• Labor Cost
• Labor Productivity
• Labor Supply
• Labor Market Regulation
The above factors are, typically and sadly, overlooked and undervalued by companies. This paper analyses the given news stories on Foxconn, using the above framework. They are critiqued based on the factors to be evaluated by companies in their location analysis whenever they consider locating and maintaining their operations or engage in contract outsourcing.
Labor cost is the primary cause why companies relocate their operations. The basic questions that need to be addressed in this regard are
• Are we accessing the right kind of compensation data – Affordability/Industry Sector/ Location Tiers?
• What are the variations in the compensation mix
• How stable are the compensation levels over time
Companies need to evaluate the existing differential between the present location and the new location, while assessing how much cheaper the new location is. Just being cheaper is not enough. We need to see how consistently cheaper the new location is. Most of these decisions involve investments in millions and billions of dollars over a period of time and hence stability of labor costs overtime is the key. Salary inflation is a metric that can be used to assess the stability of labor cost. AT Kearney’s Global Services Location data provides Financial attractiveness index that can be used for this evaluation.
Exposé on Foxconn in January 2012 was the tip of an iceberg of challenges involved in the management of Global workforce and outsou...
... middle of paper ...
...similar financial attractiveness and a better PSA index, were evaluated.
As it transpires later, Foxconn already has plans to tap the Indonesian market with a $10Billion investment over a 5-year period. It also has a strategic investment in Pittsburgh in a more skilled R&D fuelling innovation. This is in an attempt to move from a manufacturer label to an innovator label.
The A.T. Kearney Global Services Location IndexTM, 2011 – Top 10
But at some point very soon, economists say, “the Chinese economy will hit the fabled “Lewis Turning Point” when labor surplus will turn to shortage, growth will slow, wages will rise and factory owners like Foxconn will have to find a new business model: increasing worker productivity to match higher salaries”. This vindicates Foxconn’s expansion outside of china into other developing eastern economies like Vietnam and Indonesia.
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