If your niche in the global economy is cheap labor, but you start to lose that to other places with even cheaper labor, what do you do?
That's the challenge facing Chinese injection molder and mold maker Season Components Inc., an electronics and wire-harness manufacturer in the sprawling Pearl River industrial city of Dongguan.
Wages for Season and the region are still low compared with Western economies - average monthly wages for the 800 workers in the Dongguan plant are about $100. But they've gone up 15-20 percent in each of the last two years, as labor supplies tighten in the manufacturing corridor from Hong Kong to Guangzhou, China.
It's a common theme for Pearl River factories. A recent study from Sun Yat-sen University in Guangzhou, for example, warned local companies to avoid labor-intensive markets because economic growth of inland cities means workers there can find jobs without having to migrate far from families to Dongguan and other wealthier cities near the coast.
For Season, the answer is one that wouldn't sound so strange to manufacturers anywhere: Try your hand at better markets, in this case, automotive, and make yourself more productive in the markets you've already got.
The company is beefing up its skill set and making investments in productivity enhancements in mold making and injection molding.
Season, which shares some joint ownership with Vaughan, Ontario-based molder Patrick Plastics Inc., is seeking automotive industry TS 16949 certification, a process that requires more stringent quality controls and more training for workers, said George Sinn, marketing and sales manager, in a March 9 interview at the Dongguan factory.
The company has injection molded sunroof and seat components and is getting help with the TS certification from an undisclosed Canadian auto parts producer interested in having stronger manufacturing links to China, he said.
Business is getting tougher in markets that have been its bread and butter, particularly the labor-heavy work of assembling wire harnesses for electronics. Five years ago that type of work was half of Season's business, but now it's 30 percent, as customers seek out even less expensive locations, such as the interior provinces of China, he said.
``We are talking about labor-intensive jobs, [and] there is competition from other regions within China, from the eastern side of Europe and from Southeast Asia,'' Sinn said.
Company financial filings in Malaysia by Season's publicly held parent, Kuala Lumpur, Malaysia-based Parade Season Berhad, point to rising labor and resin costs. Profits companywide fell 25 percent in 2005, to 2.25 million ringgit ($600,000), as sales held flat at about 98 million ringgit ($26.5 million).
The flat sales corporatewide are prompting the company to look at restructuring the Malaysian operations, including possibly moving some of the vacuum forming done there to China, said Patrick Hung, Parade Season Berhad's executive director and the owner of Patrick Plastics.
Other factors contribute to tighter labor markets, Sinn said. China's one-child policy and cultural preference for boys means there are more young men than women in the labor force, but Season prefers women for many of its jobs because their fingers are more nimble, he said.
Sinn said the company believes other aspects of its operations help retain workers.
Season has workers dormitories, with eight workers per room, common in China, but the company also has some things it says aren't so common, such as family housing for married workers, which it opened in 2000.
There, employees can bring in parents and children to live with them, and the company runs a day-care center for employees' children. Sinn said the firm discounts the rent based on circumstances like length of employment and if workers' parents share their housing.
Beyond those soft policies to help retain workers, Season has responded by investing in equipment in Dongguan to boost productivity by 30 percent at its 150-person mold-making shop and in its electronics business. The firm plans to add three injection presses this year, giving it a total of 46 in Dongguan.
As well, Season wants to build a metal-stamping facility in China by the end of 2007, to control costs of critical components better, Sinn said. And it plans to boost engineering staff to 55 this year, from 45, to provide more technical support for customers.
There clearly are opportunities in its targeted automotive market: General Motors, for example, recently announced it was moving its worldwide electronics purchasing unit from Michigan to Shanghai, to take advantage of China's manufacturing. Moves like that put added pressure on North American firms to find a China connection.
But Season doesn't see itself competing with those foreign firms, at least not right now. Sinn said the company still sees itself as primarily a manufacturing arm for foreign firms, because it lacks experience with higher-end functions like design and early involvement in product development.
It's a relationship that's not likely to change for at least five years, he said. Foreign firms aren't as interested in setting up labor-intensive toolmaking and assembly operations, leaving a niche for Season, as long as it stays competitive, Sinn said.