Labour Investment in Emerging Markets: What Can We Lean From The Foxconn Suicides?

For emerging markets including Brazil, Russia, India and China, access to cheap labour has been a key factor driving their economic growth. Unfortunately, the dependency on cheap labour has brought with it a larger set of challenges; namely, increased pressure on manufacturers to lower production and labour costs. These pressures have intensified as many global industries have moved production and procurement operations to emerging market locales. In response to these pressures, many manufacturers, have opted to reduce labour standards or stretch production beyond acceptable targets in order to secure contracts and achieve productivity goals. These approaches have damaged worker moral, decreased labour confidence, and impacted stakeholders at every level of the value chain.

Over the last month, questions regarding labour investment in emerging markets have come under the microscope following the tragic string of 11 suicides at the Taiwanese company Foxconn. While the plant, located in Shenzhen, employs well over 400,000 people, it manufactures mobile phones for Apple, Dell, and many other top brands. Currently, it is the world's largest supplier of electronic equipment. Entry-level workers earn about $132 USD per month at the Shenzen factory, and the suicides have brought unwanted attention to an issue that has existed for many years. In related news, Honda Motor Co. was recently forced to shut down all four of its car plants in China after 1,850 workers at a parts-making unit went on strike over pay and working conditions. Currently, the plant remains closed, and the move has crippled production in the world's biggest auto market.

Sadly, while these cases have garnered significant media attention due to the parties involved, issues regarding labour standards remain unchanged. From 1993 to 2007, the proportion of Chinese wage's in the country's gross domestic product decrease from 49.49 percent to 39.74 percent. As a result, labour incomes fell while production increased. This decrease was fueled by aggressive manufacturer pressure to cost control, as well as the willingness of workers to accept sub-par working conditions. In the Pearl River Delta for example, most labourers work at least 10 hours a day excluding overtime, while earning a monthly salary of only $263.63 USD. Over the last decade specifically, the presence of migrant workers within the labour pool has increased tensions in Asia & India, manifesting itself recently through labour unrest. Many younger workers who migrate for short term contracts are unwilling to accept emerging market labour standards, and have begun challenging available manufacturing wages, working conditions, and management expectations.

Unfortunately, while the last month has provided many examples of change within emerging manufacturing markets, questions remain regarding whether the changes will be permanent. In the short term, it is clear that these pressures have squeezed manufacturers, forcing them to re-evaluate their labour standards and wages. Sustainable growth requires that emerging economies like China and India develop growth models which are driven by market consumption and willingness to pay, rather than by cost. Such models require countries and organizations to redistribute a higher proportion of GDP to labour, particularly the low and middle classes. Sadly, efforts to make permanent change in these areas have been slow.

Further discussion is needed to explore the nature of resistance employed by low-class labourers, the willingness of manufacturers to permanently change their practices, as well as the long term labour outlook in emerging markets. Regardless of labour attitudes, cost pressures will continue to exist, and many manufacturers have shown a willingness to keep their doors open rather than face bankruptcy or closure. In the next two articles, I will explore the methods Chinese and Indian labourers used to organize, the challenges that a low-cost labour strategy brings for manufacturers in emerging markets, as well as the long-term labour outlook in emerging Asian and Indian markets.