WAGES
China - Flextronics International will hire up to 6,000 and not move all its production factories in China to other locations even though labour wages are predicted to rise along with the country's economy.
That's even though Mike McNamara, chief executive officer of global custom electronics manufacturer Flextronics, told Bloomberg that China's rising wages are cutting the country's cost advantage over other manufacturing centres such as Mexico. "As China moves up, up and up and up, for five straight years, it's been moving up heading towards Mexican pricing," McNamara said in an interview. "Mexico's been the same labour cost for the past five years, it hasn't moved up at all."
The company will hire up to 6,000 for a power-supply factory in Ganzhou, where wages are lower, this year and it plans to continue hiring for the factory over the next five years. McNamara said this will offset the higher labour component for the products. Flextronics currently employs 200,000 people globally in 30 countries with around 90,000 in China, with the country providing 33% of its revenue.
Flextronics will also not move production bases away from China because McNamara said labour remains a small cost of manufacturing for many of its products. It is around 0.5% of sales for computers and going up to 10% for power supplies because that requires more manual work. McNamara said he does not see "a wholesale, large-scale effort to move inland" from China's ports "less economically viable" as 99% of its products are exported. That's even though it has been forced to increase wages in China as part of government regulations and strong economic growth.
But the company will "probably not" achieve its operating-margin target of 3.5% this fiscal year, ending in March, McNamara said, if it fails to make its components business profitable. Components account for about 10% of sales, he said. Operating income as a percentage of revenue is a key measure of profitability.
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