 Global Economy > The Changing Geography of Cheap Labor
As job magnet,
China sits far behind India
By Jin Chen
Reporting from Cambridge, MA
Both India and China are top destinations in the trend in offshore job dislocation. But whereas India may easily play host to an American company’s large-scale call center, where receptionists are trained to speak English without an Indian accent, China is more of a destination for American manufacturing jobs.
China and India both have a large pool of well-educated young workers and low wages. For obvious historical reasons, however, the spread of English in China is not as widespread as in India. More Indians than Chinese have climbed to the top levels of the American corporate ladder and are more influential in deciding where to outsource the labor-intensive functions of their companies.
Consequently, linguistic and cultural disadvantages situate China many years behind India. In this respect, the Japanese share more cultural similarities with the Chinese than with the Americans in attracting American white-collar jobs. Only when many more overseas mainland Chinese gain substantial work experiences and seniority in American corporations, years or decades from now, and when the language and cultural gap between China and the United States is significantly reduced, can China come on par with India.
That said, US-trained Taiwanese engineers with business executive experiences can help minimize this gap. They are often at the helm of the China branch offices of American multinational firms, or they leverage their bicultural background, bilingual ability and Taiwanese base to set up high-tech companies in the mainland and compete head-to-head with the Americans. A prominent example is Richard Chang, head of the Shanghai-based Semiconductor Manufacturing International Corp.
At the moment, most foreign offices in Beijing and Shanghai are sales offices of American multinational companies. Their budgets are for marketing and sales only and have little room for R&D or production facilities unless US headquarters budget it. Only the very large multinational companies like Intel and Microsoft have such financial capability and human resources.
Numerous industrial parks in China are host to large-scale production facilities of multinational companies, but most are for manufacturing purposes, or shoulder the very labor-intensive portions of the R&D function such as program testing. Because of language limitations, these outsourced functions are usually stand-alone activities that eventually need to be integrated into a company’s entire production chain back home in the United States.
This is while many observers believe that while American companies have outsourced a rather significant portion of white-collar jobs, such as call centers and data entry for around-the-clock services and lower labor costs, to developing countries, many more jobs will be created in the United States requiring higher skills in IT integration and design and tailored customer services, which then requires the United States to have policies to upgrade American labor skills to match these demands.
Some of the multinational technology companies in China do carry out some real R&D functions, but they do so mostly to fulfill the Chinese government’s requirement for technology transfer or to take advantage of China’s tax policies which favor high-tech products designed and produced domestically. For example, China offers to refund up to 14 percent of its 17 percent value-added tax for domestically designed and produced semiconductors.
There are many multinational services firms in China, such as American banks, consulting firms and accounting firms, but their main function is to expand their business in China or to serve their American clients in China. This has nothing to do with the US phenomenon of offshore job dislocation.
China has not become a magnetic pull of American white-collar jobs as India has, and should not shoulder the blame that some American legislators placed on it. America’s real problem vis-à-vis its labor market is not that the Chinese unfairly manipulated its exchange rate against the US dollar, thereby artificially made Chinese goods cheaper into the US and American goods more expensive into China. The root of the US problem is that most of the gains from re-organization of labor and material resources worldwide are not used to ease the transition of laid-off American workers into new jobs, or evenly spread among ordinary shareholders, but are used to enrich the top executives of multinational companies.
Jin Chen is a former editor of Harvard China Review based in Cambridge, Massachusetts.
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