I had some very interesting conversations about doing business in China during my trip there last week. On one day I paid visits to two Taiwan-owned factories in Dongguan and the factory owners in both cases lamented the challenges in finding labor in the Pearl River Delta region. The reasons are various including:
– Much of the labor force is young and workers are in many cases only children, the result of China’s “one child policy.” This is China’s “spoiled” generation. These workers weary easily of factory conditions in South China and want to return to their towns and villages where life, although harsh, is more familiar. Contrast this to the first wave of migrant workers to the South 20 years ago. These were workers who grew up during the end of the Cultural Revolution accustomed to deprivations and quickly embraced the opportunities that Reform and Opening ( as China’s open door policy is referred to in China) presented.
– As the interior of China developes there are more opportunities in the villages and cities that the laborers left when they came to South China in contrast to the shrinking opportunities ( many factories have closed) and rising cost of living in cities like Dongguan.
– Living off the land is much cheaper than living in the Cities where the cost of living and inflation are rising almost daily.
From my visits to these factories I could see that business was down considerably. One workshop I visited was half empty. I took a picture of this ( see below) and the owner of the FTY explained to me that 2 years ago every sewing machine was going. The other factory did not give the impression of being busy and the production schedule board had not been updated since early March ( my visit was the first week of May).
Both vendors maintained that the high end retailers like PB and CB were remaining in the South because of a well-trained labor force and overall higher QA standards while larger mass merchants where quality is not tied to brand e.g. TG, WM et al are heading up north to take advantage of cheaper labor. Many factories are following suit. I found these and other conversations fascinating.