Wage Rises in Shenzen and their Ripple Effect Around the World
For many in the west, the city of Shenzhen first came to prominence when Apple was emerged in controversy earlier this year over the way staff at their manufacturing plant in the city were treated. The working conditions resulted in a number of employees at the Foxconn company that made iPhones for Apple killing themselves.
Shenzhen has however long been one of the most important cities in the world for the electronics industry as the majority of the products we enjoy are manufactured there.
So news today that the city is planning to increase the minimum wage for employees in the city could have repercussions around the world.
The city is set to increase the minimum wage paid to employees by 13.3% in 2013. Apple, HP, Samsung and Nokia are among the companies that have parts and products manufactured in the Guangdong province city. Among the companies based in the city's Pearl River Delta tech hub, many of them Taiwanese OEMs (Original Equipment Manufacturers), BYD Company produces handsets for Nokia and HTC, while Shenzhen-based Wistron signed a patent deal with Microsoft in 2011 to supply its Android and Chrome products.
After the Foxconn controversy they agreed to increase wages by up to 25% this year, with Apple agreeing to help them upgrade facilities for workers. When they announced this jump in salaries however, customers such as Dell and HP announced this could spell an increase in product process.
HP chief executive Meg Whitman saying, "If Foxconn's labour cost go up, their product cost to us will go up. But that will be an industry-wide phenomenon and then we have to decide how much do we pass on to our customers versus how much cost do we absorb."
These changes took place this month, so it is as yet too early to determine their impact on global prices. An alternative option is that manufacturers start looking for facilities outside of Shenzhen. Prices are rising throughout China though so the strong support network present in Shenzhen is likely to ensure they remain the global manufacturing hub for the electronics industry.
Roger Sheng of technology research company Gartner said a move outside of China was unlikely given how invested companies were in the region.
"Foxconn is saying it is moving to outside China but actually it is building the biggest factory zone in Henan province for increasing iPhone orders," he said. "Other countries need to invest in the infrastructure and education systems to attract electronics manufacturers to move from China before launching aggressive policies."
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