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Wage Rise, Tight Labor Market Pushing Firms Outside China

Wednesday, 29 Feb 2012 | 1:19 AM ET

China, once considered the "workshop of the world," is now seeing many international companies shift out as they find it difficult to cope with rising wages and a tight labor market.

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"Our labor rates are going up, so we're challenged with the situation that we have to find basically other places where we can manufacture our things at a very competitive price," Armin Struckmeier, CEO of German infant care rubber products manufacturer, Novatex GmbH, said.

"A lot of stuff is going to move out and either go to low cost environments, like Myanmar, Vietnam... but some of the production will go to Europe, South America and the United States," Struckmeier told CNBC on the sidelines of the YPO Global Leadership Summit in Singapore on Wednesday.

The company has already moved some of their manufacturing back to the U.S., which Struckmeier says has become a "fertile ground" for cheaper production.

"You have skilled labor you can find and with the automation we have, you can come up with a production situation that is competitive compared to what you get in Asia right now," Struckmeier said.

Wages in China rose an average 22 percent in 2011, according to Reuters. The government also said this month that it wants minimum wages to grow by at least 13 percent in the five years to 2015.

That, added to a tight labor market has forced Canadian firm B+H Architects to expand outside China, where it has operated for the past 20 years.

"The challenge is the tightening labor market. So as our work is growing, its harder and harder to find the bright young professionals — the architects, the designers — that we need to keep our business growing," CEO Bill Nankivell said.

He adds that, "We have a much larger office now in Ho Chi Min City, where we have 40 people and in Singapore and collaborating between our offices is helping to ease the tight labor situation in Shanghai."

The problem of finding qualified talent has been made worse by growing competition from local firms, says Nankivell.

"The fee pressure is quite strong. The local domestic industry is getting stronger, better staffed, better educated. We have to compete with them as well," he said.

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