Sue's Blog

Wednesday, August 09, 2006

From China to Vietnam

Christmas may be late or not come at all if the cheap Chinese labour don't stop migrating to rural China for better employment opportunities.
You wanna fill your boots with globalization and free trade with a dictatorship?
Read below...


China labor pains and holiday woes
A shortage of workers at low-cost factories in China could spell trouble for U.S. toys, apparel, shoe retailers.
By Parija B. Kavilanz, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Retailers have a new, and unexpected, Grinch to worry about this Christmas: a Chinese labor crunch.

Make that a cheap labor crunch. The migrant workers that typically man China's low cost factories are drifting away. And it has the North American businesses that use those facilities - makers of toys, clothes, shoes and electronics - worried.

"The fourth-quarter demand is higher than anticipated so we have to ramp up holiday production," said Harold Chizick, spokesman with Ontario-based toymaker Spin Master. "But because of the labor issue in China, it could be difficult to increase production [of some products] the further we get into the holiday season."

Toys are particularly at risk, since China accounts for more than 90 percent of the world's toy production. But other industries have substantial risks too; China accounts for 53 percent of global footwear production and 50 percent of total apparel production. China also accounts for 16 percent of total global exports of consumer electronics.

Hasbro (Charts), the nation's No. 2 toymaker after Mattel (Charts), told analysts last month that it was keeping an eye on the situation.

The fourth-quarter is vital for the toy industry as it includes the November-December holiday shopping period. Over 70 percent of toy shipments to retailers and over 50 percent of all toy retail sales take place in those two months alone.

Therefore, any significant production and shipping delays from China would have a negative financial impact for both toymakers and retailers.

The most recent report from China's Ministry of Labor and Social Security (MLSS) confirmed that the shortage of workers is concentrated in toy, shoe and apparel manufacturing sectors and in electronics parts assembly and plastic products processing.

"U.S. companies have already started to shift some production away from China to Vietnam," said Nate Herman, director of international trade at the American Apparel and Footwear Association.

But others can't make such adjustments.

"Toy companies are placing their orders much closer to the holidays because they don't want to risk over-ordering. This, coupled with the labor constraint, means the risk is higher today that some deliveries won't make it to the retailers on time," said Henry Hu, a Hong Kong-based consultant to Chinese toymakers.

Indeed, Carl Tong, CEO of Hong Kong-based Creative Master, said he's anticipating a delay in meeting his fourth-quarter orders. His company, which operates factories in southern China, makes collectible toy cars for customers including Mattel and Hallmark.

Some, however, think they can beat any crunch.

"We have planned and we are fortunate to have great vendors in China who are strong and have planned ahead. We will not have product shortages because of China labor issues this year," Isaac Larian, CEO MGA Entertainment, said in a email to CNNMoney.com

A growing shortage

Factories in the Guangdong-Fujian areas started to experience a migrant labor shortage about four years ago as workers sought more attractive job opportunities closer to their homes in rural China.

China Labor Watch, a New York-based non-profit watchdog group, has closely tracked the migrant worker trend over the past few years.

The group's director, Li Qiang, attributed the labor shortage to three main reasons. First, China's "one child" policy, adopted since late 1970s has altered the population structure. Essentially, the supply of young laborers is decreasing. A July report from the Congressional Joint Economic Committee backs that view, saying China's working-age population (ages 15-64) will peak in 2015 and then begin to shrink.

Second, under President Hu Jintao, China has pushed a more pro-agriculture policy which has encouraged a large number of migrant workers to return home and resume farming. Additionally, farmers' incomes are rising due to increase of government subsidies and tax cuts on farm taxes.

"The cost of living and housing in the coastal region in the east has gone up. That shifts the balance dramatically," said Professor Marshall Meyer, a China expert at the Wharton School. "Most factories order their migrant workers to go home on national holidays. About 5 percent of the 10 million migrant population hasn't come back."

Third, low wages and benefits in the manufacturing regions have forced migrant workers to leave for other areas such as Shanghai in search of better-paying service-sector jobs in restaurants and retail outlets.

On average, a factory worker in China earns on average between $75 to $100 a month, Li Qiang said.

Could China lose clients to Vietnam?

Some regional experts say the "cheap" labor crunch, particularly in the southern industrial belt, coupled with rising cost of materials, could eventually dent China's booming export capability, causing U.S. and other foreign investors to move their production base elsewhere.

Wharton's Meyer said Vietnam and Thailand could be alternative sourcing bases for U.S. companies if China's labor issues persist.

"I can't imagine that U.S. companies aren't already exploring other possibilities to China," he said.

However, Harriet Mouchly-Weiss, an independent consultant to the U.S. toy industry, doesn't see that happening anytime soon.

"U.S. companies have too much invested in China, in terms of technology, infrastructure, skills, supplier networks," she said. It's not easy to shift all of this setup to another country.

"Even if wages go up in China, labor still isn't too much cheaper elsewhere. If anything, U.S. toymakers could end up absorbing a part of the rising costs of doing business in China and consumers could end up paying a little bit more for products in stores."

But for its part, the National Association of Manufacturers (NAM) representing the U.S. manufacturing industry, commented to CNNMoney.com that "no one [at NAM] has heard about a Chinese labor shortage."

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Carry on Corporate Canada like FPI support that Chinese abuse of it's people.

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