April 25 (Bloomberg) — 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 shoe 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-foot) Dongguan complex in southern China. Employees at the complex, where more than 40,000 people work, are striking in a dispute over compensation since April 14.

Yue Yuen is “still committed” to maintaining production in Dongguan and declined to comment “about any particular customer,” George Liu, a spokesman for the Hong Kong-listed manufacturer, said by e-mail. The company had 423,000 employees as of 2012 and factories in China, Vietnam and Indonesia, according to its website.

Yue Yuen rose 1.4 percent to HK$24.75 at the close of trading in Hong Kong yesterday, after dropping for two consecutive days. Pou Chen Corp., a Taiwan-listed shoe and materials company, fell 3.7 percent to NT$39.50 in Taipei trading.

Adidas rose 0.2 percent to 76.73 euros at the close in Frankfurt.

Activists Detained

Zhang Zhiru, manager at the Shenzhen Chunfeng Labor Dispute Service Center, spoke by phone yesterday to his wife, Xiao Hongxia, after China Labor Watch said he had been detained by authorities.

Zhang called and said he would return in a few days, Xiao said in an interview. He then hung up without saying where he was or whether he was being held by police, she said.

The Shenzhen Chungfeng manager was advising striking Yue Yuen employees on collective bargaining and entered the Dongguan factory after the work stoppage began April 14, China Labor Watch said. The labor group also said Zhang’s colleague Lin Dong was detained.

Zhang and Lin also offered advice via social media, telling Yue Yuen workers at the factory not to use violence or break the law, according to comments posted on their QQ instant messaging service accounts.

Supplier Talks

Nike and Adidas are the main clients for the Dongguan factory, Liu said by phone. Some of the workers have returned to work, Liu also said.

“Each factory management would take appropriate measures to encourage workers to get back to work with the aim to restore order in the factory,” Liu said.

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

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 Flexibility

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.”

Living Allowance

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.

–With assistance from Penny Peng in Beijing, Liza Lin in Shanghai and Matt Townsend in New York.

Copyright 2018 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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