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Thread: Companies brace for end of cheap made-in-China era

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    Elite Member celeb_2006's Avatar
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    Default Companies brace for end of cheap made-in-China era

    Companies brace for end of cheap made-in-China era - Yahoo! News

    SHANGHAI Factory workers demanding better wages and working conditions are hastening the eventual end of an era of cheap costs that helped make southern coastal China the world's factory floor.

    A series of strikes over the past two months have been a rude wakeup call for the many foreign companies that depend on China's low costs to compete overseas, from makers of Christmas trees to manufacturers of gadgets like the iPad.

    Where once low-tech factories and scant wages were welcomed in a China eager to escape isolation and poverty, workers are now demanding a bigger share of the profits. The government, meanwhile, is pushing foreign companies to make investments in areas it believes will create greater wealth for China, like high technology.

    Many companies are striving to stay profitable by shifting factories to cheaper areas farther inland or to other developing countries, and a few are even resuming production in the West.

    "China is going to go through a very dramatic period. The big companies are starting to exit. We all see the writing on the wall," said Rick Goodwin, a China trade veteran of 22 years, whose company links foreign buyers with Chinese suppliers.

    "I have 15 major clients. My job is to give the best advice I can give. I tell it like it is. I tell them, put your helmet on, it's going to get ugly," said Goodwin, who says dissatisfied workers and hard-to-predict exchange rates are his top worries.

    Beijing's decision to stop tethering the Chinese currency to the U.S. dollar, allowing it to appreciate and thus boosting costs in yuan, has multiplied the uncertainty for companies already struggling with meager profit margins.

    In an about-face mocked on "The Daily Show with Jon Stewart," Wham-O, the company that created the Hula-Hoop and Slip 'n Slide, decided to bring half of its Frisbee production and some production of its other products back to the U.S.

    At the other end of the scale, some in research-intensive sectors such as pharmaceutical, biotech and other life sciences companies are also reconsidering China for a range of reasons, including costs and incentives being offered in other countries.

    "Life sciences companies have shifted some production back to the U.S. from China. In some cases, the U.S. was becoming cheaper," said Sean Correll, director of consulting services for Burlington, Mass.-based Emptoris.

    That may soon become true for publishers, too. Printing a 9-by-9-inch, 334-page hardcover book in China costs about 44 to 45 cents now, with another 3 cents for shipping, says Goodwin. The same book costs 65 to 68 cents to make in the U.S.

    "If costs go up by half, it's about the same price as in the U.S. And you don't have 30 days on the water in shipping," he says.

    Even with recent increases, wages for Chinese workers are still a fraction of those for Americans. But studies do show China's overall cost advantage is shrinking.

    Labor costs have been climbing about 15 percent a year since a 2008 labor contract law that made workers more aware of their rights. Tax preferences for foreign companies ended in 2007. Land, water, energy and shipping costs are on the rise.

    In its most recent survey, issued in February, restructuring firm Alix Partners found that overall China was more expensive than Mexico, India, Vietnam, Russia and Romania.

    Mexico, in particular, has gained an edge thanks to the North American Free Trade Agreement and fast, inexpensive trucking, says Mike Romeri, an executive with Emptoris, the consulting firm.

    Makers of toys and trinkets, Christmas trees and cheap shoes already have folded by the thousands or moved away, some to Vietnam, Indonesia or Cambodia. But those countries lack the huge work force, infrastructure and markets China can offer, and most face the same labor issues as China.

    So far, the biggest impact appears to be in and around Shenzhen, a former fishing village in Guangdong province, bordering Hong Kong, that is home to thousands of export manufacturers.

    That includes Taiwan-based Foxconn Technology, a supplier of iPhones and iPads to Apple Inc. Foxconn responded to a spate of suicides at its 400,000-worker Shenzhen complex with pay hikes that more than doubled basic monthly worker salaries to $290. Strike-stricken suppliers to Honda Motor Co. and Toyota Motor Corp., among many others, also have hiked wages.

    Foxconn refused repeated requests for comment on plans to move much of its manufacturing capacity to central China's impoverished Henan province, where a local government website has advertised for tens of thousands of workers on its behalf.

    But among other projects farther inland, Foxconn is teaming up with some of the biggest global computer makers to build what may be the world's largest laptop production hub in Chongqing, a western China city of 32 million where labor costs are estimated to be 20 to 40 percent lower than in coastal cities.

    Given the intricate supply chains and logistics systems that have helped make southern China an export manufacturing powerhouse, such changes won't be easy.

    But for manufacturers looking to boost sales inside fast-growing China, shifting production to the inland areas where many migrant workers come from, and costs are lower, offers the most realistic alternative.

    "The new game is to find a way to do the domestic market," says Goodwin.

    Many factories in Foshan, another city in Guangdong that saw strikes at auto parts plants supplying Japan's Honda, have left in the past few months, mostly moving inland to Henan, Hunan and Jiangxi, said Lin Liyuan, dean at the privately run Institute of Territorial Economics in Guangzhou.

    Massive investments in roads, railways and other infrastructure are reducing the isolation of the inland cities, part of a decade-old "Develop the West" strategy aimed at shrinking the huge, politically volatile gap in wealth between city dwellers and the country's 600 million farmers.

    Gambling that the unrest will not spill over from foreign-owned factories, China's leaders are using the chance to push investment in regions that have lagged the country's industrial boom.

    They have little choice. Many of today's factory workers have higher ambitions than their parents, who generally saved their earnings from assembling toys and television sets for retirement in their rural hometowns. They are also choosier about wages and working conditions. "The conflicts are challenging the current set-up of low-wage, low-tech manufacturing, and may catalyze the transformation of China's industrial sector," said Yu Hai, a sociology professor at Shanghai's Fudan University.

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    Elite Member louiswinthorpe111's Avatar
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    Naw, they'll just find another place to go, like Africa. they could use the jobs over there and there's cheap labor. Just pay the militants off, and you have a ton of shitty products ready to be mad.

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    Elite Member Sojiita's Avatar
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    Quote Originally Posted by louiswinthorpe111 View Post
    Naw, they'll just find another place to go, like Africa. they could use the jobs over there and there's cheap labor. Just pay the militants off, and you have a ton of shitty products ready to be mad.
    There is India too.

    But I am kind of glad to see that some are actually coming back to the US. I bet they are shit-wage jobs though.
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    Elite Member Mr. Authority's Avatar
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    ^
    That's probably the case. These jobs that paid a living wage years ago, are gonna come back and pay a few dollars more than your average "want fries with that?" type of job.

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    Elite Member MohandasKGanja's Avatar
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    I think it's good news in some ways.

    First, it's a sign that the race to the bottom for cheap manufacturer labor has slowed somewhat. And with China being the hands-down biggest pool of that kind of labor, it should mean that manufacturing wages would stabilize. U.S. manufacturers that didn't see it coming would have only themselves to blame. China's level of wealth is increasing and these people have aspirations to do more than work 12 hours a day at slave-labor wages.

    Besides bringing these kinds of jobs back to the USA it means additional manufacturing capacity comes back here, too. Which is important for the United States strategically.

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    Elite Member witchcurlgirl's Avatar
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    American consumers often fail to recognize the role they have played in the demand for cheap merchandise. It wasn't just driven by the manufacturers and retailers.

    The manufacturing can absolutely be moved back to the US, as long as US consumers are prepared to pay higher costs for goods that are currently made overseas. People say that they would be willing to pay higher prices, but I think once they see the increases in cost to them they won't be happy.

    Africa is a tough place to import from, they don't have the rail and truck systems to move goods to port cities that exist in Asia, and the geographic distances from inland factories to the ports in Africa can be thousands of miles. The transit time from Africa to the US by sea vessel is very long as well. Those are just two of the reasons that we don't currently utilize Afica more as an import base.
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    Elite Member kingcap72's Avatar
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    "Life sciences companies have shifted some production back to the U.S. from China. In some cases, the U.S. was becoming cheaper," said Sean Correll, director of consulting services for Burlington, Mass.-based Emptoris.
    These companies shipped jobs overseas to save money, and now some are being forced to bring some of those jobs back to save money. The cheap labor that they looked for in China is biting them in the ass. The irony.

    This will probably start happening in more cheap labor countries as the people start to wise up to the fact that they're being used as slave labor.

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    Elite Member MohandasKGanja's Avatar
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    It's axiomatic that manufacturers chase the cheapest labor pool, which is not necessarily a criticism of them -- especially when the consumer doesn't differentiate between a good made in China and one made in the United States. If consumers are unhappy with the higher prices for goods that are no longer made in China, the question about what will happen next will hinge a lot on how elastic the demand for a particular product is -- if it's an electronic consumer good, then people won't buy it. If it's a replacement part for a failed air conditioner, they will.

    China had also benefited from pegging the Yuan to the Dollar for quite a long time, rather than let its currency float, which also artificially reduced the price of their products relative to others.

    America, despite being a wealthy country, with higher labor rates, also has the advantage of having the highest worker productivity of any nation in the world, which at least gives manufacturers some bang for the extra bucks.

    I agree with Witchcurlgirl about Africa's unsuitability as an alternate source of cheap manufacturing labor. You do need to have some existing infrastructure to build on. Also, China (except for maybe the Uighur provinces) has been a much more stable environment than many African nations.

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    Elite Member kingcap72's Avatar
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    Choosing the cheapest labor pools should be a criticism of companies. Because when they choose the cheapest labor pools, that not only means lower wages, but more lax safety conditions. So, the biggest losers in that equation are the workers and the companies should be criticized for that.

    And considering all of the problems with goods made in China in recent months, it's safe to say that the American people are starting to differentiate between products made in China and those in the U.S.

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    The manufacturing can absolutely be moved back to the US, as long as US consumers are prepared to pay higher costs for goods that are currently made overseas. People say that they would be willing to pay higher prices, but I think once they see the increases in cost to them they won't be happy.
    My family is struggling with this issue right now. We want to stop shopping at Walmart, but it's going to cost us money and time. We have been getting a lot of groceries, hygiene products, and OTC generic meds there. Now I'm going to have to worry more about sale flyers, going to different grocery stores, getting the hygiene and OTC meds at Target instead...it sure has been cheap and convenient shopping at Walmart. I got everything except for meat and produce there.

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    Elite Member MohandasKGanja's Avatar
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    Choosing a cheaper labor pool in a global market is just an economic factor, balanced against many others. Sometimes the survival of your company hinges on sending some or all of your production abroad.

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    Elite Member kingcap72's Avatar
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    Most of these companies send their jobs to cheaper labor pools so they can increase their profit margins. By paying less wages and no benefits, it increases their bottom lines and makes the stockholders happy. The governments of those countries benefit, but the workers don't, and neither do the U.S. workers that watch their jobs head out of the country.

    The biggest issue with the U.S. economy is that the U.S. is spending more money to import goods and making less money from exporting goods. And that imbalance has been going on for years and it needs to be corrected at some point. But the U.S. actually has to start coming up with worthwhile new goods to export.

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    Elite Member MohandasKGanja's Avatar
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    Some companies send production outside the U.S. to increase their profit margin. Others are forced to in order to be competitive in their current market.

    If the workers in the other countries didn't benefit, they wouldn't take the jobs. As the article above states, the factory workers in China have higher ambitions than their parents, and have become choosier about wages and working conditions.

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    Elite Member kingcap72's Avatar
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    Most of these workers don't have any choice but to take the jobs because they have no other options. It's either low wages and unsafe conditions or they don't eat. And if the Chinese workers were benefiting then why are they demanding higher pay and better working conditions?

    And a lot of these companies move the jobs overseas only to have the goods shipped back to the the U.S. to be sold. So how does that help them compete in the global market when the U.S. is their target market?

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    Elite Member MohandasKGanja's Avatar
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    Quote Originally Posted by kingcap72 View Post
    Most of these workers don't have any choice but to take the jobs because they have no other options. It's either low wages and unsafe conditions or they don't eat. And if the Chinese workers were benefiting then why are they demanding higher pay and better working conditions?

    And a lot of these companies move the jobs overseas only to have the goods shipped back to the the U.S. to be sold. So how does that help them compete in the global market when the U.S. is their target market?
    I think that being able to feed yourself is always an improvement over not being able to feed yourself.

    And as many articles have stated, China's economic growth has skyrocketed in the past 20 years. It is one of the top economies in the world.

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