Bangkok--18 Feb--Grant Thornton
The number of businesses in emerging markets offering above inflation pay rises to their employees has fallen away dramatically over the last 12 months, according to a global survey. The research from the Grant Thornton International Business Report (IBR) provide further evidence of emerging market businesses taking steps to maintain the competitive advantage they have traditionally held over peers in mature economies.
Thailand, unfortunately, does not follow that global trend and is to a large extent continuing to increase salaries by more than the inflation rate.
The IBR reveals that the proportion of BRIC economies expecting to give above inflation pay rises fell to 11% in Q4-2012, down from 21% 12 months earlier. Similar falls have been observed in Latin America (32% to 20%) and APAC (20% to 12%). Over the same period, peers in the G7 (10% to 11%) and EU (9% to 12%) have actually been offering more above inflation pay rises.
Ed Nusbaum, CEO of Grant Thornton International, commented: “The rise of reshoring, most notably in US manufacturing, is evidence of the slow erosion of what has been one of the key competitive advantages emerging economies held over mature economies. With wages going up by 10-20% a year over the past decade in places like China and India, but salaries in the US staying broadly level, the cost of outsourcing has risen fast.”
“Businesses in emerging economies now seem to be rebalancing. Wages have rocketed in these economies over recent years, by margins that appear unsustainable. Further, uncertainty is weighing on growth rates as global trade slows. In order to maintain profitability, businesses in these emerging economies need to keep their costs down. A key way of doing this is by limiting salary increases.”
The decreasing competitiveness of China as a low-cost wage base has been driven by average annual salary increases of close to 20% over the past decade. If these rates were maintained, manufacturing wages would triple from 2011 levels by 2017. However, the IBR suggests Chinese businesses are looking to counter this trend and maintain their competitive advantage — just 6% of expecting to award above inflation pay rises in 2013, down from 15% this time 12 months ago. Over the same period, the proportion of businesses in China expecting an increase in profits has risen from 61% to 90% - a record high.
Price rise data mixed in emerging markets
In Latin America businesses are also showing signs of scaling back price rises. In Q4-2011, 48% of respondents expected their prices to rise over the next 12 months, falling to 44% in Q4-2012. However, selling price expectations in the BRIC economies have risen from 38% to 40%, and in APAC from 31% to 41% over the same period.
Ed Nusbaum added: “Scaling back price and wage rises will boost the competitiveness of an economy’s exports. However, if increases in workers’ salaries do not keep pace with the prices they have to pay in the shops, domestic consumption will suffer. This presents a real challenge to economies such as Brazil and China which are trying to diversify away from export-dependent growth models, towards more sustainable economic expansion driven by the domestic middle classes.”
Tom Sorensen, Partner in Grant Thornton Thailand and head of the firm's Executive Recruitment division said: “19% in Thailand says they will increase salaries above the inflation rate. 42% that they plan to offer a salary increase that equals the inflation. This may seem remarkable given what the level of inflation is. Look at these numbers which Bank of Thailand has published for headline inflation: 3.8% in 2011, 3.0% in 2012, and predicts 2.8% in 2013 and 2.6% in 2014. I know very few companies who get away with salary adjustments at or below these inflation numbers. Clearly, companies in Thailand appear not to be too worried about their global competitiveness in the same manner we see in China and other developing economies.”
Lakpilai Worasaphya | Senior manager | Marketing & communications
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