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DMcCunney
China is doing a delicate balancing act. Their number one priority is to grow ...
DMcCunney
People survive the same way they survived in China - wages are lower, but so are ...
Yoshida in China: If not China, there is always Indonesia
Junko Yoshida
8/15/2012 10:22 AM EDT
The pressure to build iPads and iPhones at even cheaper cost is prompting Foxconn, the world’s largest contract manufacturer, to look beyond China – to Indonesia.
The Indonesia’s trade minister revealed this week that Foxconn will invest up to $10 billion in Indonesia. Under the deal, Foxconn will be able to use one of the cheapest labor forces in Asia – with wage levels described by some as 60 percent of China’s.
The EMS giant has already begun producing Apple’s iPhone in Brazil, as the Brazilian government last year gave significant tax breaks and other financial incentives for Foxconn to assemble Apple devices there.
The move to invest in Indonesia, however, marks Taiwan-based Foxconn’s first foray into Southeast Asia.The shift in the manufacturing base to Indonesia from China and Vietnam has been already happening in other industries such as textiles.
Quoting Asian Development Bank data, Reuters reported that monthly wages in Indonesia average $113, less than half the level in Thailand and a third of China's.
Beyond cheap labor, another pull for the investment in Indonesia is what is expected to become a duty-free zone of some 600 million consumers. Goods with a substantial component made in Indonesia will qualify for free trade by 2015 within Southeast Asia.
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george.leopold
8/15/2012 11:07 AM EDT
Indonesia has been promoting itself as a very low-cost alternative to China for nearly a decade as part of a concerted national effort to boost manufacturing and create jobs for its huge population. When we were there touring assembly plants in the early 2000s, it was a tough sell. There was some western investment, and Indonesian companies had some capabilities. But no one was flocking there. Since then, labor costs in China have risen significantly. If the Indonesian government can convince investors that the political climate has stabilized, if it can train its workers and if it can offer sufficient incentives, the area directly across the straits from Singapore has a chance to at least be a backend assembly hub.
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chanj
8/15/2012 2:09 PM EDT
To me, the interesting part of the story is Foxconn is looking into another country to reduce cost of manufacturing. On the contrary, decades ago, US looked into outsourcing manufacturing to other manufacturers to reduce costs. What a difference?
Nonetheless, the story conveys one important message, the cost of labor has increased in China as the economic growth. Who knows which country is going to be the next manufacturing hub?
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Bert22306
8/15/2012 4:07 PM EDT
Exactly, there is no difference. The same happened with manufacturing in Japan in the past too, and now China seems on the cusp of repeating that cycle.
My only surprise is that the time scales seem to have compressed, although I suppose that shouldn't be a surprise. everything seems to happen at faster speeds as time goes on.
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chanj
8/16/2012 11:32 AM EDT
I have a conversation with a buddy mine the other day. He said the world has been the same all these years. It is because of just the communication and information flow making it seems faster and crazier.
I have actually felt the same ways. The world seems to move faster. Every act seems to compress quite a bit in terms of time. For the case of China, I am not too surprise because there is information they can follow. The years of development in the west and the industrialized countries in Asia have provided a good lesson to Chinese government and business owner.
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junko.yoshida
8/15/2012 2:24 PM EDT
There is no question about the rising labor cost of China.
Besides Foxconn pusuring new locations with lower wages, better tax breaks and other incentives, another interesting point of this story is that countries such as Brazil and Indonesia are doing whatever they can to "get" Foxconn, "use" the EMS giant to build a manufacturing ecosystem in their own regions.
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Duane Benson
8/15/2012 4:32 PM EDT
This highlights what care needs to be taken when people talk about bringing manufacturing jobs back to the United States. Depending on how fast and how thorough a manufacturing migration away from China is, China could be faced with anything from a long-term mild recession to unemployment on a massive scale. High volume manufacturing is not a business I'd want to be in.
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george.leopold
8/15/2012 7:51 PM EDT
Nor do we want to be since, as we describe below, the value-added for manufacturing is at the systems level:
http://eetimes.com/electronics-news/4394159/Does-manufacturing-create-jobs-or-innovation-
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DMcCunney
8/17/2012 5:25 AM EDT
China is doing a delicate balancing act. Their number one priority is to grow the economy, and one thing they are hoping for is that their own huge internal market will develop enough to provide the sort of market for Chinese produced goods needed to offset declines in exports to the West as production of goods for Western economies starts to move back home.
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Sheetal.Pandey
8/16/2012 6:45 AM EDT
Is it really true wages 60% less than China? How do people survive.What would be the quality of life for people working in the manufacturing conditions in Indonesia.
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junko.yoshida
8/16/2012 3:26 PM EDT
According to the Japan External Trade Organization's data, China's wages are 60 percent of China's. (Not "60 percent less")
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chanj
8/16/2012 9:15 PM EDT
Given 10+ years of economic growth of China, I would not be surprise to see the wage in some Asian countries is lower than that of China. According to Jun 2010 news from NYTimes, the average wages of labors worked in Foxconn is about $300 per month. Honda has a salary raise of 24% to 32%. For easy calculation, take 25% raise of $300, Foxconn is paying in average $375 each per month. $225 per month is indeed difficult to live by. Nonetheless, the difficulty is subjected to the cost of living and whether there is better option.
Let take a look at the minimum wage of Indonesia and China. According to Wikipedia, Indonesia is at $1027 per year. According to the same NYTimes article, China government set the minimum wage of $140 per month in 2010. It is equivalent to $1680 per year. I guess this is how "Indonesia's wages are 60 percent of China's." come.
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junko.yoshida
8/16/2012 10:31 PM EDT
Thanks for doing the math, chanj. This was something I should have done myself, as a journalist. I appreciate your help, though.
By using publicly available information, you have successfully arrived at a conclusion that it is not unreasonable to assume that Indonesia's wages are 60 percent of China's.
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DMcCunney
8/17/2012 5:22 AM EDT
People survive the same way they survived in China - wages are lower, but so are living costs.
What tends to be forgotten in the US is that those Chinese factory jobs were a *step up* for those who got the, The hours, working conditions, and *especially* the pay were a lot better than being a peasant on the farm.
It would work largely the same in Indonesia, other things being equal.
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