Global Supply Chain News: Will Rising Wages in China Significantly Change Outsourcing Economics?

Predicts that wages will rise 80% in the next 5 years as consumer demand and job availability skyrockets, and as the one-child-only policy reduces the number of 18-34 workers.

Link - http://www.scdigest.com/ontarget/11-05-19-1.php?cid=4550

Big Corps will try to outsource elsewhere, though I don't think they'll see the same quick profit they saw when outsourcing to China began.

rather than cheap goods, similar to Japan's transition in the 1960's and 1970's.

"It is also among the reasons the Chinese government is making aggressive efforts to move the country into more complex, higher value goods that have a lower labor cost as a percent of total costs.

With its huge population and millions of people moving into eastern cities from rural areas, China for most of the last decade had ample supplies of workers even as production and export levels surged. But some of that is starting to change. Fung says that worker shortages will start to be seen, as the impact of China's "one child" policies meant to reduce population growth that were enacted decades ago start to have a demographic effect.

Some observers say there's already a shortage of workers in the key 15 to 34 age demographic. Jun Ma, Deutsche Bank's chief economist for Greater China, says that cohort has been steadily declining since 2007, and that it will get worse. That will push wages up not only because of demand-supply dynamics but because wages will need to rise for existing workers to support a rapidly growing retiree population.

Chinese wages also took a sharp turn upward last year, as unusual strikes and other labor actions in 2010 drove a number of companies to raise wages 20-30%, and local provincial governments to do the same on minimum wages last year."

A small hole in your theory. :silly:

Perhaps at an even more rapid rate. Corporations simply can't pick up and move immediately to another, cheaper place of manufacturing. It generally takes a year or two. Thus, our own inflation is going to rise, reflecting the rise of inflation in China.

And the hits just keep on coming.

the outsourcing will begin in earnest before they have the chance.

in those countries that it has had here.

Their combined population is 2.5 billion. Significant outsourcing of jobs from economies with that many workers would drive up wages in the destination countries quite quickly since they would be much smaller. The effect of outsourcing jobs from an economy of 300 million to ones with 2.5 billion is a lot different than doing the reverse.

If China and India outsourced even 3% of their jobs to say Vietnam (population - 87 million), the demand for workers in Vietnam would double, undoubtedly driving up wages very quickly in that country. (While outsourcing a much larger percentage of US jobs has had a much more limited effect on Chinese and Indian wages because their workforce is so much larger than ours.)

IF (again a big IF), wages in the two biggest countries in the world continue to increase substantially, outsourcers will have a more difficult time finding the large pools of cheap labor than they have in the past 2 decades.

Nike et al have already started going outside SE Asia for low cost labor. The more stable African nations like Morocco are the new horizon.

Notice though that the direction for China is not to return to the subsistence farming and monolithic state industries of the 70s, but to continue the arc seen in the US and Europe, where richer nations do more technical and complex mfg and poorer ones supply the low cost low skill labor. It will continue to move, and as in China, create much bigger middle class consumer marketsd in its wake.