Re: Uli Behringer of The Music Group Q&A
Behringer was the first company in the pro audio industry to move production to China and for several years we enjoyed a strong competitive advantage. 20 years ago China was considered the undisputed cost leader in manufacturing because wages were so low as to be practically irrelevant. At the same time, quality was spotty but with the low cost of labor, reworking products wasn’t considered to be a big deal.
We all accepted it as part of the cost of doing business there.
Since then however many other companies have followed, including Soundcraft, Allen & Heath, Avid, Mackie, Peavey and more. That sudden influx of local manufacturers has meant that our first-mover cost advantage has largely gone away as we now compete with companies who have the same costs as us. It has also meant fierce competition for available workers and that has in turn caused costs to rise dramatically.
With labor prices increasing 20% per year, China is no longer considered a low-cost place for manufacturing. Factory workers now have plenty of choice who they work for and their salary demands are ever-increasing. In fact, the salaries of skilled engineers have now reached Western levels and it’s only a matter of time until the salary gap will close altogether.
This pressure affects not only our products but those of every manufacturer based in China. However, in my view this is a good development as this trend equalizes salaries around the globe and ultimately brings jobs back to the West.
Despite these increases in labor cost, China remains a great place for manufacturing. One must consider not only the cost of labor but also the productivity of the work force, access to an employee talent pool and of course the supply chain for raw materials.
By that measure we remain committed to our manufacturing plant in China and in fact are planning to build a new factory of over 4 million square feet to further expand production. To us this is a better option than moving production to Vietnam, Mongolia or even North Korea as some have done.
As one hedges against rising labor costs we are continuing to invest in automation. Last year alone we invested over $20 million into our electronics, loudspeaker and wood production lines, automating what have traditionally been manual labor processes.
The benefits have been lower production costs and most importently higher quality as mundane repetitive tasks are now handled by machines, allowing people to work in more stimulating aspects of manufacturing.
This brings me to a final point that is even more important than labor cost. Nothing is more costly than the turn-over of employees who are seeking greater job satisfaction elsewhere. Today, employees have a great range of choices and are looking for a good company environment, career path, benefits and all of the comforts that Western workers have enjoyed for years. In Guangdong province, the attrition rate in factories is between 20-30% while our own rate is a phenomenal 3%!
We take great pride in employing a stable and motivated workforce in our factory in China. To be clear, we have invested in the country and the people and are proud to have many managers inside our company who started on the factory floor.
That is the kind of long-term thinking that has contributed to our success thus far and we don’t plan to change it anytime soon.
