Pay Hike

PRD region wage hikes a mixed blessing

By Li Tao (HK Edition)
Updated: 2010-06-10 07:19

After Foxconn, the world's largest contract manufacturer of electronics, announced its third pay increase in two weeks, which would more than double every employee's basic salary, experts believe it put immense pressure on many Hong Kong-funded manufacturers in the Pearl River Delta (PRD) region, as they may lack the ability to pass rising production costs to their overseas buyers.

"The wage hikes Foxconn proposed have gone far beyond my expectation, which will compel other manufacturers to inflate their pay," Stanley Lau, deputy chairman of the Federation of Hong Kong Industries told China Daily. "Foxconn may be able to pass the wage increases to its customers, but those manufacturers who cannot will only have to move their plants elsewhere or close down the business."

After a spate of worker suicides in its Shenzhen factories, Foxconn, a major manufacturer for many of the world's top electronic gadget developers, said it will increase the basic salary for production-line staff to 2,000 yuan a month soon after they pass a three-month performance evaluation, a jump from 900 yuan per month previously established.

The Taiwanese-owned electronic manufacturer, which employs over 300,000 workers at its Shenzhen plants, said Tuesday it will seek higher prices from its clients, including the electronics giants Apple, Dell and Hewlett-Packard, to help offset the wage hikes.

"Foxconn is capable of making bargains with its clients, as products it is making, like iPhones and iPads, are so popular that some are even in short supply. But to most Hong Kong manufacturers, they lack the 'irreplaceable' position in the market and once losing their low-cost advantage, they will have nothing to gain," said Lau.

In face of a labor shortage in the PRD region, Lau said wage hikes by some manufacturers will definitely affect the whole industry, as workers from similar factories are doing similar jobs and will inevitably compare wages with each other. But even if those factories raise wages by only the degree that Honda did, many of them will still have difficulty absorbing the costs of inflation.

The Japanese automaker has offered a 24 percent pay boost to its mainland workers, following a strike for a pay increase. According to a survey released by the Hong Kong Trade and Development Council last week, wage expenditures account for roughly 20 to 30 percent of total production costs of garment manufacturers, and an average 17 percent pay rise could translate into a 4-6 percent rise in their total production costs.

"These days, many manufacturers enjoy only some 5 percent profit margin as the export market is a buyer's market. Those who cannot afford a pay increase are very likely to be edged out of the playground soon. But in the long run, it is a good thing for the Chinese economy," Simon Zhao, director of International Center for China Development Studies at the University of Hong Kong, told China Daily.

China Daily

(HK Edition 06/10/2010 page3)