The "Foundry Age" In The Pearl River Delta Is History?

In response to employee suicide, Foxconn has raised its pay substantially.

The wage surge caused by Foxconn is sweeping across the Pearl River Delta and spreading to the whole country. The history of foundry industry on the basis of cheap labor force is coming to an end.

China Economic Times reporter survey found that with the rise of human capital in China, the foundry advantage of the Pearl River Delta is losing, the OEM enterprises are facing a shuffle, and enterprises with low added value will go bankrupt.

The trend of salary increase is irreversible.

After encountering the "jumping door", accusation against the outside world, Foxconn raised the salary of the staff twice, and the cumulative salary adjustment was as high as 122%.

"What's wrong with today's salary increase? 20%, tomorrow's problem, plus 20%, what's wrong with the day after tomorrow? Will Foxconn maintain its current salary level a year later?" in June 28th, a reporter interviewed Mr. Deng, a management member of Shenzhen BD Group Holdings Limited. He said that the company's salary increase should be carried out step by step rather than crazily, through scientific analysis, which is not in line with the growth pattern of enterprises.

In Shenzhen, a person who does not want to be named.

In the survey, reporters found that Foxconn's large salary increase directly affects the electronics manufacturers in the Pearl River Delta. Many of the same industries have to tighten up with pay increases, otherwise employees will disagree.

At the same time, the salary increase also brings pressure to other industries and even the whole foundry enterprises in the Pearl River Delta.

"This trend of large and high wage increases is not an accidental phenomenon triggered by the events of Foxconn or Honda."

Gao Wen, an associate researcher of the Institute of population and labor economics, Chinese Academy of Social Sciences, told the China economic times that raising wages is a trend and an inevitable result of the adjustment of the labor market.

In Dongguan Houjie Industrial Park, Yang Jin, HR Director of Hao Cheng Shoes Co., Ltd., told the China Economic Times reporter: "no matter whether Foxconn adds or not, other OEM enterprises need to raise salaries, because they are short of work and have to recruit workers through pay increases."

Reporters interviewed in Houjie, Dongguan last December, found that the recruitment information was posted at the door of every enterprise, and many companies even hung the long recruitment banner on the front side of the office building.

In April this year, reporters again came to Houjie, and found that the situation is still, recruitment difficulties continue.

Take Yang Jin's shoe making enterprise as an example, in order to recruit workers, the wages of general workers reached 1200 yuan last year, and the wages of technical workers were 2000 yuan.

Yang Jin said: "from the second half of last year to the present, enterprises are constantly raising salaries. Now the wages of technical workers have reached 2500 yuan or 3000 yuan, but they still lack enough jobs."

The recent survey conducted by the Chinese manufacturers' Federation of Hongkong and the Hongkong Trade Development Council (TDC) on the Pearl River Delta port enterprises shows that 150 of the 160 Hong Kong enterprises surveyed, or 90% of the Hong Kong enterprises, are experiencing labor shortages.

If the rate of labour shortage is estimated, the total number of workers who are short of work is 29517, accounting for 20.8% of the total number of employees of 160 Hong Kong enterprises in the Pearl River Delta, that is, an average of 197 workers per enterprise.

Gao says that there is a fundamental change in the pattern of supply and demand in China's labor market: the surplus labor force in rural areas has changed from unlimited supply to Limited surplus, and the era of obtaining labor supply continuously from the countryside without raising wages is over.

Pressure on OEM enterprises increased

Although Foxconn International's earnings warning has nothing to say about its pay rise, it is widely expected that the pay increase will further lead to its loss expansion.

"A pay increase, the pressure immediately appeared, especially in the export market, now many orders, many cancellations, many of which are because of the increase in wages, enterprises do not profit and dare not accept or cancel the order."

Li Xuehua, manager of Guangzhou Hongrun Business Service Co., Ltd., which has business dealings with many foundry enterprises, explained to our reporter: "for foundry enterprises, cost is the core, and cost directly determines the survival of enterprises."

In Shenzhen, the boss of an electronic product OEM operator with twenty thousand people told reporters about his embarrassing situation: "Foxconn is greatly affected by the increase in salary. Our company has to raise wages. The profit earned by the electronics foundries is very low. Between 3% and 5%, the wages of workers will be increased 20% to 30%, and the enterprises will not be profitable."

It is reported that most of the profit margins of foundry enterprises in the PRD are not more than 10%. The average gross profit margin of the electronic manufacturing service industry has dropped from 6.2% in 2006 to less than 3% today, while the net profit is less than 1%.

"Now there are so many defaults, and orders are not up to it, because there is an unknown risk. For Foxconn, it is large and has bargaining power with customers, but for small and medium enterprises, their strength is weak, and there is no strong bargaining power and fixed customers. The prospect is not optimistic."

Chen Ding, the boss of Dongguan JINGDING Animation Technology Co., Ltd. in June 29th expressed this to our reporter.

OEM enterprises have been encouraged by many outsiders to negotiate the cost of raising salaries through bargaining with customers. But as far as journalists know, even though Foxconn, the world's largest electronics manufacturer, has difficulties in negotiating with its customers, Foxconn has asked for a shift in part of the increased labor costs, which failed to get Apple's positive response.

Apple's iPad tablet has a gross profit margin of more than 100%, and the assembly plant represented by Foxconn has only 2% to 4% gross margin.

Some analysts believe that the role of OEM enterprises in the industry chain is to help brand enterprises to reduce costs and reduce risks. Such a nature determines the minimum cost of their operations and determines their lower bargaining power. If Foxconn wants to increase the profit of OEM, customers will place their orders under their competitors.

but

The tide of relocation is not yet formed.

After a substantial increase in salary, Foxconn spokesman Tong Wenxin said recently that the company could complete the plan to move most of its capacity northward by the end of this year. Eventually, only some of its capacity will remain in Shenzhen. The purpose of the move is to reduce labor costs.

It is understood that the minimum wage standards of Foxconn moving to Tianjin, Chongqing and Henan are significantly lower than those of Shenzhen.

It has been reported that many enterprises have followed the wind and turned to the mainland, resulting in the relocation of locusts.

Reporter survey found that most of the Pearl River Delta most OEM enterprises have the idea of relocation, the real relocation is an individual phenomenon.

"None of the enterprises I know is moving, and the cost of labor should be taken into consideration, but there are other factors in the development of enterprises. Moreover, the investment and foreign trade environment in Guangdong is unmatched by the mainland."

Mr. Deng, manager of Shenzhen BD Group Holdings Ltd.

The relocation tide has not been formed. This has also been recognized by Deng Jinsheng, general manager of Guangzhou Hua Shang Group. He believes that "the salary of Guangdong is gradually improving, and the mainland will also be promoted. It is impossible for Guangdong to pay a great distance from the mainland's remuneration."

Govan wrote to reporters: "it can be predicted that wages will increase faster in the Midwest."

But at the same time, he said that for the central and western regions, the current contention of labor force by enterprises is far less intense than that of Guangdong, and the supply of migrant workers is relatively abundant.

There are also reports that the PRD manufacturers are moving to countries with lower labour costs, such as Vietnam and India.

Reporter survey found that some Taiwanese enterprises pferred to Southeast Asia, thunder and heavy rain, including Vietnam is investing in Foxconn, capital is not fully in place.

"We can not find enough skilled workers in the locality, the infrastructure facilities are also lacking, and the industrial chain is not perfect."

Deng Jinsheng believes that only a large number of large scale OEM enterprises can be deployed in these areas in Southeast Asia, and small and medium-sized OEM enterprises are unable to pfer, and international orders will also go to local OEM enterprises.

Gao said that even if there is a pfer phenomenon, there is no need to make a fuss. With the improvement of Chinese laborers' quality and labor productivity, China's position in the global division of labor is bound to be relatively higher, and it can not always be a world wage earner in the low end.