The end of cheap goods? Options

[phillipwong]

http://www.economist.com/node/18805862?sto...62&fsrc=rss

[Mid-Night_Sun]

it was going to Vietnam. but their one advantage seem to be having issues.

Vietnam Labor Appeal Diminishes on Strikes
By Bloomberg News - Jun 15, 2011 1:00 PM ET

Japanese motor maker Minebea Co. chose Cambodia over Vietnam to build a plant for 5,000 workers in a sign growing labor disputes are hurting Vietnam’s appeal as a low-cost alternative to China.

“A strike would be trouble,” Yasunari Kuwano, a spokesman at Tokyo-based Minebea, said of the $62 million plant, which will make electric motors for appliances and digital equipment. “Labor is the key focus for us in choosing Cambodia. We need reliable labor.”

As Minebea broke ground last month in Phnom Penh, London- based cable maker Volex Group Plc (VLX) and Japanese lingerie company Wacoal Holdings Corp. (3591) were among investors in Vietnam that faced illegal wildcat strikes. Workers are demanding better pay after the highest inflation rate in Asia hurt their purchasing power.

The strikes have dented Vietnam’s 25-year-old goal of attracting foreign investors to set up manufacturing hubs by offering a reliable workforce with minimum wages now half those of China. Planned foreign direct investment into Vietnam fell 48 percent in the first five months of 2011, to $4.7 billion.

“The nation is at a critical crossroads,” said Victoria Kwakwa in Hanoi, the World Bank’s country director in the Southeast Asian nation. “Vietnam can’t assume that FDI will continue. Money can go elsewhere.”
Inflation Challenge

Inflation quickened to a 29-month high of 19.8 percent in May, a level the World Bank called “intolerable” in a report this month. The development bank, which expects inflation to peak this quarter and then ease to 15 percent by year-end, said Vietnam must stick to monetary tightening policies until the rate is at least halved.

Soaring prices and industrial unrest have given Vietnam the worst-performing stock market and currency in Asia in the past year. The VN Index of shares has declined about 13 percent in the period, and the dong has slid 7.8 percent against the dollar.

Prime Minister Nguyen Tan Dung’s government in March switched its emphasis to fighting inflation rather than stoking economic expansion, and has cut its 2011 growth target to 6 percent from as much as 7.5 percent. With credit-rating companies lowering the nation’s sovereign-debt grade in part on weaknesses in economic policymaking, some foreign direct investors are wary of making a long-term bet on Vietnam.

Srithai Superware PCL (SITHAI), a Bangkok-based company that makes tableware, this month suspended plans for a $5 million expansion at its plant in southern Vietnam because of “economic instability,” said Santi Sakgumjorn, general director of the Vietnamese unit. The company said it will set up a subsidiary in neighboring Laos.
‘No Confidence’

“In the short term, we have no confidence in the economic situation in Vietnam,” Sakgumjorn said in an e-mail. The factory has been hindered by rising production costs after two salary increases this year, he said.

Vietnam’s workers say they have little choice but to strike as costs rise. At an industrial park in Hanoi, factory worker Le Kien scanned job openings, looking for better pay, after his shift at a plant that assembles cables used in Honda Motor Co. and Yamaha Motor Co. motorcycles.

“The price of everything -- food, gas, electricity -- has gone up by more than my pay rise,” said Kien, 24, whose monthly salary is equivalent to $87. “I can’t even afford to start a family. I wouldn’t have enough to buy milk for my baby.”

That’s even after Kien and most of his 500 colleagues went on an illegal strike in April and won a 13 percent pay increase. The Taiwanese firm he works for had already boosted salaries in January, he said.
Yamaha’s Halt

Labor disputes have hit local units or suppliers of companies such as Yamaha, Panasonic Corp., and Adidas AG. Yamaha was forced to halt production of motorbikes in Hanoi when 4,000 employees downed tools in March. The workers were given a pay raise to return to work, Tokyo-based spokesman Shinichiro Irie said.

Vietnam had 336 strikes in the first four months, according to Vietnam’s General Confederation of Labor. That’s on course to beat the 2008 record of 762. Many are wildcat stoppages, which lack legal authorization, according to the Geneva-based International Labour Organization.

“Every day, somewhere in the country, there is a strike,” said Youngmo Yoon, a Vietnam labor specialist for the ILO. “Most are being organized by workers spontaneously.” In many cases, the workers win higher wages, he said.
Biggest Increase

Vietnamese salaries are expected to rise nearly 12 percent this year, the highest gain in Asia Pacific and almost double the regional average, according to ECA International’s Salary Trends Survey. Vietnam raised the minimum wage by 14 percent last month.

“It’s a vicious cycle,” said Prakriti Sofat, an economist at Barclays Capital in Singapore. “Higher inflation, unhappy workers strike, businesses raise wages, then pass costs to consumers.”

Some companies continue to invest in Vietnam, where 60 percent of the 87 million population is under 35 years old and minimum wages, at $85 per month on a purchasing-power parity basis, are still the second-lowest among Asian economies as measured by the ILO in 2009. Only Bangladesh was lower, while China’s monthly minimum wage was $173. The Vietnamese government is targeting pledges of $20 billion in foreign direct investment into Vietnam this year.

First Solar Inc. (FSLR), the world’s largest producer of thin-film solar panels, plans to invest an initial $300 million in a factory in southern Vietnam. Nokia Oyj, the Finnish maker of mobile phones, said earlier this year it plans to open a 200 million-euro ($287 million) plant near Hanoi in 2012 to produce low-end handsets.
Earning Pressure

For companies that do operate in the country, rising wages will put pressure on profits, said Alan Pham, chief economist for VinaCapital Investment Management Ltd., the biggest fund manager in Vietnam.

“It all adds to the negative impact on the psychology of the investor,” Pham said. A decline in foreign investment is particularly troubling because it could worsen the current account deficit, increasing pressure on the dong, he said.

Only 15 of the 284 companies on the Ho Chi Minh Stock Exchange have seen their share prices rise in 2011.

Almost a third of strikes this year have been at units of South Korean companies, according to Vietnam’s labor confederation. The bulk has occurred at garment factories, said Kim Soon Ok, director of the Korean Chamber of Commerce and Industry in Ho Chi Minh City. Many owners were caught off guard by the work stoppages, which delayed shipments and resulted in “huge losses,” she said.
‘Grave Risk’

Labor unrest in Vietnam is “a grave risk” to foreign businesses, Bath, U.K.-based risk consulting company Maplecroft Ltd. said in May. China’s productivity is 2.6 times greater than Vietnam’s, while Thailand’s is 4.3 times higher, according to a January report by Vietnam’s Ministry of Planning and Investment. Compounded with labor strife, it’s an equation that may make Vietnam less attractive to investors, said Maplecroft chief executive officer Alyson Warhurst.

“Companies are looking to see whether Vietnam is able to manage inflation and wage pressures, said Warhurst. “If Vietnam mismanages it, multinationals have other alternatives. They can go back to China. They can look elsewhere.”

--K. Oanh Ha and Diep Ngoc Pham in Hanoi. With assistance from Nick Heath and Nguyen Dieu Tu Uyen in Hanoi, Makiko Kitamura in Tokyo and Suttinee Yuvejwattan in Bangkok. Editors: Adam Majendie, Chris Anstey, Anne Swardson

To contact the reporter on this story: K. Oanh Ha in Hanoi at oha3@bloomberg.net

To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net

http://www.bloomberg.com/news/2011-06-15/v...or-strikes.html

[DOUBLEMINT]

The strikes have dented Vietnam’s 25-year-old goal of attracting foreign investors to set up manufacturing hubs by offering a reliable workforce with minimum wages now half those of China.

There are A LOT of vietnamese working illegally in Guangzhou.They make much less than chinese for doing the same job.If we legitimize this,wouldnt that solve the rising wage problem?

[phillipwong]

On thing the article mentioned is that there is probably no other alternative anymore for cheap goods. South China was the cheapest, and no other nation can replace China. The article mention that south China has the best logistic. Now, the price will increase 5% per year from now on. Now, there is greater, and greater selective pressure to compete in technology.

[devils666]

GOOD! Now Americans can stop blaming China for stealing $hitty factory jobs. If Americans want to manufacture their own goods for low pay and long hours they should! This is exactly what they wanted from China and I hope their dream comes true.

China doesn't want to be a manufactorer anymore. Besides, BOTH Japan and Korea were manufactoring and "stealing" jobs before China.

In the end it's the greedy western CEO's who are to blame. If China were to fall off the face of the planet, they'd still manufacture their $hit in India or Africa to save money - then the US will have someone else to blame. It's like shooting the messenger.

Either way, the "crap" produced in China comes from US BRANDS who designed thsoe products. US companies are RESPONSIBLE for quality control of their products. These CHinese laborers are just assembling them - they have no control over their quality or design. So everytime someone says "crap from CHina" they should say "Crappy US Brands".

[jj10]

devil what's the story in your sig photo?

[phillipwong]

GOOD! Now Americans can stop blaming China for stealing $hitty factory jobs. If Americans want to manufacture their own goods for low pay and long hours they should! This is exactly what they wanted from China and I hope their dream comes true.

China doesn't want to be a manufactorer anymore. Besides, BOTH Japan and Korea were manufactoring and "stealing" jobs before China.

In the end it's the greedy western CEO's who are to blame. If China were to fall off the face of the planet, they'd still manufacture their $hit in India or Africa to save money - then the US will have someone else to blame. It's like shooting the messenger.

Either way, the "crap" produced in China comes from US BRANDS who designed thsoe products. US companies are RESPONSIBLE for quality control of their products. These CHinese laborers are just assembling them - they have no control over their quality or design. So everytime someone says "crap from CHina" they should say "Crappy US Brands".

At the very end of the article, it mention an emerging electronic industry. The point of the article is that there will not be any places to make cheap goods anymore.

[devils666]

devil what's the story in your sig photo?

RIP Richard Aoki, member of the Black Panthers and the 3rd world solidarity movement:
http://ramemorial.blogspot.com/2009/03/for...-legacy-of.html

Back then Blacks, Asians, and Hispanics got a long and were making a difference. But the Powers decided that it was too dangerous so they used "divide and Rule" to make people of color hate each other. Now Blacks, Asians, and Hispanics don't really get a long.

[windsurfer]

A very high % of goods made in China pass the quality test. They (Buyers) have an army of QS or QA auditors going to the factories at different stages and locations conducting stringent audits over issues like quality, pollution, child labour, factory safety, labour abuse blah blah blah. If you fail their tests they will give you warnings, cut their orders or cancel your status as an approved producer of their products. China has gone through all these $hits more than any other countries. If you ask their auditors to select a production plant location in China vs a plant in India, Sri Lanka or Vietnam, the choice is quite obvious.

They are killing the chicken that lays the golden eggs!

That is good. Let inflation rage through America and sweep across Europe driving their poor poorer. When those suckers realise they are biting their own dust after all the fanatical storms of China-bashing, the fire of burning Jasmines are blazing their arses!

This post has been edited by windsurfer: Jun 16 2011, 06:07 AM

[Suijen]

GOOD! Now Americans can stop blaming China for stealing $hitty factory jobs. If Americans want to manufacture their own goods for low pay and long hours they should! This is exactly what they wanted from China and I hope their dream comes true.

China doesn't want to be a manufactorer anymore. Besides, BOTH Japan and Korea were manufactoring and "stealing" jobs before China.

In the end it's the greedy western CEO's who are to blame. If China were to fall off the face of the planet, they'd still manufacture their $hit in India or Africa to save money - then the US will have someone else to blame. It's like shooting the messenger.

Either way, the "crap" produced in China comes from US BRANDS who designed thsoe products. US companies are RESPONSIBLE for quality control of their products. These CHinese laborers are just assembling them - they have no control over their quality or design. So everytime someone says "crap from CHina" they should say "Crappy US Brands".

No one ever accused Americans of having long historical memories. After the Chinese, it will be Vietnamese/Indians stealing jobs, and tariffs are implemented, it will be illegal Mexicans. If it's low skilled, then it's easily replicated by someone else.

[freezingpoint]

No one ever accused Americans of having long historical memories. After the Chinese, it will be Vietnamese/Indians stealing jobs, and tariffs are implemented, it will be illegal Mexicans. If it's low skilled, then it's easily replicated by someone else.

Vietnamese and Indians cannot take manufacturing because manufacturing itself has significantly increased in technical requirements since the 90's.

During the 90's China's main export was textiles and other low tech goods. China still dominates the textiles market in 2011 but it is less than 3% of total exports and Chinese producers sit at the high end like sports shoes; low end things like cotton shirts are produced in Vietnam and Bangladesh. Most Chinese exports today are electronics, machinery, telecom equipment, engineering contracting, etc. The low tech consumer goods exported to the West are dwarfed by both higher tech consumer goods, capital goods (such as Huawei's billion dollar telecom exports to Europe) and to exports to 3rd world countries where China is hired as engineering contractor to design and build dams, highways, bridges, etc.

What makes China's economy strong is not just labor. Labor is 15% of the costs of a product. It is the infrastructure and the capital goods produced by domestic companies. Why does China's textile sector make money? Because China produces 50% of the world's chemical fiber. Why are other textile countries like Philippines, Vietnam, Bangladesh stuck in poverty? Because they pay for chemical fiber imported from China and thus their actual "value added" is just the labor that went into the shirt, rather than being the actual producer of the shirt. They also import their machinery from China, sinking them even further down.

[jj10]

China is a technical powerhouse with increasingly entrenched market share. As the yuan gradually rises, prices will rise with it, but the global supply chain will stay with China.

[InitialDJay]

china dominates and advances in logistics and supply chain for manufacturing goods. that's why it's very difficult to find another country to replace china. when china goes into service sector, obviously price of inferior goods will skyrocket. only way to decelerate this in the future if china transfers her logistics, technicality, and outsource supply chain into other countries like india/africa/south-east asia to take off the pressure on inflationary model. then those country can produce and export those goods back into china rising market. in fact, usa will force to do that too. then the cycle will continue ... until a war world III.