Business: The Global Scramble for Cheap Labor

WEST GERMANY'S Rollei-Werke for years has been losing sales to Japanese rivals, whose low wage costs enable them to sell cameras for less than half the price of a Rolleiflex. Fighting to overcome that handicap, Rollei executives recently decided to try to beat the Japanese at their own game. The German firm is investing $12.6 million in a new plant in Singapore. There workers will turn out cameras for sale in the U.S. and East Asia at wage rates only one-sixth as high as in Germany, and two-thirds below those prevailing even in Japanese camera plants.

How long Rollei's advantage will last is problematic. Low as they are by European standards, Japanese wages more than doubled between 1963 and 1969. Logically enough, Japanese industrialists are also discovering the advantages of shifting some production to lands where no wage explosion has yet begun. Within the past four years, at least 40 Japanese firms have set up plants in Taiwan alone. The factories turn out lingerie, computer parts, kitchenware and TV sets—though not yet cameras—at wages averaging only 30% of what their owners would have to pay in Japan.

Willing Workshops. Both Rollei and the Japanese firms seem likely to have increasing company in their new locations. All over the industrialized world, accelerating wage inflation is pushing manufacturers into new efforts to tap the vast pool of willing and cheap labor in poorer countries. They are farming out production of component parts, subassemblies and even finished products, sometimes for export to other areas but often for use back home. In the process they are not only cutting their own costs but speeding the industrialization of underdeveloped countries, some of which are coming to relish the role of workshops for distant, richer lands.

U.S. companies started the trend for in obvious reason: since they pay the world's highest wages, they have the nost to save by manufacturing offshore. They began by subcontracting work to locally owned firms in Japan and Western Europe, and are still expanding that practice. Ford Motor, for example, has signed up Tokyo Shibaura Electric to make most of the generators that will go into its 1971 models, and is dickering to have another Japanese firm, Dieel Kiki, supply many of the compressors needed in auto air-conditioning systems. Lately a growing number of American firms have gone further to set up their own component-manufacturing operations in the lower-wage Asian nations, Signetics Corp., a Corning Glass Works subsidiary, for instance, flies components to Seoul, South Korea, where workers assemble them into integrated circuits that are flown back to the U.S. to be fitted into computers. The operation makes economic sense because Signetics pays the Korean workers only $45 a month v. the $350 or so it would have to pay an employee in Sunnyvale, Calif. Fairchild Camera and Instrument conducts a similar assembly operation for integrated circuits in Singapore.