Why rising labor costs won´t drive manufacturers away – Shaun Rein

Wages rise fast in China, on any level, and many manufacturers who came to China for its low labor costs think about leaving. They should think twice, says business analyst Shaun Rein in Business Week, since the financial advances of moving an operation might be disappointing.

Business Week:

“It’s easy to underestimate the political and economic risks of moving manufacturing” away from China, says Shaun Rein, managing director at China Market Research Group in Shanghai and the author of the recent book The End of Cheap China. “Workers across Asia are starting to demand their rights—workers are saying, ‘we want higher salaries and better environments.’ In a very short time, the costs of producing in these countries will double or triple.”…

Unrest in Cambodia is hardly the only challenge for manufacturers moving away from China, where the minimum monthly wage in the factory boomtown of Shenzhen more than doubled from 2008 to 2014 (it’s now 1,808 renminbi, or about $300). In October, more than 100,000 Indonesian workers joined in strikes calling for a 50 percent increase in the minimum wage, shutting down factories and disrupting production (they were given a 9 percent increase). In April, a garment factory building in Bangladesh collapsed, killing at least 1,000 people, spotlighting hazardous, inhumane, and poorly monitored factory conditions in the country. Major flooding in central Thailand in October and November swamped an industrial zone home to hundreds of factories, forcing closures and delays and revealing the extent to which the Thai government is unprepared to address infrastructure challenges quickly. Manufacturers in Vietnam and Sri Lanka report lower worker efficiency and higher errors compared with operations in China. The upshot, says Shaun Rein at China Market Research Group, is that “the cost savings of moving away from China won’t be preserved.”