Chinese Manufacturers Moving Businesses to Countries with Lower Labor Costs
Chinese manufacturers are forced to move to neighboring South-East Asian nations or considering the option seriously, thanks to rising wages and shrinking export demand.
Speaking of the changing times that is indicative of earlier trends when manufacturing industries first moved to the region, Chen Jian, a general manager of a garment company located on the Pearl River Delta, said, “The advantage (of labor and production costs) in Southeast Asian countries will only last for a few years. The trend is just like what happened some 10 years ago when many manufacturing industries in Hong Kong and Taiwan moved to the Pearl River Delta to chase cheap labor. But now you can see how much our labor costs have gone up.”
Since lower labor costs is what these industries are after, some of the locations that these Chinese manufacturers are moving to are Vietnam, Malaysia and Indonesia. In fact, some manufacturers have already moved a part or all their business abroad.
But that’s not all – this trend is likely to continue especially when it comes to labor-intensive manufacturers who will transfer production leading to job losses as well.
With Chinese labor costs increasing from 15 to 20 percent, this has led to tightening of margins and has also driven some companies to bankruptcy too. Also, with the minimum wage raised by 20 percent on an average in 16 provinces in China, this has caused companies to struggle as well.
Yet what has also compounded the situation is that along with this increase in labor costs, the drop in demand from European Union as well as the United States isn’t making it any easier for these Chinese manufacturers.