Meet the American factory owner held for ransom in China

Chip Starnes, the American executive who has been held hostage for six days by disgruntled workers at his factory here, finds himself in a predicament that is far from uncommon in China.

His employees at Specialty Medical Supplies, fearing Mr. Starnes plans to close the factory, are demanding a payout in return for his freedom. That happens “in many of these types of disputes,” says Geoffrey Crothall, a researcher at the Hong Kong based “China Labour Bulletin.”

“Workers take pre-emptive action … as a safety measure. They want to make sure they have cash in hand in case everything goes south later,” he explains.

Starnes, a co-owner of the Coral Springs, Fla. company, insisted Wednesday that he plans to maintain some operations here. But his trouble started when he announced last week that he was shutting down the plastics division in China and moving 30 jobs to India.

That, too, fits a pattern. As labor and other costs here rise, foreign firms that once offshored jobs from America and Europe to China are offshoring them again, this time to even lower cost countries such as Cambodia and Vietnam.

Two thirds of US importers of retail goods have either already moved some of their manufacturing out of China or are considering doing so, according to a survey published last September by Capital Business Credit, a finance company lending to US importers.

“China’s changed,” Starnes said Wednesday, looking back on a decade of doing business here. “In certain situations and for certain products, China becomes difficult and you are forced to look elsewhere to keep your business moving forward.”

Specifically, he said, the injection molding production line, making lancets and syringes for medical use, “requires a lot of labor, and over the last year and a half … we’ve experienced massive labor shortages.” Young people, he said, no longer wanted to do the low-skilled jobs he is offering.

Such labor shortages have become common, especially in southern China, as China’s one-child-policy dries up the supply of new workers. That has driven up wages.

Starnes said his labor costs had “increased double or triple” since he set up here 10 years ago, and that social insurance contributions now added more than 40 percent to his wage bill.

China’s average monthly wage rose from below 1,000 RMB ($161) to 3,500 RMB ($564) from 2001 to 2011, according to the China National Bureau of Statistics.

At the same time, the US businessman pointed out, the Chinese currency has strengthened significantly over the past five years. “We’ve lost 25 percent on the exchange rate” since 2008, he complained.

Meanwhile China’s minimum wage has risen by 20 percent a year for the past three years, and is now higher than in Thailand, Indonesia, Vietnam, Pakistan, Cambodia, and Bangladesh.

That has prompted many companies – especially those owned by Hong Kong and Taiwanese investors – to look elsewhere for a cheap manufacturing base.

“The companies that are moving are labor intensive, low-cost, low-margin businesses such as those making garments, toys, and footwear,” says Mr. Crothall the researcher. “They are the ones that have been fuelling the cheap consumer boom in the West.”

The local government in Guangdong, the southern province where such businesses have traditionally been concentrated, has recently sought to discourage them, in a bid to move local industry up the value chain.

And their departure, says Zhong Dajun, a business consultant to foreign multinationals in Beijing, is in some respects a good thing. “Their profits are very slim, and getting rid of them will save resources such as land and raw materials,” he says.

Meanwhile, Starnes says he hopes to negotiate a deal with his workers by Thursday, so that he can restart the factory’s production line that makes alcohol wipes for doctors and nurses.

“I’d like to think that we still have a going [business] concern here,” he said Wednesday. “My goal and my vision is to hopefully get the alcohol prep pack division back online as soon as possible.”

First, though, he added, after six days being cooped up in his factory by workers who are still blocking all the exits, “I’d like to go to the hotel, take a shower, and change my clothes.”