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Foxconn workers  (Source: Kotaku)
A growing Chinese economy and a need to tend to manufacturing workers' needs has upped the cost of labor

Years ago, several U.S. manufacturers moved production plants to China in an effort to cut labor costs. However, the age of cheap labor in China is ending as annual wages for manufacturing workers continue to grow, and now, some of the larger plants in China are looking for a new home.

Originally, toys, footwear, and textiles were among the first to go to China decades ago. With 1.3 billion people, cheap labor in China seemed unlimited at the time. But in the last two decades, this began to change as a "frenzied" infrastructure and housing build-out caused a flourishing economy that has grown nearly 12 percent per year. In addition, the Chinese government raised the minimum wage 14 percent to 21 percent this year alone in the five largest manufacturing provinces. 

"We've seen our wage costs in China go up nearly 50 percent in the last two years alone," said Charles Hubbs of Guangzhou Fortunique, which is a medical supply company for some of the United States' largest health care companies. "It's harder to keep workers on now, and it's more expensive to attract new ones. It's gotten to the point where I'm actively looking for alternatives. I think I'll be out of here entirely in a couple of years."

But where will plants go to next? Countries like India, Laos, Cambodia and Vietnam are a few options for cheap labor. Also, some companies like Wham-O, a toy company, are returning to the U.S. Last year, Wham-O moved 50 percent of its Frisbee and Hula Hoop production to the U.S. According to a study by the Boston Consulting Group (BCG), China's average wage rate was 36 percent of the United States' in 2000, and by the end of 2010, this "gap" shrunk to 48 percent. By 2015, BCG predicts it will be 69 percent. 

"So while the discussion in the short term favors China, the spread is getting down to a smaller and smaller number," said Hal Sirkin, leader of the study and senior partner at BCG. "Increasingly, what you're seeing [in corporate boardrooms] is a discussion not necessarily about closing production in China but about 'Where I will locate my next plant?'"

Production in China will not close entirely for most companies because even though labor costs have increased, they're still cheaper than most other places. Right now, the average manufacturing wage in China is about $3.10 an hour, while it is $22.30 in the United States. In the eastern part of China, it is about 50 percent more than the average $3.10 wage elsewhere. 

China sees this new shift as a good thing. After the Foxconn suicides and high-profile labor protests last year, wages were increased. Also, many multinational and Chinese companies have relocated or even expanded inland for cheap labor, meaning that people in Henan or Sichuan can find jobs closer to home and do not have to live in a company dormitory. Manufacturing workers, like 24-year-old Wu Dingli, say they prefer working closer to home, even if it means making a bit less money than jobs further away. 

"Life is much easier for me here because I'm closer to home," said Dingli, who left an electronics factory job in Dongguan for a electric cable supply job in Chongqing. "I much prefer this job to the old one."

In addition to making life easier for employees, rising wages will give more money to the people, which will in turn increase Chinese consumption. This will benefit Beijing's major trading partners, who can then decrease "drastic imbalances" in global trade. 

While exporters like Hubbs will feel the effect of higher wages, the bottom line is that China is becoming wealthier with a stronger currency, and the time of cheap labor is coming to an end.



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RE: Good...
By Apone on 6/20/2011 12:01:03 PM , Rating: 2
@ msheredy

Not sure what business class you ever took but this is how firms minimize costs & maximize profit. Granted, firms like Apple don't exactly pass along the savings to their customers but if manufacturing did come back here to the States, you'd see consumer electronics prices skyrocket. You're okay with that? And as an American, are you willing to settle for $8-12 per hour for 50+ hours a week doing the same mind-numbingly monotonous duties in a hot & humid factory?


RE: Good...
By Motoman on 6/20/2011 12:14:52 PM , Rating: 2
No. My guess is he's a union shill who thinks that unskilled laborers should be paid $20 an hour to do menial labor and be granted a lifetime of benefits and pension...and then magically have prices stay the same or go down, because every company in the world is "evil" and should never even attempt to make a profit. Or maybe even break even.


RE: Good...
By Arsynic on 6/20/2011 12:34:25 PM , Rating: 4
What American factories have those work conditions (OSHA violations) in the U.S. or are you just talking out of your ass. Secondly, alot of people work for less at Walmart and grocery stores.

Stop creating false dilemmas to force a point.


RE: Good...
By Jalek on 6/20/2011 1:23:47 PM , Rating: 2
Hot and humid isn't an OSHA violation, even foundries aren't air conditioned but again, nobody will take the jobs at $8/hr if the conditions suck.

What we need are health care practitioners making $12-15 an hour, then maybe the US could stop falling behind the developed world in every major statistic.


RE: Good...
By room200 on 6/20/2011 2:47:15 PM , Rating: 3
Consumer electronics are a "nice to have" kind of thing. They aren't necessary to survival. I'd pay higher prices for electronics if it means a better economy here.


RE: Good...
By msheredy on 6/20/2011 5:41:22 PM , Rating: 2
I don't give a shit about profits, all I want is my country to get back on it's feet and in order to do that everyone needs to work. What you may not realize is that when "we the people" are employed making money that we then spend, we create and maintain our economy. If you think the GOV controls the economy you're sadly wrong.

I don't agree with unions at all, they had their place a long time ago but they just hurt everyone now.


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