Apple Inc. (NASDAQ:AAPL) is to see an increase in its manufacturing costs as the company’s outsourced factories run by Foxconn have doubled their worker’s wages. The company has increased wages for all of its workers in mainland China in order to bring them more in line with the firm’s wages in Taiwan.
The company has become synonymous with the Apple brand for two reasons. First of all many of the major leaks relating to the latest device from the company come from employees of the manufacturing firm. The second is the treatment of workers at the factories in China that have been highlighted in the Media and leveled at Apple. Protesters say that Apple has shown terrible social responsibility in allowing such abuses to continue.
Those protests are far from the reason behind the Foxconn wage rises according to Tim Worstall over at Forbes. Worstall believes the upward pressure comes from lack of supply of labor in some parts of China that forces wage prices up and the development of a new kind of manufacturing at Foxconn.
The firm is increasingly moving to a more automated factory type. This will require workers with greater levels of skill and specialization. Those workers need to be paid more because supply of them is lower and a specialized worler leaving a firm costs much more than an unskilled working leaving the firm. The extra cost is in search and training.
Foxconn is looking to become more automated which should reduce costs in the long run though it is difficult to say whether or not any portion of the margin will head to Cupertino. Apple seems to be happy as long as their current margin, around 30%, remains in place. If Foxconn becomes more efficient they may take very little of that.
One thing that is certain is that the company is unlikely to change the pricing of its products. The company has kep the prices it charges carriers for the phone broadly in the same line since the phones first came on the market in 2007.
Foxconn workers wages are rising which brings hope for the future of many in China whose living conditions remain much lower than those in the Western world. Conditions may be still bad at many factories and some groups may continue to protest Apple’s treatment of its workers but as Tim Worstall has written it is economic and not political pressure that’s making things happen in China. It’s been that way for some years now.
