Reading time ( words)
Pamela J. Gordon and Fanny Lee, TFI, investigate the electronics industry’s role in the Foxconn suicide problem, and offer advice for OEMs considering implementing or changing their multi-national outsourcing strategy. Can electronics be manufactured at an effective cost and worker-satisfaction rate? Ultimately, it depends on both the customer and the manufacturer.
Sometimes, it takes an elapse of time to realize that incidents constitute a trend. Just a couple of years ago, a non-governmental organization (NGO) revealed abuses in employee overtime at “I-Pod City” -- a Foxconn China-based manufacturing complex used by Apple Computer. Foxconn defended the charge.
In July 2009, TFI colleague Mark Natkin covered in his Beijing-based daily publication Marbridge Daily (http://www.marbridgeconsulting.com/marbridgedaily/subscribe/) an iPhone-related suicide: “Foxconn has reached a preliminary agreement to compensate and provide financial support to the family of Sun Danyong, the employee whose death by suicide was confirmed by a forensics expert from the Shenzhen Municipal Public Security Bureau.”
And now there is the tragic spate of employee suicides at Foxconn -- again in China, centered at the Foxconn Shenzhen campus.
Yes, the employee abuses are more than isolated incidents, and electronics company operational executives everywhere must (finally) concede that along with some “low-cost” manufacturing decisions come risks beyond -- but ultimately affecting -- the bottom line.
Insights into the Foxconn Suicides
For Foxconn/Hon Hai specifically, we need first to consider the personality of Terry Gou, founder, CEO, and chair. Unlike his rivals at other Taiwan-based electronics manufacturers, who received higher education degrees from prominent international universities, Foxconn’s founder was born in a low-income family with a modest education from a local vocational school. His father was a police officer who worked long hours and fought for his family’s survival. Foxconn’s rise has been a Cinderella story, and its company culture demands pushing limits for excellence and scale of economy.
Table 1. Typical day of Foxconn assembly worker, Monday through Saturday. Source: Bill Peterson, who spent 6 months (over a 3-year period) inside Foxconn’s Longhua facility.
Walk from dormitory to plant.
Be put in a military-like formation (ranks) and berated by maniacal supervisors who circle the group screaming at them. Often, they are forced to run around the buildings in a group as "motivation." Keep in mind, they are not on the clock yet.
Work “starts.” Workers almost never take a break (even for the restroom) between 8 and noon.
Lunchtime is often used for sleep, foregoing the walk to the cavernous cafeterias in favor of 55 minutes of sleep. (Employees sit with their heads on a desk or workstation.)
Back to work
The shift stops at 5 pm when almost all stop to eat dinner
Most return for another 2 hours of work.
Retire to dormitory: A regular worker shares a room with 7 other people. The rooms are not air-conditioned and the climate for much of the year is very hot and humid.
Nights & Sundays
As part of their board, employees are expected to clean the dormitories themselves. This chore is very specific and scheduled after hours and/or Sundays.Founder Gou sets the example by working 15-18 hours daily (for nearly 25 years). Most Foxconn executives follow the founder’s footsteps, using military-style management to create a “kingdom” controlled by the highest loyalty, longest working hours, greatest efficiency and quality, largest financial reward, and lowest cost structure (including labor costs). Foxconn employees realize that they have to work hard at the expense of their personal lives and well-being.
Most of the suicide victims (at the 300,000-employee Longhua (Shenzhen) Foxconn site) were 18- to 24-year-olds who left rural towns hoping to earn lots of money in a few years. Once at Foxconn, they encountered long hours of repetitive work in confined, tightly packed working and living spaces with little opportunity for rest or use of creativity. In the assembly line of the Longhua site, for example, one function is to insert 18 parts into a mother board within 2 minutes, with a daily target of 220 mother boards for one employee. At the end, many workers are exhausted without a sense of meaningful achievement. Table 1 describes the typical working and living routine.
For this new, fragile generation with no experience in work or city life, the reality of their jobs is far from their expectations and can be unbearable emotionally and mentally. Even worse, they are reluctant to let their villagers know the truth about their lives and fear that upon returning home they would lose face by being seen as “unfit” for the Foxconn system. However, the suicide rate of 13 workers in a 0.3 million plant in Shenzhen is not so high as that of citizens in metropolitan cities in China.
A death-benefit policy at Foxconn may have sealed the decision of some of these young suicide victims. According to Reuters and the Chinese news agency Xinhua, Foxconn reported that it has “concrete evidence” that some of the suicides were motivated by the 100,000 yuan (US$14,640) payout victims’ families were receiving. Foxconn has ended the policy (http://techcrunch.com/2010/06/08/foxconn-reportedly-ending-payouts-to-families-of-suicide-victims/). All of these factors together breed complaints and exhaustion -- leading to desperate emotions and sometimes acts.
Recommendations for Electronics Companies Outsourcing Manufacturing
Certainly Apple has been attacked for staying with a supplier fraught with public labor issues. But it’s not only Apple or customers of Foxconn that are faced with criticism for manufacturing in China. An equal number of electronics-industry managers with work experience in China have told me that Foxconn’s treatment of employees “is better” and “is worse” than other contract manufacturers in China. And several operations executives at US- and European-based electronics-product companies that outsource manufacturing largely or exclusively to China-based facilities have told TFI that with each revelation of toxic substances (e.g., in toys, toothpaste, pet food) and report of harsh treatment of workers (such as the incidents covered in this article), they receive a new round of complaints from employees and other stakeholders. This happens less when the executives choose multiple manufacturing regions, such as manufacturing closer to customers in Europe, the Americas, Southeast Asia, etc.
For more than a decade, managers at the contract manufacturing companies with operations in China have complained that customers irrationally require their products to be manufactured in China when the total cost of ownership may be the same or better if assembly was done closer to customers. This month, in response to a TFI blog (http://www.techforecasters.com/weblog/archives/employees-conditions-at-contract-manufacturers-impact-on-oems-sales-performance/), one manager wrote, “We have seen EMS business move from the USA to...China for a $1 cost savings. That’s right, $1 savings on a $117 product with resale of $650. Why? -- You ask the customer.”
For a recent Business Week article (http://www.businessweek.com/magazine/content/10_24/b4182035750226.htm), I was asked about whether customers of Foxconn’s China facilities should switch to another manufacturing supplier. It’s difficult to switch contract manufacturers, so I recommend the following to OEM operations executives:
- At the same time you select a contract manufacturer, develop an exit strategy to prepare for the unexpected.
- If your contract manufacturers are building your products not only in China but also in other regions (e.g., Eastern Europe, Latin America), discuss with your manufacturers a migration strategy for a smooth transition to regions closer to customers.
- If your products are manufactured exclusively at China-based facilities and those contract manufacturers do not have facilities elsewhere, then this would be an excellent time to consider a regional manufacturing strategy -- producing product in the lowest-cost areas closest to your large bases of customers.
TFI has been recommending regional manufacturing strategies for years -- especially for larger, higher-mix electronic products. For example, companies with a significant percentage of customers in Europe, the Middle East, and Africa (EMEA), we recommend considering Eastern Europe for lower total cost of ownership. (We are embarking on an extensive study now to give insight on the electronics design and manufacturing options in Eastern Europe — http://www.techforecasters.com/eeurope/).
Change is Inevitable
At this writing, we are seeing reports of Foxconn possibly moving its mainland China manufacturing to Taiwan and Vietnam (http://www.digitaltrends.com/international/foxconn-to-close-its-chinese-factories/?news=123). Bill Peterson said, “There is a general feeling of exploitation from the Chinese people regarding Taiwanese business operations. The relationship between the two countries is "strained" and some of the political hostilities may factor into the opinion. The Chinese Army used to regularly breech the main gate in Longhua and drive convoys through the industrial park for no other reason than to show Hon Hai that they could. Almost all of my Chinese colleagues have left Hon Hai for better jobs and presumably, less harsh conditions.”
From interviewing employees of US companies temporarily based in other electronics-manufacturing facilities in China, and from my own experience touring facilities there, the living and working environment does seem to be less harsh. Though I am confident that the work life there still would be unacceptable to most consumer and corporate customers buying the electronics made in those factories.
Even if outsourcing companies are not deterred from manufacturing in Longhua and facilities like it, change may be inevitable. In the long run, all manufacturing decisions will naturally take into account employee conditions, environmental impact, and total cost of ownership -- for business reasons, if nothing else.
Pamela J. Gordon is president of Technology Forecasters Inc. (TFI). Fanny Lee is a China-based Analyst with TFI. Contact them at www.techforecasters.com.