Flextronics: China's wages cut cost advantage over Mexico

Custom electronics maker Flextronics International (FLEX.NASDAQ) said rising wages in China are cutting the country’s cost advantage over Mexico, Bloomberg reported. "For five years [China has] been heading towards Mexican pricing," said Mike McNamara, head of the Singapore-based company. Flextronics is the world’s second-largest custom electronics maker behind Foxconn Technology Group (2038.HK, 2354.TPE); both firms have been enduring steady wage increases in their China operations. McNamara said that the company is unlikely to achieve its targeted operating margin of 3.5% in the fiscal year ending March. Flextronics already has significant operations in Mexico, where it makes televisions for LG Electronics. Revenues from Mexican operations increased from 11% to 15% of the company’s total in the last fiscal year ended March. China povided 33% of revenues. McNamara said rising wages in China would not spur the company to abandon China, as labor is a small part of its overall production costs for many products. He also said the company does not intend to move operations inland, as Foxconn has done, because increased transport costs would offset savings from labor.