Grant Thornton: Wage growth cooling in emerging economies

By Rob Starr, Content Manager, Big4.com

Research from the Grant Thornton International Business Report (IBR) provides further evidence of emerging market businesses taking steps to maintain the competitive advantage they have traditionally held over peers in mature economies.  The IBR reveals that the proportion of BRIC economies expecting to give above inflation pay rises fell to 11% in Q4-2012, down from 21% 12 months earlier.

In Latin America businesses are also showing signs of scaling back price rises. In Q4-2011, 48% of respondents expected their prices to rise over the next 12 months, falling to 44% in Q4-2012. However, selling price expectations in the BRIC economies have risen from 38% to 40%, and in APAC from 31% to 41% over the same period.

“The rise of reshoring, most notably in US manufacturing, is evidence of the slow erosion of what has been one of the key competitive advantages emerging economies held over mature economies. With wages going up by 10-20% a year over the past decade in places like China and India, but salaries in the US staying broadly level, the cost of outsourcing has risen fast,” said Ed Nusbaum, CEO of Grant Thornton International. “Businesses in emerging economies now seem to be rebalancing. Wages have rocketed in these economies over recent years, by margins that appear unsustainable. Further, uncertainty is weighing on growth rates as global trade slows. In order to maintain profitability, businesses in these emerging economies need to keep their costs down. A key way of doing this is by limiting salary increases.”

The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of more than 12,500 businesses per year across 44 economies. This unique survey draws upon 21 years of trend data for most European participants and 10 years for many non-European economies