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OM in the News: Levi Strauss Considers Leaving China

December 4, 2015

leviThirty years ago, Levi Strauss & Co. began producing its iconic jeans in China, eager to tap a seemingly endless stream of workers willing to sew for a few dimes an hour. Now that stream is starting to dry up. “Over the coming decades, a labor shortage will force Levi and scores of other Western brands to remake their China operations or pack up and leave,” writes The Wall Street Journal (Nov.24, 2015). The changes will mark a new chapter in the history of globalization, where automation is king, nearness to market is crucial and the lives of workers and consumers around the world are once again scrambled. “Labor is getting more expensive and technology is getting cheaper,” says one of Levi’s major suppliers in China.

Fearing that it will see an exodus of manufacturers, China last year called for “an industrial robot revolution,” and the country has become the world’s largest market for automation. It is an open question whether automation can hold down costs as effectively as Chinese peasant labor did. But consumers should look forward to more choice, faster delivery and, perhaps, less harm to the environment. Some technologists even think that inventions such as 3-D printing will have a big impact by 2050. In such a world, printers could spew out clothing, food, electronics and other goods ordered online from a nearly limitless selection, with far fewer workers involved in production. The end of very cheap labor in China is giving a push to these advances in technology, which will make China less central to global manufacturing.

China’s rise to the world’s No. 2 economy relied on a huge increase in the country’s working-age population, which expanded by 380 million people between 1980 and 2015. In one of history’s greatest migrations, hundreds of millions of rural Chinese headed for cities for manufacturing jobs that were a step up from peasant labor, even though the work paid poorly by global standards.

Classroom discussion questions:

  1. Will more and more companies be leaving China to chase cheaper labor?
  2. Why is automation so important to China? To the U.S.?
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