I had a sense of deja vu on reading reports that a group of workers at an IBM (NYSE: IBM) plant in south China had gone on strike, unhappy about the terms of their transfer to domestic PC giant Lenovo (HKEx: 992) under a recent M&A deal. It seems the workers in the city of Shenzhen were offered similar pay and other terms under the transfer, which came as the result of Lenovo’s pending purchase of IBM’s low-end server business announced in January. But the workers were still unsatisfied, feeling they should get higher pay for agreeing to work at a domestic company rather than the more prestigious IBM.
This kind of strange strike would rarely happen in the US, where most workers realize that M&A and layoffs are normal practice at any company. Such flexibility is a cornerstone of a market economy, and helps companies to maintain their competitive edge in the face of rapidly changing conditions. But Chinese workers, especially older ones who grew up in the socialist era, often feel that guaranteed employment is a given right.
Accordingly, those workers are often shocked when a famous global giant like IBM has the audacity to terminate their jobs or transfer them to another company. I said above that this latest news had a feeling of deja vu, because other big western firms including Motorola and Nokia (Helsinki: NOK1V) have experienced similar headaches when they have laid off or transferred Chinese workers as the result of recent corporate adjustments.
Now that I’ve finished my explanation, let’s look at the latest headlines that have the group of more than 1,000 Chinese workers halting production at the IBM plant this week after being offered jobs at Lenovo. (English article; Chinese article) The deal behind the transfer saw Lenovo pay $2.3 billion for IBM’s low end server business, as the US tech giant slowly offloads its lower-margin hardware businesses to focus on more lucrative IT services. (previous post)
Workers outside the Shenzhen plant said they stopped production early this week, but that IBM’s management is so far ignoring their demands. An IBM spokeswoman said the workers are being offered comparable pay for new positions at Lenovo to what they were getting before, or “equitable severance packages” if they choose to leave. But the workers think they deserve higher pay to work for a Chinese employer, or higher severance packages if they choose to leave.
This kind of strange request and resulting labor action has occurred before. Most recently, hundreds of workers at a Nokia factory in the south city of Dongguan went on strike late last year to protest their transfer to Microsoft (Nasdaq: MSFT), after the former agreed to sell its struggling cellphone business to the latter. (previous post) A year earlier, a group of engineers at a Motorola plant in the east Chinese city of Nanjing also went on strike when their struggling longtime employer laid them off following its purchase by Google. (Nasdaq: GOOG)
In both of those earlier cases, workers were probably shocked when they learned they would be forced to leave their big-name western employers, even though those same workers almost certainly knew their companies were struggling. The same is almost certainly true this time, even though the case isn’t quite as extreme and workers are being offered comparable pay from Lenovo to what they were getting at IBM. At the end of the day, this latest case highlights one of the risks for big multinationals of doing in business in China, boosting their costs and ultimately making the market just a little less attractive.
Bottom line: A strike by Chinese workers being transferred to Lenovo from IBM highlights unrealistic expectations by some Chinese for lifetime jobs when they work at big western firms.