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Chris Niccolls

Outsourcing In China Is Changing

By January 9, 2013

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China Factory

PHOTO:All Rights, Microsoft Corporation

Are we ready for a kinder, gentler China? China's wave of labor change started with Apple and Foxconn. Foxconn, founded in 1974, employs more people than any other firm on earth. Their rapid growth almost guaranteed some big mistakes. As more of their work was performed for western companies, those big mistakes have become very big news stories: worker uprisings, fatal industrial accidents, poor working conditions, under aged workers, violations of Chinese law, etc. To their credit, Apple has continued to keep these issues at the top of their contract discussions, putting Foxconn executives under pressured to make improvements. And Foxconn has improved.

Foxconn raised worker pay by 50%, pledged to adhering to Chinese labor law, and paid workers for overtime. The cost for "doing things the right way," in China really isn't that high, at least according to the New York Times. However, the impact on outsourcing could be much greater. As workers around the world realizing their power, raises promotions and improved work conditions are becoming more frequent. In an Internet connected world, China and other popular outsourcing locations have the same access to data about compensation. Workers in China know what an iPhone sold in Kentucky costs. This knowledge has helped offshore workers to win some battles, and their compensation is rising faster than in the west. Eventually, as offshore compensation gets closer to onshore rates, the speed of raises will slow down, creating an equilibrium between on and offshore rates.

Does better pay in China mean that offshoring is on the way out? Not at all, but it does mean that the days of "drag and drop" outsourcing are fading away, and you need to have a good plan and an experienced outsourcing vendor. Remember, you don't just need to have a profitable offshore plan, you need an offshore plan that will support your values provide you with a program that meets the cultural needs of your corporation. That's how it worked for Apple, and that's how it can work for you!


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