The End Of Cheap China and THE New Next Big Thing

China non-compete

One of the things I love about my job is hearing about the next big thing. Most next big things never actually become a big thing, but the fun is in the sorting. Any time I get together with a client, the discussion invariably turns to the “next” country, with “next” country very roughly meaning the country where manufacturers will move to reduce their costs. Implicit in these discussions is that the “next” country has an almost unlimited capacity to supply sufficient low cost labor to step in as a China replacement.

But of course this assumption is silly, as was brought to light in a recent FT article Fewer, more demanding workers for Vietnamese factories focused on recent labor strikes in Vietnam and on the increasing difficulty in staffing factories there:

Prices of food and accommodation are rising faster than wages, making countryside dwellers reluctant to take factory jobs in far-away cities and industrial zones. That has led to a significant labour shortage in the electronics and garment making industries, according to the Vietnamese government.

“Some people tell us they would rather engage in petty trade than work in factories,” says Jonathan Pincus, an economist who runs Harvard University’s Vietnam program in Ho Chi Minh City and has been researching labour issues. “It’s hard work, with unpleasant conditions, a lot of forced overtime and little freedom.”

Some Japanese manufacturers, who dominate the industrial parks of northern Vietnam, have found it difficult to hire enough workers of late, especially for bigger factories with more than 300 employees, says Hirokazu Yamaoka, head of Japan’s trade promotion body in Hanoi. Japanese employers have noticed that Vietnamese workers have been getting more selective about factory jobs, he says, weighing up working conditions as well as pay. Factories without air conditioning and those that use potentially hazardous chemical processes are particularly unpopular.

The article goes on to quote an employer on wages potentially hitting “unsustainable” levels and then discusses how employers “have started offering more generous inducements to lure workers, such as free monthly sacks of rice, free accommodation and annual staff holidays.”

The article then discusses how Vietnam, “unlike China” does not have large pools of migrant workers desperate for factory jobs. I hear this again and again from our clients with facilities in both China and in Vietnam. They tell me  hometowns/farming areas of Vietnam are typically nicer and more productive than in China and so it is much easier to hit a “tipping point” in Vietnam where the workers will simply choose to stay in or return to their hometowns, rather than keep working in a remote factory. They also tell me that as China’s wages and other costs continue to increase and as more manufacturing moves to Vietnam from China, Vietnam necessarily experiences the same rising cost effects.

I guess this is where Myanmar comes in. I had lunch the other day with a friend who is (I think) the only person I know who is completely fluent in Burmese. He told me of how he is getting a shockingly high onslaught of calls from companies (mostly in the pharmaceuticals business) wanting to go to Myanmar. My friend’s view is that it is too early/too risky.

After that lunch, I started talking about Myanmar, expecting people to mostly just laugh. Wrong. Nearly everyone is intrigued and many of them have conducted a “preliminary analysis.” Then just this week, no fewer than two people I know who had been talking about going to Vietnam for vacation told me they are now considering Myanmar. One of them said it’s for vacation, but it’s also to see what is going on there “business-wise.”

At the same time, I would be remiss if I did not mention that the new consensus is that globalization leads to declining wages and increasing inequality in the United States. For more on this, check out this New York Times article, As Jobs Go Global, U.S. Workers Pay.

Myanmar, the next big thing? What do you think? Will Globalization continue and if so, until when?

12 responses to “The End Of Cheap China and THE New Next Big Thing”

  1. Here locally in Seattle the best-informed Burma watcher is probably Mary Callahan at UW.  She gave a talk to a packed house a few weeks ago.  I couldn’t go, but a friend went and took notes.  Some of what follows comes from her talk.
    -It’s a trifle early to start hopping on the carpetbagger special bound for Rangoon.  A lot more dust has to settle before it’s safe to go.  Still, not a bad idea to go and see what the atmosphere is like.
    -Unequivocal lifting of sanctions by the US and other countries needs to happen.  Burma’s finance and banking sector needs to get quite a bit more regular.
    -When I was younger I used to despise lawyers, until I started reading this blog and realized what they can do in terms of advising clients and crafting business agreements that can be durable and defensible.  In Burma’s case, the rule of law needs to be established and proven, and there needs to be at least a platoon (if not a battalion) of decent lawyers able to work with Burmese to referee all that will follow.
    -Manufacturing in Burma will be tough unless there is reliable electricity on demand.  There isn’t any right now, and as we saw in Iraq recently, restoring power takes more time than we thought.  The other input that needs managing is any & all materials and equipment that would be imported, and the need for coming to an accommodation with inbound customs.
    -Transportation and logistics networks are going to be a nightmare.  The Burmese military junta borrowed Zimbabwe and North Korea’s models of economic development in more ways than one.  
    -The military didn’t go away.  It’s still there, and there’s no telling how deep this dive into democracy will get before the military’s vested interests deem it necessary to take back power.  It’s happened a couple of times since Burma’s independence, so the precedent is well established.
    -The positives are that Burmese are among the nicest people on earth, and when I go there from China, it’s always like going from a cold, dark room into the light, in terms of how people treat each other.  -But that though has a brother:  they are even less likely to take to being exploited than their cousins in China, Viet Nam, or the rest of SE Asia.  The tradition of striking is pretty well ingrained in the society, and especially in rural areas they’re coming out of years of unpaid forced labor under the Army.  
    -Perhaps most delightful of all, Burmese have a wonderful sense of humor and a finely tuned wit.  Comedians enjoy high social status, and in recent decades it has always been easy to tell who the most popular ones are:  they were all in jail, as the military are a rather thin-skinned bunch.

  2. Some naiviety about Asia here in this article. Myanmar remains a military dictatorship. Romantic perhaps, but way off the radar for the moment. Vietnam is Ok, but for the next big thing, there’s two: India and ASEAN.

    • India isn’t going to play ball with the slave wage demands of foreign companies, you want access to India, you do things their way.  ASEAN isn’t close to being the EU, so forgeddaboudit!

  3. Ah, I do not know your contact who is fluent in Burmese, but ten guys who vacationed there would not have as much influence with me as one guy who really knew assuming that the Burmese speaker was intimate with present cultural/political issues there.

    • Myanmar has started an irreversible transformation, like Vietnam did 20 years ago. This is political, economical and cultural.
      I was there 23 years ago, again 18 months ago and the differences where few. But between the trip 18 months ago and my last trip 4 months ago, the differences where very clear. Poeple are talking openly and there is a general desire at all levels to move forward?

  4. Burma as the next big thing? Sure, why not?
    Not amazingly surprised by the way things are turning out in Vietnam for people looking to hire factory workers. Foxconn went all-in back in ’07, with plans to hire 20,000 people, fly them to Shenzhen, train them, and then send them back. Now they’re finding it difficult to find even a few thousand recruits paying the average salary for industrial workers (~100USD a month). Pay over the average there like Samsung does (~115USD) and you’ll still find more than enough workers there though.

  5. Actually, doing a little fact-checking, Samsung is actually paying new factory workers in Vietnam closer to 150 USD per month.

  6. Sorry, nothing personal, but is very naive to generalize as you do.
    The countries you are talking about are very big and with large populations spread around. Your comments are only valid for a few poles.
    I am a consultant for The Mekong region and I can tell you there are plenty of less popular locations, with industrial facilities, where when you post job offers workers are plentiful.

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