Pay raises rampant in emerging markets

Whilst salaries in most developed countries continue to stagnate, the growing economies of countries such as Ukraine and Turkey will reward workers with hefty raises in 2013, according to research by Hay Group. Even workers in China, where economic growth has slowed, are likely to see 9.5% pay increases – mainly because of intense competition for talent.

The Hay Group examined salary expectations of more than 20,000 reward specialists representing 14 million employees.

Rising labour costs in developing countries are changing where companies do business. The low-cost business model that was a prominent driver of doing business in Asia a decade ago is no longer a key competitive advantage, according to Ernst & Young research. Companies looking for low-cost manufacturing sources in the region are focusing on Indonesia, Malaysia and Vietnam rather than China. Outside the region, they’re interested in new manufacturing hubs in the Middle East and North Africa.

Rising labour costs in China, for instance, combined with transportation costs have begun to eat into profits of US manufacturers, according to a PwC study. US manufacturing executives are responding by shifting some production back to the US, particularly right-to-work Southern states where wages are typically lower than the national average.

Pay raises in Asia also reflect “two-speed” economic growth trends. Workers in Vietnam are projected to receive raises of 12.8%, and those in Indonesia are looking at 10.6% increases. In Japan, the projected pay raise is just 2%.

The region with the highest average pay raises is Latin American with 9%. Venezuela leads the region (29%) and is followed by Argentina (24.5%), although both countries’ numbers are fuelled by increasing inflation, according to the Hay report.

Developing economies in central and eastern Europe are projected to follow a similar trend. Workers are likely to see 10% pay raises in Ukraine, 9% in Russia and 8% in Turkey.

Pay in Africa and the Middle East is projected to increase 5.2%.

Slower growth in developed regions

Projected salary increases for much of Europe, as well as North America, remain tepid. Overall, pay in Europe is projected to go up 3.3%, just ahead of 2.9% in North America, the region that ranked lowest in the survey. With pay raises small or nonexistent, more workers are asking for other benefits, such as flexible work options, two UK surveys show.

Projected 2013 wage growth in Ireland is zero. Workers in France are expected to get raises of 2.5%, and those in the UK and Germany are slotted for 3% raises, according to Hay.

“Employees in developed markets face a tough year ahead, with pay raises falling behind – or barely outstripping – inflation,” Ben Frost, global product manager at Hay Group, said in a news release.

Related CGMA Magazine content:

“Pay for Senior Managers Skyrockets in Emerging Markets”: Increasing demand for talent and a short supply of experienced, competent senior managers has led to dramatic rises in salaries for those leadership positions in emerging markets.

“Why the US Manufacturing Rebound Could Turn Into a Revival”: Domestic manufacturing has gone through a rebound in the past four years, but structural changes that go beyond rising labour costs in China may be able to sustain a revival of US manufacturing, a PwC analysis suggests.

—Neil Amato (namato@aicpa.org) and Sabine Vollmer (svollmer@aicpa.org) are  CGMA Magazine senior editors.