With thousands of factories likely to close, companies seek protection from disgruntled staff
Tom MacKenzie and David Green 9 November 2008
Former British soldier Stephen Stroud is used to frightening situations, but even he was a bit disturbed when he was detained for 24 hours and abused by angry workers in Guangdong late last year.
Mr Stroud is a risk expert and his services are in demand as the global financial crisis continues to ravage the export-dominated economy of the Pearl River Delta and millions of laid-off workers resort to increasingly desperate measures - including hostage-taking - to salvage what they can from the economic meltdown.
“With the number of job losses increasing every day, the situation is going to get very serious,” warns Danny Lawley, China operations manager for Hill & Associates, the largest risk management firm in Asia.
Mr Lawley speaks from experience. He has already dealt with four abduction cases this year. It was at the end of last year, when factory closures in the Pearl River Delta first started to escalate, that his colleague, Mr Stroud, had his run-in with angry workers while escorting a group of foreign managers.
“Having previously served in the military I’m accustomed to stressful situations, but even I was unnerved - it was very scary,” Mr Stroud told the South China Morning Post. “You’re on your own in there and there’s nothing you can do.”
Hostage-taking is already more common in China than anywhere else in the world, and experts say foreign-invested firms now face a violent backlash as plummeting demand for Chinese exports is expected to leave up to 2.7 million unemployed in the delta by January.
Since 2003, there have been more than 300 instances of kidnapping each year in Guangdong alone, and experts suggest the government withheld its most recent figures in order to avoid causing alarm before the Olympics.
Last week, a British scrap metal company accused its mainland customers of abducting its chief trader and holding him for days before releasing him for a US$350,000 ransom. In October, a man in Shenzhen set himself and his boss on fire in protest at being laid off.
Mr Stroud was detained as he accompanied a team of foreign managers into the factory shortly after they had announced the workforce was being laid off.
“The moment we got on site with the management team the gates were locked behind us and crowds of workers surrounded and attacked our vehicles,” he recalls. Five members of the public security bureau managed to calm the crowd, but they were no match for the nearly 400 workers and their family members who escorted the group to the factory canteen and held them there for 24 hours.
“During that time, the management team were constantly verbally and physically harassed,” says Mr Stroud. “Many of the workforce were drinking.”
David Fernyhough, who manages Hill & Associates’ Hong Kong office, says: “It so happens that dealing with crisis is a major part of our work but being able to manage and deal with physical confrontations is only something that happens as a last resort. There could also be deliberate sabotage and of course there is the threat of reputation damage for the company involved. These actions are borne out of anger and frustration. If you treat people with sympathy and respect most of these risks can be avoided.”
Mr Stroud said his clients, whom he did not want to name, had not taken account of the fact that these workers were losing everything - not just their jobs but their whole livelihoods.
“We did our best to keep the situation calm and encouraged all parties to keep talking. When these factories close up they aren’t just putting people out of work, they’re undermining the entire economy of the village and it’s no wonder the local officials, who have to deal with the resulting longer-term social and economic fallout, aren’t always eager to jump in and help the foreign enterprise.”
After careful negotiation, Mr Stroud’s tactics eventually saw him and the management team released.
Not everyone ends up being so lucky. In December of last year, six South Korean executives from Hwain Spinning were held hostage for more than a week by workers at their cotton factory on the outskirts of Shanghai.
In other cases, foreign company bosses have had death threats, and, in at least one case, have had guns held to their heads.
“Things can get very ropey,” says Mr Lawley, whose company supplies its clients with everything from ex-military ‘risk advisers’ to armoured vehicles to keep them safe. “Our protective security teams are deployed in these situations to try to make sure none of the senior management get hurt and to extract them if things appear to be getting out of control.”
But with a bit of planning, most employers should be able to avoid getting into a hostage situation in the first place. “What we tell our clients is, if you think you’re going to have a closure or downsizing you have to think well in advance about how you’re going to react to that. You have to get everything in place long before you go down to the workforce and tell them you’re cutting jobs.”
Jack Chu, president of Hong Kong-based risk management firm RA Consultants, has 15 years experience in the industry and has often acted as an intermediary between workers, police and corporate staff. His company handles the China operations of US consultants whose clients include many Fortune 500-listed companies.
However, like Hill & Associates, RA deals with the majority of its mainland cases in Guangdong.
“As more and more factories close down and salaries go unpaid, the workers will ask for the money and detain their bosses in their offices,” says Mr Chu.
One case involved a foreign sales manager of a multinational company, which Mr Chu did not wish to name, who was held hostage in his office for three days by disaffected employees. Based on RA’s advice and after consultation with the local government, the payment of the ransom was delayed, allowing police time to use electronic surveillance to track down and capture the kidnappers.
As lay-offs and closures in the Pearl River Delta continue to rise, risk management firms are set to see their businesses boom.
However, the legal landscape of China’s security industry is about to change.
Shanghai lawyer Joseph W. K. Chan says: “Up to this point most security services are state-run - the government has a hand in various aspects of the industry and all firms are subject to the oversight of the public security bureau.” Yet the law is widely acknowledged to be incomplete.
“The current regulations clearly forbid the employment of bodyguards,” says Mr Chan, suggesting firms and individuals circumvent the law by employing bodyguards “under the guise of drivers and secretaries”.
The general manager of a leading Beijing-based risk management firm, who did not wish to be named, said most businessmen recruit bodyguards through personal networks and the army.
Every November, corporate bosses flock to Beijing’s Zhongnanhai, the headquarters of the central government, to conduct interviews with military personnel who are leaving the service and want to move into corporate protection. Others rely on personal recommendations or hire members of their family in order to guarantee loyalty.
But on February 25 this year the National People’s Congress submitted a draft proposal for a revision of the law that will open up the industry to domestic and foreign competition. Under the new law, which is set to be rubber-stamped in spring next year, foreign-invested risk management firms should be able to operate freely on the mainland, providing they have access to one million yuan (HK$1.14 million) in registered capital.
Companies that wish to provide protection, escort and crisis resolution services that involve arms and “special vehicles” will need 10 times that amount, and foreign investment will be restricted to a minority stake. It remains unclear whether the new regulations will include specific provisions for private bodyguards, but the law may include some kind of test for potential heavies.
According to Mr Chu, there are 2.5 million people working in China’s security industry. He expects this to balloon when the new law is introduced next year.
“A lot of private Chinese and foreign companies will enter the security market. The competition will increase, but many of them will not have the experience to provide an international service,” he said.
For the moment, China’s existing security operations are focused on keeping the lid on growing unrest in the Pearl River Delta, and the threat that poses to their foreign clients.
According to the Dongguan City Association of Enterprises with Foreign Investment, a fifth of the 45,000 factories in the delta are likely to close by January.
As Mr Lawley puts it: “All the indications are that we are going to be very busy.”
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Busy times ahead for security firms
With thousands of factories likely to close, companies seek protection from disgruntled staff
Tom MacKenzie and David Green
9 November 2008
Former British soldier Stephen Stroud is used to frightening situations, but even he was a bit disturbed when he was detained for 24 hours and abused by angry workers in Guangdong late last year.
Mr Stroud is a risk expert and his services are in demand as the global financial crisis continues to ravage the export-dominated economy of the Pearl River Delta and millions of laid-off workers resort to increasingly desperate measures - including hostage-taking - to salvage what they can from the economic meltdown.
“With the number of job losses increasing every day, the situation is going to get very serious,” warns Danny Lawley, China operations manager for Hill & Associates, the largest risk management firm in Asia.
Mr Lawley speaks from experience. He has already dealt with four abduction cases this year. It was at the end of last year, when factory closures in the Pearl River Delta first started to escalate, that his colleague, Mr Stroud, had his run-in with angry workers while escorting a group of foreign managers.
“Having previously served in the military I’m accustomed to stressful situations, but even I was unnerved - it was very scary,” Mr Stroud told the South China Morning Post. “You’re on your own in there and there’s nothing you can do.”
Hostage-taking is already more common in China than anywhere else in the world, and experts say foreign-invested firms now face a violent backlash as plummeting demand for Chinese exports is expected to leave up to 2.7 million unemployed in the delta by January.
Since 2003, there have been more than 300 instances of kidnapping each year in Guangdong alone, and experts suggest the government withheld its most recent figures in order to avoid causing alarm before the Olympics.
Last week, a British scrap metal company accused its mainland customers of abducting its chief trader and holding him for days before releasing him for a US$350,000 ransom. In October, a man in Shenzhen set himself and his boss on fire in protest at being laid off.
Mr Stroud was detained as he accompanied a team of foreign managers into the factory shortly after they had announced the workforce was being laid off.
“The moment we got on site with the management team the gates were locked behind us and crowds of workers surrounded and attacked our vehicles,” he recalls. Five members of the public security bureau managed to calm the crowd, but they were no match for the nearly 400 workers and their family members who escorted the group to the factory canteen and held them there for 24 hours.
“During that time, the management team were constantly verbally and physically harassed,” says Mr Stroud. “Many of the workforce were drinking.”
David Fernyhough, who manages Hill & Associates’ Hong Kong office, says: “It so happens that dealing with crisis is a major part of our work but being able to manage and deal with physical confrontations is only something that happens as a last resort. There could also be deliberate sabotage and of course there is the threat of reputation damage for the company involved. These actions are borne out of anger and frustration. If you treat people with sympathy and respect most of these risks can be avoided.”
Mr Stroud said his clients, whom he did not want to name, had not taken account of the fact that these workers were losing everything - not just their jobs but their whole livelihoods.
“We did our best to keep the situation calm and encouraged all parties to keep talking. When these factories close up they aren’t just putting people out of work, they’re undermining the entire economy of the village and it’s no wonder the local officials, who have to deal with the resulting longer-term social and economic fallout, aren’t always eager to jump in and help the foreign enterprise.”
After careful negotiation, Mr Stroud’s tactics eventually saw him and the management team released.
Not everyone ends up being so lucky. In December of last year, six South Korean executives from Hwain Spinning were held hostage for more than a week by workers at their cotton factory on the outskirts of Shanghai.
In other cases, foreign company bosses have had death threats, and, in at least one case, have had guns held to their heads.
“Things can get very ropey,” says Mr Lawley, whose company supplies its clients with everything from ex-military ‘risk advisers’ to armoured vehicles to keep them safe. “Our protective security teams are deployed in these situations to try to make sure none of the senior management get hurt and to extract them if things appear to be getting out of control.”
But with a bit of planning, most employers should be able to avoid getting into a hostage situation in the first place. “What we tell our clients is, if you think you’re going to have a closure or downsizing you have to think well in advance about how you’re going to react to that. You have to get everything in place long before you go down to the workforce and tell them you’re cutting jobs.”
Jack Chu, president of Hong Kong-based risk management firm RA Consultants, has 15 years experience in the industry and has often acted as an intermediary between workers, police and corporate staff. His company handles the China operations of US consultants whose clients include many Fortune 500-listed companies.
However, like Hill & Associates, RA deals with the majority of its mainland cases in Guangdong.
“As more and more factories close down and salaries go unpaid, the workers will ask for the money and detain their bosses in their offices,” says Mr Chu.
One case involved a foreign sales manager of a multinational company, which Mr Chu did not wish to name, who was held hostage in his office for three days by disaffected employees. Based on RA’s advice and after consultation with the local government, the payment of the ransom was delayed, allowing police time to use electronic surveillance to track down and capture the kidnappers.
As lay-offs and closures in the Pearl River Delta continue to rise, risk management firms are set to see their businesses boom.
However, the legal landscape of China’s security industry is about to change.
Shanghai lawyer Joseph W. K. Chan says: “Up to this point most security services are state-run - the government has a hand in various aspects of the industry and all firms are subject to the oversight of the public security bureau.” Yet the law is widely acknowledged to be incomplete.
“The current regulations clearly forbid the employment of bodyguards,” says Mr Chan, suggesting firms and individuals circumvent the law by employing bodyguards “under the guise of drivers and secretaries”.
The general manager of a leading Beijing-based risk management firm, who did not wish to be named, said most businessmen recruit bodyguards through personal networks and the army.
Every November, corporate bosses flock to Beijing’s Zhongnanhai, the headquarters of the central government, to conduct interviews with military personnel who are leaving the service and want to move into corporate protection. Others rely on personal recommendations or hire members of their family in order to guarantee loyalty.
But on February 25 this year the National People’s Congress submitted a draft proposal for a revision of the law that will open up the industry to domestic and foreign competition. Under the new law, which is set to be rubber-stamped in spring next year, foreign-invested risk management firms should be able to operate freely on the mainland, providing they have access to one million yuan (HK$1.14 million) in registered capital.
Companies that wish to provide protection, escort and crisis resolution services that involve arms and “special vehicles” will need 10 times that amount, and foreign investment will be restricted to a minority stake. It remains unclear whether the new regulations will include specific provisions for private bodyguards, but the law may include some kind of test for potential heavies.
According to Mr Chu, there are 2.5 million people working in China’s security industry. He expects this to balloon when the new law is introduced next year.
“A lot of private Chinese and foreign companies will enter the security market. The competition will increase, but many of them will not have the experience to provide an international service,” he said.
For the moment, China’s existing security operations are focused on keeping the lid on growing unrest in the Pearl River Delta, and the threat that poses to their foreign clients.
According to the Dongguan City Association of Enterprises with Foreign Investment, a fifth of the 45,000 factories in the delta are likely to close by January.
As Mr Lawley puts it: “All the indications are that we are going to be very busy.”
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