Labor Shortage in China Impacting the Supply Chain

By David Hsieh – Vice President, Greater China Market, DisplaySearch

A labor shortage in China? It seems unbelievable, but it is true, and it is becoming the biggest bottleneck for LCD products such as notebook PCs, LCD monitors and LCD TVs. Before the Chinese New Year holidays, some component makers and consumer electronics assembly houses in China mentioned labor shortages. Many of them are working through the holidays in order to meet the strong demand for export and domestic goods. This week, the labor shortage problem erupted. Reportedly, labor shortages of 15-20% are being seen by assemblers. Labor shortages in the assembly lines have many causes:

• Strong economic growth has raised the cost of living in many cities in southern and eastern China where most of the LCD module lines and LCD end-products assembly lines are located. It is difficult to live in these cities on the base salary, so many workers are choosing to go back to their hometowns.
• Many workers go to their hometowns, mostly in the countryside, for holidays and family gatherings. Some found that they can get jobs back home, with lower pay than in the cities but balanced by the lower cost of living, so they decided not to return to their previous jobs in the cities.
• To stimulate economic growth, the Chinese government has launched many infrastructure and construction programs, such as high speed railways, all across China. These programs have created demand for labor in rural areas as well as cities.
• Increasing prosperity has attracted many young people, who have been the main source of assembly workers, to shift to service industries. A waitress working in a fancy restaurant is better paid and has more fun than line workers staring at LCD modules and PCBs for more than 12 hours per day.
• The birth control policy started decades ago has created many one-child families. This one-child generation has a negative attitude toward working in assembly lines and would rather choose something more interesting. If they are college graduates, they don’t want to be a worker either.

The labor shortage has tightened the supply chain and will cause labor costs to go up. This is definitely not a short-term phenomenon, but a big long-term challenge for companies that with labor-intensive jobs in China. China is changing from a world factory to a world market, and now workers consider assembling notebook PCs all day a boring and low-paid job.

Another result of the labor shortage is that it makes inventory control difficult. LCD monitor brands are giving the same demand forecast in the Q2 slow season as in Q1 because they cannot get enough supply right now. The labor shortage is diffusing the panel shortage issue and adding more risk by building panel inventories. When PC and TV demand in China is strong enough to reshape the LCD industry, the unprecedented transformation from cheap labor to higher cost will have a deep impact worldwide.