Nokia Upsets “Iron Rice Bowl”

Nokia tips over iron rice bowl

Some longtime Chinese workers at a Nokia (Helsinki: NOK1V) plant in Guangdong got a rude surprise when they were recently asked to take pay cuts, as the former cellphone giant struggles to halt its rapid decline. But rather than accept the cuts, the workers went on strike to protest the cost-saving measure after Nokia’s recent purchase by Microsoft (Nasdaq: MSFT), a move which could offer the best chance of saving the company.

Workers in China and around the world should always have the right to protest unfair treatment by their employers, and that should include the right to strike. But a new generation of Chinese workers also needs to understand that the rules have changed as China transforms to a market economy. That means the days of guaranteed lifetime employment are quickly disappearing, and people need to abandon their “iron rice bowl” mentality.

Workers also need to understand that they need to pick their employers carefully, and that simply joining a famous multinational doesn’t guarantee big wages or job security. Such employers often do provide more job security and better wages when they are thriving. But those same companies also need the flexibility to make quick cuts and take other drastic measures when their situations deteriorate.

Nokia is a textbook case of a company that rose to prominence on its ability to innovate in an emerging field, only to quickly crumble when it failed to anticipate the latest industry trends. In this case, the company became the world’s biggest cellphone maker by designing affordable, high quality products that earned a reputation for dependability around the world.

But it failed to recognize the rapid switchover to smartphones with the rise of the mobile Internet, and has quickly faded as a result. The company once ruled the global cellphone market as little as 3 years ago, but has rapidly seen its share sink and now controls just 15 percent of the market. In a bid to lower costs and halt its rapid decline, the company has been cutting both salaries and jobs globally.

It tried to get workers at a plant in the Guangdong city of Dongguan to sign new contracts lowering their wages, prompting hundreds to go on strike in protest. (English article) The company later fired 59 people who failed to return to their jobs, as other workers threatened to continue striking and voiced broader protest at the changes being made following Nokia’s purchase by Microsoft.

The situation is similar to one that played out last year in Nanjing for Motorola, another former cellphone high-flyer that several years earlier entered a similar downward spiral that ended with its purchase by Google (Nasdaq: GOOG) in 2012. In that case, hundreds of employees took to the streets in protest after they were laid off, criticizing the size of the cuts and the way they were implemented.

In yet another similar case earlier this year, around 200 employees of leading US online jobs site Monster Worldwide (NYSE: MWW ) refused to accept that they were being laid off when the company decided to sell its China operations and exit the market. They held a sit-in in the company’s office to protest, and even prevented some executives from leaving before the dispute was finally settled.

The kinds of issues confronting Motorola, Monster and now Nokia are unpleasant, but they are also quite common in the natural ebb and flow of business. Today’s top businesses often stumble when they fail to anticipate new trends, and many ultimately fail as a result. But before they fail, most will try drastic actions like the ones Nokia is taking. Employees will generally accept such moves, with the understanding that their companies can’t survive if they continue in their old business practices.

But in China, many people who grew up in the socialist era expect lifetime jobs from their employers, and even some younger people have similar expectations. That kind of thinking is outdated and unhealthy, and people with such expectations should realize that lifetime employment is far from guaranteed at major multinationals these days in a fiercely competitive global marketplace.

Longtime workers at Nokia’s factories throughout China should be thankful for earlier years of stable employment and generous wages, which are relatively standard for healthy companies that lead in their sectors. But when things go bad, these same workers need to accept they may need to make sacrifices, and could even lose their jobs, as their employers fight for their own survival.

Bottom line: Chinese workers need to accept that the “iron rice bowl” days are over, and exercise more flexibility and care when choosing their employers.

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