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Ray Allegrezza

Watch out for higher prices

February 6, 2013

During the final weeks of 2012, I saw factory owners in Malaysia warning customers about imminent price hikes as a result of the new minimum wage laws that the country's government enacted effective Jan.1 of this year.
In one memo, a factory owner suggested that, as a result of the new laws, "The wages of all workers will rise at least by 40 %."
He went on to maintain that the pricing structure was also being challenged by rising prices of raw materials including steel, polyfoam, packaging and more.
In the case of this particular factory, the net result was an increase in pricing by 10% for all new purchase orders.
A memo from another factory owner gave more specifics. In his note to customers, he said that prior to Jan. 1, the average basic pay for workers in a furniture factory was about RM 572 (equivalent to $190 U.S.) each month.
He went on to explain that the new rate, based on the minimum wage of RM 900 (about $300), would net out to RM 34.62 (around $11.50) a day, representing an increased labor cost of more than 50%. "That' not counting overtime pay," he added.
The factory owner also pointed out that the new minimum wage law will not only impact him, but will challenge his suppliers as well.
At this point, with the new minimum wage just getting rolled out, he and other factory owners are struggling to gauge both the short- and long-term impact on pricing.
However, at the end of the day, just about every memo ended with an acknowledgement that pricing hikes were inevitable.
At press time, I was also hearing about rising labor costs in Indonesia and China.
A number of retailers told me that ultimately this might weed out what they called fringe players and set the stage for fewer, but more reliable partners.
For now, my advice to buyers is to get while the gettin's good.