Contingent employment in China and its implications for the automotive sector

Abstract:

The reliance of automotive manufacturers, like the manufacturing sector more generally, on a segmented ("dual") workforce of permanent and contingent workers is a well-established phenomenon in China and beyond. However, the specific form, extent and practices of this segmentation are changing over time, driven by competitive and cost pressures, labour market regulation and the innovation of new forms of employment. This paper analyses these changes in the Chinese context, paying particular attention to the automotive sector and the shifts that contingent employment has undergone within it. It draws on comparative, qualitative research into contingent employment practices in four large multinational and one domestic company in China, including a Western automotive OEM.
In the early 2010s, new legislation was introduced that restricted the use of contract (“dispatch”) labour, which had been the dominant form of contingent employment in the automotive sector. This prompted organisational responses that for our sample organisations reflect the expected lines of 'varieties of capitalism', with European organisations taking a more centralised/conservative, US organisations a more decentralised/flexible and our Chinese organisation a decentralised/proactive approach to the use of contingent labour. The more significant effect of these institutional changes, however, has been the increased role of staffing agencies, which have innovated a new type of contingent employment that circumvents legal restrictions on agency work, leaves day-to-day management in the hands of the client company, and further reduces its legal and financial responsibility for the workforce: "position outsourcing". The implications for the EV sector remain to be seen, but three preliminary implications and trends can be identified:
1. Higher margins at the top of the EV chain may not yet encourage greater use of contingent labour. However, as the industry matures and cost pressures increase, this is likely to change.
2. Unlike previous attempts at large-scale outsourcing, which have raised the issue of reduced control over suppliers (e.g. VW's Resende plant), "position outsourcing" creates the possibility for a client company to keep processes in-house and retain full control over day-to-day workforce management and quality control, while offloading payroll and all employee-related risks to a staffing agency. This could make it a particularly attractive employment solution for a vertically integrated, low-cost model.
3. Staffing agencies are likely to play an increasingly important role in the employment relationship at the upper levels of the supply chain, because they provide off-the-shelf solutions, assume employee-related risks and responsibilities, and are highly adaptable to client needs. This could lead to new, more decentralised HR strategies that integrate staffing agencies into overall workforce planning and accelerate the reduction of direct employment, e.g. by limiting it to employees with critical skills.
The overall implication is that while it remains crucial to understand employment relations and quality from the perspective of work processes associated with particular sectors, such as the EV chain, which reflects employment standards not of the automotive industry but of the electronics industry, it is necessary to broaden the scope of research to include shifts in labour regulation and the role of secondary actors such as employment agencies. The intention of this paper is not to present conclusive results, but rather to stimulate debate and explore avenues for future research and collaboration.