Wednesday, March 05, 2008

Corporate flight--remedies?

According to a study by Booz Allen and the notorious American Chamber of Commerce Shanghai (yes, the AmCham chapter famous for its anti-Labor Contract Law letter with the social Darwinist language):

Nearly one in five companies surveyed (17 percent) say they have concrete plans to relocate at least some of their China-based operations to other countries. Although 88 percent of these corporations say that they originally chose China for its lower labor costs, they are finding that cheaper labor and tax benefits have made alternative locations more attractive. Among these corporations, Vietnam is the top alternative to China, according to 63 percent of this group, while 37 percent say India is their first choice.

Among all respondents, when asked to compare China to alternate countries, they cited lower labor costs in those other countries as the largest differentiator, at 3.7 out of a scale of 5, indicating that China's reputation as a source of cheap manufacturing labor is diminishing.
If the surveyed companies are representative, this gives some startling numbers for the trend described in my earlier post.

The flight of sweatshops, as I and many others have said, may not be a disaster, but simply a part of positive long-term change for China's workers--China is banking on the growth of higher-skilled, higher-paying jobs filling the gap. But in the short-term, it is important to slow this drift or local officials in China may panic and dig in their feet on enforcement of ANY labor laws---not just the Labor Contract Law---and future pro-labor reforms may be delayed, including efforts to beef up the ACFTU.

The Asia Floor Wage Campaign presents one possible method for preventing investment flight (see the Campaign's still-under-construction website). Vietnam may be interested in agreeing to sharing a few basic labor conditions with China, if only in order to cool down Vietnamese workers, who have launched a wave of brave wildcat strikes. But how serious would Vietnam really be? Or Cambodia? Or India?

There may be other avenues. An argument could actually be made for companies staying from a business perspective. Besides higher labor costs, the Booz Allen / AmCham report notes, "staff retention is also a major concern" for firms in China "with 33 percent of respondents citing it as a reason for lost competitiveness."

The Fair Labor Association's Auret van Heerden notes the same problem and makes the obvious conclusion in a Newsweek interview:

Sure, you're going to have to register a lot of workers now, pay the minimum wage, give benefits. But this will lead to a much more stable and productive workplace. Before, in some places we've seen 100 percent labor turnover per year. We've never captured the costs that entails in training. Firms have been bleeding ridiculous amounts of money because they've had such an unstable workforce.
Now, I'm not one for bending over backwards to justify everything through this lens---that's a sure way of painting yourself into a corner. But it seems that companies who aren't too caught up in the whole cowboy-capitalist-in-a-new-lawless-land ethos might be interested.

3 comments:

chunzhu said...

I like what you had to say about the 'Race to the Bottom' syndrone. Working conditions are just starting to improve in China with the New Left intellectuals gaining more influence and Mr. Hu's 'New Socialist Countryside' taking a big step away from Mr. Zhang's blind run towards the market. All it takes is for an economic slowdown and unemployment to wipe out what little gains labor obtained.

chunzhu said...

(btw, i really like your blog...)

Old Tales Retold said...

Chunzhu,

Thanks for the posts!

I agree that the increased influence of the New Left intellectuals and the "New Socialist Countryside" should be cause for hope. And an economic downturn could indeed be devastating---it might radicalize workers, which could be a good thing, but it would also give companies a lot more power and bolster those in the government who are suspicious of any change, whether that change is "Left" or "liberal" or whatever.