Global brands are seeking to hedge their dependence on Chinese labour, but workforces in neighbouring countries won’t be taken for granted, says Paul French
Everyone knows costs are rising in China. Wages, land, commodities, raw materials, energy – everything is more expensive in China these days.
The revaluation of the yuan that the US, and some in Europe, are pushing Beijing for will only exacerbate this problem. Additionally, a spate of labour disputes over the summer at large factories pushed up wages further in China, alarming more cost-conscious sourcers.
As prices have risen so there has been heightened talk of buyers adopting a “China plus one” strategy. This means that some manufacturing would be maintained in China but other, lower cost, locations would be sought, to make savings and to diversify sources so as not to be reliant on one single market.
A sound business policy – but who gets to be the “plus one”? Three countries that have been examined closely as locations, particularly by the textiles and garment industries, are Bangladesh, Vietnam and Cambodia.
All three seem ideal. They are countries with plenty of willing factory workers. They have wage levels below China, basic logistics facilities and governments that welcome investment. All three also seem to be fairly immune from trade unions and strikes. But things are changing.
While the strikes in China, particularly those at the Honda production plant in Guangdong, attracted global media attention, strikes in Bangladesh where workers demanded a rise in wages from $43 a month to $72 were barely noted.
Those strikes ended in 500 people being hospitalised as the police waded in. Around the same time, thousands of workers went on strike in Vietnam at a Taiwanese-owned shoe factory. Vietnam is, like China, not traditionally a country known for its tolerance of labour disputes – but they are occurring and their frequency is growing.
Cambodia’s workers unite
It is in Cambodia, however, where workers appear to be most organised. The Coalition of Cambodian Apparel Workers Democratic Union (CCAWDU) represents 40,000 of the 60,000 textile workers who staged strikes this autumn, demanding better wages and benefits.
The union wants a raise in the official Cambodian minimum wage from $61 a month to $93 – a 52% increase. Until the start of 2010 the Cambodian minimum wage was just $56 a month. The Cambodia Institute of Development in Phnom Penh claims a worker needs at least $72 a month to survive.
Workers involved in strikes at factories around Phnom Penh say they are being paid as little as $50 a month by Chinese firms sub-contracting work to Cambodia (on behalf of western brands). Labour activist Moeun Tola of the CCAWDU claims that major brands such as Nike, Adidas and Wal-Mart are also paying below the legal minimum. This, he points out, does little to encourage other less internationally recognisable employers to comply with the law.
Textiles and garment manufacture is increasingly important to these “plus one” locations. In Vietnam the textiles industry has grown at more than 11% a year, compared with GDP growth of about 5.5%. In Cambodia, textiles are now the country’s third biggest foreign currency earner. In 2009 Bangladesh overtook India in garment production and saw its textiles exports grow by 4% year-on-year.
Companies searching for alternative, low cost locations beyond Bangladesh, Vietnam and Cambodia may find their options running out. There have been rumblings of labour disputes in Thailand – not to mention the ongoing unstable political situation there – and also in Laos, another increasingly touted “plus one” venue.
Some regional analysts say there is now a massive ripple effect occurring across Asia that stems from the high-profile strikes in China in the summer. The seeming success of some workers in southern China against the double whammy of tight fisted employers and a pro-business but repressive government in Beijing has given other workers the heart to pursue better wages and conditions in their own countries.
If Chinese workers can, then anyone can, goes the thinking. Bangladesh, Vietnam and Cambodia may not exactly be beacons of democracy in Asia but workers apparently do feel they have enough space to protest. They think their countries should not just end up being places where companies hedging their China-based manufacturing strategy put a bit of business now and again.
China editor Paul French has been based in China for more than 20 years, and is a partner in the research publisher Access Asia.