Can Thousands Of Shoe Enterprises Collapse Due To The New Labor Contract Law?

The processing trade in the Pearl River Delta is experiencing the throes of pformation.

According to reports, thousands of shoe companies recently closed in this unavoidable labor pains.

According to the analysis, the new labor contract law, implemented on January 1, is the fundamental reason leading to the collapse of enterprises in large areas, because the new labor contract law will increase the cost of labor in shoe factories by nearly 20%, and it will eventually be overburdened.

This view is very popular at the moment. It is even used by some enterprises as tools: some enterprises raise the price of goods on the basis of increasing the cost of new labor contract law. Some enterprises use this as an excuse to reduce the basic wage of laborers in disguise.

It is undeniable that the new labor contract law will increase the cost of labor to some extent, but in the long run, the increase of cost is not only the need to protect workers and enhance the harmony of labor relations, but also the pains of a country's enterprise development and social progress.

The reason why Chinese enterprises have such a keen response to the new labor contract law is mainly because people are accustomed to the law's efforts to protect workers from being weak.

In fact, if our new labor contract law is compared with the relevant laws of the United States and even the South American countries, it will still be relatively mild.

In 1992, the Beijing capital Steel Corp, after spending $118 million to acquire Limited by Share Ltd from Peru iron mine, signed up to 35 agreements on welfare provisions with the local enterprise trade union. It agreed to grant free medical treatment, free education, free living and free water and electricity to other employees of the Shougang iron and steel workers and their families.

In countries where labor laws are sound, the penalties imposed by enterprises on illegal employment are often calculated by tens of millions of dollars. Such a large amount of money is unimaginable for us.

Western countries are obviously accustomed to obeying such strict laws, because such constraints are not necessarily negative for enterprises.

In contrast, what is lacking in our business is this adaptability.

The collapse of thousands of shoe enterprises in the PRD is not the result of the new labor contract law, but the inevitable result of industrial development to a certain stage.

From 2001 to 2006, the number of shoe factories in China increased from 2 to more than 30 thousand, and the vicious competition and fierce price war led to a decline in the profit margin of the whole industry.

At the same time, in recent years, a series of raw materials, hydropower, factory rents and other costs are also rising, the "low cost, low profit" mode of processing trade has no way out.

This means that shoemaking enterprises need to reshuffle, otherwise, the continuation of vicious competition may eventually bring disaster to the development of the whole industry.

Although there are nearly 1000 shoe factories in the PRD, its capacity is not as good as that of a leading enterprise.

Obviously, the crisis faced by the PRD footwear enterprises is not a "new trouble" caused by the new labor contract law, but a change to the backward competition mode. The so-called crisis faced by the shoe enterprises is more like a turning point.

After this shuffle, the shoe making enterprises with their own brand and technological content and core competitiveness will stand out and the shoe enterprises will become stronger and more competitive through integration.

In fact, those shoe companies that moved to Vietnam and other places in order to reduce costs did not achieve the goal of reducing costs.

Because the Pearl River Delta has formed a complete industrial chain that matches production capacity, which will reduce the cost of enterprises in many ways.

Although the relocation of enterprises to Vietnam and other places can reduce labor costs, the cost of raw materials matching caused by incomplete industrial chains is much higher than that of labor costs. Some shoe companies even find it impossible to start work after moving to factories.

Obviously, enterprises need to make a comprehensive assessment of the increase in labor cost and other related costs caused by the new labor contract law before pferring. Otherwise, making decisions easily with the new labor contract law will be penny wise and pound foolish.