The End of Cheap China: Economic and Cultural Trends That Will Disrupt the World by Shaun Rein Read Free Book Online Page A

from producing mostly export goods to making products to sell within China.
    Jacob, the Asia-Pacific marketing head of an international office products firm, told me, “It is just not viable anymore to produce cheaply in China, but it is also impossible in the short-term to replace China as a main manufacturing hub. Other countries simply do not have the infrastructure, skilled workers, and mid-management needed to replace China completely.” He told me he had decided to keep all of his manufacturing facilities in China, but was converting his sales forces to try to sell within China. He was hiring new employees to oversee development within China and signing deals with sales-channel partners all over the country. So far, his initiatives had become profitable. As Jacob left my office, he said, “It will take other countries another generation at least before they can truly rival China in manufacturing prowess. They just don’t have the workforce or infrastructure to compete.”
    Labor pool changes are disrupting China’s manufacturing sector and forcing business models to evolve. Newer firms, like the ones run by the entrepreneurs I met at the Okura Garden Hotel, are building new brands that can charge a premium for their products and services and be sold to consumers who are not price sensitive. Other firms like Laura Furniture are able to adapt by converting factories to sell within China. Yet thousands of smaller Chinese factories, including many furniture makers, have closed down in the last three years due to paper-thin margins and an inability to tap credit lines. The industry is consolidating; smaller producers are unable to make money as the appreciating renminbi decimates their margins, and profits become dependent upon volume and production efficiency rather than low price.
    Massive, efficient players like Foxconn, the Taiwanese electronics manufacturing behemoth that makes many of Apple and Dell’s products, are leveraging economies of scale to shore up market share and grab even more. The scope of some of their operations is hard to imagine.
    In the last two years, Foxconn has relocated 350,000 of its factory workers from Shenzhen in southern China to a massive new factory in Henan Province, in the central part of the country. This move is comparable to moving the entire population of New Orleans (343,829 in the 2010 U.S. Census) to New Mexico. They have more employees than the entire population of Iceland (319,062, according to a 2009 World Bank estimate).
    Foxconn has been rumored to be investing billions of dollars in setting up factories in South America to find cheaper options, but it has relocated its manufacturing in China to other places in country rather than shifting out completely. To combat rising labor costs, it announced plans in 2011 to install one million robots in its Chinese factories to replace workers over the next several years.
    They are more like midsized American cities than factories, and they dwarf Laura Furniture’s facility. In addition to factories, companies such as Foxconn have to establish local dormitories, hospitals, and leisure areas.
    Foxconn was compelled to improve conditions and raise salaries after a public firestorm in 2010 surrounding 18 attempted worker suicides at its Shenzhen factory, which resulted in 14 deaths. Foxconn faced heavy criticism, not just from international groups but also from Chinese media, academics, and ordinary people who commented on online forums about harsh working conditions. Foxconn responded by increasing worker salaries by 66 percent in the months following the controversy. Around the same time, Honda raised salaries at its plant in Guangdong Province by 32 percent after workers began striking.
    The companies with the best-designed and best-operated compounds, and the most comfortable living conditions for their employees, will be the winners in attracting and retaining talent as the labor pool continues to tighten. This also creates a