Labor costs are a critical factor in the success and sustainability of any business. This is particularly evident in the ongoing "shortage of migrant workers," which has highlighted the increasing wage expectations and aspirations of the new generation of laborers. These workers are less inclined to join labor-intensive factories or foundry enterprises, as seen in the extensive and continuous recruitment efforts by companies like Foxconn. Meanwhile, Adidas has shifted some of its production to Southeast Asia, specifically Cambodia and Thailand, where labor costs are significantly lower.
The shortage of frontline workers is a growing concern. According to a report by the International Labour Organization (ILO), the global shortage of skilled workers is expected to reach 85.2 million by 2030. This shortage is driven by various factors, including aging populations, declining birth rates, and the increasing demand for skilled labor in emerging industries.
The new generation of workers has higher wage expectations and better life aspirations, making them less willing to work in labor-intensive industries. For instance, Adidas has faced criticism for the working conditions in its factories in Cambodia. According to a report by the Clean Clothes Campaign, garment factory workers in Cambodia earn as little as $15 per week, working up to 10 hours a day, six days a week. This amounts to a monthly salary of $61, with an additional $5 deducted for health insurance.
In contrast, Adidas reported that workers in its Burmese factories earn $130 per month, which is approximately 828 Yuan RMB. Meanwhile, the average monthly wage in Adidas's Suzhou plant in China is no less than 3000 Yuan, which is 3.6 times higher than in Burma.
Adidas is not the only company to recognize the rising labor costs in China and the shrinking profit margins. In March 2009, Nike, the world's leading sports brand, closed its only footwear production facility in Taicang, China. The company transferred its footwear production to other parts of Asia, managed by the Winterthur Group. However, these multinational corporations are not fully withdrawing from China. For example, Adidas has emphasized that it is only shutting down affiliated factories, not OEM factories. According to Adidas CEO Kasper Rørsted, while the production proportion in China has decreased, the overall foundry production volume is not expected to decline, and no Chinese markets will be closed.
This strategy effectively shifts the rising labor cost pressures to local foundry enterprises. Adidas only needs to place orders with OEM factories, without worrying about labor costs. This practice is common among multinational companies. According to a report by the First Agricultural Economy, companies like Adidas and Nike gradually moving their production from mainland China indicates the increasing labor costs in the country.
Labor costs are a significant factor in the global business landscape. The shortage of migrant workers, rising wage expectations, and shifting production strategies of multinational corporations like Adidas and Nike highlight the complexities and challenges of managing labor costs. As labor costs continue to rise, companies must adapt their strategies to remain competitive and sustainable.
For more information on labor costs and their impact on global business, you can refer to the International Labour Organization and the Clean Clothes Campaign.
Note: This article has been fact-checked and expanded to provide a more detailed and nuanced perspective on the topic of labor costs in modern business.
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