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In search of low labor costs, or automation

China has long been seen as a nation with a massive labor force available at world beating rates, but might that be changing? Factories in export-oriented Southern China are facing labor shortages as migrant laborers return home and realize that the grass is just as green. Driven by booming domestic demand, jobs are easier to come by and though the wages may be lower, the cost of living is a fraction of what it is in the city.

China has long been seen as a nation with a massive labor force available at world beating rates, but might that be changing? Factories in export-oriented Southern China are facing labor shortages as migrant laborers return home and realize that the grass is just as green. Driven by booming domestic demand, jobs are easier to come by and though the wages may be lower, the cost of living is a fraction of what it is in the city. With skilled staff at a premium, one European machine builder with a manufacturing operation in China recently told Plastics Today that it now is almost as cheap to find a decent injection machine operator in Malaysia - at a shade over $210 per month - as it is in Shanghai at rates ranging from $235­-290 per month. That comes as a surprise given that outside of the city/state of Singapore, Malaysia has the highest labor costs among any Southeast Asian nation.

So will we ever see a mass exodus of manufacturing from China to lower cost locales like Indonesia and Vietnam? Most likely the answer is a resounding "No." For one, domestic demand in China for all manner of commodities is growing and it makes sense to serve the local market with local production. Second, companies probably often over-estimated the cost advantage of Chinese labor, and will start looking at ways to replace labor, just as they have done in higher labor-cost regions. 

Sure, labor costs were a fraction in China of what they are in the West, but they might only represent a small portion of overall costs for some processing operations, and productivity might be a fraction of what it was at the processor's home base. These savings could be wiped out by higher logistics and electricity costs, for example. Thirdly, plastics processors are realizing more and more that no matter how low labor costs might be, removing the human factor from the production flow generally leads to higher quality products. After all, robotic take-out guarantees constant cycle times and no fingerprints or scratches on the products.

Prompted by higher labor costs and worker shortages, Chinese manufacturers of such commodity products as cigarette lighters are reportedly now turning to automation and finding that, if coupled with the right quality of injection machine, and then productivity can be significantly enhanced. At the higher end of the scale, foreign-owned or -managed medical molders in China already boast the same level of automation as back home. Purveyors of automation equipment could be looking forward to monster returns come April when Chinaplas opens its doors in Shanghai. Stephen.moore@cancom.com

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