China's Labour Force Remains Its Number One Asset
By Raymond Foo, Asian Editor, EMSNow
Jul 19, 2012
Electronics contract manufacturing to move up the value chain and stay in the country for some time to come.
Rising costs in China together with the effects of weak economies in western countries have slowed the country's GDP growth to less than 8 percent in the second quarter. Through these tougher economic times, most electronics manufacturers
have been grappling with the issue of increasing wages. Foxconn had already announced increased salaries in the mainland by up to 25 percent and the question is how long contract manufacturers can profitably manage their businesses as this trend continues.
In a recent Economist article entitled "The end of cheap China," China's EU Chamber of Commerce industrialist Joerg Wuttke predicts that the cost of manufacturing in China could double or even triple by the end of this decade. Recent reports indicate that many manufacturers are already adopting a "China plus one" strategy, opening a factory in another low-cost Asian country as back-up. But there are many reasons why Vietnam, Indonesia or the Philippines do not have the inherent advantages that China has built-up over the past two decades.
While labour costs might be relatively lower in those countries just mentioned, infrastructure is a measure by which they often fall short when compared to China. Not just basic infrastructure like having industrial clusters, steady water and power supplies, and proper transportation routes but supply chain infrastructure as well. In terms of availability and reliability of components and technical services, the supply chain network that has been established in China for electronics manufacturing is excellent for its size and complexity. From what I have seen, this cannot be found in other Asian manufacturing bases.
Efficiency and the abundance of talent from its large labour pool are other factors that bolster China's position as the top electronics manufacturing country. On my previous visits to China, I was privileged to visit facilities that supplies thermal and screen printing equipment to contract manufacturers and found them to be spotlessly clean and equipped with methodologies and well-trained personnel that were truly "world-class". Since the late nineties when I worked there as an engineer till today, skill-sets and production standards have improved in leaps and bounds, thus giving Chinese workers a certain flexibility that many of its pretenders lack.
As electronics manufacturers in China move up the value chain, making and in some cases, designing more sophisticated and higher-margin products, its production lines will inevitably become leaner, more efficient and productive. To this extent, there has been evidence, especially in automotive manufacturing, that factories are leaning towards utilizing higher technology and automation. Yes, a robotic arm will not quit, require medical insurance or demand higher wages but at the same time, it does not come cheap as well.
Last year, Foxconn's Chairman Terry Gou was quoted saying that the company is planning a big shift to automation and would put as many as one million robots in its Chinese factories over the next three years. Whether this plan comes to fruition or not, I believe the number one asset in China still remains its workers. In the era of lower volume and higher mix products, an optimum balance of efficiency and productivity will be found by deploying basic automation with human operators that will do the job more effectively. This outcome will be more desirable than full-scale automation.