Labor cost increases continue to hit Asian producers

Imagine getting a 20% increase in your paycheck almost overnight. Then several months later, imagine getting another 15% increase.

Unrealistic? Unheard of? Well those are minimum wage increases that officials in China are requiring in parts of the country, including Shenzhen, a furniture manufacturing area in the Guangdong Province of southern China.

The figures were reported earlier this month by the Wall Street Journal, which also quoted Hooker Furniture CEO Paul Toms as saying he believes his company's sources have seen labor cost increases from 20% to 30% of late.

For some, this is old news. As we reported this past summer, the issue also affects furniture-producing countries like Vietnam, which has long instituted minimum wage hikes in response to runaway inflation.

It's also true that these high percentage gains are coming off pretty small numbers to begin with. For example, a worker making $100 a month will only see their wages rise by about $22 a month with a 22% increase.

But given how much labor represents in overall production costs in Asia, this, along with materials cost increases and currency fluctuations, continues to have serious implications for the industry. As the Wall Street Journal also reported, these issues are showing up in a host of consumer goods from shoes and camping gear to furniture.

The combination of factors likely will continue to have ramifications on furniture production in Asia as a whole in 2012.

The question is, how much longer can the industry bear such increase in a still fragile economy where many consumers are still watching every penny?

Will more production shift to emerging countries like Indonesia? Will it open up new frontiers like India and Cambodia? Or will U.S. producers continue to benefit as long as they hold some of their own costs down? What do you think?