Management and strategy: China wages hikes pushing companies to rethink

Monday, 08 August 2011
Wages in China is rising and last year, wages rose so much that China's biggest company, Foxconn, has recently decided to buy close to a million manufacturing robots for their factories on the East Coast - labour has simply become just as expensive as machines.

Who had not noticed this? Western companies which rushed to China and India a few years ago - did the listen? Did they have a cost management strategy other than their inbuilt cost plus method?

Some Scandinavian companies, such as some Danish companies operating in China indicate that however that Danish firms react rationally to such situations. They pay the salary increases as needed if they have a good business or a long term business case.

Though wages are rising in China and production is becoming more expensive, it is important to distinguish between those companies that are solely in the country to make cheap goods for their home market - and those which really want to sell to the Chinese market.

As cost of production has rationally been the driver to attract companies to the country, most had moved here to enjoy the cheapness. One of such companies is ECCO, which manufactures shoes and also create leather tanning. Its production facilities are located in eastern China, where wages are rising the most - but ECCO is not on the move to flee, according to Michael Hauge Sorensen, general manager of ECCO.

“It is clear that we continuously monitor developments in labour costs, but obviously that is only one of a number of parameters we are looking at when we evaluate the production sites. China's a fantastic market for ECCO, and we've been here for almost 15 years and still see fantastic growth rates here.

There are several reasons why labour costs are rising in China. Among other things, there is a political desire for higher wages - but also it also held that the workforces are going home to the country sides they came from as the cost of living in the industrial regions have now increased.
During the beginning of the Chinese boom, the poor peasants from the interior of China left their families and went out to the coast to look for work in the factories. But as China has become richer and more factories moved west, they can now stay at home. This means that labour has also dispersed out of the reach of recruiters based in the eastern industrial regions.
Competition for labour then on the east coast has become higher - and pay will drive the attractiveness of recruitment, accordingly.

It also means that companies must be good in keeping with the modern ways of managing their employees. Interaction with them means providing the best working conditions than before.  Actively, ECCO claims that it had done so long ago as such it remains an attractive employer. Simple things such as canteen arrangements, sports and social events for employees are vital to keep worker closer to the heart of the employers.

But in addition it also means much for ECCO to have local manpower
“Our great idea is that we want to primarily recruit from the local area. This is because our founder Karl Toosbuy had the basic view that people should have a family and be able to come home to family in the evening. Therefore, we give priority to establish ourselves in an area where people have the opportunity to have that.”
By Tea


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