December 1, 2010

TO GROW OLD BEFORE YOU GROW RICH IS HORRIBLE:

As Wages Rise, Time to Leave China?: The rising cost of manufacturing in China gives multinationals a rare chance to rethink global production plans (Joe Manget and Pierre Mercier, 12/01/10, Business Week)

Rising wages—together with currency fluctuations and high fuel costs—are eating away the once-formidable "China price" advantage, prompting thousands of factory owners to flee the Pearl River Delta. Much has been written about the more than doubling of wages at the Shenzhen factory of Foxconn (2317:TT), the world's largest electronics contract manufacturer, which produces Apple (AAPL) iPhones and iPads and employs 920,000 people in China alone. "One can talk about a world pre- and post-Foxconn," says Victor Fung, chairman of Li & Fung (494:HK), the world's biggest sourcing company and a supplier of Wal-Mart (WMT). "Foxconn is as important as that."

Foxconn's wage increases are only the most dramatic. Our analysis suggests that, since February, minimum wages have climbed more than 20 percent in 20 Chinese regions and up to 30 percent in some, including Sichuan. At a Guangdong Province factory supplying Honda (HMC), wages have risen an astonishing 47 percent. All this is bad news for companies operating in the world's manufacturing hub, and chief executives should assume that double-digit annual rises—if not on the scale witnessed this year—are here to stay.


At the end of the day, China had only one thing going for it: plentiful cheap labor. But there's always a next source of cheaper labor.

Posted by Orrin Judd at December 1, 2010 2:41 PM
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