Ethical, profitable & competitive China manufacturing: focus on labor value, not labor costs


Ethical, profitable & competitive China manufacturing: focus on labor value, not labor costs

For manufacturers in China, the most effective hedge against rising costs is attracting, developing and retaining talent. In this case, the most effective is also the most ethically correct.

This from the Huffington Post:

As I’ve been saying (over and over again), an incremental upsurge in labor rates is not cause for China manufacturers to flee the country leaving unpaid salaries and rent, nor is it  a justification for clawing back benefits from workers (raising prices at the company store) or trying to squeeze more out of them by brute force (speed up that conveyor belt!),

Rather, they are an impetus to analyse the entire cost structure of operations, and to optimize so that competitiveness and profitability are maintained. This quote from the article linked above:

ISuppli estimates that Apple pays less than $8 for the assembly of a 16-gigabyte iPhone 4S and $188 for its components. The phone sells in the U.S. for $649, though wireless carriers offer them at a subsidized $199 with a two-year service contract.

The estimates suggest that if Apple were to absorb a Foxconn wage increase to keep pay the same and cut the work week from 60 hours to 49, it would pay about $2 more to have an iPhone made. Dinges expects Apple to offset any higher labor expense by wringing out savings elsewhere.

Note the phrase “wringing out savings elsewhere”. This is what I’m talking about. There are many ways to ethically offset increased labor rates– and these are also the most effective ways. To start with, throughput can be improved (and labor content reduced) through workflow management, and innovation on the production line (fixtures, semi-automation, design for manufacturability, single-piece flow,etc.). Production-line management (think Model-T) can be changed to cellular production, reducing worker fatigue, as well as physical and mental stress.

I still can’t understand why manufacturing leaders still see clawing back employee compensation, benefits, health & safety, etc. as a reliable method of maintaining profitability and competitiveness. Short-term gains achieved on the backs of workers disappear pretty fast when those workers find better employment and need to be replaced–  high operator turnover causes very expensive havoc in production.

One thing is clear: the most effective path toward profitability is attracting, developing and retaining talent. The most destructive path is to nickel and dime your workers.


  • Emily Woods | September 6, 2012 | Reply

    HI, I have been finding your blog very interesting. My mother and I have started a craft kit business in UK, and we need to find suppliers for things like tiny scissors, knitting needles, crochet hooks, mini pliers etc. We have come across manufactures in china for the scissors at the price we need but we want to be sure nothing we source comes from sweatshops or has been created unethically. Can you give us any advise a to how to find out whether a company is reputable and ethical or not?? We simply cannot find out whether the companies we come across trade fairly and fairly pay their staff or not and we are getting desperate to find suppliers. Also, as a very early business we do not have the possibility of coming to china to check out any factories. Really appreciate any advice you can give! Regards Emily Woods Emma May Craft

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