The rising labour costs of Asia - who cares?

There’s been a flurry of press articles of late looking at the rising labour costs in Asia. This one in the Wall Street Journal from today, for example (registration may be required...), or this one in the latest edition of The Economist. But do we really care?

It might appear a flippant question, but the reality of the situation is that labour is a relatively small proportion of the total costs that global manufacturers face. Some say low single digit, others slightly more, but when we look at the pure labour arbitrage benefits of offshoring the manufacturing process, the benefits are relatively minor.

So why so many headlines screaming about 10% increases in wages for Asian assembly-line workers? (After all, a 10% wage increase could result in just a 0.3% - 0.5% increase in direct costs.)

In part, because rising Asian wages plays into the political motivations of many western governments, who are desperate to attract previously exported jobs. In part because news of household name companies paying a barely-living wage to labour in their supply chains sells newspapers.

Both, I suppose, valid reasons, depending on where you stand. But western business leaders will be reading the articles and coming to different conclusions.

Many will remain unconvinced that a move to so-called China+1 destinations is the right way to go, seeing an increase in risk and poor infrastructures as repelling factors.

Others will see the benefits of scale and flexibility that can had in China as a more important factor than cheap labour. Still others will see the opportunities in manufacturing best practice, lean principles and process improvement which, in many instances, China is leading. And almost all will see the benefits of being close to the huge - and growing - consumer markets of China, India et al.

Few will see a 10% increase in factory-worker wages as a reason to stay awake at night.

David Rae is editor of Procurement Leaders. To subscribe to the magazine, click here.