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Outsourcing Experiment: Labor Rights on the Rise!

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The last 20 years in China have been like watching the “History of the Industrial Age,” on fast forward. China, the world’s second largest outsourcing market, has gone from an agricultural to an industrial economy in a fraction of the time it took the West. And now, China’s economy is rapidly developing service industries. Every country that has gone from agriculture to industry has had to deal with labor issues along the way. Tight political control by China's leaders has not helped labor unions flourish, and conflicts have been popping up for years. Just after Apple released its latest iPhone, the Chinese company that manufactures these phones has a riot. China’s vast labor force is learning how to flex its muscle, and outsourcing is entering an age of labor issues!

One of the first rules of outsourcing is that you need to understand the stability of the outsourcing location. When workers start to organize, the conditions are rarely stable. Look at the history of labor in the US. Between the Civil war and the 1st World War. During this time, the US evolved from an agricultural society to city-based living and factory-based work, fueling its growth with immigrants from different cultures with different religions, all working side by side. Friction between these groups created some of the violence, but most resulted from a fight for better wages and better living conditions. It’s easy to forget how bad US work conditions were one hundred years ago, even in major US cities like New York and Chicago. Small children worked in dangerous factory conditions, and employers intentionally created hazardous conditions if it increased profits. When the Triangle Shirtwaist factor burned down and killed 146 workers, America began to take worker safety seriously, and enacted laws to protect workers and remove children from the most hazardous work environments.

Today, union work rules, minimum wage regulations, worker safety standards and child labor laws protect workers. Factories can still be a dangerous place, but the equipment we use far safer than a century ago. As the US transitions to a service economy, fewer Americans work in factories and we forget how difficult the work can be. Agricultural workers are now just 1-2% of the US workforce, with more farm workers born in other countries, working in the US as migrant workers. Unions are much weaker than they used to be, and big strikes don't happen very often. Yet, the teachers union in Chicago recently had a strike that shut down the city’s school system. American Airlines has missed many flights due to sick pilots, and last minute write ups of very minor problems (ex.: torn seat pocket). In New York City, police have been arguing for higher pay and have suddenly stopped writing as many tickets as in the past; these minor legal infractions are a major source of city income. Labor doesn't need to riot to let you know it’s unhappy.

Let’s fast-forward to China. While China has some of the biggest (and oldest) cities on earth, their population is still largely rural and agricultural. About 27% of China’s population works in factories and 40% work on farms. Agriculture and industry are begining to fight over land, creating conflict over property, wages, local vs. new workers, and everything else that an industrializing labor force fights over.

Based on the percentage of farm workers, China today equates to the US around 1890. At that time in New York state, was in the middle of building 120 armories to house the National Guard. The armories were placed where organized labor existed, so that they could quickly mobilize to fight and arrest union workers. Perhaps not the most enlightened view today, but one that we can expect to see repeated in China and other locations.

Likewise, the rise of industry in China has brought with it the same sort of industrial accidents that the US and the UK experienced one hundred years ago. Recently, there was a devastating fire in a textile factory in Pakistan. Even though this was a top-ranked outsourcer for US, UK and European clients, the factory managers followed the same bad practices (such as chaining the fire exits close) as the managers responsible for the Triangle Shirtwaist factory fire. China and other offshoring countries are following the same learning curve that America (and England, and France, etc.) followed. These countries are just beginning to head into a difficult time. However, countries like China have been cheap, but not very productive. Although the cost of labor is much lower in China, as of 2010 a Chinese worker was only 27% as productive as an American worker. The battle for greater worker productivity will drive labor unrest.

And that’s what’s been happening over at Foxconn. The recent riot and subsequent factory shutdown resulted from a fight between workers. Previously, there wre large-scale wage disputes and even questions about unpaid students forced to work on the iPhone assembly line. The issues are a bit different than what the US faced, but the big theme is the same: Workers want better wages and better work conditions.

Will Cinese workers choose union to represent them or in a world of social media will they find a different way to represent themselves? One of the big differences between US and Chinese labor history is that consumers in other countries are watching how the government and the factory owners are treating their workers. Apple has let Foxconn know that they are not happy about working conditions and are considering “onshoring” options. China has been willing to stand up to the Japanese military over border issues, the US over military aspirations and the UN over human rights. But China does NOT want a fight with trendy electronics consumers; that’s a fight that will cost them millions of jobs, and they know it.

The history of labor has been the history of confrontation between owners and workers. The top outsourcing locations in the world are now going through their “worker’s rights” phase, as their economies move from farming to factories. These changes are ultimately good for outsourcing, because they will take more unknowns out of the offshore equation, and make it easier to know what you buy when you outsource to a specific location. You still need to do your homework, and understand the details of labor issues. Every outsourcing exercise has risk, including labor risks.

Remember, the country’s labor history doesn’t have to be your labor history. If you work with the right vendors and learn a little about the tensions between labor and management in your outsourcing location, you can avoid the mistakes that other countries, and companies, have made. , You have tremendous influence over the behavior of your offshore vendor, and labor issues they can be as significant a part of your vendor selection process as you like. By choosing the right vendor and making your wishes known, you can have the labor relationship you want throughout your outsourcing program!

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