Recent market turmoil, the devalued yuan, and labor unrest suggest that China’s manufacturing dominance is on the wane. But more than anything, rising wages – which have quadrupled since 2006 – are the impetus compelling manufacturers to consider cheaper locations.
In 2000, Mexican manufacturing workers made 60 percent more than their Chinese counterparts. They now earn 11 percent less. This hasn’t gone unnoticed; even Chinese firms are increasingly offshoring to Mexico (Quartz). The average worker in Mexico is also more productive than the average worker in China.
India has seen considerable buzz in recent years as it makes a concerted effort to court manufacturers, but significant challenges remain (New York Times). FDI has increased by 46 percent over the past two years, and recent investment from electronics giant Foxconn and General Motors underscore the country’s competitiveness. Though its low labor costs are a key strength, its inefficient bureaucracy limits further growth. Last year, Prime Minister Narendra Modi introduced the “Make in India” initiative to court more investment. But corruption, unclear land laws, and poor infrastructure continue to make business difficult for foreign firms.
In spite of these trends, some believe China will retain its edge in the tech sector (Fortune). Though low-cost, low-capital manufacturers such as apparel makers have already fled China, moving a tech factory presents far higher costs. And for tech, the cost of labor is less important than factors like infrastructure and ability to serve regional markets. In some ways, rising wages actually benefit Chinese tech manufacturers, as more domestic consumers can afford their products.