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Global Sourcing Costs Climb: Wages that Went up in 2015

Commodities, currencies and compliance all played into the cost of sourcing in 2015, but rising labor rates made margins take even more of a hit.

Labor strikes may not have made as much news this year as workers saw some pay rate hikes, but talk turned instead to living wages as even newly risen wages aren’t enough for workers to buy life’s basics.

The key to combating these cost increases in the coming year—or at least offsetting them—according to Li and Fung executive director Marc Compagnon, will be increasing efficiency.

“The collaboration of key stakeholders across the sourcing supply chain will become even more important in streamlining process and procedures to mitigate cost increases and enhance cost competitiveness,” Compagnon said.

Speaking at the Sourcing Journal Summit in October, president of Target Sourcing Services Kelly Caruso, said, “We’re seeing continuous fluctuation in raw material cost, increase in labor cost across the globe and increase cost in the supply chain due to complexity,” but agreed that the way forward for cost mitigation will be a more effective supply chain.

Whether the improvements will stand to lower costs remains to be seen, but here’s a look at which countries (and city) saw wages go up in 2015.

The UK

Some U.K. retail workers are set to get a pay raise in April when the government’s new “national living wage” comes into effect, boosting the minimum hourly wage for all employees aged 25 and older from 6.70 pounds ($10.08) to 7.20 pounds ($10.83).

But a new report from the Regulatory Policy Committee (RPC) has said the increase could cost private-sector employers more than 804.4 million pounds ($1.2 billion) in direct costs, including 672 million pounds in wages ($1.01 billion) and 132.4 million pounds ($199.2 million) in associated non-wage labor costs, such as pension and National Insurance contributions.

Cambodia

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Following weeks of negotiations, Cambodia said in October that it would raise the monthly minimum wage for the country’s garment workers from $128 to $140.

The 9 percent increase, which comes into effect on January 1, falls short of trade union demands, but is more than what factory owners had hoped for.

Vietnam

Vietnam’s garment workers rejoiced in September at the 12.4% wage increase the country’s National Wage Council bestowed on them after months-long negotiations, but factory owners were looking to get the raise reduced.

As part of the proposal, the government would increase the minimum wage for workers starting in 2016 to between 2.15-3.1 million Vietnamese dong ($96-$138) a month based on region.

Myanmar

After months of back and forth between factory owners and labor unions about a new minimum wage, Myanmar’s government has agreed to go forward with the 3,600 kyat ($2.82) daily pay rate for workers, and the move is expected to fuel foreign investment in the low cost country and grow its fledgling garment sector.

Los Angeles

The Los Angeles City Council voted in May to phase in an increase to the city’s minimum wage from its current $9 an hour to $15 by 2020. The idea is that with more money, less workers are likely to need government aid and the added incentive might foster additional work pride, and ultimately, boost productivity.

South Africa

Around 5,000 members of the Southern African Clothing and Textile Workers’ Union (SACTWU) got an hourly wage boost of 8.5% this year. The new hourly rates, effective for one year, kicked in on July 1 and range from 27.28 South African rands ($2.21) for a grade-one worker to 31.30 South African rands ($2.54) for a grade-five machine operator at 71 companies.