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Doing Business in China is even Harder than you can Imagine

March 4, 2008 at 9:12 pm · Filed under Uncategorized, Entrepreneurship & Business, Business Climate

I recently heard a story about a German-owned travel company in Shanghai from a friend who works there.  The company has been operational in Shanghai for 5-10years.  When the company started, China forbid foreign-owned travel businesses so the company operated as a ‘consultant’ who just also occasionally booked trips.  (Note: This has changed somewhat since China began implementing the policies of the WTO.)

The company had 4 Shanghainese employees, who kept wanting more and more money for less and less work.  One of them was the flight specialist who had good relations with the airlines.  Each time she booked another trip, she kept pushing the airlines to give her more and more commission, in addition to pushing the company to pay her more.  Eventually the company had to let her go.  When she left she took the entire database of clients with her, then contacted all of them and told them not to use the German-owned company anymore but instead to go through her.

One of the other, now former, Shanghainese employees disgruntled over not being paid more, goes to the police.  One morning she brings the police back to the company and the police demand that the company hand over its server.  The company refuses, saying the police have no search warrant nor other documents allowing them to take the server.  However, the company can’t do anything, so the police take the server.

The 4 Shanghainese employees get together and go to the labor and work bureau and complain that the company never paid any social security for them.  Throughout the term of their employment, the company offered all of the employees the option of paying the social security into the system or giving it to the employees as part of their salary; of course, all of the employees wanted it as salary.  Now, these employees come back saying the social security was never paid for any of them over the last few years.  As such, now the company has to repay all of these 4 employees social security again for the entire length of their employment.

Operating in China is difficult, whether it be because of employee issues or government and legal issues.  This company was by no means operating strictly in the legal realm, which of course is difficult because there are so many gray areas in business and law in China.  But that made them vulnerable when other issues came up.

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mjbphx said,

March 4, 2008 @ 9:42 pm

What a story. Very sad and very frustrating. Things like that can happen in the US, too, though. Employees can report what they think are ‘labor’ violations with the Labor Board or EEOC, Osha violations with Osha, Americans with Disabilities claims and wistleblower claims in court (and recover a percentage of what ever is recovered), etc etc. Even trying to treat people right is no guaranty that somebody won’t be disgruntled anyways. That’s why owners/ CEOs make the big bucks. There are big risks with no guaranties, and they have to be paid for that.

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China Law Blog said,

March 5, 2008 @ 2:25 am

Come on. I don’t know what this company was expecting by failing to pay its employee taxes. This is a basic business mistake anywhere in the world. This is a company problem, not a China problem.

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Luke said,

March 8, 2008 @ 5:35 pm

Employees can screw you over (or just be a pain in the neck) anywhere in the world. I’m growing fast enough that I’ll have to hire a receptionist and associate hypnotist by the end of the year, and I almost want to slow my growth to avoid having to hire help. I can’t think of many people I would trust with my clients.

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Lawrence said,

March 22, 2008 @ 9:35 pm

Social security payments here *are* expensive (for Shanghainese). I don’t have to pay as much for out of town staff - ie waidiren, but for Shanghai staff I do. Social Security adds about 1/3rd of their salaries on top of existing salary.

That said, you have to do things legally, otherwise you can get screwed as in the case above.

This year will see more of this kind of unhappy employee retribution, as employee contracts have become stronger now in some ways, and weaker in others.

See China Law Blogs post here:
http://www.chinalawblog.com/2007/11/chinas_new_labor_law_its_a_hug.html

I made my employee’s all sign new contracts prior to 1/1/08 to cover ourselves. On the positive side, I wrote in specific’s for being late, and holiday / sick days, so I also have a leg to stand on if there are issues.

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