Sun, Mar 21, 2010 page8

• EDITORIAL : Rethinking the global value chain

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  Amid a severe shortage of migrant workers in coastal Chinese provinces, some local governments there have moved to raise minimum wages and businesses have agreed to offer better paychecks, which shows that higher production costs have become an issue for the global technology supply chain — from multinational companies to contract suppliers and to component suppliers operating there.

  On Thursday, Guangdong Province announced the increase of the minimum monthly wage by an average of 21.1 percent, effective on May 1. This follows Jiangsu Province’s 12.9 percent increase in the minimum monthly wage from Feb. 1, and a 14.5 percent hike in Zhejiang Province and Shanghai from April 1. In Shenzhen, contract handset maker Foxconn International Holdings Ltd also reportedly agreed to an average increase of 3 percent in monthly wages this year after Xianduan Precision Metal Products Co reached a 10 percent hike deal with its employees in January.

  As China attempts to move up the global manufacturing supply chain, Taiwanese companies operating there are facing growing challenges.

  First, Taiwanese companies have to take steps to cope with labor shortages in China to assure investors and clients that things are under control and that products will be delivered on time. Basically, this is a problem that money can easily resolve and big companies are able to do so by offering better wages and generous incentives.

  But more important questions remain: What would Taiwanese firms do if they continued operating their assembly lines in China? Where else would they move if costs grow too high and too soon? Could Taiwan, their home country, be one of the options?

  Already, some large companies have thought of the labor problem beforehand and have gradually started operations in inland provinces. However, for small companies, financial constraints will limit their ability to relocate to China’s inland provinces. Some people suggested that companies move to India, Vietnam or other Southeast Asian countries to repeat what Taiwan already experienced in the early 1980s, when many local companies relocated to China.

  A closer look at these new destinations, however, shows that aside from a cheaper workforce, they lack everything Taiwanese companies would need. This is because, compared with China, the infrastructure is poor and the quality of workers is inadequate. Others have suggested that returning to Taiwan could solve the labor problem, as people here are anxious about jobs following record unemployment last year.

  The Ministry of Economic Affairs ostensibly sensed this potential and said last month it was planning to organize trips to China to persuade Taiwanese businesses in Dongguan and Shenzhen to come home.

  But this suggestion would beg for realistic expectations. By any account, the costs of land and labor in Taiwan, as well as other operating expenses, are higher than China’s and those of other Southeast Asian countries. Moreover, not all businesses are suitable to make the move back home, as people in this country would not likely take up the low-paying and physically demanding work that many of these companies are getting from China.

  Therefore, the government must improve the nation’s R&D environment to help transform Taiwanese companies, as innovation and upgrades in technology are what will ensure the long-term growth of these companies.

  Putting all these factors together, the labor shortage in China poses a challenge to Taiwanese businesses on how to absorb higher costs by increasing productivity, but at the same time it offers an opportunity to all of us in Taiwan to rethink how our companies should position themselves in the global value chain over the next few decades. When China plans to climb the value ladder, so, too, must Taiwan.
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