Friday, April 06, 2012

Impact of Foxconn's pay rise for workers

TAIPEI : The world's largest electronics maker, Foxconn, has pledged better conditions for its workers in China.

While this is good news for its workers, there are concerns that consumers will end up paying the cost.

The Taipei Spring Computer Show, a major technology event on the island, allows tech companies to show off their latest products, while giving gadget lovers the chance to hunt for bargains.

One consumer said: "I am here to check out notebook computers, cameras and other 3C products. I hope to get a 10-20 per cent discount here."

Another commented: "I want to buy computers and hope to knock down 20 per cent off the price tag."

Some are worried that the prices for smartphones and tablets will go up.

Foxconn, a subsidiary of Taiwan's Hon Hai Precision, makes nearly half the world's electronics products.

It is also a primary manufacturer for Apple products, which include the iPhone and iPad.

Now that Foxconn has agreed to give its 1.2 million workers in China a pay rise, there is growing concern that consumers will end up paying more.

But after crunching some numbers, analysts said there is little to worry about.

Mars Hsu, assistant vice president of Grand Cathay Investment Services, said: "Hon Hai Precision's revenue last year hit 3.45 trillion Taiwan dollars. Its profit was close to 80 billion. And its labour costs account for only 2 per cent of its total revenue a year."

This means that the wage hike will have little impact on the company's bottom line.

Foxconn had announced that salaries of its workers in China will go up by 16 to 25 per cent starting February.

Parent company, Hon Hai, plans to raise wages in Taiwan this coming June.

Analysts said raising the bar on pay and benefits could make Foxconn even more competitive.

Mr Hsu said: "It uses better pay and benefits to entice its workers to stay. That helps to reduce costs stemming from a high turnover rate. This way, it can keep its labour cost under control. Meantime, it is moving some of its production to the inland and using automation to keep costs down."

So the time for cheap labour in China may have come to an end, but analysts said that does not mean the consumers have to pay the price.

In fact, companies should continue to keep prices attractive to increase economies of scale, which will more than make up for their additional costs.

- CNA/ms

View the original article here

Source From Channel News Asia

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