China’s white-col­lar blues

The Myanmar Times - - International Business -

LOWER labour costs in Thai­land and emerg­ing South­east Asian economies have eroded China’s com­pet­i­tive­ness, prompt­ing a grow­ing num­ber of busi­nesses to re­lo­cate their pro­duc­tion from the main­land to ASEAN.

The trend has been clear for a few years but what is less well-known is that man­age­rial and pro­fes­sional salaries in China have also been climb­ing, and this has be­come a fac­tor in some in­vestors’ de­ci­sions about where to set up pro­duc­tion.

Ac­cord­ing to re­cent re­search by the global ad­vi­sory and broking com­pany Wil­lis Tow­ers Wat­son, base salaries in Thai­land and emerg­ing economies in ASEAN are now sub­stan­tially lower than those in main­land China.

Thai­land and Malaysia are the low­est pay­ers at the top man­age­ment and se­nior man­age­ment lev­els, re­spec­tively. Also, Thai­land of­fers more at­trac­tive av­er­age pay rates across the pro­fes­sional, mid­dle and se­nior man­age­ment lev­els.

“Labour cost is no longer a strong selling point for China, while it con­tin­ues to en­cour­age for­eign in­vest­ment,” said Pich­pa­jee Saichuae, man­ag­ing direc­tor of Wil­lis Tow­ers Wat­son Thai­land. “Nowa­days, all ASEAN coun­tries are cheaper than China in terms of salaries and over­all labour cost, mak­ing these coun­tries more at­trac­tive to for­eign in­vestors.

“This re­search tells us that among ASEAN coun­tries, Thai­land pro­vides sig­nif­i­cant ad­van­tages in terms of hu­man re­sources costs com­pared to its Asian peers. This is an im­por­tant el­e­ment that might push a num­ber of in­ter­na­tional com­pa­nies to re­con­sider where to re­lo­cate their op­er­a­tions in Asia.”

Rolf-Di­eter Daniel, pres­i­dent of the Euro­pean As­so­ci­a­tion for Busi­ness and Com­merce (EABC), said man­u­fac­tur­ing costs in China have been on the in­crease for many years, es­pe­cially in the coastal cities where most in­dus­trial es­tates are sit­u­ated.

“With slow­ing economies and re­duced ex­port vol­umes, in­ter­na­tional com­pa­nies re­viewed their op­er­a­tions and some de­cided to re­lo­cate to other lo­ca­tions, in par­tic­u­lar to Viet­nam. In some cir­cum­stances even a re­lo­ca­tion to their home coun­tries oc­curred due to digi­ti­sa­tion in some in­dus­tries,” he said.

As China is los­ing its cost ad­van­tage, for­eign firms are start­ing to look at ASEAN as a more at­trac­tive des­ti­na­tion. “That is cer­tainly the case and we see more in­vest­ments are go­ing to ASEAN,” said Mr Daniel, who is also man­ag­ing direc­tor of the Ger­man sta­tionery man­u­fac­turer Staedtler (Thai­land) Ltd.

Ac­cord­ing to Mr Daniel, Pana­sonic an­nounced in Jan­uary that it would re­lo­cate most of its home ap­pli­ance man­u­fac­tur­ing out of China and back to Ja­pan. US-based Gen­eral Elec­tric (GE) has moved man­u­fac­tur­ing of wash­ing ma­chines, re­frig­er­a­tors and heaters back from China to a fac­tory in the US state of Ken­tucky which not long ago had been ex­pected to close.

For labour-in­ten­sive in­dus­tries, coastal Chi­nese cities have been try­ing to po­si­tion them­selves by up­grad­ing their tech­nol­ogy to re­duce costs and im­prove qual­ity.

Many Chi­nese firms, for in­stance, are ac­quir­ing Ger­man high-tech com­pa­nies for these pur­poses, he added.

In man­age­ment and pro­fes­sional fields, mean­while, base salaries across all job grades in China are now be­tween 47 per­cent and 65pc higher than in Thai­land and up to 44pc higher than in In­done­sia, ac­cord­ing to the 2015-16 Global 50 Re­mu­ner­a­tion Plan­ning Re­port by Wil­lis Tow­ers Wat­son.

The re­port showed that en­try-level white-col­lar pro­fes­sion­als in China earned, on av­er­age, an an­nual base salary of US$20,680, 47pc higher than their peers in Thai­land who earned US$14,087. The largest dif­fer­en­tial is at the top man­age­ment level, with China pay­ing 65pc more than Thai­land, a gap that nar­rows to 54pc for se­nior man­age­ment and 50pc for mid­dle man­age­ment.

The Wil­lis Tow­ers Wat­son re­port shows that av­er­age base salaries at the pro­fes­sional and man­age­ment lev­els in Viet­nam and the Philip­pines are the low­est in ASEAN. In­done­sia stands out among the 10-coun­try group’s emerg­ing economies for hav­ing the high­est base salaries.

On the other hand, base salaries in Sin­ga­pore, a de­vel­oped econ­omy, are far more than in greater China and emerg­ing ASEAN. Com­pared to Thai­land, base salaries across all job lev­els in Sin­ga­pore are higher than those in Thai­land in a range of 97pc to 228pc.

Across the job grade from pro­fes­sional level to top man­age­ment, Sin­ga­pore’s base salaries are 3-10pc higher than those of Hong Kong, which is the high­est-pay­ing econ­omy in greater China.

Sin­ga­pore pays 28-52pc more than China in the mid­dle, se­nior and top man­age­ment lev­els. The largest gap is at the pro­fes­sional level where Sin­ga­pore salaries are more than twice those of China.

“Sin­ga­pore has al­ways been a lead­ing econ­omy in the re­gion. As it con­tin­ues to en­hance its com­pet­i­tive­ness in the in­ter­na­tional arena, it wants to bring in top tal­ents with knowl­edge of best prac­tices from all over the world, so of­fer­ing glob­ally com­pet­i­tive salaries in an im­por­tant part of that process,” said Samb­hav Rakyan, data ser­vices prac­tice leader for Asia Pa­cific at Wil­lis Tow­ers Wat­son.

In greater China, Hong Kong has long been the hub for in­ter­na­tional tal­ent. Its gap with Sin­ga­pore nar­rows once Hong Kong’s more favourable tax rates are taken into ac­count.

China’s base salaries are likely to stay high to at­tract tal­ent given that the coun­try is putting greater em­pha­sis on qual­ity and sus­tain­abil­ity in its prod­ucts and ser­vices.

More­over, the in­te­gra­tion of its fi­nan­cial mar­kets with the rest of the world means that salaries in that sec­tor will need to be glob­ally com­pet­i­tive to at­tract and re­tain the best tal­ent.

“China is fo­cus­ing more on R&D and higher-end, value-added pro­duc­tion, which re­quires a higher skill-set,” said Mr Rakyan. EABC

For that rea­son, along with prox­im­ity to other parts of the sup­ply chain, its more ma­ture in­fra­struc­ture and skilled work­force will likely con­tinue to at­tract com­pa­nies, par­tic­u­larly when com­pared with emerg­ing economies, even though China is more ex­pen­sive, he said.

Stan­ley Kang, CEO of Tai­wan-based Tun­tex Tex­tile (Thai­land), said that as liv­ing costs have climbed sharply in China’s big cities, wages have to be in­creased to catch up, for both bluecol­lar and white-col­lar work­ers.

Land prices have also risen, re­sult­ing in higher costs for fac­tory op­er­a­tors. Many Chi­nese peo­ple do not want to live in big cities any more be­cause they can­not cope with higher liv­ing costs and thus move back to their home­towns, he added.

Tun­tex op­er­ates three fac­to­ries in China and one in Thai­land. The Chi­nese fac­to­ries, which are lo­cated in ma­jor cities, sup­ply the do­mes­tic mar­ket only. Ex­ports of tex­tiles from China are no longer com­pet­i­tive, said Mr Kang, who is also the chair of the Joint For­eign Cham­bers of Com­merce in Thai­land (JFCCT).

“The pro­duc­tion shift from China has started to be seen in the past decade and has be­come more preva­lent in the last five years. In­dus­tries such as elec­tron­ics, tex­tiles and footwear no longer find China at­trac­tive for their in­vest­ments,” he said.

China, at the same time, has been crack­ing down hard on air pol­lu­tion and that has forced some man­u­fac­tur­ers to close fac­to­ries. Tough en­vi­ron­men­tal rules com­bined with re­duced in­vest­ment in­cen­tives for heav­ily pol­lut­ing in­dus­tries are forc­ing a fur­ther shift abroad.

In­done­sia and Viet­nam of­fer an abun­dant sup­ply of labour with a com­pet­i­tive cost, said Mr Kang. Com­pa­nies in Viet­nam also can still en­joy pref­er­en­tial tar­iffs in­clud­ing the Gen­er­alised Sys­tem of Pref­er­ences (GSP) for ex­port­ing to the Euro­pean Union (EU).

The Trans-Pa­cific Part­ner­ship (TPP), if fully rat­i­fied, will pave the way for more ex­ports from Viet­nam to other mem­ber coun­tries, es­pe­cially the United States. That will give Viet­nam a fur­ther com­pet­i­tive ad­van­tage.

Viet­nam’s pop­u­la­tion of 90 mil­lion, with a higher pro­por­tion of young work­ing-age peo­ple than al­most any­where else in Asia, is an­other ad­van­tage. Cam­bo­dia, which has be­come a ma­jor player in the gar­ment in­dus­try over the past decade, has seen its at­trac­tive­ness wane be­cause of labour sup­ply con­straints, and some for­eign in­vestors are look­ing at al­ter­na­tives, said Mr Kang. –

‘We see more in­vest­ments are go­ing to ASEAN.’

Rolf-Di­eter Daniel

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