So What if Samsung Violates Labor Laws in China?: Opinion

TAIPEI ( TheStreet) -- If you're thinking "I've seen this before," you probably have.

On Nov. 26, a labor rights group accused Samsung Electronics of hiring girls as young as 16 at two China plants, making men stand while working and requiring workers to sign blank contracts.

Overtime past China's legal limit of 36 hours per month, New York-based China Labor Watch says in a statement, "is perhaps the most persistent and abusive aspect of labor violations in Samsung factories." The non-governmental organization (NGO) cites the results of its own investigations since October.

You may have heard this kind of story before involving Foxconn, which builds iPhones and iPads for guess-who. The giant Taiwanese assembler has survived a riot, a rash of suicides and a strike involving about 3,000 workers in October.

The key word is survived. Apple ( AAPL) gets something like 15% of its money from China -- a number that goes up each year -- as iPhone customers there line up to buy stuff. Chinese consumers still equate the Silicon Valley icon associated with quality among Chinese users and overseas users also hardly flinched at the labor reports. (Apple share prices have fallen since mid-September on supply issues concerning its iPhone 5, not a China problem.)

Given China's chronic chip on its increasingly buff shoulder about being pushed around by foreigners, you might expect consumers to start buying domestic stuff if a foreign firm is mistreating Chinese workers.

Not to condone blank contracts and relentless overtime, but Apple and Samsung are on such a roll that findings by labor rights NGOs are unlikely to dent their electronics.

That means that, whether fair or not, your investments in multinational corporations (MNCs) are safe even if those companies or their suppliers are stung by criticism of their labor practices.

"I don't think this is a key factor," says Wai Ho Leong, an regional economist and Korea specialist with Barclays Capital. "I think investments in Samsung are safe, given the significant improvement in its brand premium that we have seen."

Samsung (005930.KS) shares traded in Seoul also hit an all-time high last month and appear to be unfazed by reports about factories in China. ADR shares of the South Korean firm -- so large that it makes up more than a third of the MSCI Korea index -- also trade in the United States.

In Foxconn's case, the glare of labor issues may even put a shine on new Apple products. China Labor Watch itself says the October strike was due to "strict quality demands on workers" including some related to scratches on phone frames.

"With such demands, employees could not even turn out iPhones that met the standard," the labor group said in a statement on Oct. 5. "This led to a tremendous amount of pressure on workers."

The idea is to stir consumer anger against the firms behind these labor issues and steer them to other products, pressuring the factories under fire to make changes. Shoppers in Western countries are into fair trade. But probably more are keen on buying phones without scratches on the frames.

Share prices of Foxconn's parent company Hon Hai (2317.TW) have bounced around since the suicides at its China factories in 2010, but drops appear pegged to dips in the global economy that would affect consumer demand for electronic devices.

Bounce-backs among MNCs questioned for labor practices don't run in just the tech sector. In December 2011 China Labor Watch reported that cuts in year-end bonuses had set off a strike at the Guangzhou Alei Siti Auto Parts Corp., a factory complex with 1,500 employees who make stuff for Honda ( HMC), Toyota ( TM), Suzuki (7269.T, SUK.F) and Nissan ( NSANY).

Incidentally, China Labor Watch is just one of three well publicized NGOs that follow workplace issues in China. They also don't target only foreign companies.

Japanese automakers took a hit during the anti-Japan demonstrations around China in September following a diplomatic row between Beijing and Tokyo over the control of several small islets.

Share prices of the companies that buy from Alei Siti did slide in December of last year, but so did those of unrelated American automakers. That means something in the world economy, maybe a knock-on from the euro zone-driven fall in financial markets earlier that year, probably affected the whole industry at once.

I asked several public relations pros in greater China about how these companies beat the labor NGO rap, and no one answered. Trade secret?

Drawing on my years as a reporter, I'd guess first that general news audiences are fatigued by the China labor rights story. They've heard it before and may realize, too, that Chinese workers are earning more money now than a decade ago. It would be different if workers were striking at factories in, say, North Korea.

Secondly, MNCs stung in labor rights reports usually respond before a case leaches too far into the media or stops work for too costly a period of time. They often blame contractors, a way to own up (better than a denial) without owning up.

Samsung, the world's biggest smartphone maker, acknowledged labor problems at factories run by suppliers shortly after the NGO report came out. The company said it had checked out 105 Chinese suppliers and would give those suspected of poor labor practices two years to change, the official China Daily newspaper reported. Samsung also called reducing overtime a priority.

Anyway, Samsung earned revenue of 165 trillion won (US$152 billion) last year and 145 trillion won in the first nine months of this year, with higher profits compared to the first three quarters of 2011. You might see a blip or a dip in the fourth-quarter financials following the stir over its China factories, but it's not worth selling shares over. Or you might see more growth in revenue and profits.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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