Executive in China hostage crisis calls it a 'complete shakedown'

By Steve Toloken
Staff Reporter / Asia Bureau Chief

Published: June 30, 2013 10:04 pm ET
Updated: July 1, 2013 11:50 pm ET

Image By: MARK RALSTON/AFP/Getty Images US businessman Chip Starnes stands behind the bars of his office window after being held hostage for five days over a wage dispute at his Specialty Medical Supplies factory in Huairou, Beijing on June 25, 2013. Starnes, who had come from the US-based company to lay off 30 employees, said the remaining 100 then barred him from leaving until they reached a resolution.

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Topics Legal, Workforce, China, Medical, Injection Molding

After spending six days as a captive of his employees in his Beijing injection molding factory, medical manufacturing executive Chip Starnes is back home in the United States -- and his company, Specialty Medical Supplies in Coral Springs, Fla., is $500,000 poorer.

That was the size of the company's payout to settle the dispute, which began with SMS's plan to move its plastics molding division from Beijing to Mumbai. It then mushroomed as about 100 employees took over the factory, saying they were worried that the entire factory was closing, and refusing to let Starnes leave until they were compensated.

Now, with the immediate ordeal behind him and the company trying to rebuild and determine its future, Starnes, in a June 30 interview with Plastics News, is not mincing words about how he views events.

"I was held hostage and I had to buy my freedom," he said, speaking less than three days after he returned to the company's Coral Springs headquarters. "It was a complete shakedown."

Starnes described a chaotic week, with one early all-night negotiating session consisting of him alone facing a crowd of more than 100 employees, their family members, vendors and government officials.

Although the factory had been operating in the Hauirou district of Beijing since 2003, he said government officials seemed more concerned in satisfying workers than with the future of the business.

He said he was unable to bring in his attorneys until five days into the standoff; he faced threats on his life from an irate vendor; and he said he believes some management within the company intentionally spread rumors that the entire factory would close.

In Starnes's mind, SMS had been very open with employees about plans to move its injection molding production for its blood glucose monitoring and other products to India in a cost-saving move, and eliminate about 30 jobs in Beijing in the process. Those workers were getting severance.

But Starnes said other workers became jealous of those severance payments, and although they were not losing their jobs, the trouble began when some of them went on strike starting Tuesday, June 18, to demand similar payments.

"A lot of the girls on the other side [of the factory] got very jealous," Starnes said. "They basically go on strike."

As that strike entered its third day, on Friday, June 21, SMS had scheduled an engineer to come in from Mumbai to assess the value of the company's equipment, both the machinery being shipped to India and the equipment remaining in Beijing. The equipment for India was scheduled to be packed up on Saturday.

As employees noticed that engineer working, however, they told Chinese media they began to get nervous that the entire factory would close. Some also said they were owed back wages, an allegation SMS denies.

Starnes said the equipment remaining in Beijing was being assessed so it could be used for bank loans and for other company records, with no plans to move it to Mumbai.

"I really feel like everything was properly communicated," he said. "Everyone in the company knew one division was moving. There was no communication from anybody in senior management otherwise."

Starnes said he now believes that one of his senior managers in Beijing was working against the company, spreading false information that the plant would shut down.

"I do think he was the mastermind behind the rumor spreading," Starnes said. "I had no idea any of this was going on."

Finally, at the end of an emotional Friday afternoon, as Starnes was preparing to return to his hotel, carloads of dozens of employees came rolling into the factory in dramatic fashion, and took over the facility.

"At this point I'm in complete lock down," he said.

Standoff begins

The first negotiating session began that Friday night and stretched into Saturday. Starnes said it was him alone facing a crowd more than 100 employees and vendors, and with the government officials participating. Starnes said his office phone and Internet access had been cut off.

He said government officials wanted him to meet the demands of the workers, although Starnes told them those demands for all the 100 remaining workers to receive severance would bankrupt the company. The Beijing factory is the only production plant for the small firm, with about 20 employees in its headquarters office in Florida.

"I'm telling them there is no way I can sign these papers – I'm putting myself out of business," he said. "The government only cared about calming people down. The government had no concerns about the business."

Starnes said that during that session, one government employee told him that "If you don't sign this, all the government people will turn around and walk out and you will be here alone to deal with this."

The session ended, he said, when he agreed to sign some papers correcting a clerical error in the early severance packages and expediting payment for an injured former employee, but not agreeing to the other demands.

At the point, Starnes's co-workers and family in the United States began to try to get media coverage, and reporters, including from the Associated Press, started showing up over the weekend. In an interview with TV reporters in the U.S., Starnes credited the media with playing a key role in bringing attention to the situation.

Staff from the U.S. Embassy also came on Monday to check on his safety, although with Chinese police labeling the dispute an internal matter for the factory, instead of kidnapping, there was little they could do but monitor.

Negotiations continued, but as it dragged into several days, Starnes said it became apparent to him there was only one way to resolve it.

"It became very, very clear that the only way I will get out of this is to pay," he said. "It became very clear a week into the standoff, I was not getting any help from the government and from the police."

So after another all-night negotiating session that began Wednesday night, June 26, Starnes said the company agreed to pay about half of what employees originally demanded, and SMS and workers came to an agreement.

In essence, Starnes said the company agreed to pay severance packages to all the workers and end their current contracts, with the expectation that new contracts would be signed as if they were new workers, with zero seniority.

Starnes said the total cost of paying the workers came to over $300,000, with other costs to the company for the week-long standoff, including professional fees, bringing the total to $500,000.

Future for the factory

Starnes said that less than 20 employees came back to the factory on Friday, the day after the standoff ended, looking to sign new contracts. The company this week will also begin complex negotiation with its vendors there, to work out arrangements with them.

He said that "it would be my objective" to return the Beijing factory to full strength with its alcohol pad manufacturing, but he said the assessment is in its early stages, and at one point he said it's not clear what they will be able to do there.

The company is transferring its injection molding division to Mumbai because it had a hard time finding skilled workers in Beijing and the rising costs in China were hurting competitiveness, he said.

Wages were rising rapidly, and the strengthening Chinese yuan over the past few years was getting tougher to handle, he said: "Everywhere you look you're getting a hard blow."

Now, as Starnes sits in his Florida office and assesses the future, he's trying to grapple with a week's worth of events that have left him startled, shaken and surprised.

"I can't believe doing business in China for 10 years and it comes to this," he said. "It paints a bad picture for foreign investors if you do everything you're supposed to do, you follow the laws, and there is nothing to help you. At the end of the day, they can do anything they want."


Executive in China hostage crisis calls it a 'complete shakedown'

By Steve Toloken
Staff Reporter / Asia Bureau Chief

Published: June 30, 2013 10:04 pm ET
Updated: July 1, 2013 11:50 pm ET

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