IBM Shenzhen Workers Quit En Masse, Shun Lenovo

Half of striking workers quite at IBM plant

The latest developments in an ongoing strike at an IBM (NYSE: IBM) plant in Shenzhen are highlighting the big gap that still exists between Chinese companies and their western peers in terms of attractiveness as employers. In the latest twist to the story, half of the workers at the south China plant have decided to accept severance packages and quit their jobs rather than go to work for Chinese PC giant Lenovo (HKEx: 992), which is set to take over the plant as part of its purchase of IBM’s low-end server business for $2.3 billion. (Chinese article)

China’s big companies may be able to compete with the big western names on the global stage, as reflected by the recent rise of firms like ZTE (HKEx: 763; Shenzhen: 000063) and Huawei to become 2 of the world’s top sellers of telecoms networking equipment. But those same companies still lag far behind their western counterparts in the eyes of their employees, as this latest strike shows. This case should serve as a notice to those Chinese employers that they need to improve their conditions for employees, or risk seeing the best workers continue to go to their western competitors.

The IBM saga began last week when more than 1,000 workers at the Shenzhen factory stopped working to protest their transfer to Lenovo under the landmark deal announced by the 2 sides in January. (previous post) IBM insisted the workers would get roughly the same pay under Lenovo, and Lenovo itself also said that no one would see their salaries cut. But employees weren’t satisfied with that assurance and didn’t like the severance packages they were offered, prompting them to go on strike.

Now media are reporting that about 500 of the workers have decided to accept the severance offers, while another 20 were fired for violating Chinese labor laws. The departures mean the plant has lost about half of its workforce, which will inevitably create major headaches for Lenovo when it takes over the operation. The loss of so many workers could even potentially delay the bigger deal if more similar strikes occur at other plants.

When the strikes first began, I said that Chinese workers need to realize that lifetime employment at any company is never guaranteed in a market economy, and even big names like IBM need to constantly adjust their business strategy to remain competitive. But this latest case is showing that Chinese companies also need to do some adjustment, in this case changing some of their internal business practices.

This case is all the more poignant because Lenovo is actually considered one of China’s top domestic employers, and is known for its relatively high salaries and good treatment of workers. So if even Lenovo can’t retain these IBM employees, one can only imagine how difficult it must be for other major Chinese employers. I frequently hear stories of the long hours that employees have to work at Chinese companies, with Huawei one name that comes up frequently as a very demanding employer.

Smaller companies are even more demanding, often giving their workers annual leave but then rejecting their requests to actually take vacation on any days except the big national holidays. This latest IBM case should come as a wake-up call to China’s globally minded companies that they need to treat their workers better as they expand into other markets. Otherwise, they will risk getting labelled not only as undesirable employers around the world, but also will end up losing the best and brightest workers to better-run multinationals.

Bottom line: Globally minded Chinese companies should take the strike at an IBM plant in Shenzhen as a wake-up call that they need to improve their working conditions.

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