Southeast Asia's Low-Paying Want to Win Competition with China

As manufacturers look around the world for cheaper production sites, rising labor costs in China are an opportunity for other developing countries.

However, the increase in wages in China has already spread to some of these new territories, and to a certain extent has caused recent labor disputes in Cambodia, Bangladesh and other countries.

A costume in Phnom Penh, Cambodia, workers are working. The labor costs in Southeast Asia are lower than those in China, but the infrastructure is relatively backward.

All this means that what these markets need to do is not only wage competition with China. They will need to upgrade basic infrastructure and other aspects of the economy before they can become viable alternatives to China.

A recent Credit Suisse survey of large companies in Europe and America found that only about a fifth of companies said that it would be easy to change the source of procurement from China to other countries. This is because China has a solid supplier network and freight infrastructure. About 90% of companies said that if they want to move from China to other countries, the cost will be very high.

Even so, economists believe that as China's costs become higher and higher, investment will inevitably flow to other regions, thus accelerating the improvement of supply chain and infrastructure in these areas.

Frederic Neumann, a senior Asian economist at HSBC in Hong Kong, said that over the past 15 years, as investors flocked to China for cheap labor, China almost took all countries aside, and now As China shifts to the upper reaches of the value chain, other countries have the opportunity to enter the lower end of the value chain.

An important example is Southeast Asia. With a population of nearly 600 million, this area was once a hot spot for investment in the world until it was eclipsed by China. Last year, the average monthly salary of factory workers in Vietnam was about 136 US dollars, and Indonesia was about 129 US dollars, far below the average monthly salary of 413 US dollars.

However, Southeast Asia also has huge obstacles, including the underdevelopment of the judicial system and the issue of corruption. With the local workers knowing more about China’s salary increase and putting pressure on the factory for a raise, the spiral of costs may be more serious than expected.

Bruce Rockowitz, president of Hong Kong trading company Li & Fung Ltd., recently told a press conference that, if not all countries, at least most countries will get pricing guidelines from China. In spite of this, Li & Fung's transfer of business to Indonesia, Vietnam and other places still managed to relieve some of the upward pressure on costs.

Many countries in Southeast Asia, including Cambodia, Vietnam, and Indonesia, although wages are much lower than China, they all have the problem of inadequate infrastructure and cannot support a manufacturing industry much larger than the original.

In addition, any individual Southeast Asian country does not have the strength to absorb large-scale job opportunities that flow from China.

The leaders of Southeast Asian countries are actively promoting cooperation plans and hope that by 2015, they can integrate the scattered resources of their respective countries to form a unified market and production platform. If the plan is fully realized, skilled workers in the region will be less restrictive of movement between countries and tariff procedures will be simplified.

Not only that, Southeast Asian countries have made progress in investment in roads and railways. Thanks to the co-funding of the Asian Development Bank (ADB) and other agencies, the region has built three transnational trade corridors and improved highways linking Cambodia, Thailand, Vietnam and Laos.

Many companies in Southeast Asia also work hard to achieve the goal of cooperation among companies. More than a dozen Southeast Asian apparel suppliers have recently reached an agreement to establish cooperation between garment processing companies in Cambodia and raw material suppliers in Thailand or other neighboring countries to further integrate their clothing supply chain. In fact, these companies have reached an agreement to co-produce goods, with a view to providing garment-like “through-train” services similar to those provided by Chinese clothing suppliers, that is, the purchase of yarns, fabrics, buttons and sewing in the same area.

According to Van Sou Ieng, Garment Manufacturers Association in Cambodia**, the long-term goal in Southeast Asia is to achieve a “one country, many provinces” mode of operation instead of dividing and conquering ten countries in one region. . He said that although countries are very different, we must compete for more business from China.

Malaysian PCCS Group, a member of the Chamber of Commerce, has operations in China and Cambodia. Yik Thong Choon, general manager assistant of the company, said that they have two factories in China. In the past six months, workers' wages in the factory have soared by about 50%. Due to the scarcity of labor, the production capacity of the two factories is now less than half.

In stark contrast to this, the company’s number of factories in Cambodia exceeded its actual needs. This situation of oversupply of labor will gradually change, but even if there is pressure of exerting pressure on people in the future, it should be eased because the company is currently promoting the establishment of a cooperation with a Thai fabric manufacturer with a view to jointly creating garments for Hong Kong. The retailer business provides support so that the company has the opportunity to use the larger regional labor market to complete the finished apparel.