American Money Overseas Flowing Back Into The U.S International Business Case Study – Asian Labor Costs Rising, This Changes the Entire Dynamic

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International Business Case Study – Asian Labor Costs Rising, This Changes the Entire Dynamic

The international business landscape is changing, and many Asian emerging markets have run their course, not that they’ve run out of steam, but that they can’t hold the same percentage of growth they once did, and now they have to work through all the chaos they’ve created from such rapid expansion. Meanwhile, as American companies spend more on setting up factories overseas and outsourcing much of their production, there are also challenges for corporate earnings.

It makes sense to have low-cost labor and production in other parts of the world, because corporations can still pay reasonable prices, despite increased competition, and achieve high profit margins. However, doing business this way in Asia is starting to take off, that doesn’t mean things aren’t still evolving, because they certainly are, but there seems to be more headwinds and less incentives and less benefits moving forward. Rising labor costs and labor unrest in this market. OK, shall we talk about this a second time?

An interesting article appeared in the Wall Street Journal on March 14, 2012; James Hookway, Kuala Lumpur, Patrick Barta, and Dana Mattioli, “China’s Wage Growth Spreads Across Asia.” The article states; “More Asian governments are pressuring businesses to raise wages as a way to prevent outbreaks of labor unrest, raising the prospect of higher production costs for global companies — and the products they sell around the world.”

Well, now that’s a serious problem, isn’t it? It seems that with all our outsourcing and money flows we have inadvertently created inflation in all these markets, and as they come into their own, and their emerging economies become more developed and developed, they will now have to deal with all the chaos. created, which comes with any rapidly growing society and civilization. Establishing a minimum wage law is probably next, but that also means more wage inflation, which they are trying to control.

Were people better off before the western world started building factories there or contracting with the locals to make the ingredients for all our products? No, people are better off now with a higher standard of living, but as all good things come to an end, and as their wages rise, the Western world may look to other emerging markets for opportunities to produce or produce more. Home products using robotics, because labor rates are still very high, yet wages there have grown tremendously.

Of course, this will cause the prices of the products we buy to rise, and as our economy begins to move forward, we can expect that we will still be slightly down or that there will be pressure from consumers on corporations to keep prices down. This means that corporations may not show the same profit margins as in the past, and this changes the entire dynamics of stock prices and earnings multiples. So unless analysts and Wall Street live up to their expectations, otherwise we could pull back 15 to 18% this year as the stock market adjusts to this new paradigm. Indeed I hope you will please consider and consider all these things.

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