Businesses Find an Island Paradise--For Now


Half a world away from the pickup trucks and plain plank churches of South Carolina, here on an island of motorbikes and gold-domed mosques, the beat of a Baxter Healthcare assembly line goes on.

The rumble of machinery, the puffs of lubricating powder, the peel of latex from a thousand molded hands--6 million medical gloves are produced here every day and shipped to Baxter customers worldwide.

The line workers, Asians now, spare little sympathy for those who lost these jobs in the United States.

"If it's cheaper for the company to get the product out here, they have to look at it that way," said Rince, a 21-year-old factory hand from Indonesia.

That's how Harold Hambrice looks at it.

The U.S. multinational's local manager said labor cost per unit of production is many times better here--"I'd say five times better"--than in Kingstree, S.C., where Baxter closed its latex-glove plant for good in November.

Rince and her fellow workers, almost all young Malaysian and Indonesian women, earn about 700 Malaysian ringgit--$280--a month, including required overtime.

It's the kind of bargain labor that has turned Penang Island's Bayan Lepas industrial zone into a low-tax manufacturing mecca for global giants, a city of factories where 165,000 workers toil for Intel and Motorola, Braun and Bosch, Siemens and Seagate, where many U.S., Japanese and other corporate strategists look to expand before building or hiring in their own industrial homelands.

In today's unforgiving global marketplace, a company doesn't easily yield such advantages to a rival. "Our competitors are here too," said Hambrice, an Arkansan in his first foreign posting with Baxter.

Manufacturing's share in the Malaysian economy has tripled in the last generation, reflecting what has happened elsewhere in the Third World, where manufactured goods account for 60% of exports, up from 20% in the 1960s.

But winners can rapidly turn into losers in the new "globalized" world economy. The very attractions that brought them to Penang may soon lead some multinationals to greener--cheaper--pastures, just as Baxter eventually found the "low" wages of South Carolina too burdensome.

Baxter officials cite proximity to Malaysia's rubber plantations, source of latex, as the first reason for moving glove production across the Pacific. But they acknowledge that labor costs were another major factor.

When 800 Baxter workers were fired in South Carolina, their glove output was picked up by adding just 200 to Baxter's 2,500-worker force in Penang. The latest automation, $48 million worth, makes the Penang plant more productive.

About 700 Baxter employees are Indonesians, driven to this boomtown by the age-old urge to better one's life through hard work--and savings.

"I'm able to save a couple of hundred ringgit a month," said Rince, her face framed in a pale pink Islamic head scarf. "It's for my younger brothers and sisters, so they can go to university and have a better life than me."

The migrant workers are one focus in an uneven battle between the government and labor organizers.

Industrialists say they bring the foreigners in, with Malaysian government approval, because local workers are increasingly hard to find.

A labor organizer disputed that. "They're bringing in foreign labor in order to hold down wages," said Balakrishnan Nadeson of the Malaysian Trades Union Congress, who described the $200 monthly starting salary at many plants as half a "living wage."

The unionists have little sway, since the government bans national unions from the electronics industry, Penang's mainstay. When an International Labor Organization committee called for a lifting of the ban, it was ignored.

The U.N.-affiliated ILO says multinational companies are growing so "footloose" and governments such as Malaysia's so eager to attract them that workers' rights to organize and bargain collectively are threatened.

Organized or not, workers' wages are rising steadily in Penang state, as factories compete for hands amid what observers say is a very real labor shortage. Penang's economic development chief, Toh Kin Woon, sees a "worrying factor."

Pay increases last year outpaced growth in worker productivity, and "this may erode our competitiveness overall," Toh said.

The multinationals say labor-supply problems worry them more than labor costs. But they're looking toward new low-wage frontiers--Indonesia, Vietnam, and the biggest labor pool of all, China.

"We have an operation that starts this year close to Shanghai," said Peng Hooi Yap, managing director for Siemens electronics in Penang. "We're the first in semiconductors to go into China."

Even Baxter Healthcare, just seven years after sinking roots here, has a roving eye. It is talking with the Malaysian government about new rural sites.

"And that leads to the conversation, 'Why Malaysia? Maybe Indonesia, Vietnam, India,' " Bill Saxelby, Baxter's chief executive for gloves, said at Baxter's headquarters in Deerfield, Ill.

"That's not a gloves issue, not a Baxter issue. That's economics."

Vietnam's government, nominally Communist, understands the economics well. Its labor minister recently said he'll keep the minimum wage at $35 a month, because "otherwise foreign investment will not come."

In the old-line industrial countries, labor leaders watch jobs move "offshore" and pose a question:

Can classic economic theory, which says wages rise as workers produce more and more value, keep up in an age when capital and technology crisscross the globe so rapidly, looking for low-bid labor, sprouting factories overnight? Or will China's 50-cents-an-hour assembly workers inevitably pull down the wages of semiskilled Americans, Germans and Japanese?

"Take Mexico," AFL-CIO trade specialist Mark Anderson said in Washington. "One study found Mexican auto-plant workers are 80% as productive as U.S. workers. But their wage costs are 15 to 20 times lower."

The question may soon climb the "skills ladder" too.

Fifteen hundred miles west of Penang, in the surprising city of Bangalore, hundreds of bright young Indians have already climbed that ladder. They are churning out high-tech products once thought to be the preserve of well-educated, well-paid Americans and Europeans. And at one-tenth the pay.

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