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Chinese Based Manufacturing Edging Towards Relocation

Chinese based manufacturing companies are setting the stage to move production facilities more inland due to workers demands for higher wages. The port cities are growing too costly, and large companies who are aware of the situation, are simply going to start relocating their manufacturing facilities farther inland in China. It really boils down to a two fold reason.

First off, workers on the coast of China have been going to work for about 20 years now, and are starting to want more out of local companies. These workers are becoming union organized and demanding higher wages. Also, these workers are aware that they are creating products for highly developed countries who pay a premium price, so it only adds to the desire for higher wages. However, what these workers may not know, is that manufacturers are becoming highly mobile in a global economy. Manufacturers will move to Central and Western China when they are tired of raising the stakes for workers. They will also start opening new ports in South East Asia if they have to. Wages are low, and few companies have broken ground at this time.

Workers are getting more and more frustrated with low wages and heavy work loads. According to Elaine Kurtenbach of the Associated Press, on June 1st of 2010, workers for HONDA MOTOR CO., LTD. (ADR)(NYSE:HMC) in China at a Foshan supply plant demanded more than the 24% increase in wages that Honda had promised them. After the car manufacturer announced that it planned to increase production to an additional 830,000 units by 2012, the workers went on strike.

Suicides have been reported at a factory in Shenzhen. Foxconn Technology Co., Ltd. (TPE:2354), who is the largest electronics maker in the world, employs over 300,000 workers at its Shenzhen location. On January 15th of 2010, over 2,000 United Win (China) Technology Ltd. Co. workers in Suzhou went on strike over poor working conditions, which eventually lead to a riot. Although it is understandable that workers would like to enjoy the fruits of their labor, the only reason manufacturing plants exist in China is because of the low wages. Hopefully workers will realize that some jobs are better than no jobs. Hopefully this realization comes before companies start pulling out of China, leaving labor too plentiful and wages dormant.

Secondly, there is a traditional model of manufacturing that is about to be dealt a death blow. In the past, companies would traditionally try to locate their manufacturing facilities as close to ports as possible to reduce shipping costs. However, that model is overlooking how saturated a labor market becomes when you have demand for labor through the roof because you have collectively put all of your eggs in one basket. Instead of locating your manufacturing facility where there are already plenty of shipping jobs in existence, why not set up shop on a rice patty where workers demand less and work harder?

Have you ever stayed up late enough to notice a farmer harvesting his grain at 2:00am? Farmers will spend all day and night pulling in a harvest and breaking their backs for extremely low pay. Farmers truly know the meaning of dusk til’ dawn, and they know how to get a job done. That is the type of worker that manufacturers need. Lets take for example the Honda plant in Greensburg Indiana. It was a small town in the Midwest filled with farmers. I believe that the reasons Honda came to Greensburg of all possible locations, was because of the hard workers, infrastructure, and low wages. The market was not saturated with high demands for labor. It was ripe with a can do attitude and customer loyalty. I cannot help but think the same principal remains true for farmers with rice patties in Central and Western China.

The restructuring of manufacturing probably will not happen today or tomorrow, but it will happen. Like many things, it can be expected to happen in gradual increments. Fewer and fewer businesses will open up on the coast. Then companies will start moving pieces of their daily operations to different locations. Hopefully this article is in vein and workers will realize the potential danger of their actions before companies start their big move.

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