Rising China costs get manufacturers moving
Big wage rises see costs climb, other nations rise as factory alternatives
Several key notebook ODMs are apparently reconsidering their plans to locate factories in western China because of rising costs in the region which could hit profits.
Digitimes said that, according to industry sources, Quanta Computer, Compal Electronics, Wistron and Inventec among others had already relocated some plants to Chongqing and Chengdu.
However, they are reportedly getting cool on the idea after the local authorities failed to cough up with payments promised to the manufacturers to compensate them for the higher costs incurred by moving production to the two cities.
The report said that the relocation of production facilities would lead to a unit cost increase of $4-5.
Gartner analyst Roger Sheng argued that rising salaries are a key factor affecting the “RoI of factory moving” in China.
“Wage increases will be a major mission of the Chinese government in the next five to ten years now that its GDP has risen to number two in the world,” he told The Reg. “This is not a short term activity. The ODMs need three to five years to grow the affiliated industry in a new area.”
The Chinese government’s most recent five year plan states that firms must increase wages by at least 13 per cent every year but in certain areas the local authorities mandate much higher rises.
Despite still being too low for many not-profit groups monitoring pay and working conditions in Chinese ODM factories, workers’ salaries have come under increasing scrutiny from the tech giants who contract companies like Quanta and Compal to make their shiny kit.
Senior figures at HP and Dell both said they were monitoring the situation after notorious hardware maker Foxconn was forced to raise its wages by up to 25 per cent last month.
Earlier this month, Philippine trade secretary Gregory Domingo reportedly revealed that the south-east Asian nation is hosting more fact-finding missions from foreign firms than ever before, with rising labour and production costs in China one of the key drivers.
However, it’s not time for the Chinese government or big name technology vendors to hit the panic button just yet.
IDC analyst Helen Chiang told The Reg that China still represents the best option for most ODMs.
“Some of them tried to move outside of China because of rising labour costs but the truth is it’s very hard. They tried to move to Vietnam, for example, but the logistics were very bad there so they moved back,” she explained.
Chinag said that western China is still attractive for many ODMs because logistically it means kit can be shipped out to Europe by train, whereas in the east of the country it has to be done by air, potentially increasing costs seven-fold.
In the near term at least, wage increases aren’t likely to affect the sale price of notebooks produced in China as they are mainly high value, high margin items like ultrabooks, she added. ®
Re: There are a couple of little problems here for the Western companies' "sweatshop hopping".
Well, I'm glad someone raised this topic at last and hopefully we can have an adult conversation on the subject.
First of all, worry not about the depletion of low wage countries. Even after Vietnam and Indonesia there's deep ex-Russian Asia, Ukraine and of course then comes Africa (just look at Angola).
Regarding what you guys perceive as price advantage I can tell you it is not. As everyone is in on the game, low cost sourcing is not a differentiator but the absolute minimum. Whoever succeeds still does so on the merits of their product.
Finally let's look at oft cited argument about slight increases for the sake of the workers. Assuming I won't be summarily fired for mentioning it, what makes you think this will be passed on to the poor workers and not 'confiscated' by the manufacturers' profits?
The way I see it globalisation is good and ultimately fair. Take the global GDP per person and you'll see that our wages in the western world are the outliers. And while a lot has been written about worker exploitation I see the general population of a formely ultra-poor decrepit country become more wealthy and able to afford hitherto undreamt of things.
And finally, it's all about the market. Unless a "made at home" tag isn't an adequate differentiator that people will pay for then I have no incentive to even try. Especially while your pension funds ask me for increasing profits each and every quarter. Take for example the various codes of conducts for suppliers' workers rights. Do you think they would be instituted if you guys out there didn't demand it?
So yeah keep on moralising but occasionally please put your money where your mouth is and don't be an armchair revolutionary of the chattering classes, taking pride for your ideals because you pressed 'Like' on the latest 'cause du jour'.
OMG NO THE COSTS ARE GOING UP !!!!
THE POOR TECH COMPANIES ARE NOW GOING TO PAY $47 instead of $43 for something they sell @ $600 here ... damn that's harsh on them really ;)
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When the race to the bottom hits rock bottom
Sooner or later they are going to run out of places to flee from when the costs go up by a smidgen. Of course if the drones in the factory can afford the products they are making then you'd think that the extra sales would be worth paying one or two dollars more for getting it made.
As a procurement manager purchasing electronics and pcba's from the far east I can tell you that the move inland was news sort of 2-3 ago.
Since then it's all about moving to indonesia and vietnam; the former due to its proximity to Singapore and the latter due to wages even lower than China's.
Sure, Donguan et al are still huge but that's mostly due to inertia. Most new products are going elsewhere.