Case Study

Many electronics firms use subcontractors to assemble their products. One reason for this is lower labour costs in some economics - China for example. Companies like Apple, Dell and Hewlett-Packard use Chinese contract manufacturers like Foxconn Technology Group to assemble some of their products. Labour costs in China have however risen steadily in recent years. A report from Reuters (Feb 22, 2012) noted that Foxconn have granted three pay rises since 2010, the most recent being up to 25 per cent. According to the report, as firms like Dell and Hewlett-Packard are facing lower profits, the rising labour costs may ultimately be passed on to consumers to preserve margins. This is because firms like Apple, Dell and Hewlett-Packard create efficient supply chains, and a change in any one element of the chain (like increased labour costs) will either result in lower profit margins or increased costs to consumers. The main reason cited for the increasing labour costs is to attract more workers.

Questions

1. What, if anything, can be done to control labour costs?

2. Can you think of any indirect labour costs which might be incurred in firms like those depicted above? Explain your answer

(Maximum 1000 words (+ / - 10% )