Richard Gottlieb

Viet Nam a safe haven for toy companies? Maybe not as safe as we think

An interesting piece in the UK magazine, Ethical Business, entitled “Wage rates – China’s rising costs make buyers think twice” indicates that companies are continuing to diversify their production out of China. They point to a 30 percent increase in operating costs combined with the closing of 2,000 toy and shoe factories since January 1, 2008 as the main culprits. 

When you add labor unrest as well as the turmoil in Tibet you get a pretty nasty cocktail that makes toy companies strongly question whether China is going to remain the low cost production leader.  But where should toy companies go?

According to Ethical Business it is going to Viet Nam, Cambodia and India. One of the reasons is lower wage rates. The article makes an interesting comparison of labor rates in the key urban areas of China, India and Viet Nam stating: “In Shenzhen, China, the average lowest wage per hour is 66 cents . . .  In Delhi, in India, the average hourly minimum wage is 46 cents, while in Ho Chi Minh, in Vietnam, it is just 31 cents.”

So, Vietnamese and Indian labor rates are lower but don’t think that it is going to stay that way for long. According to Asia Times: “[The] main consumer inflation benchmark [for Viet Nam] was up 15.7% year on year in February, the biggest jump in over a dozen years and currently the highest rate in industrializing East Asia. Inflation has jumped by double digits for each of the past five months.” In fact, inflation in Viet Nam is twice that of China. 

India has its share of inflation as well.  According to Bloomberg.com, Indian inflation hit 5.92% the first month of March despite a three year battle by the Indan government to hold inflation down. 

These are turbulent times and there are no easy answers. Diversification of production looks increasingly like the thing to do. Diversifying where is an increasingly vital question. 

Posted by Richard Gottlieb on March 27, 2008 | Comments (0)