December 1, 2010

The Future of Cheap Labor, "A Focus on China" (Part 1)

This is the first of a two-series blog focusing on the latest developments of China. Please stay tuned for the follow-up blog post: East Meets West, Part 2 of "A Focus on China."

photo via:

Without a doubt, China is the country of 2010. With their spectacular economic growth just within the last thirty years, they have already completed large improvements in their infrastructure, redesigning buildings, airports, and streets. So as the standard of living has been raised, a quickly growing upper and middle class have followed suit. Hence, a focus on growing the domestic Chinese market is, and has been, on every smart businessman's mind.

Some of you may remember our blog post a few months back in regards to China's growing fashion scene and Hermes' new strategy of creating a special brand specifically for the Chinese market. We briefly discussed the expectation of a new niche of stylish Chinese individuals with an increasing demand for luxury fashion and Chinese-based designer goods. We speculated major changes within China; and since then, the country has always been on our radar. So today we follow up with an updated post with our latest thoughts and what to expect.

photo via:

As the Chinese economy continues to boom, factories all over the country have been on strike requesting higher wages and better working conditions. Just google search "Chinese factories strike" and you are sure to end up with dozens of articles linking multiple companies recently affected by their workers demanding double, or even triple the wage they used to receive for their hard labor. Foxconn, the world's largest electronics contract maker, made headlines as a string of suicides among their workers became public. Since then, Foxconn, along with many other factories increased their workers' wages by up to 66 per cent.

photo via: USA Today

As China now stands as the second largest economy in the world, their manufacturing industry is changing rapidly as workers will no longer accept the poor working conditions and low wages they used to receive for the last several decades. As a result of higher production costs, many companies who were once so dependent on China's low production costs have either relocated their business to alternative countries who can provide lower costs, such as Vietnam, India, Bangladesh, and multiple South American countries, or increased their product prices and/or altered the designs. For retailers sourcing cotton, it also does not help that the price of cotton rose almost 80 percent since July and prices are expected to remain high.

With the new labour laws and the need to provide competitive production prices, there is a rising trend of factories relocating from their coastal locations to central China. In 2009, there were 90.8 million migrant workers in the coastal eastern part of China, a drop of about 8.9 per cent from the previous year. The number of migrant workers in western China increased by 35.8 percent, reaching 29.4 million, according to the National Bureau of Statistics of China. In the past, the eastern coastal cities were the driving force of the economic development. However, as factories continue to move more inland, many workers no longer have to live in migrant workers' dormitories and can easily commute to work on a daily basis. As most factory workers used to travel more than 2,000 kilometers away from home and lived apart from their families, the relocation to move inland is a drastic change to thousands of people's lives.

So what does this all mean for those of us in the fashion circle? As production standards raise, does "Made in China" hold a new perspective? As retailers have been doing business in China for decades, the quality of Chinese-made goods have steadily increased. As it already has proper infrastructure, it is in much better condition in comparison to other Asian and South American countries. Some are looking to develop in Africa, but it will still be years before getting things up and running. And as many companies are finding cheaper alternative in these countries, Chinese made goods are considered more reliable.

Honda workers on strike, photo via: Wall Street Pit (LA Times Photo)

This change also brings up the future of cheaply made clothes and it's lack of sustainability. How long will retailers continue moving their production from one country to the next? China is not the only one in protest as there were a quiet but steady increase of strikes all over the world this past year, including India, Vietnam, and Cambodia, just to name a few. Retailers cannot depend on cheap labor as a long-term investment and must rethink their profit margins. And as we live in a more transparent society, there is a social and environmental responsibility that these large conglomerates must uphold. Expecting workers to work long hours doing monotonous routines with very little pay is dehumanizing, treating the worker more like a machine rather than a human being. The production systems of the 90's are out of date and will not work in the times of today.

Foxconn employees, photo via: Wall Street Pit (Bloomberg photo)

The increased price for production and labor is only a small fraction of what is to come over the next several years. As China continues to reconfigure their manufacturing businesses, the future of the world's production system no longer remains the same. Hopefully, these adjustments will allow an improved quality of life for many of these factory workers. The only question is, will we, as consumers, be able to accept this change?


  1. Interesting. Thanks for sharing. Look forward to seeing Part 2.


Creative Commons License
MBF Trend Talk by MBF Trend Consulting is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.
Based on a work at