Arguably, electronics makers choose Chinese companies to make and assemble their products for one reason above all the others. It’s cheap. But recent actions in the Chinese labor market may qualify the country’s status, at least to the point of raising the prices on those products, including the iPhone.
All Things D mentioned the Hon Hai company’s bump in employee wages after the rash of suicides at their Foxconn plant, but they also noted that after is not the same as because. China’s wage inflation is more systemic. The New York Times‘s David Barboza agrees.
“Coastal factories are raising salaries, local governments are hiking minimum wage standards and if China allows its currency, the renminbi, to appreciate against the U.S. dollar later this year, as many economists are predicting, the cost of manufacturing in China will almost certainly rise.”
Marketwatch reports increases of 5% in Hunan province to 27% in Ningxia. Morgan Stanley estimates a country-wide increase of 17% average. Chinese rationale seems to be a simple desire to stimulate domestic spending and retain increasingly itinerant workers.
Writ large, this is surely not a negative move. Foxconn’s suicides are only one small part of the picture of international electronics workers. As Tom Foremski wrote in his ZDNet blog, labor is an element that can be, and therefore more often than not is, driven downward at nearly every opportunity.
“What is common across the electronics industry is a relentless focus on reducing manufacturing costs, and the largest manufacturing cost is labor; which is why employees are pushed to work faster, while maintaining high quality work, and at the lowest wages acceptable.”
Even with an average increase in labor costs of nearly 20%, China will surely remain competitive. But these increases are unlikely to be absorbed by companies, like Apple, who use Chinese factories for much of their production. They will be passed on to the customers. Is an iPhone a luxury or a tool? Either way, the iPhone 4, reflecting these labor increases, might spike in price from $199 to about $235. A deal-breaker? Probably not. But it will have an effect.
