Tuesday, June 15, 2010

Wages in China too high ($1.84/hr)---Gotta move to Vietnam to produce ($.49/hr)---Crazy or Crazy like a Fox?

A race to the bottom OR is the bottom being eliminated?  Wages paid to Chinese apparel workers have increased and manufacturers/outsourcers are looking for ways to (1) get around the increase in wages by decreasing other variable costs that go into production or (2) move production to a lower wage country, notably Vietnam.  I have mentioned in class for the last two years that Vietnam is investing in infrastructure, education and creating a more business friendly environment. We have to stop thinking of these places as being backwater "villages".  They are quickly modernizing, however the wages are painfully low, by OUR standards (see graph below).  While there will be no major migration of manufacturing to Vietnam, there is enough movement to get the attention of the Chinese and various apparel retailers.  The Vietnamese are "exploiting" their comparative advantage---willingness to do quality work at lower wages than Chinese workers.  When we look at the relative pay, $1.84 in China and $.49 in Vietnam, it seems pitiful, until you look at what is the alternative for Vietnamese workers?  Does this type of job offer them a foot in the door to a higher standard of living, like the Chinese did 20 years ago?  Do they have a right to use this comparative advantage, even if it seems "exploitative", to climb the economic ladder? Or is this way of economic improvement not right and too exploitative and should be discouraged? What do you think?

""Rising labor costs in China are forcing U.S. apparel and accessories retailers, such as AnnTaylor Stores Corp. and Coach Inc., to consider relocating at least some of their production to countries with cheaper work forces. But doing so could risk increasing other expenses, such as shipping.
"We are looking to move production into lower-cost geographies, most notably Vietnam and India," Mike Devine, Coach's chief financial officer, said at a conference last week. The luxury-handbag retailer already produces goods in those countries, but plans to increase its presence in both of them.""

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