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Foreign Firms Are Leaving China

Updated on May 1, 2013

Back in the 60-80's, most things were labeled, Made in Japan, because of the cheap labor available there. Japan, then, was like China today, a promising industrial giant. Today, China has the role as the world's cheap labor for now. But, the winds of change are already making Chinese government officials worried.

As with Japan, as time moved on, the labor force in Japan became more costly, forcing their firms to go elsewhere. China is now having the issue with many foreign firms that are established there. Most impacted is the clothing industry

Profit is a motivator and many clothing manufacturing done in China have relocated to even cheaper labor. These places are Vietnam, Cambodia, Thailand, India, Pakistan. Having clothes made in these countries produces a much larger profit margin than had they been made in China.

In the past ten years, China has experienced a 20% annual wage increase for its workers, creating a new middle class. Making money in China is becoming harder and harder. Some firms are just breaking even, when before, a profit was had. Firms are shifting production as much as 30% to these other countries.

A look at the labor costs really makes it black and white:

In China, are around $4 hr. In Thailand, $3 hr. In Sri lanka and in most Indonesia, India, Pakistan, $1 hr. So, if you can make the same item at a lower cost, obviously, production will shift and jobs lost. So, a polo shirt selling for $12 at Kohls, probably was made for $1-2. Kohls bought for maybe $5.

But, what happens when most of cheap locations are no longer cheap? China will go the way of Japan to some extent. The southeast Asian and other Asian countries will probably be the last source of cheap labor one day.


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