China Pursuing New Business Models Due To Higher Wages and Other Low-Cost Countries May Be Seeing Wage Increase, But…

One has to understand this global wage arbitrage issue in the larger context of globalization and industrial development process of a nation (e.g., the nature of national competitiveness, MNCs making profits, and national policies including currency manipulation). Japan and Korea have gone through this process.

From the NYT:

Companies here in China’s industrial heartland are toiling to reinvent their businesses, fearing that the low-cost manufacturing that helped propel the nation’s economic ascent is fast becoming obsolete.

And after years of assembling vacuum cleaners and rechargeable toothbrushes for Philips and other Western companies, Kwonnie Electrical Products is planning its own line of home appliances.
“We want to do more original design and build our own brand,” Benjamin Kwok, a company founder, said during a recent tour of a sprawling factory complex that has 3,000 workers, a huge warehouse and labs for testing juice makers, vacuum cleaners and other appliances.

For years, factories here in the Pearl River Delta region have served as the low-cost workshops for global brands, turning this part of China into the nation’s biggest export zone. The city of Dongguan, about 35 miles northwest of Hong Kong, has long churned out toys, textiles, furniture and sports shoes — including hundreds of millions of sneakers a year for companies like Nike and Adidas.

But now, with manufacturing costs rising and China looking to create a consumer middle class, experts say the revamping of this region’s industries could help reduce the nation’s wide income gap and encourage more balanced and sustainable economic growth.

“It is my hope that China’s comparative advantage as a low-wage producer does disappear — the sooner the better,” Fan Gang, an economics professor at Peking University, wrote in a recent essay, adding that China needed to upgrade and embark on “the next stage of development.”

Manufacturing costs have risen rapidly here in response to nagging labor shortages and worker demands for higher wages to help offset soaring food and property prices.

Those pressures were evident a few months ago, when a series of big labor strikes in southern China disrupted several Japanese auto factories and resulted in hefty pay raises.
There is also the looming prospect that China’s currency, the renminbi, will strengthen against other world currencies in the coming years. That would make goods produced here even more expensive to export, and further erode what manufacturers say are already thin profit margins.

But longer term, district officials want to encourage innovation.

“Every company now wants to be a high-tech company, and we want to encourage them,” Mr. Zhu said, as he headed for an electronics factory, where he would inquire about profitability.

The national government has preferential tax policies to encourage technology companies, and the Qingxi district government has a research and development fund — officials decline to say how much money it has — to support efforts.

One company that has already received government money for research and development is a division of Lite-On Technology, the electronics supplier.

http://www.nytimes.com/2010/09/16/business/global/16factory.html


From the NYT:

Moeun Tola, a Cambodian labor advocate, blames Gap, Nike and other major Western brands for miring Cambodian workers in low wages. Inspired by labor disputes in China, he is pushing back.

Mr. Moeun Tola and thousands of Cambodian garment workers began a five-day walkout Monday to demand better wages and benefits, a sign that recent labor unrest in China may be spreading to factories elsewhere in Asia that supply the world with low-cost goods.

A wave of worker disputes in China in recent months, mostly at foreign-owned factories like Honda and Foxconn, has raised questions about whether other low-cost Asian manufacturing centers will also see higher wages as their workers become more assertive.

In Bangladesh, thousands of textile workers demanding an increase in wages to 5,000 taka, or $72, a month from 3,000 taka clashed with the police last month and at least 500 people were wounded. In Vietnam, thousands went on strike in April at a Taiwanese-owned shoe factory.

Peter Brimble, chief economist for Cambodia at the Asian Development Bank, worries that the strike is coming at a difficult time for an industry that shed almost 30,000 jobs in 2009 after a slump in sales to the United States and Europe.

Of Cambodia’s 13.4 million people, the textiles sector employs an estimated 300,000, who send cash back to impoverished villages.

“It’s not the right time,” Mr. Brimble said of the strike.

http://www.nytimes.com/2010/09/14/business/global/14garment.html