zaph

China labour costs like the US within years

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RAPID wage increases are threatening China's competitiveness, but improved productivity and other advantages mean it will continue to attract investors, analysts say.

Labour costs in China would match those of the United States within four years, catching up with eurozone countries in five years and with Japan in seven, the French bank Natixis forecast in a study last month.

China "will soon no longer be a competitive place for production given the strong rise in the cost of production", the bank said.

It is a view backed by the respected Boston Consulting Group (BCG), which said in a study last August that by around 2015 manufacturing in some parts of the United States would be "just as economical as manufacturing in China".

Examples of major manufacturers leaving China abound - BCG said US technology giant NCR has moved its manufacture of ATMs to a factory in Columbus, Georgia, that will employ 870 workers as of 2014.

Adidas announced recently that it would close its only directly owned factory in China, becoming the latest major brand to shift its manufacturing to cheaper countries, though it maintains a network of 300 Chinese contractors.

http://www.couriermail.com.au/business/worklife/china-labour-costs-like-us-within-years/story-fn7kjdgm-1226438065496

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Who would have thought that having a competitive advantage based on cheap labour would not succeed in the long term?

It's quite a simple equation...

A. Our advantage is that we are paid peanuts

B. If we want to increase our living standards we need to be paid more. See point A ... doh!!!

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DONT THINK ITS ALL CHINAS WAGES GOING UP

USA is having a massive reduction in standard of living to. unlike hen Japan went thru something similar, usa didnt gain the competitive advantage. this time they will

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Labour costs in China would match those of the United States within four years, catching up with eurozone countries in five years and with Japan in seven, the French bank Natixis forecast in a study last month.

The minimum wage in the industrialized and affluent parts of china is $50 a week (in the poorer parts half that)

Wage inflation is 11% pa.

The US minimum is $300 pw.

At the present rate of Chinese wage inflation and with US wages standing still, it would take at least 20 years.

Total piffle!:thumbdown:

Edited by wulfgar

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I attended a conference last week. One of the presenters talked about an IT off-shoring transition to China. They said the primary factor for off-shoring was not the cost saving (difference) but the larger pool of talent to hire from... apparently starting up a team of 50 highly skilled professionals is doable there but impossible in any Australian city. In addition it would have cost them a bucket load to find additional office space for another 50 staff!

It's not just cost that is driving work to Asia but the scale of educated/skilled workers (China and India in particular).

A footnote from the talk was that it was bog easy to get a visa to China (same day) but difficult to get one to Australia.

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I attended a conference last week. One of the presenters talked about an IT off-shoring transition to China. They said the primary factor for off-shoring was not the cost saving (difference) but the larger pool of talent to hire from... apparently starting up a team of 50 highly skilled professionals is doable there but impossible in any Australian city. In addition it would have cost them a bucket load to find additional office space for another 50 staff!

It's not just cost that is driving work to Asia but the scale of educated/skilled workers (China and India in particular).

A footnote from the talk was that it was bog easy to get a visa to China (same day) but difficult to get one to Australia.

Nothing to security or commercially sensitive I'd hope.

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How to send work offshore:

- Send copious amounts of work to China and India due to cost

- Fail to train Australian's in the work due to lack of demand

- Complain that there aren't enough Australian's to do the work

To make it politically palatable:

- outsource the IT department to a company in Australia so no jobs are lost

- once the IT work is outsourced it can then be offshored

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The minimum wage in the industrialized and affluent parts of china is $50 a week (in the poorer parts half that)

Wage inflation is 11% pa.

The US minimum is $300 pw.

At the present rate of Chinese wage inflation and with US wages standing still, it would take at least 20 years.

Total piffle!:thumbdown:

17 years and 2 months @ 11% to turn 50 into 300.

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To make it politically palatable:

- outsource the IT department to a company in Australia so no jobs are lost

- once the IT work is outsourced it can then be offshored

In this case "outsourcing locally" simply wasn't possible as the company couldn't hire 50 talented staff members locally, whereas they could in China (deeper pool of educated professionals). I was surprised at the level of dissension in the audience about the company's decision to outsource abroad, but it may have been a touchy subject given the conference was hosted at a university!

The conference website: http://www.lastconference.com/

As I think Tor mentioned in another thread this has been happening for years in IT... it's kind of funny to hear squealing now from other industries now that it is impacting them.

If you have talent and in an industry with a future then you are more likely to be in (some) demand... IT may change dramatically but it ain't going away any time soon.

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In this case "outsourcing locally" simply wasn't possible as the company couldn't hire 50 talented staff members locally, whereas they could in China (deeper pool of educated professionals). I was surprised at the level of dissension in the audience about the company's decision to outsource abroad, but it may have been a touchy subject given the conference was hosted at a university!

The conference website: http://www.lastconference.com/

As I think Tor mentioned in another thread this has been happening for years in IT... it's kind of funny to hear squealing now from other industries now that it is impacting them.

If you have talent and in an industry with a future then you are more likely to be in (some) demand... IT may change dramatically but it ain't going away any time soon.

I guess I'm just a little sceptical. In the last 10 years there has been a few hundred thousand university qualified jobs created in India. These jobs have nothing to do with internal demand. They are all jobs that have been moved from other countries. This wasn't due to a skillset available in the country, but due to cost differences.

The conventional wisdom was always education will allow for adaptability and we keep the value added jobs onshore. This has now changed drastically with scarcely any mention in the media - despite sub-editors jobs being offshored recently. Now there is an uproar over 1,000 mining jobs on 457's - this doesn't scare me as much as investment banking analysis jobs being moved offshore and other jobs which people aspire to. It isn't just the cheap jobs going offshore. The large offshore companies are trying to climb their way up the value chain at a rate which is difficult to believe.

There are jobs ad's on electricity poles in India that IT grads here would kill for the chance to have. In my field and company I saw 500 new hires in India in one year. In the prior ten in Australia there had been zero people trained. There was obviously a skills shortage in Australia so that is now filled through 457's - probably a consistent 200 people over the last 4 or 5 years.

I long for the day that we are competing in a world on an equal playing field where it is about skills because cost is the same. Unfortunately that won't happen in my lifetime. What will become clearer is that manufacturing won't be the last industry segment to move offshore. Maybe there is a bright light at the end of the tunnel and it is just yet to show itself.

This became a little more ranty than I had aimed for but it seems like the reasons to offshore are analogous to those for invading Iraq - a rapidly moving target.

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...I was surprised at the level of dissension in the audience about the company's decision to outsource abroad...

I always find the level of hatred at outsourcing amusing. Outsourcing doesn't work very well, I think this has been proved, it is a reasonable way of boosting profits for low skill areas but realistically they don't make or break the business (although some companies *cough* RBS *cough* do still try to outsource medium level skills).

Generally speaking the people opposed to outsourcing are the same ones bitching about how they can't telecommute / don't have true free market labour mobility and so on.

Anyhoo to beat my consistent drum, the next boom is going to be in jobs. Unions have done their dash (if the QANTAS debacle didn't prove that nothing will) and now we might see skilled people freed from constraints in a few key ways and they are going to be able to ask for stratospheric cash based on measurable results. Overpaid people with vague KPI metrics are going to lose out to people that are putting their effort into being just flat out hardcore in a pertinent measurable way.

Effectively I am an outsourcing company because I work for a a few companies overseas, they can't find people locally that can do the work properly. I charge in $AUS. I have to be the worst example of saving money by outsourcing and yet it works for those companies.

Everyone 30 or older has been sitting around wanking over their house prices and forgotten that they have to compete. Everyone under 30 has been sitting around wanking over how _awesome_ it would be to get a game on the iStore.

Meanwhile business has been asking "could someone make sure my databases come back after the terrorist attack on my data centre".

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Everyone 30 or older has been sitting around wanking over their house prices and forgotten that they have to compete. Everyone under 30 has been sitting around wanking over how _awesome_ it would be to get a game on the iStore.

You summed it up. It is amazing how quickly time passes and nothing significant gets done in the workplace.

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At the end of the day what is being delivered by the asian call centre or the asian IT people does not really fit the bill in terms of the australian/us consumer or high end business manager's expectations. But the desire to reduce costs and improve profit margins is king so the aussie/us co's have gone down this track. Whilst I think that the 'new' workers are intelligent, hardworking and capable I don't really think that outsourcing and offshoring is actually bringing much to the consumer ( lack of service/quality) and ultimately there will be a backlash (lack of jobs - leading back to quality/service) . Perhaps more importantly the worldwide market collapse (long recession/slow down - call it what you will) will focus much attention on the rise of Asia at the expense of the Western world. There will be a recognition that we have stuffed up and have no industries (either manufacturing or otherwise) because we outsourced it all for short term gain. Tariffs and protectionism will ensue.

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The minimum wage in the industrialized and affluent parts of china is $50 a week (in the poorer parts half that)

Wage inflation is 11% pa.

The US minimum is $300 pw.

At the present rate of Chinese wage inflation and with US wages standing still, it would take at least 20 years.

Total piffle!:thumbdown:

Wulfgar,

You are looking at US labour the wrong way.

When things are "made in the USA" the labour intensive bits are made in places like Mexico with the tech heavy or heavy industrial bits done in the USA.

When China's labour rates exceed that of Mexico the US industrial complex will kick right into gear again with trasport costs clinching it for them. On lateline business about 12 months back someone said this process only had about three years to play out if China did not do something about inflation. Before you ask who it was, I cannot remember unfortunately...

Of course over the last 12 months China has acted on inflation quite strongly.

That said I imagine it is hard for China to attack inflation to the degree that Australia can when China's yuan is pegged to another, no doubt why there is so much speculation about hard landings in China. What do you do though? If they let their currency appreciate they still become uncompetitive.

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If they let their currency appreciate they still become uncompetitive.

It's quite a deliberate policy on China's part that causes the appreciation. China officallly and unofficially limits what the Chinese can purchase from the world markets. Basically Chinese are limited in buying value added products from the rest of the world because the Chinese government wants to force them to seek these things in the domestic market.

The stuff they allow in is the stuff they can't do without like raw materials and specialized technology.

The Chinese central bank devalues the local currency and purchases dollar reserves. Effectively this means there is massive credit opportunity to buy Chinese on pay later schemes. For example the Chinese produce steel hardly anymore cheaply than the Americans, but the Chinese offer their production on a pay later easy credit.

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Well, I been working with China for over 15 years:

- Talent in China, it's there, but in concentrations of 0.000000001% versus in Australia of 1%. It's nothing to do with IQ or education. It's a cultural thing. They struggle to grasp idea of improvement, let alone Innovation. They are not competition, they are world's workshop. This may change in future, but will take a generation or two.

- Wages, well we pay $25,000 USD to Engineers that speak three languages and work with international clients. Workers on the floor get 300-500USD/month. This was quickly rising, but with no demand growth any more (economy of the world slowing down drugging China growth down), it's going to stall in 12-24 months from now. It will not catch up with USA wages in my lifetime anyway. Only few areas in china making this kind of money, once you move inland wages dramatically drop down (to 1/10 and beyond), but so is infrastructure and skilled workers. There is still 90% of unexplored capacity left there.... By the way, we are manufacturing company, specializing in parts and components manufactured in China for customers abroad.

- China Currency, it's going to go where the Government directs. No way's around it, they will decide what is appropriate for the economy and adjust accordingly regardless what we - the rest of the world think.

-China outsourcing, works just fine. Think Iphone and Apple.

Does it work for everyone, no. Forget Call Centres, bad idea as requires thinking on the fly and English way of thinking, not just language as such.

By the way we are making parts for some Australian well known manufacturers/brands. They do it properly, we make components up to certant level of complexity and ship it to Australia. Products get assembled and tested here.

It's some silly management in some companies trying to relocate whole manufacturing/R&D/marketing operations to China or India. Watch them do so and quickly sell shares as they rise in first year. They will be dropping from thereafter due to recalls/complaints/losses.

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Well, I been working with China for over 15 years:

- Talent in China, it's there, but in concentrations of 0.000000001% versus in Australia of 1%. It's nothing to do with IQ or education. It's a cultural thing. They struggle to grasp idea of improvement, let alone Innovation. They are not competition, they are world's workshop. This may change in future, but will take a generation or two.

- Wages, well we pay $25,000 USD to Engineers that speak three languages and work with international clients. Workers on the floor get 300-500USD/month. This was quickly rising, but with no demand growth any more (economy of the world slowing down drugging China growth down), it's going to stall in 12-24 months from now. It will not catch up with USA wages in my lifetime anyway. Only few areas in china making this kind of money, once you move inland wages dramatically drop down (to 1/10 and beyond), but so is infrastructure and skilled workers. There is still 90% of unexplored capacity left there.... By the way, we are manufacturing company, specializing in parts and components manufactured in China for customers abroad.

- China Currency, it's going to go where the Government directs. No way's around it, they will decide what is appropriate for the economy and adjust accordingly regardless what we - the rest of the world think.

-China outsourcing, works just fine. Think Iphone and Apple.

Does it work for everyone, no. Forget Call Centres, bad idea as requires thinking on the fly and English way of thinking, not just language as such.

By the way we are making parts for some Australian well known manufacturers/brands. They do it properly, we make components up to certant level of complexity and ship it to Australia. Products get assembled and tested here.

It's some silly management in some companies trying to relocate whole manufacturing/R&D/marketing operations to China or India. Watch them do so and quickly sell shares as they rise in first year. They will be dropping from thereafter due to recalls/complaints/losses.

Thanks for the insight, simple.

It's always good to hear from someone who's been there and done that.

I agree about the cultural aspect of innovation/adaptability/improvement - it's a bigger stumbling block to development than some might think.

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