Dear Friends,

I’m sure it will come as no surprise to most of you when I tell you that we, along with the vast majority of CE retailers, have looked to China for the last twenty years for our manufacturing needs. There are many reasons that China has become the ‘mecca for manufacturing,’ and they are generally well known. They include: high-quality low-cost goods, increased savings, and an established infrastructure that is already well-equipped with large scale manufacturing equipment and facilities. In fact, China has long been regarded for its impactful result on the global economy because of its ability to produce goods at a strikingly reduced rate as compared with the rest of the world.

However, for the first time since I have been visiting China (over the span of many years), I have begun to see a surprising change that could, in the long run, cause companies to reconsider the benefits of producing goods in China. I’ve begun to notice that the perceived advantage of low production costs in China has started to disappear in certain areas because of the reality of the rising cost of labor!

Consider, for instance, a conversation I had with the owner of one of the larger factories in China. In our conversation about the future of manufacturing in The Country, the factory owner told me that China is currently in the midst of shifting its work paradigm from a low-cost labor model to one fueled by high-tech automation. The reasoning, he explained, is that workers need to fed, and they need breaks, and they need to sleep. Machines need no such amenities.

For the first time in the history of the average factory laborer, outside factors that were never before relevant have come into play. The demand for higher wages as well as the call for employers to take responsibility for the role that work related issues play in promoting an employees’ overall well being has led to an increase in the general standard of living. The down side of this is the justification by the employer for the use of the machine over man.

While the notion of automatons filling in for humans on the assembly line might bring to mind visions of an Isaac Asimov-like I, Robot world — where super computers have wrested control of humankind from our own ineptitude — the reality is a potential double-edged sword for the factory worker.

In the past, laborers in China were given next to no consideration at all. If you can understand that The Chinese People make up almost 20% of the world’s population (the US represents not even 5% by comparison) you will also understand that resources in that country are scarce and that most of the population has known only poverty as a way of life. Now, for the first time, their needs are at least being considered.

There can be no doubt that Western influence is largely responsible for China’s new found appreciation for “the working man.” In fact, in his first trip to China since being appointed CEO of Apple, Tim Cook made it a point in his meeting with Chinese Vice Premier Li Keqiang to address the issue of workers’ rights. The result was the extraction of a promise to “pay more attention to caring for workers.” (as reported by Xinhua, the country’s official press agency.)

But for a country that has a long history of valuing the needs of the collective over the needs of the individual, where children are considered both financial and practical burdens (and consider themselves to be of no significance) the battle is clearly uphill.

By any account, the progression to the kind of work environment that we enjoy will be slow and painful. What does it say about us, as a society, that we are content in continuing to support the Chinese economy despite the country’s record on human rights? How will the Chinese working class fare in the long run? Will the Chinese factory worker continue to demand the kind of consideration that we, in the West, have come to take for granted or are the recent demands and concessions just a pretense to help us in assuaging our own guilt?

Time will tell. But there is one theme that seems to be recurring and it’s a lesson that industry leaders should strain to hear: if you are investing in China for the long haul, your business strategy needs to driven by factors other than low costs.

Warm Regards,
Ran