Analysis: China Costs Start to Worry U.S. Multinationals

American multinational corporations are seeing their margins cut as increased costs from labor inflation. Several corporations are considering relocating their manufacturing to offset the increasing costs. From Reuters:

Nearly a third of Emerson Electric’s total workforce is in China, where it employs more than 40,000 people. Amid 20 percent wage increases, the company has said it could move some production to China’s interior, and it might move 20 percent of its capacity to other Asian countries.

“The economy is going into a more costly mode,” CEO David Farr said on Emerson’s second-quarter conference call. “We are going to have to refix where we’re manufacturing.”

Emerson’s network power business was the only of its five units to show lower operating profits in the latest quarter. The company cited labor inflation among the causes.

“A lot of the wage increase is to keep civil unrest at a minimum,” said William Blair analyst Nick Heymann, who said suicides at an Apple (AAPL.O) supplier and the “Arab Spring” protests have alarmed Beijing. “These guys have watched North Africa and the Middle East with a lot of trepidation.”

August 12, 2011 5:45 PM
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