A massive economic shift could undermine global businesses as wages in emerging markets narrow the gap with those in developed countries.
The upward dynamic could have a big impact on where companies locate and the costs of manufacture, warns accountancy giant PwC.
Although monthly wages are around 25 times less in India than in the UK now, this gap could close to just seven times by 2030.
The same goes for incomes in the US and Mexico, where US wages are 7.5 times more, but likely to shrink to a gap of four times as much by 2030.
The firm sees wages in India quadrupling and those in the Philippines tripling in the period, while wages in China could rise to about half the average paid in Spain.
Surviving the change
The knock-on effect could see companies:
- Onshoring jobs or move them to even cheaper locations than emerging markets
- Moving manufacturing closer to home to gain more control over their businesses as cost advantages of locating in emerging markets declines
- Developed economies like Poland, Turkey and China start moving operations to Vietnam, India and the Philippines
- US and European offshore companies realign to sell to more affluent customers in the countries where they produce their goods
PwC suggests many UK companies may not survive the changes unless they take steps transform their operations to take advantage of the new markets.
John Hawksworth, the company’s chief economist, said: “Projections are always subject to uncertainty, but the direction of what is happening is clear. A huge economic shift is moving economies to eastwards.
Search for new low-cost production centres
“The salary benefits companies gain by basing operations in emerging markets will shrink and they will have to look at other ways to maintain their margins as wages and exchange rates catch up with those of developed countries.”
Hawksworth explained that this is not an ‘if’ but ‘when’ trend that is already underway.
“Turkey, Poland, China and Mexico will change to consumer markets instead of low cost production centres. Companies will have to address serving these markets and moving to another level of low cost centres, like the Philippines.”
PwC reckons India could benefit from this economic shift – but only if the government and businesses change their culture by improving education for women, cutting bureaucracy and improving infrastructure.
“Companies cannot afford to wait to see what happens. This economic shift is already happening and if they do not plan today for tomorrow, they will be left behind,” said Hawksworth.
