As the world enters its third year dealing with the pandemic, according to Reuters on March 1, 2022, several countries within Asia, are still hovering around their peak infection rates, based on a 7-day rolling average. Vietnam, Hong Kong, South Korea, Singapore, and Malaysia are all reporting ‘at Peak’ for their 7-day average. China, on the other hand is only at 5% of their rolling peak, and India only at 3%. A 7-day average can change as the virus continues to evolve, but it demonstrates the challenges these countries face in region, which of course affects the availability of healthy manufacturing/light industrial workers.

Just as APAC was beginning to recover somewhat, it was hit hard by the Delta variant in Q2 and Q3 2021. As a result, the region had its largest employment decline in the manufacturing sector as a proportion of the overall employment market. [Source: United Nations Conference on Trade and Development, 2021].

Supply, Market Dynamics, and Price generally remain uncertain and prone to disruption based upon any new or unforeseen COVID variants, but the heatmap above considers current environment and local feedback. Looking ahead to the remainder of 2022, there is some renewed optimism, coinciding with higher vaccination rates that have resulted in a few governments beginning to loosen their restrictions around the import of foreign workers, as described below.

CHINA

• In 2020, the average hourly manufacturing worker in China saw a 6.1% increase year over year to 82,783 CNY per year. By early 2022 this was expected to increase a further 1,317 CNY, to 84,100 jump. Another 4.2% increase is expected during 2022 to 87,600 CNY/year, and longer term to 90,500 CNY/year in 2023, another 3.3% per annum. (Source: National Bureau of Statistics of China).

• In January 2022, China’s Purchasing Manager Index (PMI) fell from December 2021’s 50.3 to 50.1, indicating a moderation of the improving climate for manufacturing production. A score of 50 or above reflects general optimism in the market. However, in November 2021, the PMI rose to 50.1, up from 49% in October, reflecting more optimism in the industry;  Separating out the small and medium sized firms, the PMI actually rose in January for large manufacturing firms from 51.3 to 51.6.
  • The outlook for February 2022 shows a bit more weakened optimism, projecting the PMI to fall temporarily back under 50 to 49.8. Economists relate that to an upsurge in covid-19, especially around Beijing and Hangzhou, and also related to Chinese New Year holiday period.
  • Overall, China’s GDP is projected to remain at 5.1% so the PMI drop in February should be relatively temporary.
     

• The employment index was 48.9 percent in January 2022, down 0.2 percentage point from the December, indicating that the employment climate of manufacturing enterprises has declined.. (Source: Department of Service Statistics of NBS; China Federation of Logistics and Purchasing(CFLP).

SOUTH ASIA

Vietnam

• As mentioned above, as of March 1, 2022, Vietnam was currently at its peak 7-day rolling average for new COVID infections. The lifting of lockdowns in Q4 2021, to coincide with a vaccination rate of over 70% by the end of January 2022 should ease the worker shortage a bit as we move further into 2022.
• Manufacturers should be able to recover from some of the mass exodus of workers from the industrial hubs, increasing the already challenged unemployment rates. Recently, the Vietnamese government has re-opened applications for foreign workers from countries like the Philippines and Malaysia. However, filling the gaps with foreign workers can come with an additional estimated higher cost of between 30% and 60% as compared to the local resources.
• The overall employment market is expected to rebound as 50% of companies are looking to increase their headcounts, and 58% of employed anticipate looking for new job opportunities. Another 34% are passively open to new roles. Around 10% expect a zero-pay increase from their current salary for new job offers – [Source: vir.com.vn, Vietnam Employment Outlook Survey by ManpowerGroup Vietnam]
• After the average monthly wages for workers fell in Q3 2021 y/y by 17% (average $226 USD down from $264 USD), a rebound is expected back to about $277 USD (6.1 million VND) in the first half of 2022. While not an increase, it may reflect a TET bonus paid out annually before the Lunar New Year that can be between one to three months’ salary. [Source: biz30.timedoctor.com]

Malaysia

• As of March 1, 2022, Malaysia is experiencing new COVID infections at 97% of their rolling 7-day average.  However, since the country’s fully vaccinated rate is hovering around 80%, the Ministry of Human Resource and Manpower has re-opened applications for foreign labor from neighboring countries like Indonesia, Myanmar, Vietnam, Nepal and Bangladesh for all sectors and industries.
  • Currently only Nepal and Myanmar are allowed to recruit via VISA applications, but Indonesia, Bangladesh, and Vietnam are estimated to be finalized and rolled out within 1 ~ 2 months. The overall process to recruit a foreign worker is about 5 months, between applications, dorm inspections, work permits, transportation, government review/approval, and arrival. Currently there is a 14-day quarantine upon arrival as well that may change depending on COVID’s trajectory.
• For local workers, average monthly manufacturing wages rose 7.4% in December 2021 over December 2020, to 3594 MYR ($857 USD); the labor force participation rate remained steady, and unemployment dropped 0.1% from 4.3 to 4.2% [Source: tradingeconomics.com/Malaysia/indicators].
• Most companies are now looking at all 3 direct labor models in combination to maximize their chances for success- local workers on hourly rate, Outsource (monthly salary, no conversion terms), and headhunt direct hiring. In addition, maintaining and supporting the foreign workers already in-country is of paramount importance. Additional perks like free Wi-Fi, free COVID testing, and enhanced dorm/kitchen amenities have been offered. 

Singapore

• The landscape of Singapore contingent labor supply remained largely unchanged in Q1 2022 over Q4 2021, and continues to rely on foreign talent from Malaysia, China, and Taiwan.
• On February 28, 2022, Singapore’s Finance Minister, Lawrence Wong, hinted that there will be tighter foreign worker policies in the 2022 budget. The intent, an extension of current strategic practices,  is to focus on industries where more severe labor challenges are occurring, and in higher skilled workers [Source: economictimes.Indiatimes.com]. The indication is that lower wage functions may not be as viable in Singapore’s future and may be better suited for off-shore production. Over time, if implemented, this will put further pressure on the ability for manufacturing firms to maintain support light industrial/manufacturing roles; those that are issued employment permits may have base salaries raised, increasing costs to these firms.

India

• India’s Purchasing Manager’s Index (PMI) fell slightly in January at 54, compared to 55.5 in December, but still above the historical average of 53.6; The slight decline was surprising despite India currently experiencing 3% of their peak daily cases as of March 1, 2022, however global supply chain issues and moderate output inflation tempered expectations [Source: Markit Economics].
• Challenges continue around lowering unemployment back to pre-pandemic levels as many workers in cities left for rural areas of the country. The Indian Government budgeted billions in 2021 to improve transportation infrastructure, and to enhance primary economic corridors. It has not yet translated into new jobs at the rate they anticipated [Source: ForbesIndia.com].
• The monthly average salary of manufacturing workers remains stable at INR 12,558 ($166 USD);  for semi-skilled: INR13,934 ($184 USD); and for skilled : INR15,232 ($201 USD) exclusive of overtime. The expected peak season shortages in March/April, and in June due to school examinations and graduations should be the main challenges in maintaining a good supply, outside of any unexpected additional COVID spikes.
• There is optimism in the overall jobs and hiring outlook with 49% of companies planning to add more staff and to recruit more headcounts in all positions for the coming months as most employers are positive about achieving sustained post pandemic recovery. A V-shaped recovery was expected owing to increased consumer spending, educational sector opening -up and the government sustained efforts to accelerate vaccination coverage – [Source: livemint.com].

APAC Contingent Labor Strategies

• Companies are running local tenders and suppliers are bidding on different scenarios to provide outsource labor (monthly pay, no conversion), dispatch (hourly pay with ability to negotiate conversion to full-time fees).
• Recommendation to run e-auction tenders for negotiable rates within total cost of supply, including (where applicable) a focus on foreign worker management fees, transportation and food service suppliers.
• Consider longer term contracts (2+ year agreements) with generous termination for convenience clauses for flexibility as market conditions continue to evolve around the pandemic and recent global geo-political unrest.
• Consider consolidation of labor suppliers to fewer/deeper relationships with minimum volume of supply and retention incentives and service levels.
• RFPs conducted during the COVID crisis have largely sought to remain cost neutral, but in some cases small reductions of 3-5% can be obtained by focusing on some of the price levers above.
• Given the changing dynamics of the labor markets in most APAC countries, at a minimum semi-annual RFQs are recommended to benchmark the costs associated with contingent labor, where possible.