Labor Costs in China are Rising, BUT...
In less than a decade, China has overtaken every other country to become both the largest manufacturer and largest exporter of goods, especially clothing, in the world. Government subsidies and a cheap labor force have contributed greatly to the success of the manufacturing industry. In some of the most vital economic shifts since the 18th century, China's exports have more than quadrupled in value and its economy outperforms every other competitor, a sudden advantage over any other world power, including India and Bangladesh. Although labor costs in China are on the rise, China’s hold on the affordable labor market is still among the best in the world for companies looking for reliable, efficient, and inexpensive labor in manufactured goods.
Several key factors drive the consistently low prices of labor in China and high value of Chinese exports. First, contrary to popular belief, China’s economy is not overrun with huge state-owned enterprises (SOEs). Rather, a plethora of much smaller companies making use of older technology make up the majority of production in China’s industries. Despite this, these products are still sold for a third less than their United States and European Union counterparts. This is because government subsidies (both central and provincial) offer 30% or more on a company’s product value, allowing them to keep their labor and manufacturing rates low.
If your company and your products require a more skilled work force, Chinese labor remains the top choice. Compared to other developing countries that can match or even beat China’s hired labor costs, the workers in China have a much higher literacy rate, which, according to the CIA World Fact Book, is 91% versus India’s 61%. A more educated workforce leads to a competitive advantage in terms of having workers with the ability to recognize and solve technical problems that may arise in the manufacturing process, as well as the capacity to adapt and evolve with improving technologies in manufacturing. In the long-term view of hired labor, this makes China the only real option at this time when it comes to hiring an affordably and capable skilled work force.
If you’re already outsourcing labor and product manufacturing to companies in China, it may also make better business sense to maintain those ties at a slightly higher cost than to switch to a new, marginally cheaper labor force. A stable working relationship with your outsourcing company would avoid the additional costs in time, money, and resources to train a new labor force, as well as build and develop a trusting business collaboration with a new partner. Switching to a new outsource for labor may end up taking more time away from the existing production and expending more company resources than merely maintaining current labor contracts. Make sure you take these costs into consideration before making a decision.
While it’s true that labor in China is no longer as cheap as it once was, considering the wide array of advantages that Chinese labor offer, it still makes smart business sense to continue looking to China for manufacturing and export goods. It can be tempting to shift to a cheaper labor source, as in India, Brazil, and Bangladesh, but the cost, in terms of inexperienced labor and the overall risk of starting new business relationships with fresh labor sources, may end up costing your company more in the long run.
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