Labor shortages pushes Foxconn inland

Foxconn Technology Group and other electronic makers are moving inland in China, areas like Sichuan and Henan. The motive behind the change is not wages but because of labour shortages in the traditional hubs, according to Bloomberg Industries.

In a note published today, BI analyst Jitendra Waral said as one of Apple's largest suppliers, Foxconn, which has boosted its China workforce 50 percent in two years to 1.2 million, needs to use employees in more parts of the country to meet demands.

Wage gaps between inland provinces and the coastal province of Guangdong have been narrowing in the past six years, a BI study shows, wages in Chongqing, central China, have even surpassed those in Guangdong.

"The trend is toward inland, and it's driven by manufacturers' need to keep finding workers," Hong Kong-based Waral said. "As that drives wages higher, any cost benefits from inland labor are likely to continue shrinking."

The labor-cost savings are minimal as wages in western Sichuan province and central Henan, where Foxconn makes iPads and iPhones, are similar to those in coastal Guangdong.

Foxconn employed 300,000 people in Henan in the fourth quarter of last year, compared with almost none in 2010. The Sichuan and Chongqing workforce has jumped to 150,000 from almost non in the same period. The company employs 400,000 people in Guangdong.

"Closer to the pool of workers has always been one of the major reasons," said Louis Woo, a spokesman for Taipei-based Foxconn, "Henan and Sichuan have always been the largest sources of migrant workers. That was why we moved to both of these provinces to tap their labor pool."

Manufacturing activities are expanding more quickly in central, western and northeastern parts of China, an official purchasing managers index shows in early March. The PMI reading was 51.9 percent in central China, and 50.4 percent and 51.4 percent in western and northeastern part, respectively. Those compare with a 49.1 percent reading in eastern part which was below the break-even mark of 50.0. Feb.'s headline PMI fell to 50.1 from January's 50.4.

In addition to Chinese mainland, Foxconn is also rumored building plants in Taiwan, other emerging markets and the United States.

Last Monday, the electronic contractor announced plans to set up plants in New Taipei City, Taichung and Kaohsiung, as chairman Terry Gou targets Taiwan as a key battlefield in next stage's expansion plans.

The company was also reportedly planning to build a plant in Brazil, which will employ about 10,000 workers, and in Brail, it was in talks with local government negotiating on a 10 billion U.S. dollars worth of investment, temped by even lower wages that those in China.

As Apple, its major customer, pledged to invest about 100 billion U.S. dollars to build Macs in the United States--in cooperation with other companies, as stated by CEO Tim Cook--Foxconn said the company was considering an expansion of its operations in the United State only one day after Cook's statement in late 2012.