(Dec. 8, 2:30 p.m. EST) — The attraction of doing business in China always comes back to cost — is it possible to deliver a finished product to your customer at a lower price in China?
In the West, media reports often talk about the lure of “cheap labor” in China and elsewhere. Labor is a major factor in the final production cost of a product. But there are common mistakes made by Western media and others when looking at labor costs in China.
Given the expense of shipping finished goods, managing an overseas operation from abroad and securing quality resin for your converter in China, any surprises in labor costs could spell the difference between success and failure.
To understand labor costs in China, you must examine these aspects:
c Actual salaries for various levels of plant workers.
c Typical bonuses paid to workers.
c Optional and required benefits, such as insurance, living expenses and more.
c Variance in salaries by region or province.
Starting at the base, typical plant workers at a small resin converter can make 1,000 yuan ($125) per month, or 1,500 yuan ($187.50) at larger companies. This does not include other benefits, and it is before monthly income taxes.
Income taxes are a relatively new phenomenon in China. Officially, the employee is supposed to have the income tax deducted from his paycheck. But typically, deals are struck upon hiring so that the company will pay all of the income taxes for the worker, and the salary is left untouched.
Next, office workers such as secretaries and assistants make a bit more than plant workers. Office workers typically have at least a high school education and some computer skills, perhaps even some foreign language skills.
Management positions pay considerably more.
A purchasing manager for a smaller company makes about 3,000 yuan, or $375, per month; a larger company may pay 4,000 yuan, or $500, per month. A smaller company pays a plant manager about 2,500 yuan, or $312.50, while he can make up to 4,000 yuan, or $500, at a larger facility.
A general manager for a small company can make 4,000 yuan, or $500, per month. A larger company's GM makes 5,000 yuan, or $625. Sales managers are primarily paid by commission, although they typically get some sort of base salary.
These are all basic salaries and, like in the West, there's plenty of wiggle room. A particularly skilled worker or experienced and valued manager can negotiate better pay and benefits.
A manager in the West is already familiar with some payroll costs, such as health insurance. But there are also financial bonuses and incentives not included in the monthly wages. And unlike the West, these bonuses can comprise a fairly large chunk of the workers' yearly salary.
In the United States, for example, workers occasionally receive a small bonus around the Christmas holidays, and larger bonuses are typically reserved for upper-level management and corporate executives.
In China, bonuses are much more common for the average worker, and are key to retaining workers throughout the year.
Companies looking to do business in China should remember that workers in China will often prefer a larger bonus to larger monthly paychecks. For instance, let's say Worker A makes 52,000 yuan per year. Rather than offer 4,000 yuan per month and a 4,000 bonus, a company may find it easier to recruit and retain workers if they offer 3,500 yuan per month with a 10,000 yuan bonus.
The larger bonus sets the company apart and makes it easier to attract the top workers. Bonuses are typically a month's pay, although they can be adjusted up or down depending on how the company fared that year. If the company does well but does not pay at least a month's wages as a bonus, it will likely face higher turnover and considerable grumbling from employees.
In regions where the job market is particularly competitive, there are additional expenses for companies. Particularly in the south and near Hong Kong, workers have a “13th month” paycheck each year, in addition to the yearly bonus. These bonuses help retain employees over a full year, a particular concern at the junior management level.
So why the emphasis on bonuses rather than salary? That's because for most workers, some of their basic necessities are paid for by the company. And that leads to yet another major expense for companies.
Housing is often paid for by the company, either as free lodging at a company-owned dormitory or company subsidies to help pay rent. Although not required, many companies will offer a cafeteria to provide workers with a hearty meal during their shift.
In addition, companies are required to offer certain basic benefits, including health insurance, unemployment insurance and retirement insurance (similar to a 401k plan in the United States). These are required by law, but because of the sheer size of China and number of companies, companies in smaller towns and provinces may try to offer only basic health insurance to workers.
Health insurance covers injuries at work and illness, but can be much more limited in its coverage than health-care plans in the West. Since the government offers no benefits for those who lose their jobs, unemployment insurance supports workers who are laid off. Retirement insurance is a bit different, with the employer and employee each contributing to an account that is managed by a third party. Health and unemployment insurance premiums are paid solely by the company.
Another reason that bonuses are popular is that many workers are not from the town in which they are working. They can use the larger bonus checks to pay for travel home to visit family, and to help out financially back at home.
Holidays are fairly standard across China, centered on the three major Chinese holidays – National Holiday, Labor Holiday and Chinese New Year. These are long holidays designed to allow workers time to travel home for visits, since many factory workers are from smaller villages far away from the factory.
This is also the reason that housing is customarily provided by the company.
Jerry Fordyce is editor of China Plastic Review, a service of Townsend Polymer Services & Information Inc. in Houston.