Pressures from both China and foreign countries are driving changes at Foxconn.

by dekokfo032 on 2012-02-21 14:17:16

Workers welcomed the announcement of pay raises and limits on overtime, but some are skeptical about how much actual change they will cause. "When I was at Foxconn, there were always rumors of pay raises, but I never saw the day happen until I left," said Gan Lunqun, 23, a former Foxconn worker. "This time, it sounds more credible." Foxconn's model, although under pressure. While most companies operate similar dormitory systems, wage structures and work schedules, manning Foxconn's large sites has become increasingly difficult. A new generation of young people in China is less willing to migrate to coastal cities, live in factory dormitories and endure long hours. Many prefer to stay closer to home, thanks to new opportunities in inland provinces. This creates a labor shortage for coastal areas. Bowing to this demand, Foxconn has acknowledged that both employees and consumers have gained insights from Chinese bureaucrats and executives of global electronics firms who hire Foxconn to manufacture their products worldwide, which only once had free rein.

This month, over a million migrant workers returned to their villages to celebrate the Chinese Spring Festival, otherwise known as the New Year. Traditionally, factories had no problem attracting those workers back. However, many cities in China still face severe labor shortages even as the holiday week ended. A recent Chinese government report stated that this year's labor shortage is more pronounced than in previous years.

No other company in the world matches Foxconn's production scale. Almost every global electronics company has ties with this manufacturing giant, whose operations can be done by a lot of low-cost, low-skilled workers producing vast quantities of goods, making China the single largest exporter. "This is how capitalism should work," said David Autor, an economist at MIT in the U.S., referring to wrought iron manufacturers. "As a nation develops, wages rise and living theoretically gets better for everyone."

After announcing that it would raise salaries by up to 25%, around 400 yuan per month, Foxconn drew attention to working conditions at its factories. In recent weeks, labor rights groups have staged coordinated protests in various countries following reports of poor operating conditions, abusive and dangerous facilities at some of Apple's Chinese suppliers. To stop the criticism, Apple hired a nonprofit labor group to inspect the plants it uses.

Social scientists say that young people here are also less willing to accept long hours of factory work. Meanwhile, demographic changes mean that China has fewer young people joining the workforce.

"But in China, this change is permanent, and consumers must be willing to bear the consequences. When people read about bad conditions in Chinese factories, they may have a moment of anger. But later, they go to Amazon and pay the lowest price as ruthlessly as ever," noted one observer.

Plants rely on workers on assembly lines working six or seven days a week, often for 14 hours a day. These facilities allow people to produce equipment almost as quickly as they can think of them.

Some campuses are considered small cities with up to 200,000 workers. Many are housed in dormitories near the assembly lines and are expected to be ready to jump into work when new orders flow in.

Just as China's exporters struggle with labor shortages in coastal regions, they also face higher raw material costs and a strengthening Chinese currency, which makes Chinese goods more expensive in other countries.

The real change in the system, for Foxconn, its competitors, and their clients - including Apple, HP, Dell, and other large global electronics firms - must convince American consumers and others that improving factory conditions benefits workers and justifies higher-priced goods.

If workers won't move to the coast, the logical solution is that coastal factories should move to where the workers live. Large manufacturers like Foxconn are responding to these challenges by relocating plants inland.

Foxconn, with 1.2 million employees in China, is one of the country's largest employers. It assembles about 40% of the smartphones, computers, and other electronics sold worldwide. Foxconn's decisions set standards that other manufacturers compete with.

And amid concerns that the old model is dying, Foxconn has announced plans to invest millions in robots and automation for production.

But the essence of Foxconn's reforms, analysts believe, will depend on how effectively the company can transform an economic system that has mostly relied on attracting migrants to work long hours at cheap, vast factories producing smartphones, computers, and other electronics over the past decade.

Foxconn's statement also reflects how fast the Chinese economy is changing. Many employers in the country are facing labor shortages, which also put pressure on rising wages, inflation, and government demands to increase the minimum wage.

"China cannot guarantee the low wages and costs it once did," said Ron Tu of the battery consulting firm, 3 Yuan Batteries Enterprises. "Companies like Foxconn have developed international profiles, so they worry about how people living in very different standard places perceive them."