Asia Soaring Wages Stoke Inflation as Factory Costs Rise
By Shamim Adam and Sharon Chen - Apr 2, 2013
Koda Ltd (KODA). Executive Director Ernie Koh has a message for clients in 50 countries who complain about the Singapore-based furniture maker’s first price increase in two years: Take it or leave it.
Koda’s factories in China, Malaysia and Vietnam are battling rising costs as governments in Asia increase minimum wages to curb discontent over a widening wealth gap. While weak global growth and increased competition limited the ability of producers to raise prices during the past five years, Koh says they can’t go on absorbing the additional expenses.
“We aren’t even passing on the full costs,” said Koh, who counts U.S. retailer Williams-Sonoma Inc (WSM)., owner of Pottery Barn, and Cost Plus Inc. among customers. “Wage escalation in China these past few years has been crazy. We have collective bargaining with the union in Vietnam, and in Malaysia there is a big outcry among manufacturers over the minimum wage.”
Average pay in Asia almost doubled between 2000 and 2011, compared with a 5 percent increase in developed countries and about 23 percent worldwide, according to the International Labour Organization in Geneva. The gain was led by China, where average remuneration more than tripled during the period. Southeast Asia is catching up, with new minimum pay levels in at least five nations eroding companies’ ability to make cheap toys, clothes and furniture.
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