Even with Chinese factory wages up more than 20 percent this year, the country’s labor shortage is already forcing some plants to turn away business.
That underscores the reality behind the Foxconn International Holdings Ltd. suicides and the strikes at Honda Motor Co.: Chinese factory managers have no idea what their employees really want, migrant workers from the countryside are quitting jobs faster than before and high turnover is hindering productivity growth at Chinese factories.
To stay competitive, China’s manufacturers will have to do more than just increase salaries in their coastal plants, automate and move inland in search of lower labor, land and utility costs. Factories will have to change the way they manage their workforce.
Don’t believe me? Ask Fang. Less than a year into her job at a shoe factory in Wenzhou, she’s thinking about quitting. Fang wants higher wages, shorter hours and better working conditions. But ultimately what she wants are skills and responsibility. She dreams of opening a store, of being her own boss. Managing her own business, Fang shouts into her cell phone over the din of machines on the assembly line, “would be better than this. It would give me an opportunity to improve myself.”
Lei, a 21-year-old migrant worker from rural Shaanxi province, would agree. She quit her job making bicycles in the northern city of Tianjin last year, in part, because she couldn’t see herself moving up in the company. At her new job as a quality inspector of mining equipment in western Xi’an, Lei earns half what she could make in a factory in southern China, but the plant offers training in quality control after work.
“The salary is low, but the work I do here has value,” she says. She plans to quit next year and find a job where her new skills will command a higher salary.
Fang and Lei aren’t the exception, they’re the rule. A recent survey of 5,000 migrant workers in Shenzhen by the All- China Federation of Trade Unions (ACFTU) found that workers under age 30 changed jobs twice as often as their older colleagues. Another ACFTU survey of migrants in 10 cities showed that the younger the worker, the less important money was as a motivation to migrate.
Better educated than the generation that staffed China’s factories in the 1990s, many migrants today are disappointed by assembly-line jobs that offer few transferable skills and little prospect for advancement. Migrants’ legal status as rural residents under China’s hukou system means they face both discrimination and higher costs for medical care, housing, and education of their children in the cities, where most would prefer to live.
Government studies show that migrants put in longer hours but earn less than local workers. Thus many keep moving in a perpetual search for a better situation. Their peripatetic ways are a drag on productivity and efficiency. A constantly changing workforce devours management resources: every new employee must be trained, and it takes time for them to improve their output.
As production runs get shorter, the lack of a stable workforce will be fatal for some factories. Think about cameras or sneakers. Companies used to release a new point-and-shoot camera or redesigned running shoes every 12 or 18 months. Now, electronics and shoe brands are constantly updating their product lines.
Back in China, the assembly lines that make these products need to be able to make one product for a few months and then switch to another. That is impossible to do well, or for long, without a stable workforce.
What does this all mean? That as seductive as automation may sound, there is a limit to how much can be done by machine on today’s production lines. China still needs its migrant laborers. At the same time, high turnover is creating an artificial labor shortage, adding to the bottleneck in supply caused by the 1979 one-child policy.
Companies and regions that understand this new reality and find ways to attract and retain talent from China’s shrinking, increasingly picky migrant labor pool will outperform their peers. To improve productivity, manufacturers will need to invest in training for their workers, including on subjects like starting a business.
Labor advocates say there are no publicly traded manufacturers in China that get this yet. Some will eventually figure it out.
Until they do, companies like Yum! Brands Inc., which invests in employee development at its KFC and Pizza Hut fast- food restaurants, offer a better alternative. Chinese cities and regions have competed for decades on luring foreign investors. Now, they will compete on attracting and keeping migrants.
The city of Chongqing is experimenting with allowing migrants from surrounding rural areas to convert to urban residence permits. If properly implemented, this might help Chongqing achieve higher growth with a more stable workforce and help companies such as machine toolmaker Chongqing Machinery & Electric Co.
While it’s tempting to think that manufacturers most affected by this summer of discontent will be a safer bet, it’s not necessarily true. Taiwanese and Hong Kong manufacturers won’t fare well unless they promote from worker ranks, rather than bringing in managers from home. Manufacturers like Foxconn that think one-time wage hikes, suicide nets and pep rallies are the answer to workers’ concerns about the future don’t get it.
Scaremongers say that China’s rising wages will undermine its competitive advantage. The reality is there is no other country today that can offer a supply chain comparable to China’s; the alternative to China is China. Even if wages rise another 20 percent, China’s migrant army still works for a fraction of the wage an American or European would expect.
The challenge, for China and the companies that depend on its factories, is finding a way to keep those workers happy and in one place for longer.
(Alexandra Harney, author of “The China Price,” is a visiting scholar at the University of Hong Kong. The opinions expressed are her own.)
To contact the author of this column: Alexandra Harney at email@example.com