Bloomberg News

Yue Yuen Says 80% of Workers Return as Strike Costs $27 Million

April 25, 2014

Adidas

Adidas AG's products are displayed at a company store in Beijing. Photographer: Nelson Ching/Bloomberg

Yue Yuen (551) Industrial Holdings Ltd., which makes shoes for clients including Adidas AG (ADS) and Nike Inc. (NKE:US), said more than 80 percent of the 45,000 workers at its Gaobu factory in China returned to work after a strike.

The stoppage cost the company about $27 million in direct costs, including lost profits and additional air freight costs, and the settlement for the more-than-week-long dispute will raise employee costs by about $31 million this year, the Hong Kong-based company said in a stock exchange filing yesterday evening.

Production resumed as China’s human resources ministry ordered Yue Yuen to rectify benefit payments to workers who have demanded more pay and employer contributions to social-security accounts. Yue Yuen didn’t “truthfully report” social-security payments it was making for employees at its factories in Dongguan, Li Zhong, a Ministry of Human Resources and Social Security spokesman, said yesterday.

Yue Yuen will make contributions to cover the missing payments, the exact amount of which isn’t yet determined, according to yesterday’s filing. This is in addition to adjusting future benefits payments and giving workers an additional 230 yuan ($37) a month each living allowance, Yue Yuen said.

The plant that supplies the German sportswear maker in Yue Yuen’s factory complex in the city of Dongguan in Guangdong province is now fully operational, Adidas said earlier yesterday by e-mail. Employees at the Yue Yuen complex had been striking since April 14.

Fix Ordered

Dongguan’s Social Security Department told the shoemaker to fix the situation by yesterday, Li said through state-run china.com.cn. Yue Yuen said last week it would adjust its social-security payment plan effective May 1, according to George Liu, a spokesman for the company.

“The ministry is closely monitoring the development of the situation, and will guide Guangdong province in its handling of the situation to protect the legal interests of workers,” Li said in yesterday’s statement. Li said China passed a law on April 24 in which the action of cheating on social-benefit payments would fall under its criminal law.

Yue Yuen shares fell 5.3 percent yesterday, the biggest decline since May 2013. Taiwan-listed parent company Pou Chen Corp. slumped by the daily limit of 7 percent, the biggest drop since January 2008. The Adidas statement came after Asian markets closed.

The strike began after a worker checked the balance on his social-security account and found the company had been underpaying for its contribution.

Full Contributions

The shoemaker will “make full social-security contribution in accordance with relevant laws and regulations,” Liu said yesterday by e-mail. The plan to adjust payments was made after consultation with government authorities, according to Liu.

China will step up its implementation and supervision of its social-benefits law and improve the auditing of these payments, the human resources ministry’s Li said in the online comments. Authorities will also guide the company and workers to negotiate through unions, he said.

The work stoppage led Adidas to move some future production away from Yue Yuen’s Guangdong province shoe factory.

The production move was meant to “minimize the impact on our operations,” Katja Schreiber, a spokeswoman for the Herzogenaurach, Germany-based sportswear maker, said by e-mail.

Nike

Greg Rossiter, a spokesman for Nike, said on April 24 that the Beaverton, Oregon-based sporting goods company has “closely followed the events” in Dongguan.

“Nike takes a long-term approach to our sourcing decisions and has the flexibility to manage volatility,” Rossiter said in an e-mail.

Nike has plenty of flexibility in its supply chain to make up for any lost production, said Paul Swinand, an analyst at Morningstar Inc. in Chicago. In addition, one of the benefits of working with a vendor like Yue Yuen is that it can shift orders to other countries like Vietnam, he said.

Yue Yuen, which had 423,000 employees as of 2012, also makes shoes for brands including Puma SE, Asics Corp., New Balance, Timberland Co. and Reebok.

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net; Dexter Roberts in Beijing at droberts34@bloomberg.net; Joshua Fellman in New York at jfellman@bloomberg.net

To contact the editors responsible for this story: Stephanie Wong at swong139@bloomberg.net Ben Livesey, John Lear


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