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Cheap Chinese Labor Drying Up for Apple

27 March 2013 1,456 views No Comment

Cheap Chinese goods have been good for US consumers. However, for Apple and its customers, the cheap Chinese labor gravy train is about to end.

Whether you shop at Walmart and Best Buy or Nordstroms and the Apple Store, chances are majority of the labels and packaging on the products you buy say, “Made in China.” On the whole, that’s been good for US consumers, very good — stuff got cheap and stayed that way for decades. However, for Apple and its customers, the cheap Chinese labor gravy train is about to end.

Statistics most definitely can lie and, fundamentally, conditions can change. Nevertheless, US Department of Labor data describing China’s labor market and published by Bloomberg paint a rather convincing picture:

• China’s pool of 15- to 39-year-olds, the bulk of industrial, construction and service workers, fell to 525 million in 2013, from 557 million in 2007
— The number employed in industry rose to 147 million from 117 million in the five years through September

• The supply of young workers is expected shrink by 20 million to 505 million by 2015 and a further 22 million by 2020
— China’s one-child policy is really starting to bite hard!

• The wage delta between coastal Chinese (i.e. Shenzhen, Shanghai) and inland provinces has shrunk by half since 2006

How does this impact Apple? Manufacturing partner Foxconn has opened new plants in China’s inland provinces in order to be closer to workers and thereby reduce labor costs. However, wages there have largely equalized with the company’s Shenzhen and Shanghai facilities.

Apple Coming Home?

Granted, the US Department of Labor isn’t a disinterested party and the Obama Administration has pushed industrial development, especially reshoring manufacturing, hard since coming to office.

And, Chinese work patterns and/or technology adoption could change the dynamic — it would be wrong to underestimate either China’s potential or the looming pratfalls.

Still, these statistics backup years of evidence, including factories moving back to the US, out of China that the cheap labor gravy train is coming to an end. Underscoring the point is the fact that Apple will begin selling a Macintosh — i.e. the Mac mini — made/assembled here sometime this year and that could just be the tip of the spear.

That said, whereas most of its competitors have relied heavily on selling at low-cost, Apple’s margins give it a lot more flexibility whether Chinese labor costs skyrocket or merely continue rising rapidly.

However, you reckon it, these are interesting days — I’m looking forward to buying Apple products marked “Designed and Made in USA”…

What’s your take?

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