Wages are surging this year in China and in its low-wage Asian rivals, benefiting workers across the region. But the increases confront trading companies and Western retailers with surging costs, and are making higher price tags likely for the US and European consumers.
Bruce Rockowitz, the CEO of Li & Fung, the largest trading company supplying Chinese consumer goods to US retail chains, says that the companys average costs for goods surged 15 per cent in the first five months of this year compared with the same period last year.
Airline flights to Vietnam, Bangladesh, Indonesia and other low-wage Asian countries are packed these days with executives looking for alternatives to double-digit wage increases in China. But wages are rising as fast or faster in many of these countries, following Chinas example, while commodity prices have surged around the world, leaving buyers with few places to turn.
Coach, the luxury handbag maker, announced recently that it would try to reduce its reliance on China to less than half of its products within four years, from 80 per cent now, by moving production to Vietnam and India.
Yet wages in Vietnam have been rising as fast as Chinese wages, or faster, while India has posed many problems for large-scale manufacturers. Rockowitz said that Indias infrastructure - roads and ports — was really poor, while labour issues, including government regulations, make it hard to build Chinese-style factories.
Rising wages and strengthening currencies in Asia is making it less attractive to move higher-value industries out of the West. But no one is speaking of moving these labour-intensive industries back to the US or Europe.
The Western world does not have the workforce to do this kind of business and most western workers are getting old and no new workers are coming in to fill the void, concludes Rockowitz.