3Com on Wage Inflation in China (COMS 1Q06 Conf Call Quotes)

Bruce Claflin, President and CEO of networking solutions provider 3Com (ticker: COMS) had a telling exchange with a Citigroup analyst last week discussing wage inflation in China. The conversation is particularly relevant for both companies that have a manufacturing presence in China (as 3Com does) and companies that are considering moving operations to China to take advantage of low-cost labor. Take a look:

Citigroup's Alex Henderson

Separately can you give us some sense of what is going on, in terms of wage inflation in the Chinese operations?

3Com's Bruce Claflin

It is really interesting in our last Board meeting we looked very carefully at this, because we're obviously a major employer, and have added people substantially. Yet, the costs that we are paying continue to be competitive and really don't show any substantial change in the necessary costs to maintain competitiveness. We do, of course, hire consistent with the Chinese market.

By that I mean, our bonus structure is consistent with the market, and we have other advantages, such as company-paid housing, which would be consistent with that market. So my answer to you is the aggregate of salary, bonus, other incentives, plus all of the benefits. We're not seeing any dramatic change in the costs yet. We monitor it very closely, however.

Citigroup's Alex Henderson

Is it your sense that there is wage inflation going on around you, and it just hasn't caught up with you, yet, though?

3Com's Bruce Claflin

I can only intuitively say, and based on some data, that there is some wage inflation, but we have not experienced it. And we also remain a very attractive employer in China.

(Quotes are from the CCBN StreetEvents transcript.)

Related:

• The New York Times says China may no longer be the world's low-cost manufacturer.
• Radica Games (ticker: RADA) on government-imposed wage increases.
• For a list of stocks covered by The China Stock Blog.