and speculation, Chinese cotton often contains hidden low-quality and recycled fibers mixed in by suppliers. Textile and garment producers have to step up quality control, and large amounts of purchased cotton had to be discarded. The company’s own textile production provides good quality fabrics, but often at costs above the market average. Together with the ongoing appreciation of the Chinese currency against major currencies in export markets, these factors led to drastically shrinking profit margins. At the same time, price pressure from customers increased to

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offset shrinking profit margins among brand-name firms. Customers from the U.S. especially, who typically order large volumes of relatively cheap garments, are demanding lower prices. An order price usually accounts for a third to a seventh of the retail price in the consumer market. An important element of the production system of the garment factory is subcontracting to other factories in the district. Before 2008, when the industry was flourishing, more than 20 companies in this district depended on subcontracting from this factory. They sewed zippers, waistbands, waist lines, embroidery, and laces. These operations were contracted to smaller producers with workers who specialized in these jobs. With the profit squeeze in 2010, many orders were completelly subcontracted, even when the factory had available capacity. The instability of the raw material market increased the number of production procedures that were not profitable at all, and the company tried to reduce the number of unprofitable activities by subcontracting. Work and Working Conditions The factory has a main building with five to six floors, which include workshops, offices, and warehouse space. In the beginning, workshops were rented and the company received contracts from its Hong Kong headquarters. In 1997, the company acquired its own factory building. There are ten workshops in total, each with 10 to 20 workers. The degree of mechanization is low. Workers are basically equipped with common semiautomatic sewing machines from a leading Japanese supplier. Each worker performs several operations. They are experienced and work fast, driven by a piece-rate system. Work is organized in groups rather than assembly lines, which is typical in the garment industry. The production of a regular pair of jeans is broken down into more than twenty procedures. In addition, four parts of the garment are subcontracted to different outside suppliers. Each group works independently, and one or two groups work on each piece. The division of labor and the distribution of work within a group are organized by the group leader. Most workers in a group are operators. In addition, a work group has one inspector and one delivery worker. Group leaders have a big role. They are the transmission belts between management and the production floor, but they are not regarded as management. The flow of production and the relationship among workers in a group depend on the group leaders. The tasks of the group leaders include on-the-job training of new



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unskilled workers, work distribution, production monitoring, and handling complaints. When a new product is introduced, group leaders may be asked for suggestions for pricing the production procedures and determining the piece rates, since they command a lot of experience in frontline production. As the factory has no special research and design center, the prototyping workshop is the department that does the most skilled work. This workshop is staffed by very experienced workers, who make the first products from the original designs. This is the only area where speed does not matter and piece rates are not implemented. The workers in this area work comparatively slowly and carefully. They are proud of their work and feel different from other workers. Working conditions in this factory are typical for small- and mediumsized manufacturers. The workshops are simple, but functional and relatively clean. Lighting is insufficient in many areas; there is no air conditioning or air cleaning equipment. Temperatures, therefore, can get very high during the summer, and the air is dusty. The level of noise is high in some areas. The floors are covered with piles of semi-finished or finished products. Materials are moved by hand. No special methods are used to optimize material flow and minimize waste. Concepts of lean manufacturing are not used in this factory. Before the crisis of 2008–2009, the workforce numbered between 1,000 and 1,200 workers. Since then, it has become considerably smaller – a little over 200 in mid 2009, and 300 in late 2010. About half of the workforce consists of sewing machine operators. The majority are women, but a number of men are also employed as operators. Most workers have many years of experience in the garment industry, mostly in the surrounding factories. They are relatively skilled. Their average age is above 30, higher than the average for migrant workers in China.108 Only a third of the workers live in the factory-provided dormitories. There are no rooms for couples. Most of the workers rent their own apartments, sometimes with partners or children. Migrant workers make up the overwhelming majority of the operators, while all the administrative staff are local residents. This is very typical for the textile and garment industry. There are no temporary workers (i.e. dis-

108 According to the National Bureau of Statistics, the migrant workers in China have an average age of 28.6 years (2006 data). NBS (2006): Dangqian nongmin waichu wugong qingkuang fenxi (Analysis on the conditions of the peasants’ “working outside”). In L. Q. Wei et al. (eds.): Zhongguo nongmingong diaoyan baogao. Beijing: China Yanshi Press, 99–111.

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patched workers, trainees etc.). All workers have direct labor contracts with the company, most of them are fixed-term contracts. In spite of the relatively high skill level of the workforce, the general turnover is high. A third of the employees have only been with the factory for a short time. They change workplaces often. The flexibility is due to the seasonal character of production. Usually there are two periods of high turnover every year. Many workers simply quit before and after the Spring Festival holiday at the end of January and early February. This is common among migrant workers. After the holidays, many new workers are hired. A second peak is in July and August, the traditional low season in the garment sector. During this period overtime work is rare, and sometimes there are shutdowns during which the workers remaining in the factory only earn basic wages. Many workers, therefore, quit their jobs and look for work in other factories. Two thirds of the workers have stable employment with the company, including many production workers. These workers have relatively long-terms of service. The longer they serve, the more likely they are to stay. They form the company’s experienced core workforce, and have a sense of belonging to the workplace and their co-workers. These workers have accumulated skills in sewing and other related work procedures, mastering multiple processes and products. With the relatively simple labor process in small garment factories, and a low degree of automation and standardization, the potential for skill development is higher than in more automated environments, such as electronics assembly. The work process depends on the quality and speed of individual workers. The wage system for production workers is entirely based on piece-rates – another characteristic of the garment industry. Workers’ wages vary greatly according to individual skills and the ability to sustain the high intensity and speed of work over extended periods of time. Piece-rate wages connect workers’ income to the volume of orders that a supplier enterprise receives. As a result, workers are directly involved in the global economy and depend on global production chains. In this factory, the piece rate is completely determined by the enterprise management. Government guidelines, collective bargaining agreements, and other formal standards for common work procedures do not exist in this industrial district, nor in South China in general. However, piece rates and wages are relatively transparent throughout the company and the area, since many workers switch employers regularly and work is shifted extensively



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under subcontracting arrangements. There are unspoken rules and standards known among workers and managers, which shape income expectations. When those standards are not met, workers change workplaces. Sometimes conflicts erupt between workers and management over the adequacy and justice of pay. The local minimum wage of 770 RMB per month at the time of our investigation (which raised significantly after since) provides a guaranteed income. The minimum wage is always paid to workers, even during downturns. Unlike other locations in the region, the minimum wage is relatively well enforced in this city. Basic piece rates with monthly earnings below the legal minimum wage, a common phenomenon in this region of South China, are not accepted here. Most workers, however, earn significantly more than the minimum wage. In 2009, the monthly wage averaged from 1,200 to 1,300 RMB, according to management. This is considered a midlevel income for migrant workers in manufacturing in the region. Following raises in the minimum wage and labor shortages in the wake of economic recovery, workers’ average income in this factory increased significantly to 2,000 RMB. The wage hierarchy among workers is mostly related to differences in productivity. There are no position- or seniority-related elements in the wage system. For a worker with an average income, the earnings by piece rates are 40–50 percent higher than the base wage. In 2009, less skilled workers could earn approximately 600 RMB in piece rate earnings, on top of the base wage of 770 RMB guaranteed by the legal minimum wage. The most skilled workers in some very complicated production procedures earn more than 4,000 RMB monthly. Labor Relations The company does not have a formal system of industrial relations, nor any company trade union, workers’ congress, or other institution of workers representation under Chinese labor law. There are no voluntary mechanisms for workplace representation or grievance handling imposed by the company. Labor laws are partially obeyed in this factory. The company honors the local minimum wage. But social insurance payments are not provided for all workers as stipulated by the Labor Contract Law. Before the promulgation of the law in 2008, only a tenth of the workers in this factory were covered by

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the social insurance system. As this issue gained public attention in the wake of the new law, the coverage rate was increased to about half. District-level trade unions do not exert much pressure on the factories to establish unions. This is a marked contrast to other areas of the city, where the union is relatively strong and has established a number of innovative models for representing migrant workers in low-wage enterprises. The management of this factory is strongly opposed to unions. The general manager believes a trade union in the company would be an artificial creation. Management asserts that inspections from international organizations monitoring labor standards are a sufficient substitute. There is no collective contract or collective bargaining. All regulations concerning issues like wages and work hours are covered only by individual labor contracts. The local trade union is not making any attempts to regulate piece rates through collective consultation. The negligent attitude of city and district trade unions toward small- and medium-sized garment factories is a result of recent city policies to move labor-intensive factories in garment and similar industries out of the city. The leading state-owned garment company here has closed numerous factories and eliminated tens of thousands of jobs in recent years, with the agreement of the union. The company is now acting as a factoryless design house, in which production workers do not play a significant role (textile and garment industry case study 5). Industrial upgrading in the wake of the global financial and economic crisis does not include any efforts to improve the social conditions and skills of the workforce. Wages and labor standards in this company are very exposed to fluctuation in the local labor market dominated by large flows of migrant workers, who have become increasingly aware of their rights in recent years. Individual labor conflicts broke out after the promulgation of the Labor Contract Law, which increased workers’ awareness of their rights in the workplace. From the perspective of management, the law increased the instability of the workforce. Before, articles stipulating resignation penalties were common in the company’s labor contracts. Workers were more reluctant to sign longer term labor contracts or resign before their termination. After 2008 the new law banned resignation penalties and emphasized that workers are free to resign from a company after giving notice. This right had been granted to workers in previous laws, but only after the extended public debate over the Labor Contract Law did workers get to know about it.



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Conclusion The regime of production in this enterprise is a typical example of the lowwage classic category. Production is integrated into global production networks, but the company does not have much bargaining power with international customers. The resulting pressure on profit margins and production schedules is transferred directly to the workers, resulting in low-wages. Seasonal production in the garment industry, the high mobility of rural workers and the absence of collective labor standards cause great workforce flexibility. Upgrading production in this factory and the entire sector is blocked by these factors. The global recession of 2008–2009 did not bring about a significant change toward more capital-intensive production or more sophisticated organization. The continuation of the labor-intensive low-wage regime is reinforced by the fact that the company owner is disinvesting from garment manufacturing in order to benefit from soaring real estate and commodity prices.

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Evaluation of regimes of production – Textile and garment industry case study 1 Item

High/ Medium Low/ Comments Strong Weak

Organization of Production Market control Vertical integration (company)

X X

Vertical integration (factory)

X

Product technology (relative to industry standards) Manufacturing technology

X

Stability of production flow

X

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers Proportion women Proportion of temporary workers Workforce stability Income stability Piecework type of incentives Employee involvement (workplace)

X X X X X X X X X

Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

X X X X X X X X X X

30 % turnover p.a.



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5.1.2 Textile and Garment Industry Case Study 2 This company is a manufacturer of knitwear. It works as a supplier to global brands and also makes some of its own brand-name clothes. It is located in a famous knitwear cluster in South China. The owner of this private company has three factories. Two of them are located in this region, and the third one in his hometown, a small county in a province in inner China which traditionally sends migrant workers to coastal cities. The owner originally came from the county as a migrant worker. In the course of many years of work and promotions into management position, he gained an intimate knowledge of the industry, accumulated considerable savings, and established a solid network of business connections, including brokers, customers, and local government officials. The factory investigated in this study was the company’s first, started in 2002. In 2010, the three factories employed about 600 workers. In recent years, the workforce shrank from approximately 1,500 to a little over 300 workers at the peak of the global financial and economic crisis in 2008–2009. Mechanization and the transfer of production to inland factories have become major strategies of restructuring in the wake of the crisis. Model of Production This factory, although not very big, operates on an ODM/OBM production model. The inclusion of design and brand-name capabilities sets the production model apart from many other factories in the area, which mostly operate as simple providers of labor-intensive knitting and assembling processes (OEM). Equipped with six designers, the factory does business with brokers and wholesalers. Its main customers are low- to medium-end brand-name and retail companies from France, Brazil, Russia, Italy, and North America. A French customer is one of the biggest retail chains in the world and mainly engaged in supermarket sales. Only 20 percent of the products of this factory are sold domestically. This proportion has been growing in recent years due to the increased efforts of the company in this area. 40 percent of the general business involves brokers. The factory has a full production process for garment knitting, with yarn as its main raw material and knitwear as the final product. It is a two-phase production process, with standard technology and mechanization. The knitting machines process a variety of yarn and produce knitted pieces. These are assembled into full garments in the semi-mechanized jointing workshop. Design is relatively simple for knitwear, but it directs the two main proce-

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dures of production. The factory sometimes also does OEM production according to customer designs. The knitting room has 100 automatic knitting machines. These machines are highly sophisticated, even by international standards. The technology of these machines, most of them supplied from Japan or China, is second only to the latest inventions by the world market leader in making them. The machinery integrates the complete set of functions in knitting and jointing (dubbed “jointing by knitting”) and provides fully automated production. However, the company did not introduce state-of-the-art machinery. Machines from the world market leader in Germany are too expensive, and cannot knit complicated designs. The company, therefore, employs a mix of mid- and low-end computerized knitwear machines, rather than striving for full automation. These machines have completely eliminated traditional knitting workers in this factory. Before, one manually controlled knitting machine required an operator. Knitting was performed stitch by stitch, line by line. A needle, operated by the worker would go through the stitches of a line to form a new line, and back again to form another one. Today, automated equipment works on a similar logic, but the workers are no longer responsible for controlling the size and knitting tightness or for changing the needle when a special pattern needs to be made. Productivity with the older machinery was much lower. The new machines can produce many more complicated and decorative patterns. They also can operate 24 hours per day. Normally, one machine works with more than twenty spindles of yarn. The yarn on the spindles can be of different kinds or colors. The more spindles available, the more complicated patterns a machine is able to produce. When the machines are working automatically, a worker simply monitors minor errors such as yarn breaks, and replaces used up yarn spindles. 100 knitting machines are controlled by only ten to fifteen workers, who are dispersed among the machines. Each of them monitors eight to ten machines at the same time. The workers are mostly young men between 20 and 25 years old. They receive one week of pre-workplace training on the operation of the machine and two to three months of training on-the-job. There is no formal classroom training. While traditional knitting workers have been mostly eliminated by the newer generation of machines, the jointing workers are still in demand, at least for the foreseeable future. Production in the jointing room is much more labor-intensive. Fewer than 200 workers are organized in lines, each



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person sitting in front of a semiautomatic jointing machine. A worker needs to joint several knitted parts into a complete final garment. The work is performed on a disk-like device with a set of wholes and leads for stitching, over which the various parts are stretched. This work is very repetitive. A worker sets one piece onto the disk stitch by stitch, very quickly, and fixes another piece on the other side. Then the worker uses the machine to joint the two pieces together, a sleeve and a body for example. There are eight engineers in the factory who solve complex machinery problems. The management of raw materials poses a big challenge. Raw materials and yarn were hoarded during the economic crisis, bought at relatively low prices. In the aftermath of the downturn, this helped the company to deal with rapidly rising prices for wool, cotton, and other materials. Changes in the work organization are driven by policies of the local government for promoting industrial upgrading and mechanization. Factories buying new knitting machines receive a subsidy of 2,000 RMB for each one. Low-interest loans are available for mechanization. Companies can receive substantial cash prizes from provincial sources for creating successful brands. Inland governments also attract investment from their old coastal partners, which helps retain their residents in their hometowns. Preferential policies include promises to loosen labor and environment regulations. Because of these incentives, the company is gradually relocating production to the owner’s hometown in inner China. The process should be completed in three to five years. Under this plan, the factory in South China will only function as an research, development and marketing center, capitalizing on its proximity to international buyers based in Hong Kong. In 2010 the factory in Sichuan already employed a number of local workers, who only received 50 to 60 percent of the wages paid in South China. The level of mechanization is lower, and the factory in inner China mostly produces relatively simple products and handles not orders of lower priority. Work and Working Conditions The factory has a mid-sized campus with several multi-story buildings. The administration building, which opened in 2009, is new and bright. It holds the offices for administration and designers. The workshop building is relatively old and appears dark and dirty. The factory has one dormitory building. Dormitory rooms are provided, each shared by six workers. More than 300 workers live in the building.

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Over almost two decades this garment manufacturing district has developed extensive labor sending and receiving relations with numerous cities and towns in inner China. These relations usually began in unofficial ways. Later the local and regional governments became involved. Both the sending and receiving governments are very interested in establishing stable mechanisms for labor migration, such as recruitment agencies. They want to coordinate travel and transportation, projections of demand and supply, and social security issues. In recent years, the situation has changed because of labor shortages in coastal regions, rising labor costs, local industrial upgrading, and the transfer of low-end production to inland locations. Working conditions in the factory are average by prevailing local standards. Work in the knitting room is not physically straining, but it is repetitive and noisy. Workers have to stand all the time, and are equipped with earplugs. Machine operators are mostly young men, 20 to 25 years old. The deskilling of manual or semi-manual knitting work through the introduction of automated machinery also results in a strict separation between design and manufacturing work. Designers input their designs, sticking USB memory drives into the machines. The designs are read by the machines using a special computer program. The machines then work by themselves. Workers only need to refer to instructions supplied with the designs to know where to put which kind of yarn. Workers in the jointing room are more skilled, and retain some of the traditional manual skills. Work intensity is higher and workers appear more concentrated than the knitting machine operators. Work procedures are more repetitive. The jointing work therefore imposes a greater strain than operating machines, and the joiners usually receive a higher monthly wage. Both groups of workers earn piece rate wages, but in jointing the rates for standard work operations are higher. In knitting process the piece work system still applies, although the work pace has become completely determined by the machines. Application of piece rates under conditions of advanced automation appears somewhat dysfunctional. However, the piece rate system in this area is not primarily designed to promote productivity. Management seeks to preserve the link between labor costs and production volume, and maintain the employment flexibility typical for piece rate systems. When production volumes shrink during off-peak seasons, many workers quit the company since they cannot earn enough money without piece work. This is a very common situation among low-end supplier factories dependent on a limited number of orders from brand-name companies or buyers. In this



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factory, these traditional practices continue in spite of the increasing level of automation. Unlike many piece work environments, the machine operators receive more or less the same wages. The wage system is position based. Machine operators’ wages range from 2,000 to 3,000 RMB per month over the course of the year, depending on production volume. The jointing workers receive 200 to 300 RMB more. The company pays a base wage of 1,500 RMB per month, which can be considered a guaranteed wage. This is significantly above the average in this sector, where base wages usually are equal to the local minimum wage. According to management, the company employs few unskilled workers. For this reason the piece rate workers mostly make 2,000 RMB or more per month. White collar workers earn monthly salaries between 3,000 and 4,000 RMB. About 20 percent of the workforce is in this category, reflecting the company’s extended original design and brand-name activities. Operators are exclusively migrant workers. In spite of the extended formal mechanisms of recruitment, most migrant workers are still recruited by their fellow townsmen and families. Most of the administrative workers are local residents. Data on turnover is not available, but recruiting workers does not seem difficult, even during the labor shortage in the wake of the 2008– 2009 economic crisis. According to management, the number of workers available in the local market is generally sufficient, but workers expect higher wages than they did several years before. The significant rise in labor costs in this region in 2010, around 30 percent according to management, is considered a heavy burden on profitability. Labor Relations There is no trade union in this factory, and the factory is not covered by any collective contract. In the face of the labor shortages of recent years, retaining workers and workforce stabilization has not been a central preoccupation for local governments in the region. Their main strategies are to replace workers with machines on a large-scale, and eliminate the low-end enterprises. The workplace, therefore, remains almost completely unregulated. Conclusion This enterprise features a low-wage classic regime of production as defined in our typology. Many significant characteristics of the work process and

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labor relations suggest such a conclusion – the low integration of production chains, flexible employment and work hours, the predominance of rural workers, and the generally low skilled work. The company makes significant efforts to upgrade its technology, especially through investment in modern machinery. These advancements are partly reflected in better-than-average wages, based on a relatively high base wage. However, this does not alter the general character of the production regime. Upgrading wages and working conditions is traded for increased workforce flexibility. The company seems to replicate the low-wage classic model in its inland factory as well. The strategy of increasing manufacturing of its own brand, automation, and relocation seems to be a re-adjustment of the low-wage classic regime, rather than a qualitative change upwards. The lack of workplace regulation and the absence of a trade union reflect the general weakness of unions and pro-employer government policies. A transformation of the basic parameters of the low-wage classic regime of production in this company does not seem likely in the near future.



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Evaluation of regime of production – Textile and garment industry case study 2 Item

High/ Medium Low/ Comments Strong Weak

Organization of Production Market control Vertical integration (company)

X

Vertical integration (factory)

X

X

Product technology (relative to industry standards) Manufacturing technology

X

Stability of production flow

X

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers Proportion women Proportion of temporary workers Workforce stability Income stability Piecework type of incentives Employee involvement (workplace)

X X X X X X X X X

Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

X X X X X X X X X X

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5.1.3 Textile and Garment Industry Case Study 3 This textile and garment manufacturing complex is the Chinese subsidiary of a multinational company based in Malaysia. It is owned and led by ethnic Chinese capitalists with roots in Malaysia and Singapore. In this sense, it is an Overseas Chinese company. The multinational trading arm of the company operates from Singapore, and the company’s headquarters are in South Malaysia. The company offers an integrated portfolio of OEM and ODM capabilities in textile and garment manufacturing, including raw cotton supply, spinning, knitting, dyeing, cutting, sewing, printing, embroidery, ironing and packaging, as well as an extensive network of warehouses and logistics operations. The company positions itself as an integrated contract manufacturer in the textile and garment supply chain. It also has its own brand name in home textiles, particularly in blankets, distributed through major retail chains in the U.S. and other international markets. The company operates factories in several countries in South East Asia (Malaysia, Cambodia, and Indonesia), and until 2009 it also maintained a vertically integrated textile and garment manufacturing complex in Windhoek, Namibia. This operation was established in 2001 with strong support from the local government, and was one of the largest textile and garment manufacturing complexes in Africa. However, the company withdrew from this investment in 2009, after its labor and environmental practices came under sharp criticism from workers, trade unions, and NGOs in Namibia, and on an international level. The Chinese operation is highly integrated. It is located in a major industrial city in East China. Six factories in various parts of the city offer a broad spectrum of production activities. The main factory is located in an industrial park with relatively high standards of urban development, wages, and environmental regulations. Other factories are in semi-rural areas of the same city with lower social and environmental standards. The operation in China was set up in 1997. It underwent three major expansions in 2004, 2005, and 2008. During the global recession of 2008–2009 the production and workforce decreased. In 2010, almost 8,000 workers were employed. The workplace-related research in this case study focused on the textile factory, with a staff of approximately 800. Conditions in the garment factories could not be examined in detail.



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Model of Production The company’s production in China is mostly focused on Original Equipment Manufacturing (OEM) – production for brand-name companies with very little or no internal design and development on the part of the manufacturer. The company does not maintain substantial design or development capabilities in China, and it is apparently not attempting to establish brandname status in the Chinese domestic market. However, production in the Chinese location is very capital intensive, with substantial investment in advanced manufacturing equipment and production logistics. Unlike many other smaller OEM garment producers throughout the region, production is organized with a relatively high degree of vertical integration. The textiles are mostly produced in-house for the company’s garment factories in the same location. Garment manufacturing is focused on producing clothing in high volume. Customers are exclusively foreign brand-name garment companies and retailers, including top ranked global market leaders in sports, fashion, and big box supermarkets. The company says its production model provides “integrated textile solutions”, rather than simple assembly. It controls the entire manufacturing process from spinning, knitting, dyeing, and printing to garment export. Its goal is to achieve a relatively stable supply of inputs and ensure a consistent quality in the final product at reduced cost. This model of production can be compared to large-scale vertically integrated contract manufacturing in other industries such as electronics (see chapter III.2). Like the EMS-model in the information technology industry, the company is leveraging the traditional virtues of vertical integration, but has little control over market cycles and production flow, which remain with its brand-name customers. Technologically sophisticated production of textiles is the strategic core of the company’s manufacturing operations in China. The textile factory has three workshops – blowing, spinning, and weaving rooms. These workshops are located next to each other within a large factory complex, which also houses a logistics center and garment workshops. Textile production is highly mechanized, setting it apart from the company’s garment production. The integration of various stages of the manufacturing process in one major location provides favorable conditions for just-in-time manufacturing. Blowing, the first stage of conversion of raw cotton into yarn, is performed in one large factory building, also named the blow room. Cotton is delivered in bales and broken apart by large bale-breaking machines. Workers unpack and feed cotton bales into large openings, like those for bulk

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garbage collection in a truck. From this point on, the process of bale breaking and blowing is performed within a closed system of machines, interconnected through pipes. The blowing machine inhales the micro-thin cotton fibers, and aligns them by blowing the material trough a system of tubes (a process called carding). At the end of this stage, long strings of loosely twisted cotton, called slivers, are wound up for further processing in the spinning room. The workers’ main tasks are to deliver the cotton piles and to monitor the working machines. The spinning machines in the next room pick up the cotton fiber strings and convert them into yarn by twisting. In the spinning room, dozens of spinning machines are located in lines. Each worker controls one or two complete lines. The work mainly consists of monitoring the machines and correcting small errors like yarn breaks. The machinery is very sophisticated, most imported from top producers in Germany and other European countries. Each line includes three different automated handling systems. At the very beginning, one machine does the combing. Then a combed sliver is drawn to form a roving (an elongated and further twisted strand of cotton fiber) by the second machine. That is delivered to a spinning frame (a third machine) where the final worsted yarn is made. This room has a full capacity of 72,000 spindles, which produced 12 million kilos of yarn at peak times before the economic crisis of 2008–2009. 80 circular knitting machines are located in the weaving room, with each worker controlling three or four of them. These machines perform all the knitting procedures automatically, from yarn to grey cloth. Workers only have to refill the yarn and connect the breaks. Before the crisis, 10 million kilos of grey cloth were produced annually. The production process in yarn-making is very capital intensive. The high degree of vertical integration in the company’s production system is designed to ensure continuously high rates of capacity utilization in textile production. Nevertheless, production is sometimes heavily affected by fluctuations in markets and supply chains. In the wake of the global financial and economic crisis of 2008–2009, there were massive cuts in production volume. Since the end of 2009, material shortages and price hikes due to massive speculation in raw cotton have disrupted production schedules.



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Work and Working Conditions The company’s manufacturing operation in East China, with six sites, had a workforce of roughly 8,000 in 2010. Before the crisis of 2008–2009, the total number of employees was about 10,000. The main manufacturing complex described here has a workforce of 1,500, down from 3,000 in early 2008. The other factories, mostly producing apparel, have 3,000, 2,000, 900, and 800 employees respectively. In addition, there is a trading company with a fairly low number of employees. The workforce is overwhelmingly made up of migrant workers, and 90 percent of the workers are women. Migrant workers exclusively occupy the operator jobs in the garment factories, while the textile factory and the warehouses employ a number of local residents. The textile factory provides relatively stable jobs, due to the integration of textile manufacturing with apparel production. These jobs are sought after by local residents, often by women providing a second income to an urban household. According to management, turnover in the textile factory, and in the dying and printing factories, is 1–3 percent per month, considerably lower than in the garment factories (5 percent). The higher stability of the workforce in textile production and dyeing reflects differences in the wage system. While in the former hourly wages prevail, apparel production is exclusively based on piece rates. The workforce reductions during the crisis accompanied labor shortages in other segments of production that were not affected by market downturns, and during the ramping up of production following the economic recovery. This apparently contradictory situation is explained by the extremely cyclical character of garment production on the one hand, and by the sensitivity of workers to market fluctuations on the other. Since the cost of living is relatively high in this city, many migrant workers leave their jobs at the first sign of an economic downturn. They then wait to return to the city until production and employment seem to be relatively stable. In this region, these patterns of mobility are supported by the fact that most migrant workers come from rural areas within that province or other nearby provinces. This means workers are not far away and have a constant flow of information from the main urban centers. In the company as a whole, workers earn 1,500 to 1,600 RMB per month on average after deduction of social insurance contributions. In the industrial park, workers are insured under the park’s providence fund, an insurance system that integrates health and pension insurances with subsidized savings and loans for housing and real estate. On average, textile workers

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earn slightly less than garment workers, who are paid by piece rate. This is a common phenomenon, as the intensity of work in a piece rate system is much higher than in a machine operating job paid by the hour. In the hourly wage systems in textile production and dyeing, wages are position-based. However, the grading system is not uniform, which differs from factory to factory. Piece rates are determined according to specific tasks. Standard piece rates set by labor bureaus or trade unions do not exist here to our knowledge. The labor process in garment production, which we did not examine in detail, is a labor-intensive process of sewing, knitting, and jointing. In textile production, work organization is determined by the highly automated manufacturing process. Workers are dispersed among huge machines in spacious factory buildings, operating them individually with little communication with each other. In the blow room, the first stage of production features automated equipment. The main work is the calibration and maintenance of the pipe systems and the related machinery, which is mostly done by technicians. Some simple cleaning work is performed by a small number of service workers. Unpacking cotton bales and feeding bale breaking machinery is heavy physical work, mostly performed by men. This work entails heavy exposure to dust and noise. Although available from the manufacturer, the company does not use automated feeding systems for bale breaking machines, which would eliminate most of the physically strain and hazardous aspects of this process. In spinning and weaving, the labor process is mostly automated and deskilled. Workers mainly supervise machines on screens, check for occasional glitches in the material flow and setup, and clean the area around the machines. The work process does not require formal knowledge of machinery or computer systems, but just experience with a particular piece of equipment. For operators, work does not include preventive maintenance. Most maintenance and repair of the complex machinery is performed by technicians, who work in separate areas and offices. In spite of the highly automated equipment, there is not much potential for upgrading work. At all stages of the production process major industrial injuries result from noise and dust. In the spinning room, the temperature is held constant and relatively high to control the quality of the yarn. The blowing and spinning rooms are particularly dusty, as cotton fibers travel through the air and cause breathing problems. Workers are provided with masks and ear plugs in the blowing and spinning rooms, but efforts to improve the air cleaning system and air conditioning are limited at best. Although the occupational



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health and safety problems were admitted by management, specific information on occupational injuries and on programs to improve occupational safety and health were not made available. Occupational safety and health standards in this factory have to be characterized as unsatisfactory. Work hours are regulated under an integrated work schedule system (zonghe gongshi zhi), which was ratified by the Chinese Ministry of Labor in 1994. According to this regulation, the regular working time is calculated in cycles of a week, a month, a season, or a year, instead of the normal working time of eight hours per day. It allows the enterprises to set a worker’s work hours in a more flexible way. The legally stipulated overtime pay of one-anda-half times the regular hourly wage is not provided on a daily basis, but on the basis of a fixed amount of work hours over an extended period of time. Holidays, short hours, and disruptions of production can be included in the calculation of work hours, effectively eliminating compensation for holidays and slow seasons. These practices are widespread in the textile and garment sector due to its heavy seasonal fluctuations in production. Labor Relations The labor relations system in this company is relatively informal and dominated by management. There is no trade union and no collective contract. According to external local labor experts, the local government has not exerted pressure on this or other companies in the industrial park to establish basic institutions for worker representation. On the other hand, social insurance coverage is complete for the entire workforce, thanks to the uniform policies of the industrial park in which the factory is located. The general environment of the factory and its production activities seems relatively well regulated, especially infrastructure, traffic, pollution, and standards of building safety. Dormitories are provided for free, but only a few workers choose to live there because the dormitories are far from the factory and the cost for commuting is relatively high. The company does not provide bus transportation. Basic labor laws are accepted in this company, in compliance with the policies of the industrial park. However, the company exploits loopholes in the law, especially the regulation of work hours. The application of the integrated work system allowed by the Ministry of Labor and Social Security leads to monthly hours over the legal maximum of 36 hours defined by labor laws. Government policies conflict with existing laws in this case. For

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further justification of its work hour policies, the company cites the code of conduct of one of its major customers, a global brand leader in sports shoes and apparel. This code allows a maximum of 80 hours overtime work per month in supplier factories. According to management, this provision has been used extensively in the wake of the economic recovery and resulting labor shortage in 2010. Conclusion The production regime of this company is a case of flexible mass production in the garment industry. The factories operate at the lower levels of global production networks, but the company and its Chinese manufacturing operations are vertically integrated. This sets it apart from the low-wage classic production regime analyzed in other case studies in this chapter. Compared to most small- and medium-sized garment manufacturers, the company has some bargaining power with its customers, which it uses to ensure stable production and full utilization of capital-intensive equipment. Production is still highly affected by external market forces, including speculation in raw cotton in the wake of the global economic recovery after 2009. In spite of its technologically advanced character and organization, work remains largely deskilled. This is particularly true for the highly automated environment of textile production, where the introduction of advanced equipment has eliminated much of manual machine operation and maintenance. Consequently, wages remain relatively low in these production areas. Seemingly, no attempts are being made to retrain the workforce for more highly skilled jobs, such as preventive maintenance or programming, or to integrate skills into the work of machine operators. In many aspects, this pattern of rationalization reflects a neo-Taylorist strategy of work organization and employment, which has emerged in other large-scale contract manufacturing industries in China, especially electronics.109 The lack of contractual regulations on wages, employment, and work hours complements this picture, including extensive exploitation of loopholes in labor legislation. Unlike the flexible mass production regimes in large-scale assembly factories, the workforce is not entirely made up of migrant workers. It rather displays cleavages between local workers, who are mostly employed in the capital-intensive segment of textile production, and 109 Hürtgen et al. (2009), see also chapters III and IV in this report.



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migrants, who mostly work in the labor-intensive parts of the production process. Such patterns of differentiation are common in many manufacturing industries in this region, as well as in other sectors like automotive supply (see automotive supplier case studies 1 and 2).

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Evaluation of regime of production – Textile and garment industry case study 3 Item

High/ Strong

Medium Low/ Weak

Comments

Organization of Production Market control Vertical integration (company)

X X

Vertical integration (factory) Product technology (relative to industry standards) Manufacturing technology

X X X

Stability of production flow

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers Proportion women Proportion of temporary workers Workforce stability

X X X X

No data

Income stability Piecework type of incentives

90% X textile

X garment

X textile

X garment

X garment

X textile

Employee involvement (workplace) Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

X

X X X X X X X X X X



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5.1.4 Textile and Garment Industry Case Study 4 This factory belongs to a privately-owned Chinese garment manufacturing group, which emerged from a collective-owned enterprise in a rural area in East China. The business was founded in the very early stages of reform as a silk garment manufacturer under collective ownership. In 1992, following the ownership reform of public enterprises in China, it became a limited private company, owned by the management. In 2006, the group underwent another round of restructuring, under which all non-garment activities, including silk manufacturing, were sold off. Nowadays, the firm is an integrated medium- to large-sized garment manufacturing company, serving as an OEM supplier to major multinational brand-name companies. The company has no activities in textile production. Its portfolio of manufacturing capabilities in garment is broad, however, and vertically integrated. The company employs a staff of 6,400 in eight factories, located in three major cities in East China. The main location is in the company’s rural hometown, which has now become a suburb of a rapidly growing industrial city. The plant covers nearly 1 million square meters and features large parks and green areas. The manufacturing area occupies 600,000 square meters. The company here uses advanced equipment with a total capacity of 38 million finished garments per year. The site includes large recreational areas, workers’ dormitories, and a vocational academy for textile and garment professions, designed to improve the training and research infrastructure for the garment industry in the town. The site has a self-contained sewage recycling system. In addition to the main site, the company has another smaller manufacturing operation near a metropolitan city in East China, and a sales and design center in the same city that serves as the main point of contact with global customers. The company’s annual business volume exceeds 200 million RMB, ranking it among the top ten privately owned garment manufacturers in China. Production is exclusively for export. Customers include many famous international brands in medium- and high-end garments and sportswear. It has had cooperative relationships with some companies for as long as 20 years. Our research on working conditions and labor relations focused on the main manufacturing complex.

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Model of Production Production in the company’s central site mainly consists of Original Equipment Manufacturing (OEM), mostly in large volume. Original Design Manufacturing (ODM)110 is also performed here to a small extent. According to management, OEM production is changing rapidly. Ten years ago design and manufacturing were almost completely independent. The new OEM business model increasingly integrates the brand companies’ design activities with the manufacturer. The supplier is actively involved in sample production and prototyping, including selection of materials and suggestions for manufacturing-friendly and cost-saving designs. The company has the ability to introduce new products as well as to create original designs, which customers may include in their product line. Under the company’s internal division of labor, most of the prototyping and ODM business is located in the company’s smaller factory near the big city. This arrangement is mostly for the convenience of global customers, but also due to the extensive learning requirements for ODM. ODM mostly involves low volume – high mix product lines. This business started recently and is still in the development phase, according to management. In the main factory a research and development center is also under construction. It was initially set up for technology and pattern development in cooperation with a fashion college in the UK. Due to the company’s involvement with global supplier monitoring organizations, colleges and universities in the U.S. are also participating in the program. The center will serve as a training base for students from those schools. The scope of this project and the buildings it uses near the main factory site have been expanded considerably, including student dormitories and a training and conference center. The company is funding these activities completely. This manufacturing group is horizontally and vertically integrated: its eight production sites in the region are tightly connected with each other. They are served by an extensive and modern highway network, so commuting time by car is less than four hours between the sites. Each factory offers complete solutions for manufacturing certain garments. An integrated production system exists for shirts, sportswear, fashions, casual wear, pants, skirts, and suits. This broad portfolio makes the group a full package supplier to both specialized and mass market brands.

110 For an explanation of these acronyms see chapter IV.2.



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Each factory, big or small, has a complete process flow from incoming quality control, over cutting, sewing, finishing, ironing, packing, washing to output quality control. Materials, mainly fabrics, are either consigned by customers or purchased by the factory. Designers from regular brand-name customers come three or four times a year to convey their tentative plans to the materials department and discuss fabric selection with local designers. The local designers collect fabrics from textile manufacturers and the brandname designers decide on their preference. Incoming materials undergo strict inspection. The factory has a special laboratory for physical and chemical tests. European customers in particular have high expectations concerning materials free from chemical residue. The company therefore tests incoming materials, whether a customer requests this or not. The cutting room is highly mechanized. A relatively small number of workers, about 70 per shift, work on three lines of cutting and eight lines of spreading machines, each operated by two workers. A spreading machine automatically spreads the raw fabric into layered stacks up to 200 layers. A cutting machine cuts the fabric into pieces following the computerized order data from the manufacturer. This is fed into the machines on USB-memory sticks by the workers. This machinery is imported from Germany. Production in the sewing room is more labor-intensive, but is still comparatively mechanized. About 1,200 workers are divided into 40 groups. Each group has one group leader, one section chief, and 28 operators. Quality control through visual inspection and checklists is performed by the group leader. Training and distribution of work is the responsibility of the section manager. Each operator works on a semiautomatic sewing machine. These machines are more specialized than the traditional sewing machines, but this contributes to de-skilling, since each worker performs only a piece of the overall production. Work is organized according to the process flow for specific garments, although not exactly in assembly line style. The number of workers and their individual responsibility for specific tasks are determined by the section manager. If a section manager notices that semifinished products are piling up between work stations or work groups, the number of workers would be adjusted to guarantee a continuous flow. Organization and adjustment of the process relies on the section manager’s experience and his or her familiarity with workers. The system seems to work, since there are no visible pile ups of semifinished work, as is usually the case in many garment factories.

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The finishing room includes several sections. Procedures such as ironing, button holing, and stitching are performed by machines. Ironing is done manually by individual workers, each equipped with a modern ironing machine. Packing involves mostly manual labor. One or two dozen workers sit around big rectangle tables, visually examine general quality, and pack the garments rapidly and neatly. The organization of work involves extensive quality control. Output quality control includes a host of procedures, such as cross check, needle detection, and selective examination after packing. The detection of needles remaining in finished garments, which could hurt consumers, is performed by machines. Quality control, however, is done not just at the beginning and the end of the process flow. It has been incorporated into the process itself, with quality checks at almost every step of production. This system is modeled on Japanese quality management systems, with the extensive in-line quality checks that are part of of Total Quality Management (TQM). Quality control in this company relies on extensive physical and optical inspection by workers and supervisors, rather than automated systems. Work organization and quality management have become part of lean manufacturing in the garment industry in recent years. One of the company’s major western brand-name customers is trying to establish a model of lean production in its suppliers, including this group. The management, however, does not think it is practical in the group’s factories. It believes that the standardized managerial style of lean production is efficient, but does not motivate workers. The standardization of work procedures and the related time measurements for each individual production step make workers feel like machines. Although lean production is accepted as a general principle with many positive aspects, efficiency should be promoted by better coordination of orders and work procedures by brand-name customers, and not solely by stricter requirements on the internal organization of suppliers. Customers should give more consideration to the stability of a supplier’s production flow, according to the management. Work and Working Conditions 70 percent of the workers in the main factory are local residents. They sleep at home and commute everyday, mostly by motorcycle. The other 30 percent are migrant workers who live in the dormitories at the factory site. In the smaller factory near the city most workers are migrants. However, many of



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them are from the rural areas near the company’s hometown, reflecting the company’s strong local roots. Moving manufacturing away from the home base during the 1990s was compensated by a commitment of the company to offer jobs to migrant workers from the home area. In the main factory the living areas for migrant workers are relatively spacious, and the factory compound is generally neat. At the time of our investigation the dormitories were not fully occupied, although this was not a season of low production. They have rooms for singles or couples, each airconditioned with its own bathroom. The factory also provides buses once a week connecting the factory site and surrounding areas. Workers are 28 to 30 years old and have seven to eight years of service on average. They mostly have three year fixed-term labor contracts. According to management, non-fixed-term contracts are signed when a worker meets the legally stipulated threshold of ten years of service. Due to the fact that local workers account for the majority of employees, the turnover is low, around one percent per year according to management. In the smaller factory in the city, the turnover is seven to eight percent per year, also low compared to many other factories in that area. The wage system is mostly based on piece rates, but it also contains some factors that reward workers’ attitude and performance. The management of the group believes that individual productivity cannot be the only yardstick for compensation, since there are many factors in the production chain that workers cannot control. A wage system solely based on piece rates is not seen as scientific or in accord with traditional Chinese ethics. On the whole, piece rate wages account for 80 percent of workers’ regular incomes, while the other 20 percent are determined by factors such as work quality, work discipline, and obedience. In many other garment factories workers’ behavior is controlled by company rules and related systems of punishment. The management of this company believes that a balanced incentive system is a better method. The base wage for production workers is slightly above the local minimum wage of 790 RMB per month at the time of our investigation. This minimum pay is guaranteed. Workers usually earn much more than the basic wage, about 2,500 RMB per month on average. In recent years management has tried to increase the incentive part of the wage, but incentive wages always carry the problem of fairness. The evaluation of performance is done mostly by department managers, and different managers have different grad-

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ing standards. The subjective factor cannot be eliminated from performance evaluation, unless strict principles of time measurement are applied. As in most other garment companies, the work process is segmented and workers’ tasks are standardized and highly repetitive. Most positions on the production lines do not require formal training. Skills mostly come with experience. Work in cutting, sewing, and finishing is organized in assembly line fashion, with fixed tasks for workers at each position. There are no work groups and work cells with internal job rotation. Workflow requires the coordination of speed and quality between individual workers with relatively similar levels of skill and experience. The extensive system of quality monitoring includes a large number of quality control tasks at individual work stations. This form of work organization also includes a limited amount of preventive maintenance work on the production line. Workers are responsible for the daily maintenance of their respective machines, including cleaning, removing dust, and checking lubrication. This part of the daily work routine is performed in cooperation with seven engineers in charge of maintenance work throughout the workshops. The main task of the engineers is to solve more complex problems of equipment setup and maintenance, including extensive trouble-shooting. Training for production workers is mostly on the job. The company offers some orientation training for newcomers, on topics such as company values, the work environment, and health and safety. Training on the production lines consists of gaining experience on specific jobs to maximize speed under the piece rate system. With the accumulation of experience, workers move from simple to more complex jobs with higher piece rates. There is no formal system of promotion. Jobs are assigned by supervisors and line managers. Training for clerical and technical workers takes place in the classroom, often in cooperation with local colleges and technical schools. Labor Relations The labor relations system of the company is well organized. Due to the history of the group as a collective-owned enterprise, worker representation has many characteristics of the traditional system in China. The company has a union and an established Communist Party organization. The party secretary of the group is also the union chairman, a board member of the company,



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and a member of its upper management. The union and party organization function at the group level. There are no separate units in each factory. In this system labor laws are well respected. A collective contract exists, although its details were not revealed. There is no regular consultation or bargaining over wages and remuneration, however. Wages and the wage system are unilaterally determined by management. In spite of the paternalism of this labor relations system, workers seem to be relatively well respected. The general manager of the main factory believes that “workers are comrades, not machines”. The application of labor rights and government policies is not impartial. The exploitation of legal loopholes is justified by the management as being in workers’ interest. Migrant workers are often reluctant to pay social insurance contributions because payments in urban areas are higher and benefits cannot be transferred to rural areas. In these cases, management willingly accepts the fact that the labor laws only ask companies to “help” workers with social insurance, and do not make social insurance payments mandatory. A similar situation exists about overtime. As in many other garment companies, the amount of monthly overtime work periodically exceeds the legal limit of 36 hours. The factory uses the integrated work schedule system (zonghe gongshi zhi), promulgated by the Ministry of Labor in 1994. In this scheme, work hours can be calculated in cycles of a week, a month, or a year, instead of the normal eight hours per day. It allows enterprises to adjust the work hours to seasonal demand without paying overtime each day. This system, which is widely used in the garment industry, denies workers’ right to rest and saves employers substantial amounts of overtime pay. The local government accepts this practice as long as there are no legal complaints from workers. The company also cites the codes of conduct of several brandname customers, which accept a maximum of 60 hours of overtime work per month. The company has joined a major international network of brand-name companies, NGOs and labor rights groups, which develops models of Corporate Social Responsibility (CSR). Although the network has a relatively broad participation, it is funded and driven by the participating companies. The company is the first supplier from China to become a member of the group. After four years of participation, according to the general manager, the company has greatly improved its awareness of labor rights, environmental protection, and energy saving practices. Participation in the network has also broadened its customer base.

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Conclusion The regime of production in this company is flexible mass production, which emerged from the classical low-wage model during its earlier years. Compared to many other companies with regimes of flexible mass production (in the electronics industry in particular), employment is comparatively stable. Workers are respected to some extent. Although the company is a supplier to global production networks, it has broad horizontal and vertical integration in various areas of garment manufacturing. This sets it apart from many smaller OEM-producers, which operate under the low-wage classic regime of production. Based on relatively high levels of technology and organization, the company has undergone a remarkable process of industrial upgrading. This has resulted in some bargaining power with customers, enabling management to keep production relatively stable. Nevertheless, the deskilling of work is widespread, as the machines are very specialized and the division of labor on production lines is very detailed. Lower skilled workers are employed and trained with little effort. Workers have very little control over the production process – much less than in a traditional piece work environment where the speed of production is directly related to the performance of individual workers. Wages and benefits, therefore, remain low. The wage system features a homegrown mixture of piece rates plus an incentive wage system. Basic wages more or less equal the local minimum wage, and salaries are generally very flexible. Flexibility is supported by the lack of collective bargaining and contractual regulation of wages, employment, and work hours, despite the fact that the trade union has a collective contract. There is no control of piece rates through local bargaining or government policy. Even legal regulations concerning social insurance and overtime work are not fully respected.



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Evaluation of regime of production – Textile and garment industry case study 4 Item

High/ Strong

Medium Low/ Weak

Comments

Organization of Production Market control Vertical integration (company)

X

Vertical integration (factory)

X

X

Product technology (relative to industry standards) Manufacturing technology

X

Stability of production flow

X

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers Proportion women Proportion of temporary workers Workforce stability Income stability Piecework type of incentives Employee involvement (workplace) Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

X X X

30%

X

No data X

X X X X

X X X X X X X X X X

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5.1.5 Textile and Garment Industry Case Study 5 This company is a diversified textile and garment producer under a holding group owned by the local government of a major city in South China. The group has six business divisions, two joint ventures, and a unit called Textile City. This is a design and development park with a research and development center and a number of fashion design studios, ten authorized brand-name subsidiaries, and 24 other trading and service companies that were acquired in recent years. The group emerged from formerly collectiveand government-owned manufacturing and trading enterprises in the city’s textile and garment industry. These were consolidated under this group in the wake of market reform during the 1990s. The group was founded in 2003 as a core element of the local government’s restructuring of the textile and garment sector. Afterwards it began a permanent process of accelerated restructuring. By 2010 almost all factories within the group had been closed or sold. The holding company and its subsidiaries were transformed into a factoryless design development and marketing enterprise, imitating the strategy of global brand-name leaders in developed industrial countries. In 2007 the total revenue of the group was 1.037 billion RMB (151.8 million U.S. dollars at 2009 year-end exchange rates) with an export-import volume of 75.5 million US-dollars. The company is among the country’s largest textile and garment companies. Model of Production As a result of its transformation, only two branch factories were left by the time of our investigation. One of them was about to shut down in the near future. Although manufacturing has been abandoned almost entirely, the group, with its dozen of enterprises, still commands a broad range of knowhow and technology in the textile and garment sector, including textile and garment development and design, subcontracting for production, and marketing both domestically and internationally. The formation of the holding group resulted from the merger of the industrial and marketing sectors of public enterprises in the city in 2003. Compared to other regions and the national level, the transformation strategy of the local government was relatively cautious. Restructuring began after the process was underway elsewhere. While most textile and garment companies in China had been privatized, this city maintained public ownership of most enterprises in this sector, and regrouped them under a single local holding



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company. This process was driven by the increasing globalization of China’s textile and garment industry. China’s entrance to the World Trade Organization (WTO) in 2001 brought about both challenges and opportunities. Transnational brand-name and marketing companies took control over most export production and competed with established Chinese export-oriented companies. As a result, many Chinese companies had to begin implementing the production models of transnational brand-name firms, and to rely on subcontracting instead of utilizing their existing in-house production facilities. In South China, labor, energy, and environmental costs increased rapidly during the first decade of the twenty-first century, driven by the expansion of foreign investment and export production. As an export-oriented industry, garment was particularly affected by the gradual appreciation of the Chinese currency, as well as the massive speculation in raw materials, cotton in particular, following the financial and economic crisis in 2008–2009. Other related policies exerted additional pressure, such as cutting the export tax rebate from 17 to 13 percent for most cotton textile and garment products in 2004, the abolition of export quotas according to the Agreement on Textiles and Clothing (ATC), and further liberalization of exports in the private sector, guided by WTO agreements. The formation of the group was based on the strategic assumption that the existing enterprises and their production chains were too diverse to pursue horizontal or vertical integration. Six relatively independent business units were formed – foreign trade, yarn making, yarn-dyed weaving, dyeing and finishing, knitting, and garment. The real structure of the group is much more complicated, as illustrated by the example of the garment business division. The core of this division is a brand-name garment designing and marketing company with annual sales of 40 million RMB. In the initial restructuring plan, several factories were to carry out in-house and OEM production for other brand-name companies. The actual restructuring went well beyond the initial proposal, driven by recent government policies intended to downsize manufacturing and develop the service sector. Industrial policies shifted at the national level, and the city adopted a particularly aggressive approach in this direction. This was driven by massive efforts to enhance environmental protection and provide attractive conditions for international large-scale events in business, sports, and culture. Since textile and garment manufacturing is considered a polluting industry, production facilities had

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to shut down or relocate away from the inner city. Taking advantage of this opportunity, the group closed almost all of its factories. By 2010 only one textile factory had been relocated into a suburban district. Advanced production equipment from the factories that where closed was transferred to a joint venture with a transformed SOE textile enterprise located in another city. This group holds only a minority share in this joint venture. The various lines of business are loosely integrated. The garment subsidiary, as well as the group as a whole, carries out a variety of trade and design activities in order to capitalize on short-term profit opportunities, rather than implement an integrated, long-term brand-name and production strategy. With no production left, the garment group is just a broker with a few design activities for brand-name companies, selling medium- and low-end products in fashion and home decoration. While subcontracting all its production, the marketing center within the company does not have substantial direct business with the trading companies of the holding group. Against this background, the group appears as a conglomerate of various businesses, which is lacking an overall strategy of integration. The garment group focuses mainly on the domestic market (about 75 percent of its sales volume), while the trading companies target international markets, functioning mostly as brokers or export-import agencies. There is little integration between the garment and textile businesses within the group. The garment subsidiaries purchase materials for OEM subcontracts from outside vendors, rather than from the group’s own textile operations. The group’s orientation toward fashion design, trading, and real estate development is evident in the City Textile and Garment Innovative Industrial Park, which the company recently established in an inner city area with high priced real estate. The park was developed on the premises of a former textile machinery factory owned by the local government. Most of the old workshops on the site have kept their original look, but have been refurbished as loft-like facilities for garment design. The design studios are rented to a number of brand-name garment enterprises, to art and design galleries, and to fashion show venues. The park also includes high-end space for a hotel, cafés and conference facilities, as well as a neatly designed museum about the history of garment production in the region. The transition of the company into a fabless garment design and trading house faces severe obstacles. After its full-scale retreat from manufacturing, it faces problems similar to most export-oriented OEM companies in the garment industry. Continuing cost pressure from multinational brand-name



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and retail customers accompany rising labor costs in the region. Given its weak brand-name capability, the company does not have much bargaining power with international customers. In the wake of the global financial crisis of 2008–2009, the company’s European markets decreased by a third, while U.S. sales volume fell by half. The company mostly uses local OEM producers as suppliers. Due to its fragmented operations, the company does not have much leverage on pricing and contracts on this end either. It can hardly function as an engine for upgrading production, logistics, and design capabilities in the regional garment industry. After most preferential government policies for local Chinese garment companies were reduced in the wake of China’s entry to the WTO and the expiration of the Multifibre Agreement, only a few protected markets remain for the company, such as uniform contracts for local public government agencies, schools, and SOEs. The company’s high labor costs resulting from its history as a state-owned enterprise are an additional burden. Work and Working Conditions The work environment in the company’s manufacturing and trading businesses is dominated by its permanent downsizing over the last ten to fifteen years. The closure of factories caused large-scale layoffs and the relocation of workers. According to the figures given by management, the workforce of the holding group was reduced from about 60,000 employees during the 1990s, to about 30,000 in 2003, and to just over 3,000 by 2009. In 2010 another 1,500 workers were relocated over three months. Of the rest, over 1,000 employees work in four enterprises in the Foreign Trade Division, most of them as orders and sales agents. 200 employees work in a garment technology research department, about 100 in the headquarters of the holding group, and 40 as rearguard personnel in the closed factories. In the remaining two textile plants, 400 workers were employed at the time of our investigation, many of them waiting for relocation. The workers in the trading, design, and research departments have relatively high levels of formal education and training. Many of them hold degrees from universities or technical colleges. All of these workers have urban citizen status, most of who are locals or from other cities. Rural migrant workers were widely employed in the company’s former textile and garment manufacturing operations, making up about 50 percent of the manufactur-

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ing workforce. Migrant workers were hired during the 1990s especially, as a means to increase workforce flexibility in a state-owned enterprise. Downsizing occurred in different ways for urban and migrant workers. Among the first group, a small number considered backbone workers were relocated to the remaining workplaces. The larger part of the urban workforce had to leave the company under a scheme known as seniority buy-out – an arrangement under which they received compensation payments above the legal minimum according to their employment history with the company, in packages negotiated individually or by the trade union. Migrant workers, who accounted for 50 percent of the total workforce, only received the standard severance pay of one month salary per year of service without any extra compensation. For all displaced workers the company provided help finding employment with other local companies. In the remaining operations, wages and salaries for most of the clerical workers are stable. The pay system is based on position because of the history of the wage system of state-owned enterprises during the planned economy. The salary system has been made more flexible through personal allowances and bonus payments. Salaries of sales workers in particular are linked to their output, that is, to sales volume and revenue. While basic pay is guaranteed, the incentive pay can vary greatly according to the market situation and sales. Management, designers, and workers in the textile factories are paid on an hourly basis, and their incomes are relatively stable. Employees in the foreign trade division receive higher salaries than those in the industrial sections of the group. The garment group today only has a staff of 40 people, mostly salesmen. Before restructuring, the garment group had a workforce of 500 people, including more than 400 production workers. Labor Relations The trade union is well established in this company. Trade union branches exist at the level of the holding company and of major subsidiaries of the group. In the tradition of state-owned enterprises in China, the trade union is integrated into the management structure. In some business units, such as in the garment research group, the post of the trade union chair is held by an upper manager. The trade union receives comprehensive funding from the company. The company has a collective contract with the trade union. Labor laws and government regulations are well respected. All workers have



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labor contracts according to the law. Coverage of social insurance is comprehensive. In spite of the well-established legal and institutional framework of company labor relations, the union does not have much influence on wages and salaries. As in most companies in China, the collective contract does not regulate specific hourly or monthly wages, it only contains general provisions about wage adjustments during the contract’s duration. To our knowledge, regulation of piece rates for production workers did not exist in the company’s once extensive garment operations. In the wake of the downsizing, wages and salary systems for the remaining employees have become increasingly differentiated, especially for sales and marketing personnel. It appears that the union has not made any significant effort to standardize wages under the present conditions. Nor has it tried to regulate the impact of bonus pay systems on work hours, promotions, and employees’ lives. The logic of extensive performance based pay is not questioned by union representatives. The extensive job reductions and relocations have been carried out in accordance with legal standards, according to the union. Fraud and illegal practices concerning workers’ compensation, often the case during privatization of state-owned enterprises, have not been reported for this company. The trade union helped to pacify workers while increasing payments by using its leverage with management. According to the Labor Contract Law, severance pay should be based on an employee’s average monthly wage. In this company, however, the calculation was based on the average monthly wage for all employees, which was 2,474 RMB. For many employees with a lower income, this resulted in substantially higher severance pay than stipulated by the law. Consequently, there has not been a single labor conflict during the relocation process. The union was also helpful in brokering a special arrangement for pension liability. As in most SOEs, the pensions for retired workers are a heavy financial burden for the group, since early retirement is used extensively to encourage workers to leave. Traditionally, retired SOE workers get monthly pensions from their former enterprises until death. In this company, at least in some of its subsidiaries like the garment group, management started to raise substantial amounts of money from private and government sources to cover pension costs. Unlike many other cases where companies set up their own pension funds, these financial assets were transferred to the state social security system in 2004. Through this buy-out, the social security system supposedly will take care of the workers’ pensions and bear the financial

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risks, and pension liabilities will no longer appear on the company’s balance sheet. However, this deal did not include the medical welfare of the retired workers, which is still the financial responsibility of the company. Conclusion Although the company appears market oriented and its production model is similar to modern global market leaders in the garment industry with no manufacturing assets of their own, the regime of production can still be characterized as state-bureaucratic. The company is an example of a radically commercialized state-owned enterprise, which has completely changed management practices from the socialist production unit (danwei) with comprehensive social protection for the workers to performance-based market capitalist practices. The tight integration of the company into local politics, as well as the strong presence of the trade union, suggest that the traditional form of industrial relations in state-socialist enterprises continues. This is true even in an industry with a very volatile market environment and globalized production and distribution systems. The continued existence of this type of industrial relations highlights the diversity of this sector. The restructuring process is typical for South China and the trade-related nature of its capitalist transformation. This is the result of this area’s historic connection to the world market through Hong Kong and its trading companies. In this context, the union sees its primary role as a mediator between the imperatives of capitalist restructuring and the social interests of employees – trying to preserve some relatively well-paid jobs for urban employees. It has to be noted, however, that restructuring has been at the expense of rural employees – migrant workers, who represented half of the factory workers in the enterprise. The union strategy does not take the whole company into account. It does not make use of the provincial government’s efforts to upgrade technology and organization in the region’s manufacturing industries, in order to develop skilled jobs in the company and its subcontractors. The case study illustrates the complete inability of existing unions in China to cope with advanced restructuring in former state-owned enterprises.



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Evaluation of regime of production – Textile and garment industry case study 5 Item

High/ Strong

Medium Low/ Weak

Comments

Organization of Production Market control Vertical integration (company)

X X

Vertical integration (factory)

X

Product technology (relative to industry standards) Manufacturing technology

X X

Stability of production flow

X

Work and working conditions Specialized and skilled labor Segmentation of work Proportion migrant workers

X X X

Proportion women Proportion of temporary workers Workforce stability Income stability Piecework type of incentives Employee involvement (workplace) Labor Relations Trade union presence and stability Collective contract (yes, no, since when?) Contractual regulation of wages Contractual regulation of working hours OSH standards Benefits (social insurance and extras) Wage hierarchy Flexible pay (performance, OT, allowances) Individual labor conflicts Collective labor conflicts

X No data X X X X

X X X X X X X X X X

V. Regimes of Production and Labor Standards

What generalizations can be drawn from our case studies? What are the potential implications for labor policies in China and the global control of labor standards? We will try to summarize the observations of our case studies and link them with the conceptual considerations described in chapter I of this report. We will then discuss generic problems of regulating labor standards in the growing variety of regimes of production in Chinese core industries. We will highlight the social and political contradictions resulting from the internal dynamics of the various regimes. Finally, we will address key policy questions arising from this analysis, both with regard to further reforms of labor laws and regulations, and to perspectives for collective bargaining at shop floor and industry levels. By establishing these perspectives, we also hope to suggest new views for the international discussion about labor standards. These are related to industrial and social development, and the emerging forms of social and political regulation in China.

1. Summary Discussion of Regimes of Production Our case studies confirm the basic proposal of this research project that there is a growing variety of regimes of production in the core sectors of the Chinese export economy. Our findings also contradict the assumption often expressed in the literature that the proliferation of market relations will have a unifying effect on labor relations and working conditions in the modern sectors of the Chinese economy with relatively clear-cut lines of class interests between labor and capital.111 Instead, complex configurations of production regimes are developing in these industries with very different conditions of

111 For such a perception from the perspective of Chinese industrial relations theory see Chang and Qiao (2009), 29 f.

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work, remuneration, and social regulation. These regimes of production are unevenly distributed throughout various industrial sectors. As chapter II explains in detail, in the auto industry the corporate-bureaucratic regime of production (also dubbed multinational/joint venture classic) is the standard model. Due to the dominance of large joint ventures in this sector, there are few variations. The emerging independent Chinese automakers seem to follow this pattern as well, since they are imitating the management and quality control strategies of foreign multinationals. Newer factories set up recently in rural areas (such as GM Wuling, General Motors’ highly successful joint venture in light van production in Guizhou province), however, may be closer to a corporate high-performance regime of production. This pattern, as well as regimes of flexible mass production or classic low wage production, plays a strong role in the car parts and supply sector, creating many options for transferring work to less costly social environments in the supply chain. In contrast to the auto industry, the electronics industry is much more diverse. This is mainly due to the massive segmentation of this sector along production models and between brand name and non-brand name companies. But it is also a result of different strategies of human resource management emerging from the global restructuring of the industry. As the case studies in chapter III illustrate, corporate-bureaucratic, corporate high-performance, and low-wage classic regimes of production can all be found among major brand-name companies and chip makers. The production regime of corporate high-performance is probably the dominant pattern, emerging from the dominance of such type of regime and the ongoing transformation of the global IT industry. State-bureaucratic regimes of production are mostly absent from the electronics industry, since classical state-owned enterprises do not play any role in this sector. The manufacturing segments of the electronics industry are heavily dominated by regimes of flexible mass production, epitomized by the large factories and industrial parks of major global contract manufacturers. Some of the contract manufacturers which have not been investigated in this study seem to be closer to the model of classic low-wage production. The same is true for the huge sector of electronics component suppliers, including many large ones with a strong technology base.112

112 Hürtgen, Lüthje, Schumm, and Sproll (2009).



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In the textile and garment industry the low-wage classic regime of production prevails, although there are state-bureaucratic and flexible mass production regimes as well. The low-wage character of garment manufacturing is intrinsically linked to the small shop environment in which most production takes place. The production models of these companies are not only dependent on orders from brand-name retail companies, and related international and national trading houses. These production models also display a tightly knit division of labor between small manufacturers in garment production districts, where work is constantly shifted between manufacturers with different specializations. The network character of production affords this industry a way to integrate large amounts of manual labor performing very segmented work without the investment requirements and social costs of large factories. Such production models provide enormous flexibility and adapt quickly to the extreme cycles of global consumer markets. At the same time, these production networks limit the need to concentrate and centralize garment production in bigger factories or companies. This is a major obstacle to industrial upgrading. Under these conditions only few companies take the risk to upgrade production and human resource practices. In the cases we studied, the companies were moving toward a flexible mass production regime of production. Other industries also have their distinct configurations of regimes of production. In the steel industry, which is controlled by Chinese state-owned enterprises with only a small presence of foreign enterprises, the state-bureaucratic regime of production dominates. However, there are important variations between the very large flagship companies such as Baosteel, Wuhan Iron and Steel, or Hebei Steel, and smaller SOEs owned by local governments. Among the latter, production regimes seem unstable due to the impact of privatization, the massive effects of the recent crisis, and restructuring in the wake of Chinese central government’s plans. This instability is highlighted by two recent cases of workers’ violent mass protest against possible plant closures in locally owned steel companies. These achieved national attention in China. In some locally owned steel companies we could observe that state-bureaucratic form of labor relations was combined with massive flexible employment and work, particularly the use of temporary workers. In the chemical industry all kinds of production regimes can be found. China’s major petrochemical corporations have state-bureaucratic regimes of production. Leading Sino-foreign joint ventures and foreign invested enterprises (FIE) fit the corporate bureaucratic category, with some similarities

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to the auto industry cases presented above. Such companies combine vertically integrated models of production with high-wage employment policies. These are designed to attract skilled workers, even at operator levels, and to ensure a steady workplace for reasons of safety. These enterprises provide stable career patterns and relatively low proportions of flexible pay for production workers. Labor relations in these companies are based on a secure status for trade unions. Labor relations also comply with the traditions of the western companies in their home countries. Corporate high-performance regimes of production are practiced by smaller foreign multinationals in specialized segments of the chemical industry. Such companies also have a highly skilled workforce, but wages are lower and the flexibility in pay and career patterns is higher. Trade unions here are mostly weak, and the formal framework of labor relations is designed to meet legal minimum standards. In the one case we could investigate in depth, the Chinese facilities were also affected by the bankruptcy of the foreign mother company. Chinese private enterprises in less specialized segments of the chemical industry mostly cater to the domestic market (typically agrochemicals, pharmaceuticals, or low-end dyes). Classic low-wage regimes of production seem widespread. Some of the more skilled companies are trying to upgrade their labor practices. However, in the one case we could investigate in greater depth, upgrading the technology base of the company did not seem to result in upgrading labor practices. Thus, this produces a similar bifurcation between the production model and labor relations seen in the case of the low-wage classic regimes in the electronics industry, presented above. A closer look at the various dimensions of the regimes of production analyzed for the automobile, electronics, and textile and garment industries reveals the social dynamics and contradictions in many varieties of company labor relations.



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Table 16: Distribution of regimes of production Auto

Corporate bureaucratic

IT/Electronics

Corporate high performance, Flexible mass production Low wage classic

Textile/Garment

Flexible mass production Low wage classic

Steel

State bureaucratic (SOE classic)

Chemical

State bureaucratic, Corporate bureaucratic Corporate high performance

2. Auto Industry Case Studies Summary In the auto industry, regimes of production are relatively uniform in their overall characteristics, but there are significant differences in organizational forms. These differences mainly result from the incorporation of various management models and strategies by leading international automakers in the respective joint ventures. To a certain degree, the diversity at this level reflects China’s long standing industrial development strategy of transferring advanced technology and manufacturing organization into the national automotive sector through large-scale partnerships between Chinese holding companies and foreign multinationals. In our case studies, important variations appear between joint ventures with partners from Europe and East Asia. The production models of the first group, especially case study 1, reflect the gradual but comprehensive adaptation of lean production practices during the recent decades by European automakers. They also reflect the long-standing history of such companies as preferred foreign joint venture partners during the early stages of China’s reform – a time when traditional Fordist models of production were still dominant in the automobile industry in Western countries. In contrast, the East Asian companies under investigation in this study entered the Chinese market at a relatively late stage, since the mid-1990s. They were able to build company-specific systems of lean production from scratch in carefully selected greenfield sites. The factories, therefore, are all modern and rely on new supplier networks, replicating the

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home-grown models of the respective companies. In the joint ventures with European partners, which did not bring (and historically do not have) their own company-controlled supplier networks, more emphasis is given to automation as a strategy for rationalization. At the same time, there is massive pressure to raise efficiency through large-scale outsourcing, mostly in partnership with European and U.S. multinational first tier suppliers. Working conditions and employment policies share many similarities among joint ventures with European and Asian partners. Wages, salaries, and benefits are high, at least compared to existing local standards. Besides the mandatory benefits, these companies provide complementary insurances, especially for pensions and accidents. Although absolute wage levels vary considerably by location, the workforce in these companies enjoys a relatively secure and stable status, accompanied by often substantial leisure facilities. The status of the workforce as a young generation of local worker aristocracies is based on the fact that only urban workers with secure hukou-status are employed in these factories. This picture is changing, however, with the increased use of low-wage temporary workers in production (especially in case study 1), largescale restructuring of already relatively modern factories and product portfolios (case study 2), and modular production. Both trends may substantially threaten the status of the core workers, particularly since a large proportion of the workforce of temporary labor agencies, as well as of automotive suppliers, are rural migrant workers. There are substantial differences between joint ventures with European and Asian partners in workforce recruitment and skill development. European companies have tried to implement their home-grown style of vocational training based on extensive formal education in technical colleges and schools. Asian companies rely on recruitment of very young workers from technical schools, followed by extensive in-house training, internal job rotation, and long-term career prospects linked to further training. The skilled trades – maintenance workers and technical specialists – in these companies are also mostly recruited in-house, often from the ranks of assembly line operators. The more formal and external forms of skill-development among Euro-Sino joint companies promote a broader skill base for individual workers, but also more rigidity in career patterns. These companies tend to recruit higher skilled workers from external labor markets. As case study 2 demonstrates, such externally oriented models of workforce development, following European models of dual professional education in companies and public technical schools, are particularly vulnerable to the heated competi-



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tion for skilled workers in the labor markets of China’s metropolitan growth regions. They are vulnerable also because line workers are becoming potentially over-skilled for assembly work. This situation is particularly visible during restructuring and production slow-downs, when highly skilled workers are kept on short time work or temporarily laid off. These differences are closely linked to the different systems of wage determination. European systems tend to be very formal and based on position. Job classifications, pay grades, and allowances are linked to the description of tasks for each position and the corresponding requirements of skill and work experience. In the respective Sino-East Asian companies, wage determination is based on a mix between position-based and individual evaluation of workers’ skills and personality, which leaves greater room for personal allowances and bonuses. This system is much closer to the philosophy of Chinese human resource management. Since the beginning of reform and opening it has shifted to personal allowances and benefits as incentives for worker performance and loyalty (see chapter I). With regard to labor relations, the companies in our sample all share the characteristics of the corporate bureaucratic regime of production. They comply with labor laws. Unions are well-established and extensively involved in management and party functions, with comprehensive implementation of collective contracts and the related mechanisms of workers representation, including the workers’ congress. Grievances are handled through the trade unions and the unions organize comprehensive activities in the field of employee welfare and leisure. Labor conflicts in all cases only occur occasionally between the companies and individual employees. There are almost no collective labor conflicts. In the Sino-Asian companies, the integration of the trade union with the management and the party organization is even more pronounced. Labor relations in all joint venture companies have a distinctively Chinese character. Neither the European nor the East Asian companies try to import their models of labor relations into their China joint ventures. In the Euro-Sino Joint ventures, there are no distinctively European characteristics of corporatism or social partnership detectable in the industrial relations of the respective companies in China. In the regimes of production in all companies in this industry sample, the contractual regulation of wages and basic working conditions is weak. The collective contracts signed at the plant or company level only describe the general procedures of consultation between management and the union. There are no written collective bargaining agreements on basic wages, job

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classifications, and seniority systems. In most cases the union is familiar with the company system of wage grades and pay determination, but basic wages and pay grades are not made public to the employees. Hourly or monthly pay rates are only fixed in individual labor contracts. At the same token, company, industry, or regional wage standards are not formalized at all in the specific localities. They do not play any role in the determination of company wage systems. For the Sino-Asian joint ventures, this is compatible with the industrial relations systems of the respective home countries of the foreign partners. European companies on their part do not develop any interest in standardizing wages and labor practices through collective contractual agreements with the union, although this might be the existing practice in their home countries. Labor relations in these companies seem very stable. Changing economic conditions in the auto industry may impact the economic foundations of the companies’ internal social contracts, which are part of the corporate bureaucratic regime of production. This may occur in spite of continuing bright predictions of rapid growth for the auto industry in China. Outsourcing and use of temporary workers undermine the nexus between the introduction of modern technology and organization and the relatively upscale labor standards in first-tier car companies. This is especially true because of rapidly growing overcapacity in the auto industry in China. Asian-backed companies with their relatively lean operations and young workforces may be less vulnerable to this pressure. They seem to have a structure in place to deal with such challenges. Nevertheless, the lack of contractual safeguards of basic wages, benefits, and working conditions gives the companies great power to extract concessions from their core workforce.

3. Electronics Industry Case Studies Summary The general picture of production regimes and labor relations in the electronics industry is less uniform and less stable than in the auto industry. Although both sectors represent modern capital-intensive mass manufacturing, their economics and politics of production are quite different. The greater variety of ownership forms, the absence of large SOE or joint ventures as flagship firms, and the importance of overseas Chinese companies in global production networks contribute to this diversity. Electronics production is



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dominated by very flexible forms of work organization and regimes of production that include corporate high-performance, flexible mass production, and low-wage classic. These regimes reflect the transformation of the world electronics industry over the last two decades. This process has been driven by global production networks based on complex divisions of labor in the assembly of systems, printed circuit boards, and key components, as well as in the production of microchips, between technology firms with very limited or no manufacturing resources and large contract manufacturers.113 Electronics assembly has become a low-wage industry, which makes it different from older mass manufacturing industries with a stronger heritage of Fordist forms of production and their related social contracts. This is true internationally as well as in China, as our case studies demonstrate. The differences between the companies in our sample are most pronounced at the level of production models. OBM, ODM, EMS, and other production models, and different conditions in brand-name companies and contract manufacturers, translate into very different production economics. In-house production in brand-name companies in the IT sector tends to be specialized. These companies have very flexible schemes of work organization and a relatively skilled workforce. Enterprises closer to the traditional electrical industry, in areas such as light bulb manufacturing, have more integrated forms of in-house mass production. A new type of manufacturing has emerged in the contract manufacturing sector that employs mass work in the most unambiguous sense of the term, dominated by neo-Taylorist work organization. Due to the cyclical nature of electronics markets and competition within global production networks, the production flow is instable even in the largest companies and most well-established brand-name firms. The enormous layoffs during the global downturn in 2008–2009, and the large-scale rehiring afterwards, affected tens of thousands of workers (see case studies 4 and 5 in particular). This highlights the flexibility of the workforce in these new models of mass production, which was almost unimaginable in more traditional forms of work organization in industrialized countries. The case studies also show that no linear relationship exists between the models of production, the upgrading of the knowledge and skill base in the factories, and the working conditions there. Among brand-name firms, this is particularly demonstrated by electronics industry case study 3, in which government-backed efforts to modernize production and to acquire brand113 Hürtgen, Lüthje, Schumm, and Sproll (2009); Lüthje (2008).

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name status go along with a low-wage classic regime of production. Similar things can be seen in contract manufacturing. This is highlighted by case study 5–3, where an ODM production model, with its relatively high content of engineering and design work, is supported by a regime of production which seems closer to low-wage classic. In work and employment conditions, the general trend is toward a flexible workforce and employment, which affects even the most skilled workers. Compared to the auto companies in this study, almost no stable core workforce exists in electronics companies. In our sample, the electronics brandname and contract manufacturing companies make considerable efforts to establish incentives for retaining highly skilled workers and engineers when they need them (case studies 1, 2, and 5–2). However, these efforts are undermined by policies that individualize pay, performance evaluations, and career patterns, as well as by the absence of institutional salary standards in local labor markets. Some relatively benevolent policies exist for sought-after specialists and high-performing workers. But they reinforce the differences between higher-skilled workers and operators, who in most cases are rural migrant workers from nearby or more distant provinces. Different expectations among migrant and urban workers about overtime work, skill development, and employment security are part of this picture. Income flexibility is high for all groups. Usually the flexible proportion of income is between 30 and 50 percent. For operators it is the result of a combination of low base wages and extensive overtime work. For higher skilled employees it comes from individualized bonus payments and performance evaluation. The only exception in our sample is the company with a corporate bureaucratic regime of production in the tradition of its former multinational mother company. But this production regime is pushed towards the high-performance category as well, especially as a result of the impending restructuring caused by the bankruptcy of its mother company. Labor relations in our sample of electronics companies also differ among various regimes of production. They are very unstable and cause more frequent conflicts, as compared to other industries in our study, especially the auto industry. Unions are weak or non-functional in all examples except one enterprise union. This is also true for multinational companies with relatively strong trade union traditions. There is little correlation between the forms of ownership and the regimes of production. For instance, one former state-owned enterprise in our sample has a low wage classic regime with particularly poor labor practices, resulting in massive workers unrest.



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In some cases, unions have been set up in response to recent changes in labor laws. The changes in corporate policies among the two large contract manufacturers in our example show the effect of the Labor Contract Law and other related government policies on companies with a large migrant workforce. Both companies are implementing new labor policies in ways that ensure management control of trade unions and workers’ representatives. Legal labor practices and acceptance of trade unions are designed to demonstrate corporate social responsibility. Companies also seek to avoid pressure from Chinese trade unions eager to gain a foothold in Fortune 500 corporations. These policies, however, continue to violate Chinese labor laws, especially in regard to overtime. Violations, in turn, are supported by flexible interpretations of the regulations by local governments. The Electronics Industry Code of Conduct, self-proclaimed by major U.S. electronics corporations and contract manufacturers, is typically used to justify illegal practices.

4. Garment Industry Case Studies Summary The social and economic conditions in the Chinese textile and garment industry, and its regimes of production differ significantly from the more capital-intensive and technologically advanced automotive and electronics industries. Although garment manufacturing is labor-intensive, there is no automatic connection between the low capital investment in basic manufacturing processes, low levels of automation, and low-wages. The low wage character of garment manufacturing in China is rooted in the way how it is integrated into global production networks. In addition, the industry’s strategic function in China’s economic development model is as a job machine, to absorb low skilled and poorly paid rural migrant labor, especially women workers. Low-wage classic regimes of production are dominant throughout the sector. Regimes of flexible mass production exist among higher-end manufacturers. State-bureaucratic regimes of production have survived in a few companies, as a legacy of the large state-owned textile and garment industry that existed under the planned economy. But the remnants of state ownership do not preserve the more stable employment relationships of former times. Rather, the remaining state-owned companies are implementing lean and factoryless production with flexible labor practices, as garment industry

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case study 5 demonstrates. Government efforts to upgrade manufacturing give little incentive for improving working conditions and skills. Instead, automation is subsidized with public funds and contributes to the deskilling of the workforce. Models of production in the garment industry are dominated by simple contract assembly (OEM) or by Original Design Manufacturing (ODM). The differences between the various models are not as clear-cut as in the electronics industry, in which large vertically integrated manufacturing companies market their various models of production services to global corporate customers. In textile and garment manufacturing, the differences and transitions are more gradual. Many companies incorporate design capability and full package production and logistics services into their homegrown models of simple contract assembly. They are sometimes very successful at upgrading manufacturing organization and working conditions (as case study 4 demonstrates in particular). The companies in our sample use very different strategies of vertical integration in textile and garment manufacturing. A dominant pattern cannot be discerned. Higher degrees of vertical integration and incorporating design, prototyping, and other knowledge-intensive functions into production portfolios do not substantially change conditions for most workers (an observation also true for the electronics industry and the automotive supply sector). As case studies 2 and 3 show in particular, the most capital-intensive and automated segments of production have the most deskilled labor process. Work and working conditions widely fit the description of low wage workplaces – poor work environment and a very flexible workforce. With one exception, the workforce consists almost completely of migrant workers. In the case of the state-owned company transformed into a fashion trading and design company, the migrant workforce in manufacturing was completely dismissed. The transformed company retained a small number of relatively well paying but flexible jobs for urban residents. The manufacturing companies in our sample typically keep a core workforce of relatively experienced piece-rate workers, who in some cases have spent many years working for the companies. In one example (case study 4), the number of steadily employed workers is quite high, showing that employment stability can be achieved even in an enterprise dependent on global brands. But this policy requires a relatively high degree of organization, integration, capital reserves, and good political relationships.



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In contrast to the automotive and electronics industries, wages in garment manufacturing, and to a lesser degree in the textile sector, are dominated by piece rates. This has been the norm for small- and medium-sized garment factories in many parts of the world, including developed industrial countries like the United States. In China, however, piece rate wages are not regulated or standard throughout the industry. As case study 1 demonstrates, piece rates for standard tasks are well known in a particular location, because of widespread subcontracting among small firms which calculate prices on a piece rate basis. Piece rate pay for workers is negotiated on the shop floor and can be part of an individual labor contract. The pay for individual workers varies greatly and depends on the discretion of line supervisors and managers. Piece rates make favouritism an integral part of workplace management. Impending changes in the labor process driven by increased competitive pressures, stagnating demand in key export markets, and strategies of industrial upgrading pose major challenges to the existing system of wage regulation in garment manufacturing. As case study 2 shows, introduction of automated knitting and sewing equipment goes along with a change from piece rates to hourly wages, since the pace of the labor process is no longer controlled by individual workers but by the machinery. Similarly, schemes of lean production and kanban, aiming at standardizing work flow to eliminate inventory on the sewing line, require coordinating work procedures and work speed between workstations. They reduce the need for speed up through piece rate incentives. Under the impact of industrial upgrading, especially in older and more developed centers of textile and garment manufacturing in eastern coastal provinces, these new trends reflect earlier drives for lean production and automation in advanced industrial countries. They pose substantial challenges to the dominant system for setting wages and the related patterns of control. This may go along with a broader transition from low wage classic to more sophisticated models of flexible mass production, which would mean substantial deskilling and lower wages for the core workforce in garment assembly. Labor relations in textile and garment manufacturing are essentially unregulated at shop floor level. In all cases in our sample, flexible interpretations of labor law play an important role in day-to-day labor practices. The Labor Contract Law and raises in minimum wages have strengthened the positions of workers in some cases. However, the lack of any collective regulation of wages and wage categories makes individual incomes subject to permanent competition among workers over the best jobs, and to their relationships

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with supervisors and management. In the unionized factories in our sample, trade unions primarily exert influence through traditional methods used in collective- and state-owned enterprises. In the case of the former collective enterprise (case study 4), where the general manager of the factory is the chairman of the trade union, this results in a commitment to relatively decent working conditions. In the case of the state-owned enterprise, the trade union continues to mediate the impact of massive downsizing up to a point where it has lost most of its membership and influence in the company. The regulation of piece rates is the key to change in production regimes in the textile and garment industry. The impact of piece rates bargained by the union could not be studied at the shop floor level and therefore deserve further research. From the available information, we conclude that these systems have a stabilizing influence on the industry, but it remains to be seen whether union-bargained piece rates increase the bargaining power of workers on the shop floor.114 In addition to the issue of wages, our studies highlight the importance of employment security as a key topic in the textile and garment industry. It is important not only for urban, but also for migrant workers. Migrant workers, at least those who have gained core workforce status, value stable relations with an employer. As national and local governments have begun to ease long-term residency restrictions for migrant workers in industrialized regions in East China, employment security gains importance. This issue has not been addressed by Chinese trade unions so far. Changes are impending in textile and garment industry workplaces because of automation and systems of lean production. These issues also have been largely unaddressed by unions, including in regions with union-negotiated piece rates. This is a major problem given the widespread efforts of government and industry to upgrade technology and organization in garment manufacturing. To our knowledge, trade unions do not play any significant role in these efforts locally or nationally. A substantial departure from the low-wage manufacturing model in Chinese textile and garment manufacturing would have to consist of a concerted effort to organize unions, to regulate and bargain piece rates and wage standards, and to consolidate industrial clusters into larger vertically integrated companies in strategically coordinated company networks. 114 In his dissertation project currently underway at Cornell University, Zhang is planning to take a closer look at this question.



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5. Diversity of Production Regimes and Instability of Workplace Relations The case studies reveal the growing diversity of production regimes, but also patterns of control and of labor policies in various sectors of the Chinese industrial economy. The regimes display generic institutional patterns and social practices. These can be found in various sectors and locations under different conditions, resulting in similar dynamics for power relations between management, employees, and government. This diversity also points to uniformities in labor policies among major corporations. These show up in best practice models of human resource management and other corporate policies. They are disseminated among human resource specialists, academic communities, consultants, and law firms. These common practices indicate that capitalist companies in China’s market-socialist economy are not simply trying to evade state control of their labor practices. There are common patterns of behavior by employers towards law reform, government policies, and grievances of workers at the shop floor and in labor courts, collective labor conflicts, and public concerns over labor standards. One example is the staggering uniformity of reactions by the two major contract manufacturers to labor policy reforms. Similarly uniform patterns exist in the response of these companies to pressure from NGOs and the Chinese public about the working conditions of migrant workers in their factories (electronics industry case studies 4 and 5). This uniformity supports the analysis of Chinese labor relations scholars, who find that employer interests in China’s current political system are well organized and coordinated (see chapter I.1). This is visible in the debates over labor law reform and employers’ attempts to topple key provisions of the labor contract law through exemptions granted by central and local government agencies.115 Employers’ influence on labor policies is particularly strong at the local level. Companies gain preferential practices and fragmented regulation of labor standards between and even within cities. Our comparative case studies of three factories of a major electronics contract manufacturer (case study 5) demonstrate this. Regulation of shop floor labor practices is politicized under the various regimes of production. But this by 115 Chang, Kai (2009): Laoquan baozhang yu laozi shuangying – laodong hetong fa lun (Safeguarding Labor Rights and Labor-Capital Cooperation – Essays on the Labor Contract Law). Beijing: China Social Security Press, 78 ff.

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no means implies that companies are interested in the regulation of wages, work hours, benefits, or seniority rules, whether at industry, regional, or local levels. Companies of all kinds and nationalities in China enjoy almost unlimited management prerogatives over basic working conditions on the shop floor. Employers have little need to coordinate basic labor policies with employee representatives, trade unions, the government or the Communist Party, or even through employer organizations or bargaining associations. Coordination of basic labor standards, therefore, remains limited to informal consultations on pay for higher skilled jobs at local levels, and gentlemens’ agreements between human resource managers on non-poaching and similar issues. In the absence of collective bargaining, management interacts with government policies and, where present, trade unions. This interaction creates legal, political, and moral rules under which certain elements of the wage relation are regulated. Others are omitted or subject to non-binding consultation between employers and employee representatives. This creates a fragmented system of rules with varying degrees of institutionalization which defines employee-management relations under various regimes of production. As the adjacent table may help to explain, there are certain hard and soft rules, as well as a set of relations that follow no rules other than management prerogative. Hard rules include laws, government regulations, and the provisions of collective contracts related to consultation between management and employee representatives. These rules govern labor contracts, work hours, overtime, occupational safety and health, temporary labor, and minimum wages. The labor systems of companies with state-bureaucratic, corporatebureaucratic, and corporate high-performance regimes of production usually accept such rules. Companies in the flexible mass production and the low wage classic categories increasingly have to accept labor policy reforms due to workers’ growing consciousness about their legal rights. Soft rules are usually embedded in collective contracts, their related agreements on wages and benefits, and government guidelines on recommended labor practices. Such rules, for instance, specify annual wage increases stipulated in collective contracts or certain government guidelines, bonus payments, grievance handling, and employee consultation. Some mechanisms for employee consultation established under Corporate Social Responsibility schemes or foreign models of management-dominated labor relations also fall under this category. Soft rules are basically voluntary agreements between



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management and employees, setting standards or establishing expectations concerning wages and other basic working conditions. They are not binding and can be unilaterally repealed. Often the related agreements between management and employee representatives are not made known to employees, such as the wage classifications in several automotive companies. Most elements of the wage relation at the shop floor level concerning pay, incentive policies, and the organization and quality of work are not subject to legal, contractual, or institutionalized rules. This is true for the precise amount of hourly and monthly wages, wage categories and job classifications, work speed, incentives and performance control, work organization, and seniority rights. The entire field of collective labor conflicts is not addressed under present Chinese labor laws. In the various regimes or production analyzed in this study, these bread-and-butter issues of capital-labor relations are largely unregulated by laws or binding collective agreements, even in companies with very formal labor relations.

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Table 17: Hard rules, soft rules, no rules Hard

Laws Government regulations Collect contract procedures

Labor contract Work time, overtime Basic safety and health Temporary Labor Minimum wage

Soft

Collective contract content Wage agreements Government guidelines

Wage adjustment Payment of bonuses Benefits Employee consultation

No

Hourly and monthly wages and salaries Wage system/hierarchy Performance/work intensity Work organization Seniority Collective bargaining and collective labor conflict

Our case studies illustrate why the foundation for tripartite labor relations in China remains weak, and why workers’ grievances and collective labor conflicts have found channels outside institutional grievance mechanisms on the shop floor and trade union representation. The weakness of tripartism in China’s industrial relations system is not only caused by the absence of trade unions and employer associations at the bargaining table. It is weak because of the lack of contractual regulation of wages and basic working conditions. This is usually the basic object of collective bargaining. Under those state-bureaucratic and corporate bureaucratic regimes of production, stable trade unions play a role in representing employees’ interest based on their political bargaining power. This in turn is rooted in the traditions of the social contracts of earlier periods of Chinese socialism. Under the newer categories of high-performance and low wage regimes of production, unions are either absent or have no legitimacy at all. This explains why in all cases workers’ grievances and mobilizations target the state – because of its function as a maker and protector of laws (labor courts) or as an administrator (usually local labor bureaus). Regimes of production, therefore, can also be linked to certain kinds of labor protest and worker mobilization, which have been analyzed by a growing body of recent literature. In state-bureaucratic labor regimes, massive



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individual bargaining exists, mostly over allocation of allowances, bonuses, and overtime work. Occasionally, massive social demonstrations take place outside of the control of trade unions, the Communist Party, or government agencies. This was the case in the upheavals in the Chinese steel industry in 2002 and in the more recent cases of the occupation of the Lingang and Tonggang steel factories by workers (including the killing of a management representative). In corporate bureaucratic and corporate high-performance regimes of production, conflicts over wages, working conditions, and performance are relatively regulated through formal company wage systems. But massive individual bargaining goes on, especially by higher skilled employees in urban labor markets. In some cases, those employees resort to demonstrations about workplace restructuring, as in the well-reported case of the integration of the Chinese mobile phone factories and design centers of Siemens Mobile into Taiwan’s BenQ in 2006. In regimes of flexible mass production and classic low-wage production, individual bargaining at the workplace is constrained by authoritarian systems of workplace control, which often extend to factory dormitories. The most common tool of workers in individual bargaining is the frequent change of workplaces. This causes high turnover rates and occasional walkouts, supported by public action directed at local governments as in electronics industry case study 3.

Table 18: Patterns of labor conflict State bureaucratic

Individual bargaining, occasional mass mobilizations

Corporate bureaucratic

Limited individual bargaining Individual labor conflicts on pay and job assignment Occasional protest over restructuring

Corporate high performance

Limited individual bargaining Individual labor conflicts on pay and job assignment Occasional protest over restructuring

Flexible mass production

Individual bargaining limited by strict workplace control High turnover Individual labor conflicts over pay and working conditions

Low wage classic

Day-to-day conflicts over workplace discipline Individual and collective labor conflicts over pay and working conditions Occasional mass mobilizations

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6. Management Prerogative and Labor Standards Unfettered management control over basic working conditions produces imbalances in Chinese labor systems, resulting in insecurity for employees about pay, employment, and skill development. It causes a permanent tendency to compensate for low basic income by systematically extending work hours and through individual self-exploitation. Our case studies reveal these common problems under all sorts of production regimes: –– Low base wages and high amounts of variable pay, including allowances, bonuses, and overtime pay create permanent incentives for extensive overtime work. Flexible mass production and low wage classic regimes of production create a combination of base wages at the legal minimum standards and overtime work often exceeding lawful levels. In corporate high-performance regimes, pay flexibility and incentives for overtime are created by various schemes of high-performance work organization and human resource management. In corporate bureaucratic regime of production, extensive personal allowances and bonuses awarded to individual workers, are the key elements of variable pay that are combined with low base wages. Only in corporate-bureaucratic regimes of production are base wages in line with the standards from developed industrial countries, in which they constitute 70 to 80 percent of regular monthly income. Overtime work in most of these companies is kept within legal limits. –– Strong wage hierarchies, along with extensive discrimination against migrant workers, women, and temporary workers, undermine equal pay for equal work. This is the case in all production regimes except the corporate bureaucratic, and some companies under state-bureaucratic regimes of production. The limitation of wage hierarchies in multinationals and joint ventures reflects the traditions of Fordist wage regulation in their foreign mother companies. To a certain degree, it is also a continuation of the Soviet principle of distribution according to labor, which was practiced in Chinese state companies during the 1950s and reintroduced in the early years of reform after the Cultural Revolution.116 The deregulation of wages in the years of market reform after the late 1980s increased pay inequality to an extent unknown in most industrialized countries.

116 Tomba, Luigi (2002): Paradoxes of Labour Reform. London: Routledge/Curzon.



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–– The dominance of individual schemes of performance evaluation, arbitrary distribution of jobs, and the high flexibility of employment create an almost complete lack of seniority-based workplace regulations, job classifications, and job-security provisions. Seniority as a principle of work organization only plays a role in classical multinational and joint venture regimes of production, and to a certain extent in state-bureaucratic regimes. But even in those environments, seniority does not exist as a contractual right, but only as a unilateral company practice. –– The impact of high employment flexibility and low job security is particularly visible in the low-wage mass-production sectors of the Chinese economy – in flexible mass production and low wage classic regimes of production. This impact became greater in the wake of the global financial and economic crisis. Jobs have been shed in large numbers, yet Chinese media talk about a new labor shortage after the crisis. This illustrates the extent to which rural migrants and their home communities bear the social costs of labor market flexibility. Recent changes in labor laws, the Labor Contract Law in particular, have limited some of the worst impacts of employment flexibility on workers. But the basic parameters of labor market flexibility can only be reversed in the long-term by substantially limiting management’s unilateral ability to hire and fire, particularly through imposing safeguards based on collective contractual rights of workers.

7. No New Deal for Workers in China The growing variety of regimes of production in Chinese core industries points to increasing difficulties in establishing socially accepted labor standards. China is facing problems similar to those of advanced capitalist nations. Plant closures, restructuring, and new production models combine with a growing number of non-union workers and migrants with insecure legal status. This combination produces an increasing fragmentation of labor relations between different types of companies, core factories and suppliers, union and non-union workforces, rustbelt and sunbelt regions, and along many other lines of division.

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The forces of the capitalist market in Chinese industry and labor relations have not produced more homogeneous conditions for the working population. Nor have they fostered collective responses to the growing imbalance in power and income between capital and labor. Rather, different regimes of production have become an important element producing and reproducing inequality among workers. The rural-urban divide in the Chinese working class is increasingly an integral part of complex regimes of production. These combine several layers of urban and non-urban workers in different segments of production and labor markets. China’s centralized system of labor relations, embodied in the unified structure of trade unions and national government policies, looks increasingly hollow. The widespread and complex segmentation of the social conditions of production effectively undermines attempts to regulate labor relations and labor standards from above. These attempts produced the labor law reforms of recent years. Nevertheless, those reforms will remain symbolic if labor standards cannot be secured in collective agreements, negotiations with a degree of popular legitimacy, and coordination at industry and regional levels. Experiences in advanced industrial countries show that labor laws only provide a general framework for regulating labor standards. Their material content is defined by power relations between management and labor, and their organizations within factories, companies, and industries. The lack of effective collective bargaining over basic wages, work hours, and working conditions and the absence of contractual agreements on these issues is the common element among the different regimes of production. This commonality cuts across companies and industries, regardless of state dominated or private dominated sectors. Extremely flexible wages and employment conditions are the common denominator of high-end and lowend workplace regimes, often coupled with extensive overtime work. But working hard for low pay is not a biological predisposition of Chinese workers. Incentives for worker discipline and austerity are built into the systems of wages, performance evaluation, and work organization. These create competition among workers in Chinese workplaces. The absence of socially accepted and contractually sanctioned labor standards not only produces enormous inequality in wages. It fosters extreme competition between companies for skilled workers and the consequent labor shortages at all levels. It is also a major cause of extreme income inequality in China, symbolized by the staggering levels of relevant macro-economic indicators such as the Gini co-efficient. Flexibility in pay and employment



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had a particularly negative impact during the recent recession. Companies and industries with a large low-wage workforce of migrant workers shed jobs by the millions. Top-tier SOEs, joint ventures, and multinationals tried to keep workers on the payroll, even during production shutdowns. But in many of these places, workers lost substantial parts of their income since overtime and production related incentives form such an important part of their regular wages. Recent debates on economic strategy in the aftermath of the 2008–2009 world financial and economic crisis have converged on the call for stimulation of domestic demand in major emerging economies. Yet the issue of wage flexibility and its negative impact on workers’ purchasing power in the core sectors of the Chinese economy have never been addressed, neither by Chinese nor by international analysts. The pundits of the global banking and business communities, as well as the relevant government bodies and expert communities in China, have all been silent. Only a few Chinese labor experts are pointing to experiences in capitalist countries during the Great Depression in the late 1920s and 1930s, Roosevelt’s New Deal in particular. At that time, the need to revive economic growth resulted in massive political and social movements in some industrial countries. Workers unionized key industries and established basic standards of pay and decent work through collective bargaining and the expansion of labor rights.117 These ideas contradict the neoliberal thinking which is dominating China’s economic debates, as well as the technocratic approach of reform from above underlying the official concept of the harmonious society. Meanwhile, labor policies in most Western countries have also retreated from the basic post-war social contract. A New Deal for Chinese workers seems far away. Fragmented labor relations and worker representation plus incomplete tripartism seem to define the Chinese situation for the foreseeable future. But the Chinese working class, as the invisible “fourth party” in this system with its often surprising mobilizations, continues to raise the question of further reform. This is the lesson of the massive unrest among migrant workers in South China in the summer of 2010 or the struggles over the restructuring of major steel enterprises in China in 2009.

117 Qiao, Jian (2009): Fazhan he zhuangda gonghui zuzhi de biyaoxing yu biranxing fenxi – laizi meiguo da xiaotiao shidai laogong zhengce de qishi (Importance and Necessity of Union Growth: Lessons from U.S. Labor Policies during the Great Depression). In Xin, Renli: New Manpower (4), 36–42.

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8. Regimes of Production and Industrial Conflict: the 2010 Autoworkers’ Strikes in South China The above analysis of regimes of production may help to better understand the dynamics of labor conflicts in core manufacturing industries, such as the wave of strikes in the automotive supply industry in South China in 2010. The increasing segmentation of production networks and working conditions is at the heart of the crisis of labor relations that the Chinese automobile industry has encountered in recent years. The workers in the core factories of the automobile industry in Guangdong province are among the highest paid in the region. Basic wages averaged at around 2,500 RMB (400 U.S. dollars) in 2010; the companies pay between 13 and 18 monthly wages per year; profit sharing and productivity bonuses are widespread. Overtime remains within the legal limits in China (36 hours per month, based on a 40hour work week). The vast majority of those workers have urban registration status (hukou) from cities in Guangdong province. In supplier companies, mainly migrant workers are employed, similar to the vast light industries for labor-intensive export manufacturing for which the Pearl River Delta is renowned. Although working conditions in many factories compare favorably to those in the myriad of sweatshops in the region, work is segmented and monotonous. In 2010, wages were around the legal minimum of 700–900 RMB. Overtime is extensive and often goes beyond the legal limits, which are not enforced by local governments. Overtime and bonuses usually contribute about 50 percent of the regular monthly pay, which is on average between 1,200 and 1,500 RMB. Turnover in most of these factories is very high, and many of the workers are on placement from technical schools and employed as interns. The differences between core and supplier factories also appear in terms of how the trade unions are structured. In the assembly factories, the official All China Federation of Trade Unions (ACFTU) is well represented. An extensive trade union bureaucracy administers the generous welfare programs of the companies and acts as a consultant to the management on wages and working conditions, but there are no collective bargaining agreements fixing general wages, work hours, and benefits. In most of the supplier companies, trade unions do not exist at all, or they have been installed on behalf of local government or the company management. The Honda gearbox factory in the Nanhai district of the city of Foshan, which became the focus of the labor conflicts in May and June 2010,



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provides a textbook example of a flexible mass production regime.118 The workforce of about 2,000 consists exclusively of migrants, many of whom are interns. For them, the local minimum wage defined and protected their basic wage, and a change in the law thus triggered a strike. After a rise in the legal local minimum wage from 770 to 920 RMB, workers in the factory were expecting a wage increase. The management added 150 RMB to the monthly basic wage but reduced monthly subsidies for food and housing. Additionally, the bonus for regular attendance was reduced from 300 to 180 RMB. As a result, the regular monthly wage of workers remained almost the same. In response, the workers demanded a rise in wages of 800 RMB for all. In addition, some improvements in benefits were suggested, including the introduction of a seniority bonus of 100 RMB on top of the monthly wage for each year that a person had worked at the company, and guaranteed wage increases of 15 percent each year. At the same time, the workers demanded free and open elections of trade union representatives at the factory. During the strike, the local government, along with the trade union and the management, took an increasingly aggressive stance. This resulted in the mobilization of a group of about 100 individuals clad in trade union uniforms, who confronted the workers. The escalation led to the direct involvement of Guangzhou Automotive CEO Zeng Qinghong, who is also a member of China’s National People’s Congress. Trade union representatives from Guangzhou Automotive Group and from the main Honda factories were also involved in fact-finding and negotiations. This finally led to a settlement under which the monthly wages were increased by 500 RMB on average and some further bonuses were paid, although well below the workers’ initial demand of 800 RMB for all. An across-the-board wage rise and the introduction of seniority pay, as proposed by the workers, would certainly have challenged the dominant system of low basic wages and high incentive pay and provided an incentive for workers to stay with the company and develop their skills. Honda and Guangzhou Automotive effectively prevented

118 This characterization is based on insights from extensive research on the working conditions and trade unions in the Honda Nanhai factory by the International Center for Joint Labor Research at Sun Yat-Sen University in Guangzhou. For an excellent interpretation of this research, see Liang, Guowei (2012): Yemao bagong de zhengce: lianjie shengchan guocheng yu CHAM bagong de jiegouxing jizhi (Politics of Wildcat Strike: Linking Labor Process and the Structural Mechanism of CHAM strike). M.A. thesis. School of Government, Sun Yat-sen University, Guangzhou: unpublished manuscript.

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substantial changes in the wage system and thus avoided a precedent for car suppliers in the region and in China as a whole. The events at Honda Nanhai triggered a chain reaction among workers in automobile supply and electronics factories throughout the Pearl River Delta. According to the Guangzhou Federation of Trade Unions, more than 100 strikes occurred in the area during that time, of which only a small number were reported in the Chinese and international media. Eight of the fourteen core suppliers collocated in the area around Toyota’s ultra-modern factory in Guangzhou Nansha experienced labor conflicts. Most of the strikes were settled in a similar fashion to that in Nanhai: the wage increases were of a comparable size in most cases, and the workers’ actions effectively established some kind of pattern bargaining. Also, the employers tried to coordinate with one another behind the scenes. Shortly after the Nanhai negotiations, a group of 100 representatives of car suppliers gathered in Guangzhou in order to discuss ceilings for wage increases in response to labor conflicts.

9. Making Tripartism Work? Policies of Labor Reform in Guangdong Province The strike movement in southern China can be seen as the biggest challenge so far to the existing system of labor control in the Chinese automotive industry and its segmentations along production chains. However, the incidents in the Pearl River Delta should not be misinterpreted as a harbinger of strike waves that will transform the Chinese automotive sector into a new epicenter of global labor unrest. Rather, the strikes mirrored the existing divisions between the core workforces of the car assembly firms and the highly flexible, low-wage workforces at the mid- and low-levels of the supplier pyramids. The increased levels of conflict point to the fact that there has been no substantial turnaround towards a more regulated system of wage distribution, which would bring Chinese car workers’ incomes in line with the rapidly rising labor productivity at all levels of the production systems, in spite of stepped-up government rhetoric in favor of higher wages and domestically centered growth. Substantial wage rises in recent years and rapid improvements in minimum wages in major automobile manufacturing areas do not imply that there will be a basic reversal of social and economic policies in



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China’s major manufacturing industries any time soon.119 The strike movement simply revealed the insufficient protection of wages in the Chinese automotive industry, which, in the absence of collective bargaining, is confined to individual labor contracts and government regulations such as the legal minimum wage.120 Finally, the strikes exposed the huge pay differentials between first- and lower-tier companies, leading to demands of “equal pay for equal work” in the automotive sector by workers and trade unions.121 Within the institutional framework of Chinese labor relations, the strikes once again demonstrated the need for the trade unions to be more independent, not only from the government and the Communist party, but also from employers. The institutional separation of trade unions’ dual functions, representing workers’ interests on the one hand and government-management prerogatives on the other, occurred in a remarkable way, when grassrootslevel trade unions in Guangdong rejected the contribution of “mediators” and began to act as a bargaining representative for workers in a number of car supply factories. This attitude is reflected in part by the union leadership at the provincial and local levels. Provincial trade unions have conducted broad-based investigations into the idea of democratically elected trade unions in factories, in which Honda Nanhai was a model case. Although Guangdong has a reputation for being the most “capitalist” and “market-oriented” province in China, the provincial government took on a leading role in its labor reform. The Guangdong Communist party declared its sympathy with the workers’ demands for higher wages and attempts by local trade unions to play a role in the bargaining. In the aftermath of the strike, a Draft Directive on Democratic Management was published which stipulated democratic elections of factory trade unions, bargaining rights for workers on the shop floor, and a greater role for trade unions in bargaining at the local and provincial levels. Although the democratic potential of shop floor elections remains debatable, the intention of these laws is to establish a new framework for labor relations, resembling corporatist models of cooperation between trade unions, employers’ associations, and the government. The role model for such arrangements is Singapore, but similarities to cooperative models of labor relations in Europe, Germany in particular, are clearly visible too.122 119 Lüthje et al. (2013). 120 Luo (2011). 121 Chen, Weiguang, and Boy Lüthje (2011). 122 Chen, Weiguang, and Boy Lüthje (2011).

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The neo-corporatist elements of such policies become particularly visible when it comes to strikes. “Economic” strikes are accepted as long as they remain confined to the immediate issues of wages, working hours, and working conditions in a specific workplace; a legal framework of procedures for wage negotiations and labor conflict is being created. However, in this model, the right to conduct strikes would be given directly to the trade union, rather than to the workers – a practice quite similar to that in many Western countries with stable union-management relations, such as Germany. A host of legal regulations would define “acceptable” behaviour during strikes and ban certain forms of labor action, such as street protests, the blocking of factory gates, or solidarity boycotts, and strikes at other workplaces.123 Such policies run into tough opposition from powerful capitalist interests in Guangdong and at the national level, especially from the large number of Hong Kong and Taiwan-based companies that operate there. Under the political influence of their allies in local government and the Communist party, any kind of democratic reform in either local government or the trade unions tends to be rejected. However, the trade union reforms in Guangdong have opened the door for collectively bargained labor standards in the automobile sector at the regional level, which could also provide a model for other regions and industries in China. The viability of such a trajectory essentially depends on the question of whether the envisaged independence of trade unions from management and the democratic legitimation of trade unions through democratic shop floor elections will become a reality in dayto-day shop floor practices. In the meantime, the root causes of social conflicts in the production regimes of the Chinese automobile industry remain intact. The situation remains highly unstable, including from the perspective of management. The new large factories of European car companies and their joint ventures in the region built after 2010 will have to find new arrangements if they hope to secure social stability. These new arrangements may trigger substantial reforms in the production regimes of the Chinese automotive sector and perhaps other manufacturing industries in the future.

123 Zeng, Qinghong (2011): Guifan jingji bagongquan - goujian hexie laodong guanxi (Regulate the Right to Economic Strike, Build Harmonious Labour Relations). http://auto.xinmin. cn/rollnews/2011/03/07/9638257.html.

Table and Figure Credits

Tables 1. China’s core manufacturing industries employment . . . . . . . . . . . . . . 21 2. Structure of demand, percent of GDP at current prices. . . . . . . . . . . . 21 3. Typology of regimes of production. . . . . . . . . . . . . . . . . . . . . . . . . . . 29 4. Case studies overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5. Evaluation scheme regime of production. . . . . . . . . . . . . . . . . . . . . . . 32 6. Employment and wages in manufacture of transport equipment. . . . . 45 7. China IT manufacturing revenues by subsectors . . . . . . . . . . . . . . . 139 8. Regional distribution of IT manufacturing revenues . . . . . . . . . . . . 142 9. Top 10 electronics contract manufacturers . . . . . . . . . . . . . . . . . . . . 147 10. Types of production in electronics manufacturing. . . . . . . . . . . . . . . 148 11. Employment and wages in IT manufacturing . . . . . . . . . . . . . . . . . 150 12. Textile and garment production revenues . . . . . . . . . . . . . . . . . . . . . 253 13. China top-ten textile and garment manufacturing enterprises by employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256 14. China garment production by region . . . . . . . . . . . . . . . . . . . . . . . . 259 15. Employment and wages in textile and garment manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265 16. Distribution of regimes of production. . . . . . . . . . . . . . . . . . . . . . . . 319 17. Hard rules, soft rules, no rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332 18. Patterns of labor conflict. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334

Figures 1. 2. 3. 4.

China passenger vehicle sales 2001–2010 (million units) . . . . . . . . . . China passenger vehicle market share by brand names . . . . . . . . . . . . Major joint ventures in the Chinese passenger car industry . . . . . . . . Employment and labor productivity in automobile manufacturing . .

35 35 36 46

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Index

ACFTU 71, 191, 269, 270, 339 Agreement on Textiles and Clothing (ATC) 307 base wages 26, 27, 28, 55, 58, 67, 73, 158, 171–172, 190, 199, 207, 222, 228, 285, 324, 334, 335 China Association of Automobile Manu­ facturers 35, 46 civil society 18 codes of conduct 154, 193, 202, 209, 221, 303 collective bargaining 15, 18, 29, 33, 61, 87, 115, 173, 241, 242, 269, 270, 276, 278, 304, 315, 322, 330, 332, 337–341 collective contract 26, 29, 47, 58, 61, 68–72, 79, 80, 86–87, 95–96, 98, 107, 115, 124, 132, 162, 173, 192, 2025, 210, 212, 221, 232, 238, 239, 249, 278, 285, 293, 303–304, 310– 311, 321–322, 330–331, 336 collective negotiations 18, 86, 241, 270 collective-owned enterprises (COE) 149, 150, 251, 258, 264–266 Communist party 18, 59, 86, 95, 106, 114, 131, 153, 302, 330, 333, 341–343 completely-knocked-down (CKD) 41, 128 Consumer Price Index (CPI) 87, 95, 130, 239 continued improvement process (CIP) 161 coordinated market economies 16

corporate bureaucratic 26, 29, 50–51, 60, 97, 242, 317, 319, 321, 322, 324, 332–335 corporate high-performance 27, 51, 107, 163, 174, 212, 316, 318, 323, 330, 333–334 Corporate Social Responsibility (CSR) 154, 192–193, 202, 209, 303, 325, 331 corporatism 10–11, 16, 321 direct labor (DL) 170, 199, 207, 217– 218, 220, 227, 276 dispatch labor 61, 92, 103 Electronics Industry Code of Conduct (EICC) 154, 192, 201, 216 employee representation 17, 27, 59, 61, 162, 175, 238 EMS (Electronics Manufacturing Services) 146, 195–196, 202, 204–206, 209, 212, 215, 271 FLA (Fair Labor Association) 201–202 flexible mass production 27, 28, 51, 80, 107, 125, 174, 193, 202, 212, 221, 232, 266, 294, 304, 316–317, 319, 323, 325, 327, 330, 333, 334–335, 339 Foreign Invested Enterprises (FIE) 30, 105, 139, 317 Foreign-Sino Joint ventures 30, 105, 139, 317 Fragmented representation 18

352

Beyond the Iron Rice Bowl

global production networks 19, 23, 128, 142, 224, 232, 263, 266, 272–273, 279, 294, 304, 323, 325 gross domestic product (GDP) 20 guanxi 18 harmonious labor relations 16, 17, 69, 106, 132, 241 hegemonic state 18 hukou 55, 159, 170, 174, 320, 338 income distribution 20 indirect labor (IDL) 199, 200–201, 206–207, 217, 220, 222, 227 industrial relations systems 16, 61, 322 industry-wide bargaining 16 integrated work schedule system 293, 303 job security 16, 335 joint venture 9, 22–23, 26, 31, 33–34, 36–37, 39–42, 44, 47–48, 50–52, 59, 61, 63–64, 66, 68–70, 72, 75, 77, 80, 82, 84, 86–87, 89–90, 92, 95–97, 100, 105, 108, 119, 127, 131– 133, 140, 144, 151, 155, 166, 234, 306, 308, 316–317, 319–322, 335, 337, 343 labor agencies 23, 55, 58, 61, 103–104, 108, 113, 130, 206, 208, 320 labor conflicts 12, 17–18, 26–28, 32, 48, 51, 61–62, 74, 81, 88, 96, 99, 107–109, 115, 117, 126, 132, 134, 136, 164–165, 175–176, 183, 186, 192, 194, 203, 213–214, 223, 233, 242– 243, 249–250, 269, 278, 280, 287, 296, 305, 313, 321, 329, 331–332, 334, 338–340 Labor Contract Law 65, 67, 92, 115, 123–125, 129, 154, 162, 182, 190– 191, 201, 206, 209, 211, 218, 222, 230, 240, 248, 277–278, 311, 325, 327, 329, 335

labor laws 15, 17, 26–27, 58, 68, 95, 97–98, 114, 124, 153, 160, 162, 164, 190–191, 201–202, 221, 230, 242, 247–248, 277, 293, 303, 310, 315, 321, 325, 331, 335–336 labor-management cooperation 59, 242 lay-offs 24, 37–38, 170, 174–175, 227 lean manufacturing 23, 40, 204, 275, 300 lean production 40, 48–49, 54, 61, 64, 76, 80, 83, 87, 90, 97, 108, 127, 202, 205, 212, 226, 234, 263, 264, 268, 270, 300, 319, 327–328 line engineers (LE) 158, 160 low-wage classic 125, 184, 222 249, 266, 285–286, 294, 304, 316–318, 323–325 market economy 9, 17 mass production 10, 23, 27–29, 38, 40, 51, 12, 80, 107, 125, 144, 151, 174, 188, 193, 202, 204, 212, 216, 221, 224, 232, 266, 294, 304, 316–317, 319, 323, 325, 327, 330, 333–335, 339 MBO (Management by Objective) 171 minimum wage 17, 27–28, 43,56, 67, 70, 106, 113, 115, 123, 152, 181, 185, 190, 201, 207–208, 210, 228, 231, 240, 247–248, 265, 267, 277, 285, 301, 304, 327, 330, 332, 339, 341 Ministry of Finance 177 Ministry of Labor 293, 303 Motion-Time-Measurement (MTM) 53 Multifibre Agreement (MFA) 257, 309 multinational enterprises 15 National Development and Reform Commission 177 neo-Taylorism 27 New Deal 16, 336–338 NGOs 13, 153, 202, 288, 303, 329 non-union sectors 15



Index

ODM (Original Design Manufacturing) 145–148, 152, 155, 215–216, 220, 222, 224, 244, 261, 271, 281, 288, 298, 323–324, 326 OEM (Original Equipment Manufacturing) 119, 145, 148, 177–179, 184, 187, 244, 261, 268, 271–272, 281–282, 288–289, 297–298, 304, 307–309, 326 OSH (Occupational Safety and Health) 32, 62, 74, 81, 88, 99, 109, 117, 126, 134, 143, 165, 176, 186, 194, 203, 214, 223, 233, 243, 250, 280, 287, 296, 305, 313 outsourcing 23, 42, 59–60, 122, 320, 322 Overseas Chinese (OC) companies 9, 138, 140–141, 169, 322 overtime (OT) 28, 30, 32, 55, 58, 62, 67, 70, 72, 74, 77–78, 80–81, 85– 86, 88, 91, 93–94, 96–97, 99, 105– 106, 109, 113–115, 117, 123, 129–131, 160, 163, 171–172, 174, 181, 184, 189–190, 192, 199, 202, 208, 210, 218–221, 228–231, 239–240, 242, 247–248, 276, 293–294, 303–304, 324–325, 330, 332–335, 337–339 own-brand manufacturing (OBM) 178 PCB (printed circuit board) 144, 152, 168, 188, 195–196, 204–205, 215, 235, 245–246, 323 piece rates 104, 113, 115, 119–120, 124–125, 182–183, 185, 219, 247, 266–270, 275–278, 284, 291–292, 301–302, 304, 311, 327–328 piecework 32, 62, 74, 81, 88, 99, 109, 117, 126, 134, 165, 176, 186, 194, 203, 214, 223, 233, 243, 250, 280, 287, 296, 305, 313 planned economy 24, 29, 39, 47, 136, 153, 198, 251, 258, 269, 310, 325 rule of law 25 rustbelt 25, 336

353

SASAC (State Assets Supervision and Administration Commission) 110, 140 segmentation of work 24, 32, 62, 47, 80–81, 88, 99, 109, 117, 126, 134, 165, 176, 186, 194, 203, 214, 221, 223, 233, 243, 250, 280, 287, 296, 305, 313 social contract 16, 25, 322–323, 332, 338 social insurance 17, 32, 44, 58, 62, 74, 81, 88, 99, 109, 114–115, 117, 126, 130, 134, 149, 165, 176, 186, 192, 194, 199, 201, 203, 208–209, 214, 217, 223, 229–230, 233, 237–238, 240, 243, 248, 250, 277–278, 280, 287, 291, 293, 296, 303–305, 311, 313 social partnership 16, 61, 72, 321 Special Economic Zones 196, 251 state-bureaucratic 26, 51, 241, 312, 316–317, 325, 330, 332–333, 335 sunbelt 25, 336 temporary workers 32, 48, 55, 58–59, 62, 65, 74, 80–81, 83–84, 88, 92, 99, 103–104, 106–107, 109, 117, 122–123, 126, 129, 130, 133–134, 159, 165, 176, 186, 194, 203, 208, 213–214, 223, 233, 243, 250, 275, 280, 287, 296, 305, 313, 317, 320, 322, 335 textile and garment 11–13, 20, 22, 44, 188, 251–254, 256–258, 260– 275, 278, 280–281, 287–288, 293, 296–297, 305–309, 313, 317–318, 325–328 Total Quality Management (TQM) 128, 226, 300 township and village enterprises (TVE) 30, 258 tripartism 16–18, 193, 332, 338, 341 tripartism with four parties 17–18

354

Beyond the Iron Rice Bowl

vertical integration 23, 32, 62, 74, 81, 88, 99, 109, 117, 126, 134, 143–144, 165, 176, 178, 186, 194–195, 203, 214, 223, 233–234, 243, 250, 255, 261–262, 271, 273, 280, 287, 289– 290, 296, 304–305, 307, 313, 326 wage guidelines 17, 56, 67, 77, 107, 239 Workers’ Congress 58–59, 68, 131, 231, 238, 277, 321 works council 9, 16 WTO (World Trade Organisation) 33, 38, 257, 307, 309

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