The drum beat continues on China’s labor problems. Starting with the suicides and strikes at plants in the Pearl River basin, which goes from Shanghai to Guangzhou, there are articles and opinion pieces both in the domestic and international media.
Foxconn, the Taiwanese multinational electronics manufacturing behemoth, is often at the center of these stories. But what is the reality behind these headlines?
I had an opportunity to talk to a Taiwanese business person who has been doing business in China for more than 20 years. My first question was about how they viewed the current situation and how it would impact future business in China.
Their first remarks were about the suicides of the young workers, which they saw as regrettable. They were quick to point out that in a factory complex which employs 400,000 workers, the sheer logistics of feeding and housing people is daunting all by itself.
Like an army, people often feel like interchangeable parts of an impersonal process. The younger workers, especially from one-child families, often find the move from a close-knit family group to living in cramped conditions with six to eight strangers difficult and disorienting. Many become depressed and anxious.
They are markedly different from the generations they follow, who viewed cramped conditions and loneliness as part of the cost of future prosperity. For the older generations, having worked in the fields and suffered through difficult periods of China’s history, as long as they had a place to sleep, enough to eat and could save money for their eventual return home, they viewed the long hours and spartan living conditions as the dues they paid.
I asked about wages, which have not seemed to have stayed at just under a thousand RMB ($143) a month. I pointed out that inflation and the cost of living was rapidly eroding the buying power of their wages.
They indicated that while China’s vast pools of labor had kept wages in check, the companies were bearing the costs of higher land, construction and food. They pointed out that the real cost of wages was increasing, not because of wages, but because of the rising costs of food, housing and government-mandated benefits.
I also asked about the practice where workers wanting to sign up for a job would often pay a couple of thousand RMB to an “agent” to secure employment. It seems strange that a person would work for free for two months just to get a job. They indicated that this was not unfortunately a new phenomenon in China and was not restricted to foreign national companies.
They were not as forthcoming when I pressed them of the fairness of this type of situation.
The discussion then turned to what the future held. Interestingly, they seemed unfazed by the events and seemed to look at it philosophically as just part of the cost of doing business in China. I noted that Foxconn had doubled its salary at the same time they were looking to break their manufacturing units into smaller, more geographically separated operations. They indicated that some at Foxconn suspected that they were being used as the front edge of a government policy to increase wages and consumer spending within China. They pointed out that by doubling their wages Foxconn was effectively setting a new wage rate, which other foreign national and Chinese domestic companies would have to follow. Given the size and economic impact of their operations, they are apparently being wooed by cities throughout China that are promising economic incentives and more stable labor costs.
I asked if this was the beginning of the end for cheap labor in China. The answer is that China’s advantages today have more to do with its infrastructure and growing domestic market than cheap labor and lax environmental standards/enforcement, and that it would remain competitive as long as it continued to improve productivity.
So what does this mean to you? I have noticed that successful groups in China are wary of being too heavily invested in one area and tend to split up their operations so they maintain flexibility. Something to think about.
