Rising Chinese labour costs may lead to insourcing
11 June 2012
Last year I wrote in this column that the advent of cheap robots may negate some of the price difference between outsourcing the manufacture of a product or to build at home.
Recently there have been a few indicators that labour costs are continuing to rise in China.
The first piece of news to back this claim came at the end of April when Foxconn’s parent company Hon Hai posted its financial results for the first quarter of the year.
Although profits raised slightly, profit margin slipped from 7.25% to 4%. The main reason for this drop is a Fair Labour Association report carried out on behalf of Apple that led to Foxconn increasing pay and decreasing hours for its workers.
This may not have gone far enough for some workers who rioted recently in Foxconn’s Chengdu plant. Up to 1,000 workers reacted when a security officer tried to arrest a worker for theft in one of the dormitories. The riot spread to the surrounding dormitories and hundreds of police were called to stop the protest.
Foxconn has distanced itself from the riot by claiming that a third party operated the dormitories and security guards. But if it is proven that the reason behind the protest was pay and working conditions, then Apple’s adversity to bad publicity and economic muscle may force Foxconn to further review the conditions of its employees.
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