As motorcycle manufacturers everywhere are struggling to remain competitive, they’re facing cheap Chinese producers making impossible demands on their few remaining profits, leading to outsourced production in China in order to compete, however, a news item this week signals a change may be brewing.
Foxconn Technology, a Chinese contract electronics manufacturer making items like the Apple iPhone plus products for Dell and HP, has been forced to raise wages by 100 percent, doubling the incredibly low pay of their workforce. Last week, Honda agreed to raise wages at one of its Chinese plants by about 30 percent to resolve a strike but this week is facing another strike at a different plant.
The industrial actions at Honda’s China suppliers, both in the southern city of Foshan, come against a backdrop of rising labor costs and growing worker agitation at other employers around the Pearl River Delta, one of China’s main manufacturing hubs.
While pay is still low by the standards of many other countries, any time you double your cost of labor, things are bound to change as you pass those costs on to your customers.
Analysts say the changes result from the growing clout of workers in China’s economy, and are also a response to the soaring food and housing prices that have eroded the spending power of workers from rural provinces. These workers, without factoring in the recent wage increases by some employers, typically earn $200 a month, working six or seven days a week.
Many have been saying the Chinese manufacturing miracle over the past decade or so was some sort of new type of market economy or state capitalism that all other countries should emulate. It’s beginning to seem like the “miracle” of low cost Chinese manufacturing may be based on little more than extremely low pay. In the interconnected world of today, even workers in China can see where they stand and it doesn’t appear they’re willing to remain in place at the bottom of the ladder for much longer. The inevitable shift of all manufacturing to China may not be quite so inevitable after all. Wouldn’t it be nice if more companies focused on keeping their current factories and work forces in place instead of setting up shop in some other country where the major (only?) attraction is extremely low labor costs, especially when those costs may now be rising?
I look at this as a very positive development. Though many factors are involved in the cost of goods manufactured in China, labor certainly plays a part. If the huge advantage of artificially low wages begins to dissipate, they may have to compete in other areas like innovation and product quality, areas where countries around the world are more than happy to take them on. In a competition like that, everyone benefits.
Link: New York Times
Link: Automotive News (subscription required)
Kenny says
And the cycle continues.
Looks like China will be enjoying a “Celtic Tiger” boom for the next decade or two, then the companies will find some other source of cheap labour and start sourcing from there.
Richard Gozinya says
Kenny beat me to it, the same thing happened with Ireland, and the companies have been moving to eastern Europe, for the cheaper labor. That’s the problem with trying to entice outside companies with promises of cheap labor. It’s nice in the beginning to just have jobs, but before long, the workers realize they’re being screwed.
scritch says
Let’s not forget that China has also not had strong environmental laws, or has not enforced existing laws, removing the associated costs from the manufactured items. While this is good in the very short run for the factory owners’ wallets, it is criminal to inflict long-term pollution on the Chinese populace. We here in the U.S. are suffering from this short term viewpoint in the Gulf of Mexico.
James Bowman says
Would waste my time discussing the obvious but Kneeslider will stir the pot and the delete all the posts anyway because the majority of the posters don’t view it their way.
Hugo says
Just “natural” progress…first wages will go up, then unions will appear, a de´mand for more vacation, etc., etc. The world is a small place (due to the internet, etc.) meaning workers know what their “collegue” earns in another country and they will (one day) demand the same.
The Japanese were cheaper in the beginning when starting with cars and motorcycle, then came the Koreans where the same happened (unions, salary, vacation) also because of the globalisation which meant a lot of Japanes and Koreans worked in the US or Europe and saw with their own eyes there is more then only working long and hard. It is all a matter of time till the Chinese will (in some form) have the same demands as people in the US/Europe, etc.
jim says
In terms of labor relations, on-the-job safety, product safety and other regulations such as boiler safety (home-made boilers explode and kill dozens there every year), China is about where the United States was 100 years ago. With China’s rapid growth onto the world stage, all these factors are accelerating at a geometric rate. Very soon, most factors like cheap (virtually free) labor and lack of overall regulations will become less prevalent, and manufacturers will start looking elsewhere, probably in sub-Saharan Africa, for cheap labor and low production costs. Manufacturing always chases low labor costs, but in today’s world economy with worldwide information technology, workers quickly realize they can get a better deal and agitate for higher pay and better conditions. Soon the world’s supply of cheap labor will be used up and manufacturers might as well move their factories back home, build quality goods and provide jobs for their own customers.
Jay Allen says
China and India both benefit from non-existant environmental regs that would have us screaming over here. Might be a little bit of that going on in mexico with the 1/2 ton Chevy/GMC plant – but I’m speculating on that point. In the end the chinese workers will get the wages they deserve, and like Hugo said, the jobs will move. We can only hope the consumer will eventually want to pay for quality, and these jobs won’t be playing musical chairs with countries. FWIW, well said Mr Bowman
Mule says
Being a Union member, there are good and bad things about it. I say this from 23 years experience, not from watching television or reading about it on the Internet.
I don’t have a problem with workers in another country wanting or having safe working conditions and wanting to make a decent living. Maybe, and this is a longshot, maybe they even deserve a vacation like the rest of the civilized world. If it drives up the cost of all the garbage we buy at Walmart and Home Depot, then maybe they’ll have to raise the quality to justify prices equal to actual quality goods.
Kenny says
Dell, HP, Apple and Honda are all garbage you buy at walmart?;-)
kneeslider says
I wrote this post to point out the positive aspect of the story, not as an excuse to start political rants that stray far off topic, so, no James Bowman, I won’t be deleting comments if they stay on topic.
There is an old motivational book, “Acres of Diamonds,” about a farmer who decided to travel the world looking for riches. He sold his farm, traveled everywhere but didn’t find what he was searching for only to return home and find the person who bought his farm discovered diamonds on the land the farmer had previously owned. Likewise, the companies who are moving operations from one country to another, always chasing riches somewhere else, might learn from that old book, and focus on the country and workforce they already have. If things get more costly and regulated in China, they’ll move again and again until finally they just might end up right where they started.
This beginning of a move to higher wages in a land where wages were supposedly going to be low forever, might be a sign for a few forward thinking companies to stay put.
Paulinator says
Paul, are you sure that’s it? China’s central planning committee has an un-tapped resource of about 600 000 000 peasants who are still trapped on the farm with wooden digging instruments. This is the nation that selectively shut down entire industries to host the Olympics. They can move people at will.
Europe is wobbling and the US is balancing on one heel. It’s time that China quickly develops and services its own market demand. For that to happen the workers need some green-back. I just wonder how impenetrable that marketplace will be for other nations in the “global” economy.
todd says
I doubt the average cost of a starter home in China is $500,000 like it is over here in California. There’s still a LONG way to go before it starts making sense to bring production back to the US. And the idea that companies will raise quality to justify the added cost? More like they’ll LOWER quality to remain competitive and get back lost profits.
I just say that we need to start buying less stuff. Since when do we need a new computer or cell phone or Honda every year? What does Walmart sell that we cannot live without? I don’t shop at Walmart – not because I think they are bad but because I I’ve never needed to buy anything they sell. If we learn to be happy with what we have and fix what needs fixing we’ll all be amazed at how much extra money we have every year and how inexpensive it is to live.
-todd
kim says
Just a quick note to point out that the Chinese protesting are not only up in arms about their low wages. Their work conditions – working vast amounts of overtime to make ends meet, employees not allowed to speak together while at work, unions that don’t represent their right but rather the employers’ – are sometimes beyond belief, and have in the Foxconn case resulted in a string of employees killing themselves.
Ok, the bright sides of the strikes and – presumably – increases in Chinese wages is that industries elesewhere will become a bit more competitive, and that the Chinese themselves will have greater buying power. Perhaps the less cynical amongst us also will be pleased that the conditions under which our inexpensive, Chinese built consumer goods are manufactured are improving.
Tinman says
I agree with Todd (rare thing) we buy to much stuff !! A wise man once said,”true security comes not from how much you have, but how much you can do without”. My next door neighbor has bought 4 lawn mowers in the last 10 years, cord breaks or wont run , out it goes to the curb. These people are always broke and complain constantly. Buy good quality once, do the maintenence and things will last a lifetime. Buy your tools at Harbor Freight, Pots and pans at Walmart and you will get exactly what you pay for, and help Pollute the world at the same time. Buy some Amish furniture and you have sturdy furniture to hand down to your kids.
Mule says
Not too many Amish in my hood! Or I’d run out and get get a bitchin’ Amish flatscreen TV for the den. Damn the bad luck! Do they build bikes? Just kidding of course. They’ve got the right idea in reality. Buy a chair in my name when you can.
Adrian says
Amish bikes are ok, just watch for the splinters!
http://img199.imageshack.us/img199/7931/woodbike.jpg
David/cigarrz says
The market place is self regulating and would be more responsive if all governments could keep their hands off. A rising tide floats all boats. Capitalism raises everyone expectations and that includes the third world. The more of it (capitalism) they experience the more they will put it to good use for themselves. profit and wages are both part of capitalism. I see this as a great example of human nature at it’s finest. If China had not allowed their people the limited and stifled exposure to capitalism that they have had to this point. They would certainly have not realized the full extent of it’s possibilities for them as persons.
Paulinator says
Good Morning David/cigarrz,
A lot has happened with the deregulated American banking system while you were napping for the last five years.
David/cigarrz says
A good sound bite just short on fact, the federal government has been in bed with banking since the fed was started and banking has been the tool of the government ever since. It certainly has never been never been deregulated but it certainly has been manipulated by government demanding sub prime loans for political gain. But nice try for early in the morning. Have a great day!
John S says
Salaries are being equalized in another way: as I interview this summer I’ve learned that employers are cutting the salaries of people they replace by 30 to 50 percent. I’m not sure if they’re coldly exploiting the 20 million underemployed out there, or if this is the new normal. But I see a lot of low skilled factory jobs at $11 hour and jobs that require a 4 year degree at $16 to 18 hour. Makes you wonder if that $100,000 degree is worth it.
JSH says
As other have said, this is a natural progression. As wages increase, companies move their production to the next LCC (Low Cost Country). Many of the very inexpensive products like textiles have already moved out of China. Look at the clothing tags at WalMart these days and you are much more likely to see Vietnam / Cambodia, etc.
TwoStroke Institute says
What nobody realises about China (although this will be changing soon) is that their own domestic economy is so big that it dwarfs the US. Except that the average consumer in China spends no money(they have virtualy no household debt) on durables. They all have substantial savings but they receive no interest from the banks, the banks on the other hand lend that money to business’ at interest rates of typicaly 3-4%. So the average Chinese worker is subsidising business ventures which they get no return from. This will change when they realise the world needs no more ‘chindagu’ to fill Walmart. They will eventualy turn to their own consumer instead of export markets
Jon says
This is a natural, cyclical process.
Paul, forward-thinking companies are the ones that had the vision to outsource production to China [and other countries]. It has taken decades for China to become the economic power that it now is.
In the ultra-long-term, you are correct that eventually labor rates may bring production back to Europe/the US — and I do think that will happen — but it is a long, long way down the road. As such, forward-thinking manufacturers are (in my estimation) much more likely to look to the next affordable labor/production source instead of just deciding to bring production back in-house. Taiwan is one such place — I’ve heard it’s already less costly than mainland China.
If we [westerners] fail to innovate, then we condemn ourselves to be the eventual low-cost labor provider.
benroe says
Its great that the chinese workers are demanding more. They have been getting screwed for a while. This is ultimately a win win. The chinese worker gets more, and some of the jobs move back to some of the more established markets. We can’t make a damn living working at wal mart, best buy, lowes, or home depot. We need good paying manufacturing jobs over here. The healthcare system can’t employ everyone either. We need the good mix of jobs in completely different fields that can pay well enough to support people and their families without government subsidies!!!
Auz1237 says
When people blame the loss of US jobs on China they have not really looked at the facts, China has lost approximately twice the number of manufacturing jobs compared to the US per 1,000 population. Plant modernization and automation are the real culprits for manufacturing job loss. To put it simply whoever can make the most units with the least labor will rule the day in the future.
Slacker says
it IS all based on their cheap labor. I can have parts milled in China and shipped to me for cheaper than I can buy the raw material here in the states. That’s because the labor is exponentially cheaper in every step of the process, from mining, refining and machining. It will eventually catch up to them.