Labour Cost Comparison For India And China

As  all major European and American companies are outsourcing manufacturing activities to these two countries  for the main advantage on low cost labour  making their product competitive in international market .

A report

Renowned as low cost destinations, manufacturing industries thronged China and India in the early 2000′s, sprouting factories on the back of low wages and cheap raw materials. However, optimism in the domestic market, inflation and a flood of foreign investments has led to a sharp rise in manufacturing salaries in both India and China. Total labor costs in India’s formal manufacturing sector have risen 20 percent this year and are expected to average US$2.68 per hour in 2010 compared to China’s US$2.51, a rise of 10 percent. Basic wages have risen fast in India over the last year, but still lag China, India averages US$1.71 per hour, to China’s US$1.82, according to a recently released report by IHS Global.
While Indian manufacturing costs are higher now, following the spate of strikes in factories in South China in June, over low salaries, the study expects total Chinese manufacturing labor costs exceed Indian salaries by 2013 and to be 20 percent higher than in India by 2020. Over the next ten years, wages in China are expected to rise steadily,  as compared to India where growth is more erratic. According to the study, China’s rising wages will not only reflect higher productivity, but also a step up in the value chain as a result of extensive investment in industrial infrastructure.
The difference in overall costs between both countries is however in benefits provided to employees. India’s benefit structure includes contributions to the Provident fund (social security), survivor insurance, pension contributions, state-mandated “13th month pay” and double pay for overtime. As basic wages rise, then benefits increase accordingly, which can add considerably to companies’ costs in India.
According to the IHS study, benefits make up roughly 36 percent of labour costs in India. The figures would be even higher if employers did not avoid many of these costs by employing contract workers.
In China, benefits make up just over 27 percent of labor costs. This figure is heavily diluted by rural workers, however, who earn only 8 percent benefits. Urban workers can earn up to 47 percent ad
ditional pay in benefits.
China’s manufacturing sector is more heavily dependent on exports to the West, which have suffered in the wake of the global recession. India’s economy, on the other hand, benefits from more diversity and domestic demand, allowing the rising wages to push total costs ahead of China.

source :
http://inchincloser.com

Bajaj Auto Cut Cost Through Outsourcing

Cutting costs by radically changing manufacturing processes over half a decade—initially at its factory in Chakan, near Pune, and later at other facilities—was the reason the country’s second largest maker of motorcycles remained in the black despite the sales plunge.


The feat involved the way the auto maker, known primarily for its ubiquitous scooters, designed and produced motorcycles. It decided to massively outsource the manufacture of parts to a core group of suppliers, thus cutting down heavily on variable costs.



Kevin D’sa, vice-president of finance at Bajaj, credits the company’s ability to defend profit margins to this move. At present, 72% of the firm’s costs to sales are variable, while fixed costs are at 6%, he said. The remaining 22% is reflected as revenue minus cost of sales and operating expenses.



“This protects the company in the event of a slowdown or downturn and resultant volume contraction,” D’sa said.


The move also improved manpower productivity by five times since 2002, and reduced Bajaj’s suppliers from 800 to 185. Today, just 15 vendors supply 75% of the components used at its Pantnagar facility in Uttarakhand. At Chakan, 50 suppliers cater to 100% of its requirements.

Read more on

http://www.livemint.com/2010/04/13001557/Bajaj-Auto-gains-from-outsourc.html

Manufacturing Outsourcing

Industries have now days started a new trend of outsourcing manufacturing hubs to new locations .

This make sense as putting up a new plant with equipment requires lot of money and time . Getting closer to the market with outsourced partners can save huge amount of cost .

Following are the advantages of outsourcing of manufacturing .

1. No major investment in regards to capital equipment

2. Utilising partners or acquired units strengths in terms of market and labour.

3. Cost savings in respects of freight

4. In case of failure exit is easy without any major problem .

5. Raw material could be sourced locally which again results in saving

6. Can be done in any part of the world.


Precautions has to be taken for objectives which are clear to the contract manufacturer .







Technology to be transferred to the contract manufacturer .