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OM in the News: China Holiday Roils Factories

March 9, 2013
Chinese migrant workers at Beijing RR station

Chinese migrant workers at Beijing RR station

Florida toy maker Laser Peg Ventures works with three different factories in China. Each year, about 25% of the workers there don’t return after the Chinese New Year holiday. Last year, the company received its orders 45 days late because of the holiday, meaning hundreds of thousands of dollars in missed revenue.

Every year, millions of China’s 250 million migrant workers leave their factories and travel across the country to visit their families at home, writes The Wall Street Journal (Feb. 21, 2013). The problem is that fewer and fewer workers are returning to the factories when the break is over. Guangdong Province estimates that 10 million workers, or 61% of the province’s migrant-labor pool, would head home to see their families for the New Year Holiday, with a return rate of around 90%, leaving a labor shortfall of 1.2 million workers after the holiday.

For the world’s manufacturers, post-holiday no-shows are an increasingly frustrating part of China’s tightening labor market. The trend reflects rising expectations among China’s workers, who are seeking out higher pay even as they show less inclination to work in factories. Many workers use the break to look for new jobs or start families. In 2010, 34% of rural migrant workers left their factory jobs to move back home.

The exodus is putting a kink in a long supply relationships. For years, American companies have worked closely with Chinese factory owners to improve production times and reduce error rates. Now, changes in China’s labor patterns are setting back that progress. The New Year exodus typically forces factories to rush to hire new employees, which often creates quality-control issues. Following the holiday last year, apparel maker Jordache found loose seams, holes and other problems, which meant goods had to be resewn or made over. The developments have American companies scouring other countries for factory sites.

Discussion questions:

1. Why is the Chinese holiday a concern to US operations managers?

2. What can American companies do to compensate for the post-holiday problems and shortages?

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