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Could the iPad see a "China wage" price increase? Some analysts think so. They say that many products including consumer electronics and clothing may become more expensive as Chinese workers are paid more.

Many workers in China today don't make enough to properly support their families. That is slowly changing, though, thanks to internation scrutiny on companies that manufacture in China.  (Source: East Day)
Improvements in working conditions may give firms just the excuse they need to bump prices

According to The New York Times, increases in the labor costs of manufacturing in China may lead to price increases in the U.S. and abroad.

The issue of Chinese workers' wages has been brought into the media spotlight following a string of deaths of workers at Foxconn's facility that manufactures the iPad and iPhone.  Most of the deaths were suicides, but at least one worker has reportedly died of exhaustion after being forced to work long hours.

Foxconn, which manufactures numerous computer motherboards and much of the world's top electronics -- including Nokia cell phones, iPads, iPods, iPhones, and motherboards for gaming consoles (the Wii, Xbox 360, and PS3) -- responded by offering employees up to a 30 percent raise, plus an additional performance-based raise.

Those raise increase the average plant worker's salary to 2,000 renminbi (China's currency) — about $300 USD.  Those increases, combined with appreciation of the renminbi currency may have a ripple effect resulting in rising manufacturing costs for a variety of retail products, including clothing and electronics.

Dong Tao, an economist at Credit Suisse, "For a long time, China has been the anchor of global disinflation.  But this may be the beginning of the end of an era."

In the short term, these cost increases remain relatively small compared to corporate profit margins.  For example, the new Foxconn wages are estimated to raise the cost of labor on the base model iPad by roughly 0.7 percent of the unit's cost, or approximately $3.50.  Apple makes approximately $200 in profit per iPad sold, though.  And while much of that profit goes to Apple's design and engineering costs, the company still is stockpiling cash each quarter.

The ripple effect is already being witnessed.  Honda announced it will also raise its average pay at one of its southern China plants to $300 USD.  And Beijing announced that the minimum wage would be bumped 20 percent to 960 renminbi, or about $140 USD.

As costs rise, some predict manufacturers will bump their prices.  A $50 price increase on the iPad, justified by improved Chinese worker conditions, would both make the company look good in the eyes of some and increase its profit margins.  Such increases, while distasteful to some, may soon become reality.

Ultimately, whatever the ramifications, the salary increases in China are long needed.  A long-standing shortage of jobs versus job-hunters has caused wages to sink dangerously low over the last decade.  Workers in the country have found it hard to support their families and pay for proper medical care.  Now that wages are rising employees may finally be able to afford the essentials.

Some manufacturers will likely flee to cheaper countries -- Bangladesh or Vietnam -- but others will likely remain in China.  After all, wherever they go, companies will eventually face these same issues.  As Marshall W. Meyer, a China specialist at the Wharton School at the University of Pennsylvania, comments, "There is no way out."

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RE: I would understand...
By callmeroy on 6/9/2010 11:38:34 AM , Rating: 2
I don't know what you are saying because I think you are disagreeing with my earlier post but yet I'm not disagreeing with you.....???

Let me try to translate that: No kidding all high prices do is line the pockets of the businessman (what made you think I was implying anything differently?) -- that's what business is about after all...maximizing your profits.

Perhaps I poorly worded my prior post and instead of "justification" the more accurate point would be the word "incentive". What INCENTIVE is their to lower prices if people buy them at the current price point EVEN when people heavily complain its "expensive"?

There's zero incentive (justification?) from the business side to lower the price.

Again its a very simple concept that the world market place is founded on a daily basis year in and year out. Why this is hard for some on these boards to comprehend completely escapes me.

RE: I would understand...
By flatrock on 6/9/2010 4:32:38 PM , Rating: 2
I can think of three incentives.

1) A lower price would likely appeal to a greater number of consumers, and since the development costs you invested stay fixed, your effective cost per unit goes down as volumes go up.

2) High profit margins encourage lots of competition which will eat up some or your customer base and can actually make your profitible product far less profitible at the same price.

3) Apple makes a lot of their money selling software and media to those that buy their devices. The more iPads they sell, the more they make from iTunes and the Apps Store.

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