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Wage growth cooling in emerging economies

Number of business offering above-inflation pay rises falls dramatically

The number of businesses in emerging markets offering above inflation pay rises to their employees has fallen away dramatically over the last 12 months, according to a global survey. The research from the Grant Thornton International Business Report (IBR) provide 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. Similar falls have been observed in Latin America (32% to 20%) and APAC  (20% to 12%). Over the same period, peers in the G7 (10% to 11%) and EU (9% to 12%) have actually been offering more above inflation pay rises.

Ed Nusbaum, CEO of Grant Thornton International, commented: 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.

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 decreasing competitiveness of China as a low-cost wage base has been driven by average annual salary increases of close to 20% over the past decade. If these rates were maintained, manufacturing wages would triple from 2011 levels by 2017.  However, the IBR suggests Chinese businesses are looking to counter this trend and maintain their competitive advantage “ just 6% of expecting to award above inflation pay rises in 2013, down from 15% this time 12 months ago. Over the same period, the proportion of businesses in China expecting an increase in profits has risen from 61% to 90% - a record high.

Price rise data mixed in emerging markets

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.

Ed Nusbaum added: "Scaling back price and wage rises will boost the competitiveness of an economys exports. However, if increases in workers salaries do not keep pace with the prices they have to pay in the shops, domestic consumption will suffer. This presents a real challenge to economies such as Brazil and China which are trying to diversify away from export-dependent growth models, towards more sustainable  economic expansion driven by the domestic  middle classes.

Notes to editors

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. For more information, please visit:

Data collection
Data collection is managed by Grant Thornton International's core research partner -Experian. Questionnaires are translated into local languages with each participating country having the option to ask a small number of country specific questions in addition to the core questionnaire. Fieldwork is undertaken on a quarterly basis. The research is carried out primarily by telephone.
IBR is a survey of both listed and privately held businesses. The Q4-2012 data for this release are drawn from interviews with 3,450 chief executive officers, managing directors, chairmen or other senior executives from all industry sectors conducted in November/December 2012.


Dominic King, Research Manager,, +44 (0)20 7391 9537

John Vita 

Director of Public Relations and External Affairs

T +1 312 602 8955

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