Foreign Companies Getting Squeezed for Pay Increases in China

In china business by Michael MicheliniLeave a Comment

Back to Shenzhen for a couple days now, and just been hearing all over about foxconn factory (the one where I blogged about the chinese factory suicides) HAS DOUBLED the salaries of their workers. Here is an article I read from a Taiwanese newspaper:

Commercial Times: Victims of Foxconn pay hikes

2010/06/17 13:34:56

Taiwan-based Hon Hai Group, traded as Foxconn overseas, recently decided to double the wages and abolish survivors’ benefits for its Chinese workers. The measures may help prevent more worker suicides, but after Foxconn’s decision it seems China-based Taiwanese businesspeople will be more likely to want to jump to their deaths.

In the wake of Foxconn’s announcement, Chinese employees of foreign businesses have demanded pay hikes, leading to widespread strikes and labor-capital disputes. Foxconn’s measures have turned out to be a nightmare in which foreign businesses are being forced to increase their labor costs.

It is widely believed that large businesses such as Foxconn and Japan-based Honda Motor will have the ability to transfer some of the increased labor costs to their suppliers and move their production operations to more rural areas. As for the many small and medium-size businesses, it is uncertain whether they can do so.

It is worth paying attention to whether a massive wave of business closures will occur following the strike and pay hike campaign. (June 17, 2010) (By Y.F. Low) ENDITEM/bc

It is scary, just a couple weeks ago when I was in Shanghai I am reading about suicides, seeing its because salary is too low – now the government or the company is doubling the salary there.

As a businessman, this scares me….of course we don’t want people committing suicides, but that was only happening in 1 factory here – understanding what is going to happen now that the SALARIES there increase, pressure ALL OVER THE CITY, all over China will happen next……and already is.

Again, its the general idea of the TRANSITION of China, from a manufacturing state to a domestic consumption economy. People will have to move to HIGHER VALUE jobs, not just stamping or deburring plastic pieces – the workers, when paid more, will have to do more high tech, value- add jobs.

For sure, the work will go outside of China, or deeper mainland China……

Will IPODS and IPHONES and IPADS increase in price? This is the factory that makes them……will the world pay more for these products – or will the supply chain absorb this and make less profit.

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