Labor hunt propels Foxconn to infiltrate inland China – AAPL, 2382, 4938, 3231, 2324, PWR & 2317

Duncan Oleinic - March 5, 2013

Boston, MA 03/05/2013 (wallstreetpr) – Electronic makers in China including Foxconn Technology Co., Ltd (TPE:2354) are not really saving anything on wages by opening up plants in the interiors of the country. This move is primarily being made as traditional manufacturing hubs have been facing steep labor shortages. Foxconn Technology Co., Ltd (TPE:2354) is an iPad and iPhones manufacturer for Apple Inc (NASDAQ:AAPL) and though it has increased it workforce in China to 1.2 million by 50 percent over the last two years it would need to expand further in order to meet growing demands. The wages in inland China are on par with the ones that workers in cities get and the company does not really save on labor costs in the Henan and western Sichuan provinces.

Spurring economic growth

Manufacturers need to increase their labor force and they need to keep moving inland. This leads to an increase in their wages and any cost benefits that existed earlier from employing inland labor only shrinks with every passing year. Quanta Computer Inc (TPE:2382), Pegatron Corporation (TPE:4938) and Wistron Corporation (TPE:3231) were quick in following in Foxconn Technology Co., Ltd (TPE:2354)’s footsteps and started building more factories in inland China. This has fuelled economic growth in the rural regions in China and it is now slowly threatening to outrun that in areas such as Guangdong as well.

Tapping the local labor force

A large number of migrant workers are from these two regions and tapping their potential at their home base became an obvious choice for Foxconn Technology Co., Ltd (TPE:2354). The wages in these regions grew by 120 percent over the last six years and this trend has also cut off the work force flow from inland areas to Guangdong amongst others. Foxconn, Quanta Computer Inc (TPE:2382) and Compal Electronics, Inc (TPE:2324) are looking forward to an estimated combined 30 percent growth through 2015. Hon Hai Precision Industry Co., Ltd (TPE:2317), Foxconn Technology Co., Ltd (TPE:2354)’s flagship listed at Taipei outdid itself at $6 billion over the last three years.

Shifting population

Foxconn Technology Co., Ltd (TPE:2354) opened up base in 1988 at Guangdong’s Shenzhen city at a time when the Communist government was making efforts to ease up the economic restriction in the region. This lead to large-scale migration from adjoining rural areas to Guangdong resulting in a steep population rise of 66 percent over twenty years right through 2010. There was a 3.45 million decrease in working-age population and it reduced to 937 million as per the data accumulated by the National Bureau of Statistics and a slowdown in birthrate is also denting China’s workforce.

Data gathered from the Fair Labor Association indicated that 99 percent of Foxconn Technology Co., Ltd (TPE:2354)’s workers at two of its facilities that manufactured Apple products, were migrants. Close to 14 percent of the Chengdu factory workers were migrants as well. The increasing wages in their hometowns means that the workers do not have to migrate to the larger cities that are thousands of miles away, but what it has meant for companies is that they now have to compete for labor by increasing the wages that they offer.

Shares of Foxconn Technology Co., Ltd (TPE:2354) went down by 0.25% to close at $80.40

Shares of Apple Inc (NASDAQ:AAPL) were down by 2.42% to close at $420.05

Shares of Quanta Computer Inc (TPE:2382) went up by 0.47% to close at $64.20

Shares of Pegatron Corporation (TPE:4938) went up by 1.96% to close at $41.65

Shares of Wistron Corporation (TPE:3231) went up by 1.35% to close at $33.90

Shares of Compal Electronics, Inc (TPE:2324) went up by 0.49% to close at $20.55

Shares of Quanta Services Inc (NYSE:PWR) went up by 0.71% to close at $28.39

Shares of Hon Hai Precision Industry Co., Ltd (TPE:2317) went down by 0.12% to close at $80.40

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Duncan Oleinic

Duncan Oleinic is from New Yourk. After graduating with a degree in physics, he began his career as an analyst in a broking firm. Through this experience he was able to advance to the role of correspondent for a U.S based financial news provider, where he worked from 2001 to 2007. He subsequently joined a merchant banking firm as a financial analyst focused on valuing unlisted companies in the sub-continent. Over the course of his two years here, he performed valuations of several media companies which were later acquired by peers.

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