In the normal course of my work, I analyze healthcare companies across the globe. Among them is Shandong Weigao, a Chinese manufacturer of hospital products such as needles/syringes and orthopedic implants. I first got to know Weigao because of their past (now dissolved) joint-venture with Medtronic (the world is a small place).
Weigao reported disappointing quarterly earnings today. Among the reasons for the disappointment was high labor costs. Specifically, Weigao wrote in their financial report:
Facing the increasing pressure in staff recruitment, the Group planned to invest in automatic production lines, and increase technological modification to ease labor shortage and reduce production costs.
While there are periodic stories about China’s advantage as a low-cost manufacturer, this clearly will not always be the case. Eventually, labor will either become scarce or will demand higher remuneration to support their costs of living. This could potentially have positive implications for Western manufacturing, but it does not necessarily mean that this will be the case. For one thing, China is likely facing competition from geographies where labor is even less expensive. Further, as technology progresses, continued advances in automation create the potential to level the playing field across geographies (this outcome factor would tend to equalize costs across developed and emerging markets, but it would not lead to job production).
As I digest news and information, I watch for meaningful trends and pieces of news. Albeit small and subtle, Weigao’s disclosure struck me as a noteworthy and something to watch over time.
source: Shandong Weigao June 2013 interim report