International Law

The Economist does a superb write-up ("Join the Party," May 6th) on China's growing effort to unionize the China staffs of multinational companies in China. Most apt is the magazine's recommendation to the leaders of MNCs: accept unionization as inevitable.

The New Reality in China is that the nation's leaders see the participation of foreign companies as less and less vital to China's economy. (I respectfully disagree with them - I think the importance is changing, but not declining, but leave that aside for the moment.) If foreign enterprises aren't being tossed out of China, the government is determined to strip away the special operating conditions to which companies from overseas have grown to feel entitled.

The recent strike at Honda supports Wolf's thesis and there can be no dispute that the power of Chinese workers has increased vis-à-vis their foreign employers.

But to quote Mick Jagger, does it matter? 

Well of course it matters to the company that does nothing but outsource to China and many of those companies are seriously considering places like Vietnam and Indonesia for their future product outsourcing.  But, and bear with me here, I am of the view that many foreign companies will actually benefit from China's increasing wages.  

Two things lead me to this. First off, in looking back at the work my firm has done over the last year as compared to the work we did over the five years preceding that, I note a major difference.  Three years ago, probably eighty percent of our work was for companies looking to manufacture in China for one reason only: to save on their manufacturing costs. In the last year, I estimate around ninety percent of our clients looking to manufacture in China are planning to sell their product in China either right away of within the next few years. Obviously I am not the first to point out that China is moving from being the factory to the world to being the market to the world.  

Here's the thing though. I have been in Japan for nearly two weeks now, first working on this very public case and then taking on another litigation matter with a short fuse, I have been meeting with a whole host of my firm's Japanese clients, many of whom use us for their China work. They all are talking about the Honda strike and they all are saying pretty much the exact same thing and it goes something like this:

Honda has known all along that it would eventually need to increase wages in China, but the more Honda sells its cars into China, the better it is for Honda that wages go up. China seems to think it can have wages rise at only foreign companies, but we all know that is impossible. Every Japanese company already in China or looking to go to China is at least as interested in selling its product there as it is in manufacturing there and every company with any sense knows that to sell into China, the Chinese need money to buy. Japan's economy has been in decline for a decade and really 'nothing' is happening here. Like it or not, we are all looking to China to buy our products and they are and that is what is going to help us. Some do not like to admit this, but it is true.  

China's increasing wages and unionization, a good or a bad thing? What do you think?

UPDATE: The Wall Street Journal just published an article by two Japanese analysts, entitled, "Automating the Dragon: Rising labor costs present opportunities for the foreign companies that will help China mechanize its factories."