Wages and outdated purchasing practices

Hardly a day goes by without news on rising wages in China. As stated in this article, Chinese cities keep raising minimum wages for workers in their efforts to counter rapid increases in local cost of living. Ivo Spauwen (FWF verification coordinator for China) reports.

The recent increases in minimum wages are part of a bigger trend that is expected to continue for the following five years at least. China’s regional labour markets are transforming rapidly. International buyers will find that changes in the segment for low cost labour will change their business fundamentally.

FWF’s 2009-2010 study on wages in China’s garment industry pointed out that local minimum wages do not provide sufficient basis for workers to sustain a reasonable living standard. Legal minimum wages for regular working hours were only about 60% of the amount that would be sufficient to meet workers’ basic needs. As a result, workers are forced to work overtime or look for additional income outside working hours.

Low basic wages partially explain why overtime is endemic in Chinese factories where clothing is made. Two other main factors exist. First, poor planning practices of factories: Factory managers try to acquire a maximum amount of orders, regardless of their production capacity based on normal efficiency and a regular working week. And second, international buyers tend to work with outdated purchasing practices. Regardless of their budgets and efforts dedicated to workplace auditing and follow up, purchasers stick to a strategy of maximizing their purchasing margins – placing downward pressure on worker wages and production lead times.

The latter was again highlighted during our recent supplier seminar, which was attended by 20 factories that produce for our members. Interestingly, factories called on FWF to push harder for reviewed purchasing practices. This is the only way to ensure that buyers and suppliers can achieve innovations in CSR and sustainable human resource management on factory level.

Related programmes