Mitigating the Risks of Operational
Consolidation, Closure or Relocation
Table of Contents
1. Introductions
2. Changing Business Dynamics
3. Current Downsizing/Closure Situation
4. CMP Process for a Major Downsizing & Closures
• Identifying Stakeholders, Risk, and Alignment
• HR, Labor Law, Security, PR, GR Considerations
• Protection of Assets, IP/TS, Management
5. Program Recommendations
Commercial, Operational & Risk Management Advisory Firm in China
Introductions
Moderator
Alex Bryant
Alex founded East West Associates in 2005 to
provide Operational, Commercial and Risk
Management solutions on-the-ground in China
for companies competing in the China
market. Based in China and the US, East West
executives have all lived in China, had P&L and
senior management responsibilities for managing
China-based companies owned by Western firms.
The East West team consists of Chinese and
Western executives who meet this criteria.
Founder & President
Former Director of
International Business
Development for Barnhardt
Manufacturing Company
Prior to founding East West Associates in 2005,
Alex spent eight years as the Director of
International Sales and Business Development
for Barnhardt Manufacturing Company.
Commercial, Operational & Risk Management Advisory Firm in China
Introductions
Nader Zyaei
Jon Anderson
Jay Hoenig
Mark Plum
China Vice President &
Managing Director
Senior Executive Advisor
Director
Director
Former Director for Kyosay
Global and Vice PresidentDirector of Strategic
Services for Boldt
Metronics
Former Chief Operating
Officer Asia Pacific for Hill
and Associates Group and
Chairman of Hill &
Associates (PRC)
Former President of Briggs
& Stratton Asia
(NYSE: BGG)
Former Vice President and
General Manager – Asia
for Lennox International
(NYSE: LII)
Commercial, Operational & Risk Management Advisory Firm in China
Services
The Changing Business Dynamics
in China
Changing
Table of Contents
Dynamics
CHINA’S NEW NORMAL
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Stagnant Global Economies; Exports Slowing; Currency
Strengthening
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Traditional Eastern markets maturing
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Go West Traction Expanding Domestic Market
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Rising domestic and foreign competition
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Government Promoting Consumerism
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Rising Nationalism/Indigenous Innovation/Anti-Monopoly
Commercial, Operational & Risk Management Advisory Firm in China
Changing Dynamics
BUSINESS IMPACTS OF THE NEW NORMAL
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Labor, Material and Services Cost Rising
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MNC’s Restructuring Businesses Ops
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Government Mandated Labor Increases – 15%
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Growing Income Disparity
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Increased Unionization - ACFTU
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Increased Labor Demands and Activism
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Government tolerating Labor Activism
Commercial, Operational & Risk Management Advisory Firm in China
Changing Dynamics
DEMOGRAPHIC, POLITICAL AND SOCIAL CHANGE
Changing work force: older, less mobile, more costly
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Size of working population (15-64) will grow until 2015
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But 15-24 age group shrinking: 225m today, 150m in 2022
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Fewer young workers, but growing numbers of factories
2nd Generation Migrants: Children of Reform Era
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Better educated: exposed to mass media
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More demanding
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More aware of rights: sensitive to inequality
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Different expectations:
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Little experience as farmers
•
Not going back to farm
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More acclimated to city life
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Changing
Review of
Dynamics
China
Most US companies remain optimistic and
continue investing in the China market
29% reported China as their number on global investment priority
96% are maintaining or increasing their investment in China
95% forecast similar investment in 2015
2015 AmCham Business Survey
Commercial, Operational & Risk Management Advisory Firm in China
The Current Downsizing/Closure
Situation
Downsizing
CURRENT DOWNSIZING SITUATION IN CHINA
MNC at greater risk as downsizing precedents set in many
locations.
• First sustained economic downturn in China
• Previous unethical behavior of some FIE’s
• Implied State and ACFTU support
• Inexperience in planning and facilitating downsizing activities.
• Lack of understanding of the intensity of the response
• Unrealistic employee termination expectations
• New Labor law making employee terminations more difficult
• MNC’s misunderstanding of China’s social and cultural aspects
• Mistaken reliance on local government and PSB support
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Downsizing
INCREASINGLY COMMON RISK SCENARIOS
Retaliation against company & personnel
 Factory Sit-Ins (“Squatters”)
 Hostage & Management Lock-Ups
 Death & Personal Injury Threats
 HQ Office Disruptions
 Media distortion
 Negative social media campaigns
Retaliation against company assets
 Work Stoppage & Management Lock-Outs
 Sabotage (Products, Facilities, Equipment)
 Riots & Physical Damage
 Fraud
 Theft (Products, Materials, IP)
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Downsizing
TYPICAL CASE STUDY OF A CLOSURE AND MASS LAYOFF
Client seeks advice on a mass layoff at a Shanghai “manufacturing” facility due to urban
renewal:
• The Company was a WOFE having acquired an SOE years ago.
• Company already given indication to 450 employees that a layoff was eminent
• The HR manager suggested the staff is “very loyal” and there should be no
issues
• The Client intended to make the announcement at a “town hall” meeting on
Company property after hours
• An expat VP would give the announcement and state the reasons why and that
the Company will abide by the Labor Law reference severance pay
• The plant is to be shutdown and production equipment was to be relocated to
a “new” factory in another town
• Very few production staff would be offered new positions
What’s& Risk
Wrong
with thisAdvisory
Scenario?
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Management
Firm in China
Downsizing
THREATS TO CONSIDER
•
The Plant has had a history of labor activism due to the demographics of the production
staff; threats have already been received
•
Employees have had time to prepare an organized response and notify the press
•
What is the compensation package were being considered? Is it based on the labor law?
•
Several plants in the DZ have closed and forced to offer generous compensation packages
•
An on-site town hall meeting significantly exposes both people and assets to security and
safety risks.
•
Having an expat give the message is culturally insensitive; the expat can easily be held
hostage at the facility until demands have been met
•
What security measures will be implemented to protect management staff and secure the
critical production equipment?
•
Has the local government, Labor Bureau and PSB been notified? Are they supportive?
•
What is the closure plan and who is in charge?
Commercial, Operational & Risk Management Advisory Firm in China
The Crisis Management Planning (CMP)
Process
CMP Planning
RECOMMEND A CMP PROCESS TO ADDRESS THE RISKS
 Multifunctional team - identify and address potential risks and plan
mitigation measures; then develop a comprehensive plan based on all risks
 Participants:
 US and PRC Management/HR/legal/Operations/Sales/Security
 Outside consultants
 Multiple confidential meetings - offsite several months in advance
 Key Background Issues:
 Demographics of the workforce
 Current and historical labor relations, current power brokers
 ACFTU union strength
 Local DZ closure precedence
 Previous company severance package precedence
 Government/PSB relations
 Security plan
 Customers, suppliers, other partners
Commercial, Operational & Risk Management Advisory Firm in China
CMP Planning
GENERAL DOWNSIZING AND CLOSURE CONSIDERATIONS
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Labor Law requirements
Compensation and severance benefits
Notification of government, labor bureau, PSB, Tax Bureau, etc.
Notification of staff - Location/Timing/Method of Notification
Physical Security for management and assets; exit Strategies
Public and Media Relations
Customer/Vendor Relations and ongoing commitments
Legal, Tax, & Financial resolution i.e.. Divestiture, deregistration
 Continuing operations/demobilization
 Disposition of plant and equipment
 Preventing IP theft, product tampering, fraud, sabotage
Commercial, Operational & Risk Management Advisory Firm in China
CMP Planning
Potential Stakeholders
Current
Management
Personnel
Laid-Off
Management
Personnel
Owners/
Shareholders
Outside
“Agitators”
Protection of People,
Assets, Information
and Reputation
Customers &
Sales
Commitments
Preferred &
Contract
Manufacturer
s
Suppliers
& Vendors
(2nd/3rd tier)
Retained
Employees
Laid-off Office
Workers &
Their Families
Laid-Off
Factory
Workers &
Their Families
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CMP Planning
OUTSIDE STAKEHOLDER CONSIDERATIONS
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Assess Municipal and Local Government Engagement
 Have a spokesperson and talking points
 DZ may encourage retention/retraining/reduced work hours
 Local officials may not intervene on either side
Labor Bureau / Labor Union – support/interference?
Public Security Bureau
 High threshold for engagement
 “Commercial Disputes” – very high threshold to intervene
 Do not want to be seen as ‘strong arm men’
 Once engaged, may actually inflame situation
“Vanishing” Joint Venture Partners
Local Community and Business reaction
Existing customer commitments
Existing supply chain agreements
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CMP Planning
PERSONNEL CONSIDERATIONS
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Compensation & Severance Packages (housing, transportation, etc.)
 Has a precedent been established elsewhere?
 A reasonably generous package from the outset.
 Timely, clear, concise and accurate compensation package
 Transfers, retraining, housing, out placement services, etc. should be
considered
Employee profiling and local demographics
Honestly assess labor relations history
Who might the potential trouble makers be?
Who are the “power brokers?’’
Is the union the real representatives of the employees?
Message to employees- who/when/where/how/what?
Personnel access to facility/office after announcement
Security issues
Commercial, Operational & Risk Management Advisory Firm in China
CMP Planning
STAFF NOTIFICATION PLANNING & LOGISTICS
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A well-planned termination process and sequence of events is mandatory.
Notification Timing /Approach
 Ensure total confidentiality (internal/external) of your intentions
 Only a small group of trusted managers should be involved.
 Early warning to the affected staff may lead to well-organized resistance.
 Have client decision maker “near by”
Location/ Venue
 Compensation package/incentives/individuals
 Have pay checks available immediately “on site’
 Off-site locations and 3rd Party Facilities (Announcement & Negotiations)
 Type (Government building, DZ building, hotel, etc.)
 Advance security audit visit to all facilities
 Employee Transportation to/from venue
 Exit strategy for management staff
 Physical protection of negotiation site & HR staff
Commercial, Operational & Risk Management Advisory Firm in China
CMP Planning
PEOPLE, ASSETS AND INFORMATION
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Physical Security - People / Facility
 Protection of management and implementation team (during/after)
 Protect and secure plant and equipment
 Sabotage
 Disgruntled workers may consider seizing or sabotaging
equipment, computers, products, etc.
Assess Existing Guard Force Loyalty
 Existing guard force relationship with the employees
 Will guard force team may also lose their jobs
New Guard Force Team
 Consider augmenting /changing the local plant security team with
another vendor with strong connections to the local PSB.
 Careful implementation / plausible reason for switching security team
Commercial, Operational & Risk Management Advisory Firm in China
CMP Planning
PEOPLE, ASSETS, AND INFORMATION
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Protect IP/TS theft during times of job uncertainty
Protect Valuable or Critical Assets
 Consider removing critical company property off site.
 Server access, PC’s, laptops, vehicles, rolling stock, etc.
 Finance, legal and tax information security i.e. chops
Facility Decommissioning and demobilization
 Maintaining a small multifunctional team for operations
 Raw materials, machinery & equipment, inventory, hazmat, utilities,
etc.
 Plant decommissioning – who, when, what, where, how, how long,
etc.
 Equipment disposition – inventory, log, tag, crate, package, ship?
Commercial, Operational & Risk Management Advisory Firm in China
Downsizing/Closure Summary of
Recommendations
Recommendations
RISK MANAGEMENT SUMMMARY OF RECOMMENDATIONS
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Engage a multi-functional Closure Team to develop a integrated plan
Identify the threats and risks and mitigation measures
Develop an appropriate and actionable compensation plan
Liaise with Labor Bureau/PSB/Local government “at the right time”
 Negotiate - Chinese to Chinese - bring in a respected individual to lead
announcement
 Avoid potential flash points - evening meetings where alcohol may have
been consumed - avoid expat management in front of the work force
 Develop a plant decommissioning, demobilization and disposition plan for
equipment, assets and IP/TS.
 Inform existing clients/vendors/suppliers of the transition plans
 Develop public/government/media relation plans
 Be fair but firm…..Give employees what they deserve and a “little more”
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CONTACT
Alex Bryant
Nader Zyaei
Founder & President
China Vice President &
Managing Director
East West Associates Inc.
Phone: (+1) 704-807-9531
Fax: (+1) 704-362-2686
China & United States
abryant@eastwestassoc.com
www.eastwestassoc.com
East West Associates Inc.
China Mobile: (+86) 1582 1332 660
USA Mobile: (+1) 630 386 3254
Shanghai
nzyaei@eastwestassoc.com
www.eastwestassoc.com
Commercial, Operational & Risk Management Advisory Firm in China