Author: Tianyi Weng
Under the impact of the reform and opening-up policy in China during the 1980s, more and more Chinese companies started to seek business opportunities in various African countries. According to the data provided by China’s Ministry of Foreign Affairs, the bilateral trade in 1999 between China and African Countries was 7 times more than that in 1979. However, the major players in the mid-1990’s were state-run construction companies such as the China Road and Bridge Corporation (CRBC). Since 2000, small investors and private companies have begun to enter Africa. According to figures provided by McKinsey, China’s foreign direct investment in Africa now grows at approximately 25% annually. Currently, there are around 10,000 Chinese companies in Africa, including tech-driven companies such as Tecon and Kilimall.
A 2015 World Bank report entitled “China and Africa: Expanding Economic Ties in an Evolving Global Context” demonstrated that East Africa is by far the most popular destination for Chinese investors. Kenya, as a vibrant economic giant in East Africa, attracts a large number of entrepreneurs from China. However, due to discrepancies in ideology, culture, and legal awareness, Chinese companies have encountered numerous labor issues in Kenya.
A survey of over ten Chinese companies in Kenya revealed that Chinese companies can be divided into two categories based on their size and nature of ownership and industry. The first type is traditional Chinese companies, which are typically engaged in the construction industry. It includes branches of state-owned enterprises (SOEs), province-owned companies, and some giant private companies. The second type is new generation companies, which are mainly engaged in emerging industries such as technology and operate as private entities.
“The cost of establishing a perfect security system in Kenya outweighs the everyday theft loss. We would rather deal with the theft issue than with the insurance company.” said one Chinese manager at one construction site. Theft is a common issue for both types of companies, and it results in a crisis of trust. In traditional construction companies, the most commonly stolen item is buckles for scaffolding. These devices are often scattered throughout the construction site and are therefore hard to accurately quantify. Sometimes when the company is short of buckles, they go to the local black market for immediate replenishing. However, because each company-produced buckle has a special mark on it and is easy to be identified, companies find that what they bring from the market are usually their own buckles, which they had unknowingly lost in the first place.
To address theft, traditional construction companies usually hire guards from security companies. Managers, however, often describe them as “not useful” and “participating in stealing.” So, companies also purchase insurance to cover their loss from theft. However, the insurance company will only compensate losses above 50,000 KSh in value, and items often lost, such as the individual buckle is relatively cheap, only around 200 KSh each. In order to still get compensation for each individual small-amount theft, the company uses two methods: first, they report several incidents as a single theft issue, whose accumulative value is above 50,000 KES. Second, they exaggerate the value of each individual stolen item and then bribe the reconnaissance surveyor to confirm the exaggerated value. Instead of developing an anti-theft system, they rather simply manage the loss at an acceptable level, which is more affordable, if not effective.
In comparison, new generation tech companies tend to incorporate technology into their anti-theft strategies. A CEO of a phone company said, in their maintenance center, motherboards in phones are what are often stolen. These devices are tiny but expensive, sold for 50,000 KES each. The theft problem has been greatly alleviated by installing cameras everywhere in the center. To avoid a similar problem, a Chinese e-commerce company also installed cameras and infrared alarm device throughout the warehouse. Besides that, they developed a WMS system which can detect the exact location of a product and record the flow of the product. Additionally, they have an insulated area to store expensive inventory, including electronic devices.
“The company will be screwed up if workers join the labor union. Labor Unions will always instigate workers to ask for money. It will make the management very difficult, said a manager at a construction site who doesn’t allow the presence of labor unions in his company. “Without education, low qualified civil workers are easily manipulated,” he added. A construction manager estimated that only 5% of troublesome employees actually have their own agenda; whereas 95% are actually instigated by external forces. According to this manager, labor unions often ask for unreasonable requests. For example, they once asked the company to stop overtime work. However, this request only reflects the wish of a minority. Overtime work can mean extra wages; the majority of workers even ask for additional work during weekends.
In traditional companies, mangers deliberately control the number of workers joining labor unions. They dismiss some union members with excuses such as their tardiness for work, or they just follow the legal procedure and give the employees one-month early notification before dismissing them. According to the managers, this method is effective not only because it controls the number of workers joining labor unions, but also because it warns other workers that “joining union won’t have a happy ending.”
Meanwhile, according to Nairobi Construction Labor Union, some Chinese companies will force the workers to abandon their membership in the union. Whenever the workers decide to join a labor union, they need to fill out an application and sign a contract. Then, the labor union will send the document to the workers’ employer as official notice. After receiving the list of workers, Chinese companies will ask workers to verify whether or not they have actually joined the union. If the answer is yes, managers will ask them to sign a statement stating that he/she is quitting the labor union; otherwise, the worker will be dismissed on account of other excuses.
New generation companies claim that they haven’t had in-depth contact with labor unions, but they also prefer not having them involved. They adopted a more subtle and preventative way to block them out. A CEO of a Chinese phone company said that about two years ago, he noticed the intention of forming a labor union among workers, and then he established a labor committee within the company as a substitute.
In this committee, there are seven members in total – two Chinese managers and five representatives from local employees – representing hundreds of workers. They all have the equal right to vote in this majoritarian democracy. This structure was designed deliberately by the CEO to benefit the company. He explained how the system functions: without the committee, it is difficult for Chinese managers to persuade hundreds of local employees, but with this committee, it is easy for the two Chinese managers to convince two of the other five local representatives to win the majority vote. The committee also serves the purpose of offering a channel for local employees to express their voice. For example, once the local employees asked for tea break during the afternoon, the committee passed the request and implemented it immediately. In such a way, the employees will feel their voices are listened to, requests are communicated, but the company still maintains control.
“We’ve got 300-400 labor issue cases in commercial court currently,” said an HR representative of a construction company. Almost all traditional companies are struggling with lawsuits for various reasons. In contrast, the new generation companies generally don’t have such problems; one of the managers even claimed that they have had zero lawsuits in the past two years.
For old generation companies, one of the most common types of lawsuits is work-related injuries. Buying insurance is a common way to solve this issue. Sometimes, traditional companies will use tricks to save money. A Vice President (VP) disclosed that they have 500 workers in total, but they have only bought 10 insurances without employees’ names on it (not a formal anonymous insurance). When an injury happens, they will then write the injured worker’s name on the insurance. When an investigator comes for verification, the company will bribe the investigator to acquiesce to such an operation.
However, not all Chinese companies know this trick. Another construction company has faced hundreds of charges of work-related injury, most of which, according to the HR department, are faked and conspired with a Kenyan HR expert. When insurance was not applicable in those cases, the company had to deal with it in court. The lawyer fee starts at 25,000, and 5,000 KSh is added for the appearance of the lawyer in court each time. As the fee multiplied with the astonishing total number of lawsuits, it became a financial burden for the company.
For central-government-owned companies and other giant provincial SOEs, they have their own legal departments or at least legal consultants at their Chinese headquarters. In contrast, provincial SOEs and private traditional companies lack such resources and have to deal with lawsuits by themselves. But basically, all traditional construction companies tend to outsource cases to local Kenyan lawyers. More than professionalism, Chinese companies are concerned about these Kenyan lawyers’ ethics and intentions. More than two companies have experienced or heard about how lawyers are plotting charges against Chinese companies. But the challenge they face is that they do not know how to identify the reliability of Kenyan lawyers.
New generation companies have a special way of selecting lawyers. They prefer choosing a young lawyer who has recently graduated from law school. They believe that the young lawyer will be capable of handling a majority of legal issues faced by the companies. This type of lawyer, according to one manager, is “not polluted by the culture of corruption,” so that the companies can build trust and develop their work ethics starting from an early stage of his/her career path.
|Traditional companies||New generation company|
|Theft issue||Turn to insurance companies for solutions||Include tech into management|
|Labor unions||Strong boycott &“Cold treatment”||Preventative; offer committees as substitute|
|Work-related lawsuits||Outsource cases to localshort-term solutions||Develop their own legal personnel|
Why? A Tentative Analysis
This article argues that the reasons underlying the different solutions for dealing with labor issues can be attributed to the nature of the business and company leaders’ understanding of the labor issues.
First, for the theft problem, construction sites’ open working environment makes it less cost-effective to establish a holistic anti-theft system. But for tech companies, a security system in an indoor warehouse is much more feasible. In addition, the items stolen in tech companies are usually far more expensive than those in construction companies.
For the labor union problem, according to three construction company managers, Kenyan civil workers received limited education, and therefore lack “critical thinking and independent thinking.” So when they have complaints about the company, their anger is easily incited and exaggerated by people with ulterior motives who take radical actions. In addition, there is an imbalance between demand and supply in the job market for civil workers in Kenya. When there are more applicants for one position, the construction companies will be reluctant to please the labor unions in order to keep workers, since they can easily find substitutes. But for new generation companies, local workers, such as engineers and programmers, are usually highly skilled and have postgraduate degrees. Their education has equipped them with better judgement in terms of career development, and they generally find more effective, less radical channels to voice their requests.
Other than the objective factors, the subjective attitude of managers plays an important role in these outcomes. In new generation companies, managers are usually the founders of the companies. They are able to implement strategies that are best for the company instead of to please senior-level managers at the headquarters in China. Meanwhile, new generation company managers treasure the harmonious relationship with their employees and value this for the sustainable long-term development of their companies. A local Chinese phone company’s CEO told me that a competitor was willing to pay three times more for his company’s employees. Hence, the ability of creating good incentives for local employees is critical. They have to express enough sincerity when negotiating with employees and satisfy their’ reasonable and affordable requests. The effective communication channel in new generation companies guarantee that without labor unions, employees’ rights can still be protected. In addition, new generation companies’ managers are more willing to treat local workers with friendliness and trust, which is helpful in establishing mutual trust. The warehouse director of an e-commerce business said that “we are confident to give the key of the warehouse to local Kenyans, which is impossible for most other Chinese companies.”
On the other hand, for traditional companies, some, if not all managers, tend to be more passive when dealing with labor problems. More often than not, a manager stays in the branch offices in Kenya for several years and then returns to China for better career opportunities. Therefore, they are less likely to be invested in long-term plans. By viewing how they deal with those labor issues, it is clear that they tend to solve the problems immediately but superficially. They are always quelling the problems instead of solving their inherent issues. They have solutions for dealing with strikes in order to maintain their operations, but they do not think about how to avoid strikes in the long run. This partly explains why they outsource lawsuits instead of developing their own legal department or their own lawyers.
The only exception is state-owned companies (central SOEs) that are directly owned by the central government. They care greatly about their reputation and brand image. They don’t want to lose a profitable deal through trying to save a little. Reputation is important for them, especially if they want to win the bids from organizations such as the World Bank and the International Monetary Fund in the future. Projects from those organizations are very profitable. However, those organizations would take a thorough look at the backgrounds of the companies, especially their construction record, in terms of safety issues and human rights. In that case, although in central SOEs, managers are still sent only temporarily from China, they face the pressure of doing better in dealing with legal issues.