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Rising wages in China have the potential to transform global manufacturing. Based on new research, Accenture looks at the extent of these changes and their likely impact, offering multinationals four strategic options to mitigate the effects.
Global companies need to develop the ability to detect changes that could radically change the business landscape—and respond creatively. One such potential transformative shift is the increase in Chinese wages. China’s growth, and its determination to reduce its dependence on exports, has intensified competition for skilled labor in the country among both multinationals and local companies.
Accenture conducted a study to examine the extent of these wage increases across various industries, and the impact they are likely to have on China’s position as the manufacturing powerhouse of the global economy.
Evidence suggests that the impact of labor price volatility on end price or margin of goods manufactured in China by multinationals will be significant. However, this impact is unlikely to affect sourcing decisions given that increased efficiency is likely to offset these gains.
While some companies may consider shifting their manufacturing to other low-cost countries like Vietnam, Thailand, Malaysia and Indonesia, they will face a range of challenges such as less developed infrastructure in ports, roads and facilities; shortages of skilled workers; and political instability. Within China itself, multinationals may tend to locate more production facilities in the interior and western regions, where wages are lower than in the eastern region.
Accenture’s research suggests four strategic options to help manufacturers mitigate the effects of wage inflation in China:
Accenture has decades of experience in helping leading companies turn their manufacturing facilities into a source of competitive advantage and an enabler of high performance. Contact us to find out how we can help your company do the same.
Jonathan Wright is a senior executive in Accenture Management Consulting with a focus on communications, media and technology across the Asia Pacific region, and running supply chain management across ASEAN. He has over 17 years of experience in Management Consulting especially global supply chain transformation, fulfillment strategy and network improvement. He has worked in the retail, communications, high tech, aerospace and defense, and health and life sciences industries. He is also recognized as a global thought leader in green and sustainable supply chains. He is based in Singapore.
Manisha Sahni is a manager in the Accenture Management Consulting Innovation Centre, where she has led research projects in banking and supply chain management. She has extensive experience in consulting projects across financial services, telecom and fashion industries in Asia and the Middle East. She is based in Singapore.
Rowena Zamora is a consultant in the Accenture Management Consulting Innovation Center. She has served as a key contributor in research publications in supply chain management, banking and human capital development. She is based in Singapore.
January 31, 2011
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