From Corporation, page 25, issue no. 341, Nov 12 2007
Translated by Zuo Maohong
Original article: [Chinese]

Having left his position at Wal-Mart three weeks ago, 29-year-old Li Ming (a pseudonym) is still furious.

After 14 months of service for the Shanghai branch of Wal-Mart's Global Procurement Center, Li, together with more than 20 colleagues, was suddenly dismissed by the retail superstore that is famous for its prudence and standardized management.

Altogether, Wal-Mart's Global Procurement Center has eliminated approximately 110 staff from China, about half of the total number of its global staff reduction.

"The lay-off is purely meant to optimize the purchasing system and totally within the law. Besides, dismissed staff will be fully compensated," Dong Yuguo, public relations director of Wal-Mart China, told the EO.

But some media has interpreted the act as a special response to the new Labor Law, which will take effect on January 1st, 2008.

There's no sufficient evidence for this interpretation yet. But the harshness the company has adopted during the lay-off process had left dismissed workers smarting and thinking otherwise. As a result, the dispute between the company and some of the dismissed, including Li, is going to arbitration after interference from government departments failed. Unconfirmed reports say that the All China Federation of Trade Union and the Guangdong Provincial Labor and Social Security Department have launched investigations into the matter.

A Groundless Layoff?

Li and his colleagues claim they were totally unprepared for what they call the unilateral layoff. On the morning of October 22nd, Li attended a meeting organized by his branch that the company had informed him to. During the meeting, the manager of the branch announced the company's decision to reorganize the purchasing system for the reason that income from the system has been growing far slower than cost. Some staff was laid off that same day.

Following in the footsteps of the purchasing department were the quality assurance department, ethical standards department, and internal audit department, whose management spoke of their decision privately with employees. "The principle of the layoff is to be without principles. Your leaving or staying has nothing to do with your time at the firm, competence, or achievements," says the chief of the quality assurance department, which Li worked for.

Eighteen out of the 53 staff in Li's department were forced out. During the talk, the chief and the human resources manager offered a notice of employee termination and a compensation agreement, but no explanation for the dismissal. The dismissed staff were also informed to leave the company on the same day and stop use of their credit and employee cards, which Wal-Mart had offered them before.

"We were totally unprepared. Neither did the company consult us nor did it arrange other positions for us. We are so angry about the unfair treatment we have received," another employee, Zhao Liang (a pseudonym) says.

According to Dong, the reduction was meant for positions rather than individuals. He explains that after a revaluation of the purchasing system's working procedures, some positions were found to be redundant. For instance, the company claims that it no longer needs to examine products which have already passed quality control procedures at the manufacturer or supplier. "Therefore, the quality inspector position is no longer needed. No matter how excellent the inspector is, he'll be dismissed." says Dong.

But according to Zhao, the work of the dismissed 18 staff in the grocery section is totally the same as what the rest 35 were responsible for, and those dismissed were no worse than those who have survived. "Why should we be expelled now that we are qualified enough for the job and there are no reasonable principles or standards?" he asks.

Such fierce reactions from employees were not found in staff reduction of other branches in Shenzhen and Dongwan, where it is said that clear standards were given. For example, the Shenzhen branch adopted a method of first dismissing those who wish to quit themselves, then the new employees and those with poor performance, and giving priority to stay to old employees and those with outstanding performance.

It's reported that the Center has altogether removed some 250 staff, about 110 of which were from China's Shanghai, Shenzhen, Putian, and Dongwan branches. Elsewhere, purchasing departments in Singapore, Philippines, Sri Lanka, and Turkey were shut down, bringing the unemployment of over 100 people.

The Center was established in February 2002, with its head office in Shenzhen. It has a staff of over 1,600, among which 1,000 are Chinese.

A Response to the New Labor Law?

The timing of the act has provoked suspicion that it is linked to the new Labor Law, which will take effect on the first day of 2008. To dismiss the same number of employees after the new law is put into force will demand stricter procedures and more compensation.

Dong denied the above interpretation, saying that the initial intention of the act was to improve work efficiency rather than to react to the new law.

Other voices say that another reason for the reduction lies in Wal-Mart's shrinking purchasing quantities in China. Statistics from Ministry of Commerce show a mere 30.5 billion yuan of the company's outlay on purchasing in China for the first half of 2007, contrasting with a 70.3 billion yuan outlay for the prior year.

However, according to Dong, the figure remains around 9 billion dollars in the past several years, and the company has never intended to restrain purchasing in China.

He says that before taking action, the company has consulted its attorneys to assure it performs within the law.

After being laid off, Li and Zhao, with some other colleagues, attempted to resolve its dispute with Wal-Mart via Shanghai Foreign Agency Service Department, but the mediation was officially declined by the company on November 6th. The argument then went to arbitration by the municipal labor department and the Federation of Trade Union. "If we are not content with the result after arbitration, we'll consider suing Wal-Mart," says Zhao.

Seeking a Balance

The scandal once again exposed Wal-Mart's precarious position in Chin over the past several years, that is, its challenge to strike a balance between its own principles and the reality of doing business in China, along with how to meet the same requirements it has imposed on its suppliers.

Some industry insiders say that the company's latest move is simply aimed at sticking to its "everyday low prices" philosophy, which demands it to lower costs by all legal means. A staff reduction becomes inevitable when the cost of manpower grows faster than revenue in the purchasing system.

In fact, the concern about potentially rising costs is also partly to blame for its reluctance to establish a trade union in its early days in China.

Wal-Mart has been accelerating its pace of going local by employing more Chinese senior management and building trade unions in the domestic supermarket system.

In order to assure high qualities and low prices, Wal-Mart has put forward a series of severe guidelines for its suppliers, some of which are even stricter than local government regulations.

But according to one laid-off worker, the company demands of itself much less than it does of its suppliers. For example, suppliers are required to adopt a standard working-time system and pay extra compensation for over-time work, yet the company itself fails to do so no matter how late its employees stay.