Adidas Deals With Striking China Factory by Moving Orders

Adidas AG is moving some production away from Yue Yuen Industrial Holdings Ltd.’s shoe factory in Dongguan, China, where a strike over benefits and pay disrupted output for a week and a half.

“In order to minimize the impact on our operations, we are currently reallocating some of the future orders originally allocated to Yue Yuen Dongguan to other suppliers,” Katja Schreiber, an Adidas spokeswoman, said by e-mail. The Herzogenaurach, Germany-based sportswear maker “has a highly flexible supply chain in place.”

Sports and casual shoes of brands including Nike Inc., Asics Corp., New Balance Athletic Shoe Inc., Puma SE and Timberland Co. are made by Yue Yuen, the world’s biggest branded footwear maker and operator of the 1.4 million-square-meter (15 million square feet) Dongguan complex in southern China. Employees at the site, where more than 40,000 people work, have been striking in a dispute over compensation since April 14.

Yue Yuen is “still committed” to maintaining production in Dongguan and won’t comment about any particular customer, George Liu, a spokesman for the Hong Kong-listed manufacturer, said by e-mail yesterday. The company had 423,000 employees as of 2012 and factories in China, Vietnam and Indonesia, according to its website.

Some workers were still striking, while some others had returned to work today, Liu said by telephone.

Benefits Dispute

Yue Yuen did not “truthfully report” social security payments it was making for employees, Li Zhong, a Ministry of Human Resources and Social Security spokesman, said today. Dongguan’s Social Security Department told the shoemaker to correct the payments by today, Li said in comments posted on the state-run website. Yue Yuen last week said it would adjust the social security payments plan effective May 1, according to Liu.

Yue Yuen dropped 5.3 percent to HK$23.45 at the close in Hong Kong trading, extending its decline in the week to 10 percent, the most since June. The company’s Taiwan-listed parent, Pou Chen Corp. today plunged 7 percent, the exchange-imposed limit, to NT$36.75 in Taipei trading.

Adidas was little changed at 76.76 euros as of 10:42 a.m. in Frankfurt.

Nike and Adidas are the main clients for the Dongguan factory, according to Liu of Yue Yuen.

Adidas said Yue Yuen’s parent Pou Chen is “in discussions with local government and the trade union federation to seek ways to address the concerns expressed by the workers.”

Nike ‘Flexibility’

Greg Rossiter, a spokesman for Nike, declined to comment on whether the company had shifted production to another factory while saying the company “takes a long-term approach to our sourcing decisions and has the flexibility to manage volatility.”

Beaverton, Oregon-based Nike has also been talking to the factory’s management on how they plan to resolve the impasse, Rossiter said.

Nike has plenty of flexibility in its supply chain to make up for any production lost by the strike, said Paul Swinand, an analyst for Morningstar Inc. in Chicago. The company contracts with more than 740 factories, including almost 200 in China. Plus, one of the reasons to use a vendor like Yue Yuen is because it can shift orders to its other factories in countries like Vietnam, he said.

Some equipment at part of Yue Yuen’s Dongguan factory was being removed and put into trucks, monitoring group China Labor Watch reported on its website.

“Adidas made a decision to pull out or relocate molds at a time when doing so deeply concerned workers,” Kevin Slaten, China Labor Watch program coordinator, said by e-mail. “It is important that Adidas consider workers’ perception and interests before taking action like this, especially during a strike.”

Pay Offer

Yue Yuen offered to add a monthly living allowance of 230 yuan ($37) at its factories in southern China starting May 1, Liu said April 21. It also agreed to bring forward to next month a social-security benefit plan originally scheduled for 2015, he said.

Monitoring group China Labour Bulletin said on its website that strikers at the Dongguan facility numbered at least 10,000, while Yue Yuen said April 16 that more than 1,000 were involved.

Police with riot gear and dogs were present outside Yue Yuen’s Dongguan complex on April 21.

Dozens of workers were taken away by police last week, the official Xinhua News Agency reported April 17, without saying why the workers were taken. No one was injured and there were no clashes, Xinhua reported.

Police have told workers not to congregate around the factory, said three workers who asked not be identified for fear of losing their jobs.

Activist Freed

Zhang Zhiru, manager of the Shenzhen Chunfeng Labor Dispute Service Center, said by phone today he was released last night after being taken away April 22 from the factory by Chinese public security officials. He said he doesn’t know the whereabouts of colleague Lin Dong, who had also been questioned by officials.

Zhang and Lin met factory workers on Monday to help them pick a group of representatives of employees in Yue Yuen factories.

“Up to then, the strike demands from workers had not been very uniform,” said Shenzhen, China-based Zhang, whose agency offers legal assistance to factory workers and holds training courses on collective bargaining with companies.

IBM Workers

Zhang said he was detained after being asked to meet with Dongguan city security officials, who then asked him and Lin to sign a declaration that they wouldn’t get involved in the strike at the Yue Yuen factory. Both refused, Zhang said.

Public security officials then took away the two activists’ mobile phones and brought Zhang to a villa in the Guangzhou area of southern China, he said. They took Lin separately, Zhang said.

“I asked them when I could return home, and they said once the workers at the shoe factory return to work, I could,” said Zhang, who said he had previously helped striking International Business Machines Corp. workers. “The public security officials said they would bring me to have some fun and asked me to call my wife and say that I was on a holiday with friends,” he said. Zhang said he wasn’t mistreated.

— With assistance by Dave McCombs

Before it's here, it's on the Bloomberg Terminal.