Rising Costs

rising-costForeign Entrepreneurs in China listed some top concerns for US companies in China. Here are her top three from Amcham Shanghai:

Key Business Challenges in China (%) (*)

  1. Rising Costs   (91%)

  2. Human Resource Constraints    (90%)

  3. Increasing Competition    (83%)

For her complete list look here.

Foxconn said that salaries for many workers would immediately jump by 16 to 25 percent, to about $400 a month, before overtime. See the whole New York Times article  here.

Ah, this is a good news/bad news thing naturally. If your factory is in China, and you are only exporting, your pressure just went up another notch. If you are selling to the China retail market or thinking about it, congratulations as your customers just got a raise.

Rising costs has risen to the top, but keep in mind that the key rising cost is labor. The costs for common items for families have risen to a point where income is a bigger concern.  Housing for young professionals is prohibitive despite the  recent dip in prices.  Common food items like grains, vegetables and meat all have gone up largely driven by the cost of labor in them and thus driving up the cost of labor all around.  China is also running out of excess labor. Prices are going up for good workers.  It is hurting your China suppliers and you in China.  Cheap China is definitely a dieing model.

How do you contain rising costs without moving your factory/business?  Happy workers do not demand higher pay like unhappy workers.  Unwanted turnover is expensive and has many hidden costs. The value of good leadership that creates satisfied workers is very high. The cost of the turn over in experience and how the price rises as you turn over people has to be brought down.  Invest in your people.  They will invest in products and services that will help you to make money to offset rising costs.

Your marginal leaders who are skillful in some way but not listening to workers is a bigger cost than you know.  They need to be either professionally coached or replaced. They cause too much bleeding away of worker passion.  Chart worker satisfaction. Keep track of it, and you can see how some leaders or even you are harming the whole. Chart retention by leader.  This cost of churn and unmotivated workers must be faced down.  Find the source. Understand it correctly. Worker expectations have risen, and we need to adjust.  We need to raise the level of our leadership and demand it of our subordinate leaders all the way down the line. It will help us with our costs and even help us with revenue.

The trend will continue. Inflation will continue to castigate China as they keep pursuing an infrastructure strategy, and the aspirations of the next generation are high. Wages will keep rising.

The next generation will do better than this one.

Thoughts?

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Posted in: China, China Recruitment - Getting Good People, Coaching, Leadership, Motivating Workers

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