One Event in China That Could Hurt Apple, Nokia

Shenzhen, the production center for consumer electronics giants like Apple AAPL, Nokia NOK, and Hewlett-Packard HPQ, looks set to raise their minimum wage over 13.3%. With a sputtering Chinese economy, what does this mean for the region and the companies it supplies? The wage hike comes as little surprise following recent events in the region. Following criticisms over plant conditions, worker strikes, protests, and even suicides, the Chinese government has felt the pressure to raise wages. The increasing wage gap is also causing unrest in the country where all are supposed to be equal. Foxconn, the manufacturer for electronics giants such as Apple and Nokia, announced they would increase worker wages and improve conditions in February, following an inspection of its plants by the Fair Labor Association. This would be the third wage increase since 2010, demonstrating a strong trend towards ever-rising labor costs. Earlier this year, Foxconn reported its worst first half loss in company history. The company cited rising costs and low demand from key clients such as Nokia as the primary factors behind the disappointment. With manufacturers getting hit hard, a wage hike can only mean further pain for them. With such low margins for producers, investors may expect the increase in costs to be taken on by electronics companies. A company with significant leverage like Apple might be able to squeeze suppliers to some extent, but there are obvious limitations. The key question is whether or not they will pass on the additional labor cost to consumers. The competitive price landscape for consumer electronics may prevent such an action, with a price hike by any of the major electronics producers causing customers to jump ship and move to new brands. In a statement made to Reuters, Dell's DELL CFO Brian Gladden didn't seem too worried when he commented that, while the company is keeping an eye on labor costs, they form a “very, very small piece” of overall cost of the product. Even if labor makes up a minuscule portion, the company may not be able to afford much in the way of profit cuts, seeing as its share price has nearly been cut in half since late February. Electronics producers could take the hit to their bottom lines from one wage hike, but if they continue in a rolling fashion throughout the years, they will have no choice but to raise prices on their products.