Being forced to raise wages by the levels that Foxconn parent Hon Hai has done is usually bad for the bottom line, especially for a company that operates on large volumes and razor-thin margins.
Some analysts had downgraded Hon Hai after the world's biggest contract electronics maker said it would increase the minimum wages of its workers by 30 per cent from July 1. Yet Sunday's surprise announcement that Hon Hai would now give workers who reach certain performance standards a further 66 per cent pay rise from October 1 has prompted quite a different reaction. While Hon Hai's previous raises were seen as responses to a spate of suicides at its factories, analysts say this big increase appears more of a strategic move, putting pressure on competitors to follow suit and allowing everyone to pass the cost to customers.
This ability to defend margins is common among Taiwanese technology companies, says Bhavtosh Vajpayee, head of technology research at CLSA. His study of 120 Taiwan tech companies showed that despite a double-digit annual increase in China wages over the past decade, margins have remained remarkably steady over that time. “Margins are lower today, and have fallen since 2008, thanks to the downturn. But through much of this decade, as wages rose, the tech industry has found a way to hold its own,” he said.