Dramatic Changes In Overseas Contract Manufacturing

Foxconn, a contract manufacturing company located in Shenzhen, China has been all over the headlines lately.  A cursory review or several news sources reviled that eleven employees have committed suicide at the world’s largest electronics contract manufacturing firm.  The name Foxconn might not ring a bell, but I’m sure the companies Apple, Dell, Nokia and Sony do.  Foxconn manufactures top products for these companies, most famously know among these products, the iPhone.


Photo courtesy of K!T

Activists say that the long hours, low pay and high pressure environment are the norm for manufacturing companies in China.  Foxconn employees were made to sign agreements stating that they would not kill themselves while dealing with work conditions where there they are yelled out, not able to talk on the assembly line and can take only a ten minute bathroom break within a two-hour period.  Workers live in dormitories with 8 to 10 people per room.  For many young people, they are working away from home for the first time.  While Foxconn does provide counseling, I still find it to be an interesting environment for a company that has been reported to generate more revenue in a one year period than Apple, Dell or MicroSoft.

Its no a secret that companies across the globe were attracted to China for their low prices for high quality work.  But now that there is an international presence, the issues at Foxconn are not only their issues, but a global human rights issue.  On June 1st, Apple executive Steve Jobs was quoted at a conference calling the suicides, “very troubling”.  One has to think about it from a business perspective, if Apple is already behind in iPad orders, a move to a different manufacturer would be costly and create even a bigger back log than the one that currently exists.

Foxconn has worked with their parent company, Taiwanese supplier Hon Hai Precision Industry, to address the issues with their workforce.  Netting has been installed around the outdoor stairwells at the dormitories and workers are getting a reported 70% raise, which would boost the average salary to $290 per month.  The salary increase is an effort to decrease over-time hours, which is seen as a necessity for workers in order to meet their financial demands.

photo courtesy of mtlin

The issues at Foxconn are just extreme examples of how workers across China are getting fed up with their labor conditions.  Numerous companies have had to deal with demonstrations and workers walking off the job in an effort to force change.  Add to that China’s “one-child” policy which has reduced the country’s under-40 workforce by 20%, ultimately creating better collective bargaining power for the workers.

China’s labor rates will ultimately increase creating a new market of consumers who can take advantage of not only creating exports but consuming its own domestic products.  This is exactly what the Chinese economy needs in order to strengthen its position in the global community.

As for the multinationals that have invested in China, many will have to close their doors and/or relocate to southeast Asian countries.







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