If decision-makers and investors in manufacturing organizations cannot offer competitive wages, safe working conditions, and acceptable living conditions then they should get out of the business.
It is absolutely possible to manufacture ethically and profitably.
Sweatshops are the way they are because excessive greed and/or incompetent management encourages a blinding mis-focus on labor costs.
There is no good reason for factories anywhere to be run like sweatshops. Sweatshop management, contrary to conventional wisdom, generally doesn’t help the bottom line because as it’s associated with waste and low productivity. It’s as unnecessary as it is immoral.
Employing a well-compensated Chinese workforce may be more cost-effective than chasing “cheap labor” elsewhere. Here are a few reasons why:
Do the math. Rising labor costs may not be that significant to your business. You need to asks what percentage of your manufacturing costs are direct labor. If it’s 10%, and your direct labor costs increase 20%, your overall cost increase is only 2%. If you were to pass this on, in it’s entirety, to your customer, he would suffer a price increase of UNDER 2% (since your margin is not included in the calculation). Seems elementary, but then again, I’ve been talking to lots of people who seem surprised at this type of analysis.
Productivity counts. When comparing labor rates, you need to take productivity into account. Cheap labor may not be so cheap in places where productivity is lower.
You can always reduce waste and add value. Whatever the cost increase, you can probably offset this increase, in whole or in part, by reducing waste and thereby adding value to your products and/or processes.
Everyone’s in the same boat. If your labor costs are rising, your competitors’ labor costs are rising at the same time. Assuming that China is still the only game in town– and for most of us it still is– market forces should help to ensure that rising labor costs do not squeeze profits unduly in the long run. The sky is not falling on you, it’s lowering on everyone.
Hidden costs count, too. Yes, Vietnam (the only serious competition to China) has lower labor costs than China and for some, manufacturing in Vietnam will be more competitive than in China. But not for everyone. There are other, less obvious, costs incurred in Vietnam that offset low labor rates, such as lower productivity and the costs associated with a relative lack of infrastructure and maturity in the supply chain.
Cheap labor may not be cheap for long. Again, with regards to Vietnam. What will likely happen when so many manufacturers from Taiwan, Korea, Japan and China make the move to Vietnam and start “consuming” the finite labor supply? Won’t market forces likely increase the labor rates there?