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Chinese LED Industry’s Polarized Labor Market

Source:Smooth Lighting Tech Co.,Ltd      Date:2014-12-26

In recent years “labor shortages” and “layoffs” have become common terms in the Chinese LEDmanufacturing industry. In Guangdong Province in Southern China, short term labor shortages have increased in 2014 to reach between 800,000 to 1 million workers, according to a report by Chinese-language LEDtimes. Chinese electronic manufacturing conglomerates Haier Electronics, Gree Electric and Foxconn’s layoffs also attracted market attention.

Despite explosive luminaire industry growth in recent years, it has been impacted by the sluggish economy, and now faces “continual labor shortages followed by a wave of layoffs.” In late November 2012, Osram announced plans of laying off 10% of employees to save costs, which affected about 4,700 jobs. The massive layoff is expected to help raise the German manufacturer’s competitiveness and profitability, at the time Osram was one of the first big lighting brands to implement large scale cost down strategies. This was just the first wave of layoffs. In July 2014, Osram announced it would be slashing another 7,800 jobs globally, which is expected to save the company EUR 1.3 billion (US $1.59 billion). Over the last few years, Osram shut down a total of 11 factories, and cut 8,700 jobs.

LED industry’s roller-coaster ride

The LED lighting market value soared 47.8% Year-on-Year (YoY) to US $35.3 billion in 2014 compared to 2013, according to LEDinside estimations. LED lighting market penetration also increased 32.7% this year, while global LED lighting demands increased 60%. Residential lighting demands have grown the most this year, and is expected to soar by another 90% in 2015, far above commercial lighting and industrial lighting’s projected growth rates of 37% and 57% respectively. LED bulbs and tube, which are the most widespread luminaire products on the market, reported penetration rates climbed up to 20% and 15% respectively.

While these statistics have greatly boosted the LED industry’s confidence, and 2014 kicked off with a promising market rebound, it did not last. The initial positive market developments could not conceal the fact the LED industry was heading for a slump in 2014.

The LED industry’s bankruptcy wave and growing numbers of runaway CEOs continued throughout 2014. To survive the LED industry crisis, lighting manufacturers laid off employees to reduce costs one by one. Lighting manufacturers massive layoffs reflected the impact from China’s easing economy and plunging real estate market. Following Osram’s massive layoff in July, Chinese LED manufacturer Foshan Lighting also dismissed 40 workers to cut costs. Huge fluctuations in China’s lighting labor market can be observed, as most manufacturers hire during peak seasons to meet order demands, and halve the work force with the approach of the slack season to reduce additional costs.

Statistics compiled indicate 93.75% of China’s lighting manufacturers have minor labor shortages. Up to 60% of lighting manufacturers reported 5% labor shortages, while 26.67% noted the shortage ranged in between 10% to 15%. Only 13.33% manufacturers reported labor shortages above 15%, and most of these positions were for average workers.

Massive layoffs followed the LED market’s unresolved labor shortage issues. For instance, Osram is currently implementing the Osram Push program to cut costs. Measures taken under the program including reducing 21% of the company work force or equivalent to about 8,700 jobs, and the company closed 25% of its 43 factories. The program is expected to help the company save EUR 1.2 billion ($1.63 billion). Global lighting giant Philips has also lowered costs through large scale layoffs. Manufacturers slim down represents the LED industry’s waning market.

LED industry’s growing worker demands

Major international lighting manufacturers cost down has raised concerns in the industry that the lighting business has come to a dead end. But closer inspection of lighting giants recent slim down reflect their transition from traditional luminaire manufacturers to LED lighting. Philips, GE, and Osram have all shifted their businesses priorities, and are focusing on LED technology, and are in the process of simplifying businesses services, and lowering employee costs. Layoffs have become a necessary measure for manufacturers to survive in the competitive industry.

Interviews with LED industry management and lighting directors reflected the LED industry’s employee demands have shot up. In 2014, 47.62% manufacturers had increased hires, while 28.57% workers reported a smaller work force.

Manufacturers that expanded their work force were mainly trying to meet hikes in future production capacity demands, according to the survey. Some are well known large manufactures, while a small portion are SMEs involved in LED processing to meet growing orders. Manufacturers growing work force are often closely related to the company’s size, and competitiveness. Most of the time hiring is directly related to the number of orders, said an industry insider. Lighting manufacturers orders tend to change each quarter, sometimes companies need more staff because of increased orders, and fewer workers when orders drop. Usually the work force fluctuation is not huge in a year.

Aside from some SMEs forced to slash jobs to reduce costs due to sudden accidents, some manufacturers’ layoffs were caused by the introduction of automated equipment to replace manually operated equipment. Manufacturers replacing manpower with machines haves removed need for hiring new staff. Still, most processing manufacturers are speculating whether to make the transition, due to machines high costs and maintenance.

Differences in SMEs and large manufacturers labor shortages

The survey also showed SMEs tend to have average worker labor shortages, and this particular group also had the greatest employee turnover rate of 57.14%. China’s downstream LED lighting manufacturers tend to have the greatest shortages in this area. One lighting manufacturer even told reporters, in the luminaire industry downstream manufacturers tend to have blue collar worker shortages, while processing and packaging manufacturers tend to require average white collar workers. Average manufacturers employee turnover rates is about 10% to 15%, said a lighting manufacturer. Due to China’s strong labor rights movement, employees’ payment and packages have improved in recent years. Still, worker shortages continue to be a major issue in the Pearl River Delta region in China. With the region losing its salary advantages, some migrating workers are choosing to work closer to their home towns.

Additionally, sales and engineers turnover rates in the industry ranked in second and third place at 52.38% and 42.86% respectively. Renowned large manufacturers had the greatest demands for sales and engineer staff. Senior sales and engineers are highly sought after in the industry, and will often seek manufacturers that they are compatible with. On the other hand, high sales and engineer turnover rates are closely related to the industry’s lack of employee training mechanisms. Large manufacturers high demands for industry professionals has led to lucrative monthly salaries of more than RMB 10,000 in high ranking positions in the job market.

Chinese LED export market grows more than 35%

The LED industry has been on a roller coaster ride over the past year, with abrupt highs and lows. Compared to China’s slack market, oversea markets have expanded during this period. China’s LED luminaire export market has continued to grow, and was up 35% compared to 2013 to reach US $12 billion.

China’s LED industry’s total export value was up 14.06% YoY to RMB 17.9 billion in 2014, compared to RMB 15.7 billion in 1H13. LED exports during 2Q14 also increased 22.09% compared to 1Q14. In contrast, LED imports during 1H14 was down 3.17% to RMB 1.33 billion. During 1H14, Nationstar LED light source exports reached 5.01 billion PCS to a total market value of RMB 3.06 billion, down 3.7% and 6.33% respectively compared to 1H13. Additionally, luminaire products total export value was up 27.48% to RMB 12.65 billion in 2013.

Light source export trends have declined compared to the past, according to the above data. Incandescent bulbs, CFL, and other light source product exports have declined following global phase out of incandescent bulbs and LED product developments. In comparison, expeditious LED lighting product developments have spurred luminaire export growth trends. Escalating luminaire exports have boosted the LED luminaire export share to 70% of the entire LED product export market.

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