Implications of Yum and McDonald's Foreign Labor Policy 10 comments
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Further, more than 74% said harsh punishment can prevent other foreign companies from doing the same thing.
Regardless of what the facts may be, or whether or not Yum and McDonald’s are in the right, the two statistics above should be enough to prove, once again, that foreign companies operating in China need to make sure they are not only always in the right, and that everyone knows it.
A quick visit to our BRANiDamage page, and you can see that Dell (DELL), P&G (PG), Apple (AAPL), and others all found themselves in the middle of a PR storm that could have been avoided, but wasn’t.
Luckily, none of these events have yet to have a bottom line impact yet, however for companies like McDonald's and Yum, the risk is a real one. Gone are the days where the town is abuzz of the first Mcdonald's in a city.
Yum reports on its website that it has 2400 stores (1600 KFCs in China alone) bringing in more than 200 million USD in operating profit for the group. McDonald's has 880 stores in China, just opened its first drive through, and had just recently announced that they would open another 300 stores in China over the next three years.
However, all of that can disappear, and the result for some will be nothing less than catastrophic. Sure, sales in China are not at the level of the U.S. yet, but the hope for all is that they will be, and for investors in these stocks it will be critical to understand the implications there.
After all, should this investigation show that one or both companies underpaid their staff, it will be the company (and its investors) who will be made to pay the price.
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If you google 47,839 respondents you will find that there are two hits for WSJ, and both of them link to the article you are currently seeing.
So, until tomorrow.
What I think we are going to find (and the final word is not in yet), is that MCD and YUM violated the laws of China. However, for the context of this discussion, put all that aside and focus on the fact that 94% of 46,739 people believe that they were wrong.
For me, it is not about whether or not they were wrong, and more over whether or not MCD student employees live in the best dormitories in town. The important issue is the effect a student led China-wide boycott could have on a company's stock price, be it MCD, YUM, or any one of the reported 90,000 firms in China.
there have been a number of cases recently that have sparked controversy, and in the case of P&G their Shanghai office was ransacked; in the case of Dell, a single student created such on online uproar that the computer company had to publicly acknowledge their error and replace not a single laptop but hundreds; and at some point, these forces could come together against a firm who is seen to exploit one group or another.
Again, paying your student employees in China a third of the minimum wage may not be illegal in the U.S. , but at some point it will become an issue for U.S. investors.
In response you your comment, we found not only a Chinese version of the original article, we also found the original source <strong>Sina Poll here</strong>.
I have also update my original posting on <strong>All Roads</strong>.
Minimum wage in China is similar in structure to U.S. minimum wage. There is a Federal rate (US $5.15) and a State (or Province) rate (CA$8.00). The higher of the two is the minimum. In China, 'Federal' rate is about $0.80.
Saul's assertion is correct. If KFC were to pay a third of US Federal minimum, it would be equal to Chinese government civil servant pay; approximately $330 per month. They are not paying such high wages. Minimum wage in China is about $100 a month, 30% of civil servant wages.
Both KFC and MCD pay tenured employees above the minimum. Odd job and haphazard work is common in China and pays $0.40 to $0.50 per hour. This is legal and keeps people from starving. KFC and MCD tend to throw in a meal as well.
The poll quoted is a bit perplexing. Does this mean that most Americans are clueless as to what goes on outside of the United States? It is a big world out here.
CrossProfit (BBK)
www.crossprofit.com
Website unrelated
I am not following the 1/3 of U.S. wages angle on this as Guangzhou is clear about their level of minimum wage for part time and for college students. It is not based on a monthly wage, but an hourly, and the reports are that all three chains were below the minimum hourly wage.
With that being said, I have read that the law had just been passed the day before this story broke, and so IF that is the case, then someone was just gunning to get the chains unionized.
Either way, my point is more related to the perception of whether or not they broke the laws and what the potentials were following that. (Crossprofit - the poll was a sina.com based poll asking Chinese readers (1) if they thought these chains were wrong in paying so little.. and (2) if the chains should be published.
Again, in my eyes it is NOT a matter of whether or not they were paying more, less, or at the minimum level. It is about the fact that of 52k people who took the time to vote, it was very clear that the brands were not being favored.
This time nothing happened, and there doesn't appear to be any backlash, however at some point it will be happen and it is time for foreign companies to get right.
The poll is a flashing red light.
I was referring to the love/hate relationship that the Chinese have with America. This is directly related to the image problem described in your article. The facts can be wrong; it is the perception that counts. Most Chinese feel that Americans take advantage of Chinese. Most Americans feel that the Chinese are undermining the American economy. This 'two way street' is on a collision course.
Corporate America can not change this. This has to come from Leadership. Both governments have to reach a status similar to the UK/US level of cooperation. If the US administration views China as a threat, then China and in extension the Chinese people, reciprocate. Once most Chinese and Americans trust each other and work together assisting one another in building better lives, then a poll like this would be outrageous, not perplexing.
Correction entails cultural understanding and resolution from both sides.
China has to seriously deal with American and global sensitivities. Copyright, intellectual property issues and bilateral trade & subsidies are a prerequisite for continued US cooperation and are a trust building cornerstone. The transformation from isolation to collaboration requires a mentality modification.
The US has to learn that what is said behind closed doors can not be made public. A Presidential statement expounding upon the mutual goals and high regard that both cultures have for each other, would ease tensions and go a long way towards achieving the desirable outcome. President Bush should deliver a friendly statement in a non condescending tone.
Both governments have to earnestly believe that they are on the same side and not trying to outsmart the other. Dynamic competition is productive as long as the rules are clearly defined and adhered to. By setting open economic benchmarks, each government spelling out their own goals for their own economy, without telling the other what they should want or do, would pave the way to mutual economic expansion.
Both governments are equally to blame for the forthcoming crash, each in their own way.
CrossProfit (BBK)
www.crossprofit.com
Website unrelated
All fair points, and well laid out.
Both Yum and McDonald's have been "cleared", and it only makes the point all the more clear. It is a matter of public perception, and in the case of McDonald's this recent controversy resulted in union talks being moved up.
As you state, both governments are playing a role in this and it is unfortunate. Recently, the U.S. side has been on the offensive and the Chinese side has taken a few reactionary jabs. I think the ball is in the court of the U.S., and it is time that the U.S. begins addressing the issues before them (internally and externally)..
With regard to the role that Corporate America has, I think that there are a number of things they can do to reduce the tensions, but few will do so. Few will give up cost savings, few will open their books, and few will go public and criticize poor policies.
I wouldn't expect that any more than I would expect a politician to stand up and say that it would be more effective to lean on big box retail than on the RMB in trimming the trade gap.
Rich
allroadsleadtochina.co...