Regulations May Help Improve China's Image
Posted Apr 28, 2011 in Management
Back in the 80s, Japan was labeled the villain whose cheap goods were driving a trade deficit and unemployment in the United States. Then those socks, t-shirt and household goods industries found even cheaper labor and costs--first in Thailand, then Malaysia, Mexico, India and eventually China--as multinational businesses jumped from country to country seeking the best deals. And now, the exodus of manufacturing plants from China to cheaper labor countries such as Vietnam has begun.
Once the epicenter of low-cost manufacturing, China now has implemented new labor laws and environmental regulations and is changing tax incentives in an effort to pacify citizens and global critics and encourage an exodus of factories from an area long considered the world's shop floor. For example, employers are now required to offer employment contracts, a social security program and overtime pay. In addition, the Chinese government is pressing multinational corporations to allow the state-approved labor union to organize in their businesses.
These mandates--coupled with the rising yuan and falling dollar--have contributed to a 17% increase in the cost of manufacturing in China according to the American Chamber of Commerce in South India. "The days of ultra cheap labor and little regulation are gone [in China]. As manufacturers' costs climb, export prices will follow," says an April 7, 2008 BusinessWeek article, "China's Factory Blues."
Typically the workers receiving China's minimum wage are textile laborers that have minimal skill and training, whereas dental laboratories are perceived to be part of a higher-skilled, higher-technology manufacturing sector that the government wants to cultivate. Technicians in general attend either a one- or two-year program plus a one-year apprenticeship program. The two-year program consists of all facets of fixed and removable dental lab technology and may possibly include orthodontics. The one-year program focuses on either fixed or removables. "Salaries place technicians in the middle-class salary range relative to the Chinese economy," explains Mark Frichtel, president of Jesse & Frichtel, Inc., Pittsburgh, Pennsylanvia, which runs an international division, JF International. With the industry's rapid growth, the wage competition for technicians in China is hot.
"The funny part about it is the talent level has gone way up too. We're not seeing the same issues as the lower-end, lower-trained manufacturing companies are seeing," Frichtel says. "What we were seeing four years ago when we went into this was work that was 'acceptable'. They had very good metal work but the porcelain work was mediocre. Right now they can do almost any type of case, they're bringing in CAD/CAM-based zirconia systems so they're able to do up to and including full arch cases. With the new porcelains each case looks more vital and lifelike. The talent level of the people doing the work is getting much better."
Benjamin Li, chief sales officer of DentUSA Laboratory in Shanghai, welcomes the shift in government policy but doesn't anticipate many changes for his business. In fact, Shanghai was chosen as the location for the laboratory nine years ago because regulations were in place there well before they were in the rest of the country. "We wanted to operate in an area that would be free of the stigma associated with low and unfair wages; the city of Shanghai was one of the first to institute a legal minimum wage as well as employee benefits like healthcare, paid leave of absence and a 40-hour work week," says Li. "Making these regulations country-wide is a huge step that will allow China to catch up with the rest of the world."
Li also says he is grateful that policymakers are paying more attention to environmental regulations. "There's no denying that with all of the industrial parks and factories here in China, our output of pollution and harmful chemical wastes is higher than that of some other nations," he says. "In a country where manual labor is the number one asset, this is the cost of growth; similar to what the United States and Britain experienced in the late eighteenth and early nineteenth centuries. But with a heightened level of responsibility now in the 21st century, China is making a strong effort to curtail the amount of pollution it produces."
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