Case study 9.
1 Foxconn and Apple
When Steve Jobs, the billionaire head of Apple Computers,19 was shown
round the facilities of their supplier Foxconn in Shenzhen, China he was
impressed by the movie theatres, swimming pools, and other facilities he
saw in this booming city of 17 million people. Thirty years earlier, Shenzhen
had been agricultural with rice paddies, water buffalo, duck, fish, and shrimp
farms, and a small fishing harbour.
When subsequently Jobs learned that workers at the huge Foxconn factory
were attempting suicide, that 14 had taken their own lives in 2010, he said
that he found the situation ‘troubling’ and that he was ‘all over it’.
Foxconn International Holdings Ltd, which is part of the Hon Hai group, is
one of China’s largest exporters, and has around 800,000 employees, half of
them in Shenzhen, just across the border from Hong Kong. The Apple
iPhone, iPad, and iPod all have Foxconn components.
The Hon Hai Precision Industry Company Ltd was founded by Terry Gou in
1974. He is alleged to be Taiwan’s richest man. A strict disciplinarian and an
apparent workaholic, Gou’s mantra is ‘time is money and efficiency is life’.
With over 40 production and R&D centres in Asia, Europe, and the Americas,
the group is now the world’s largest manufacturer of parts for the computer,
communications, and consumer electronics industries, sold under contract
to customers such as Apple, Dell, and Sony.
Foxconn’s Longhua plant was built as a factory town in the countryside north
of Shenzhen when land in China’s Pearl River delta was cheap. It attracted
tens of thousands of young people (mostly in their late teens or early
twenties) looking to leave the poverty of the provinces and believing that a
factory job would offer them a ‘city life’ with friends and plenty of money.
Instead they became cheerless human machines who were too exhausted to
enjoy what little free time they had. They were hired to work eight-hour shifts
but the majority increased their earnings with substantial overtime.
At the start of each shift, thousands of workers in identical uniforms would
sing the company song. The public address system broadcast music and
propaganda. Posters urged the workers to ‘let the company get stronger and
stronger’, and ‘achieve goals unless the sun no longer rises’. They worked
standing in one place under constant camera supervision. Pay was docked
under a discipline scheme, which handed out points for being late, yawning,
talking, or having long fingernails. Although the plant had modern
dormitories, workers slept in three-tier bunks with no air-conditioning in
summer temperatures that could reach 30ºC. Eating facilities were
considered good, but the quasi-military atmosphere was dispiriting.
Following the spate of suicides, the company took action. Wire fences were
put on roofs and nets were erected below buildings where suicides might
occur to catch any who jumped. Social workers were recruited. A suicide
prevention hot line was installed and averaged two calls a day. Spotter
teams were created to detect employees with possible problems. The
Shenzhen Mental Health Centre offered support and monks were brought in
to ward off evil spirits. Basic pay was increased significantly but overtime
was restricted, so this meant that some employees were no better off
financially.
Under Shenzhen law, employers are required to pay a minimum
compensation for death at work: as a good employer Foxconn had paid
significantly more. It was feared that some employees might have killed
themselves to get this generous compensation for their families.
Consequently, all employees were required to sign a declaration that their
dependants would not sue the company if they killed themselves. There was
also a threat to stop paying medical bills following any attempted suicide.
Although the suicide rate was alarming, a visiting psychology professor from
Tsinghau University pointed out that the suicide rate was actually lower than
the average for young people in the rest of China.
Foxconn had been lauded by the Chinese press for creating jobs in modern
surroundings. Now the firm became an object of criticism and undercover
investigations. On an impromptu visit to Shenzhen, Terry Gou insisted that he
was not running a ‘sweatshop’. Clients, including Apple, Dell, and HP,
announced their own inquiries to ward off bad press. Tim Cook, who took
over Apple following the death of Steve Jobs, went on a highly publicized
tour in August 2012. There seemed to be room for improvement.
In 2016, in an apparent attempt to diversify away from dependence on
Apple, Gou negotiated to acquire the Japanese Sharp company, a producer
of electronic display panels. Gou’s management style was strikingly different
from the participative Japanese approach, and the Japanese press called
him ‘a domineering warlord of business’. The connection with China also
raised political concerns.
Meanwhile, in Shenzhen Foxconn’s robotics group, led by Day Chia Peng,
was developing equipment for many manufacturing processes that would
reduce the need for manual workers. Day claimed that over 30,000 robots
were already working in group companies.
Discussion questions
1. Does Apple have any responsibility for activities undertaken on their behalf
at Foxconn?
2. Did Apple do enough in response to the problems they found at Foxconn?
3. Were the problems at Foxconn failures of governance, executive
supervision, or of management?
4. Foxconn had raised its basic wages four times in the past three years and
in some areas doubled the starting level of pay. Since labour is no longer
cheap, should Foxconn invest in automated production lines to keep its
competitive edge?
