Foxconn Technology Group is a subsidiary of Taiwan’s Hon Hai Precision Industry

Question

Foxconn Technology Group is a subsidiary of Taiwan’s Hon Hai Precision Industry Co. (reputed to be the world’s largest “contract manufacturer”). Even as a subsidiary, Foxconn’s numbers are impressive—the company employs about 800,000 people, half of whom work in a huge industrial park in Shenzhen, China, called Foxconn City. With 15 separate multistory buildings, each dedicated to individual customers such as Apple, Dell, Nintendo, and Hewlett-Packard, Foxconn’s promotional material proudly states that the company pays minimum wage (900 yuan, or $130 a month), offers free food and lodging along with extensive recreational facilities to its employees—on the face of it, not your stereotypical “sweatshop” environment.

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However, in the first half of 2010, 12 Foxconn employees found the working conditions so oppressive that they elected to kill themselves by jumping from the roofs of those 15-story buildings. According to reports, two other employees were seriously injured in suicide attempts, and another 20 were saved before completing their planned attempt. The sudden spate of suicides drew unwelcome attention to the true state of the working conditions in factories that visitors have described as “grim.” Labor activists report annual turnover of 40 percent or more as employees leave rather than face dangerously fast assembly lines, “military-style drills, verbal abuse by superiors . . . as well as occasionally being pressured page 203to work as many as 13 consecutive days to complete a big customer order—even when it means sleeping on the factory floor.”

Consider the case of 19-year-old Ma Xiangqian, a former migrant worker who leapt to his death January 23, 2010. His family revealed that he hated his job at Foxconn: “11-hour overnight shifts, seven days a week, forging plastic and metal into electronic parts amid fumes and dust.” In the month before he died, Ma worked 286 hours, including 112 overtime hours, three times the legal limit.

The negative publicity was swift and targeted. Apple’s international release of its iPad in Hong Kong was marred by the ritual burning of pictures of iPhones and calls for a global boycott of all Apple products. The negative press prompted an equally swift response from Foxconn customers seeking to distance themselves from the story. Apple, Dell, and HP all announced investigations of the working conditions at Foxconn’s plants, with the implied threat of contract termination.

Foxconn’s response was to surround the buildings with nets to prevent any further suicide attempts, to hire counselors for employees experiencing stress from the working conditions, and to assign workers to 50-person groups so that they can keep an eye on each other for signs of emotional stress. The company also announced two separate pay increases more than doubling worker pay to 2,000 yuan a month (although workers must pass a three-month review to qualify for the second pay increase). In addition, a series of “motivational rallies,” entitled “Treasure Your Life, Love Your Family, Care for Each Other to Build a Wonderful Future,” were scheduled for all Foxconn facilities.

While the immediate response was targeted directly at the media criticism, there are concerns about the longer-term consequences for Foxconn and its customers. Hon Hai’s reputation and dominance have been built on top quality with wafer-thin margins—margins that may prove to be too thin to absorb a 100 percent increase in labor costs. As for its customers, they may have given implied threats of contract termination, but with Hon Hai as the world leader, there are limited options for alternative suppliers.

Apple asked the Fair Labor Association (FLA), a nongovernment organization, to conduct an extensive audit of Foxconn’s operations. The FLA teams visited Foxconn factories in Shenzhen and Chengdu, and surveyed some 35,000 workers at three facilities that assembled Apple products, including iPhones and iPads. The audit report was released March 29, 2012, and found that during the preceding 12 months, workers typically exceeded the 60 hours of work per week stipulated in Apple’s agreement with Foxconn. In addition, the report found that many workers also exceeded China’s legal limit of 36 hours of overtime per month. In conclusion, the FLA found that conditions were “no worse than any other factory in China.”

Foxconn seems unconcerned by the criticism. In July 2015, the company announced that it would be building up to 12 new factories in India, employing as many as 1 million people by 2020. This was seen as a strategic response to rising wage costs and labor disputes in China.

In March 2016, the company announced a $3.5 billion deal to acquire a 66 percent controlling interest in Japanese screen maker Sharp after weeks of negotiations and numerous setbacks. The deal is expected to give Foxconn more leverage with its dealings with Apple (Sharp provides an estimated 25 percent of Apple’s iPhone screens), but with around $3 billion in liabilities, Sharp will require some aggressive action to turn around.

QUESTIONS

Was Foxconn’s response sufficient to stop any future suicide attempts? Why or why not?

If the company has operated on “wafer-thin margins,” will the Indian and Japanese deals make it a more ethical company? Why or why not?

Would you describe Foxconn’s response as an example of proactive or reactive ethics? Why?

If Apple is committed to addressing working conditions at Foxconn factories, should “no worse than any other factory in China” be an acceptable benchmark? Why or why not?

Explanation / Answer

Ans.1) Was Foxconn’s response sufficient to stop any future suicide attempts? Why or why not?

Amidst all the criticism by the media, the customers and the clients combined, Foxconn’s response to prevent any further suicide attempts by its workers in its factories was absolutely lame and irresponsible. Foxconn just covered its factory building with nets so that no worker in future is able to commit suicide in its premises, counselors were hired to motivate and encourage them, and the workers were put into groups so that all of them can keep and eye on one another and report any signs of emotional stress in any of them. As a responsible company that has world’s leading multinationals like Apple, HP, Dell, Nintendo, etc. as its clients, people expected swift and valuable actions targeted to improving the lives of its factory workers. Instead of building facilities to prevent suicides, the company should have instead focused on identifying the root cause of the suicidal tendencies in its workers, it should have worked towards enhancing the quality of life of its workers by improving the working conditions, providing a healthy and safe workplace environment, and helping the workers to maintain good work-life balance.

Ans.2) If the company has operated on “wafer-thin margins,” will the Indian and Japanese deals make it a more ethical company? Why or why not?

Because of the increasing criticism by the media and the clients and the rising protests from customers across the world, specially in China, Foxconn decided to build factories in India and Japan and announced huge employment opportunities to the people of the respective countries. This was seen as a response to rising wage costs and labor disputes in China. The move highlights the extremely poor work ethics of the strategic management team at Foxconn. Instead of responding to the criticism in a positive manner and working towards building healthy facilities for its workers in China, Foxconn threatened to move their operations to other countries. It further makes Foxconn a more unethical company. Changing of plant operations from one country to another will not change the mindset of the strategic management which has already highlighted the wafer-thin margins that they operate on and therefore, there won’t be any surprises if the working conditions at their new facilities in India and Japan is also similar to their existing facilities in China.

Ans.3) Would you describe Foxconn’s response as an example of proactive or reactive ethics? Why?

Foxconn’s response is definitely an example of reactive ethics where the increasing suicide rate of the factory workers kept making to the news thus, attracting the attention of International media and Foxconn’s clients. Apple that faced protest from customers in Hong Kong realised that it is at the risk of reputation loss because of its association with Foxconn. As a result, Apple was forced to conduct an extensive audit of Foxconn’s operations by the Fair Labor Association (FLA), a non-government organisation. In response to all these protests, criticism, protests, boycotts, etc. Foxconn had to react and respond by taking strong actions to prevent further suicides. Had Foxconn followed a proactive ethical policies they would have themselves taken the initiatives before facing all sorts of protests from different stakeholders.

Ans.4) If Apple is committed to addressing working conditions at Foxconn factories, should “no worse than any other factory in China” be an acceptable benchmark? Why or why not?

In the audit report of the Fair Labor Association (FLA) that conducted an extensive audit of Foxconn’s operations on the request of Apple, highlighted several violations of work norms as agreed upon in the agreement between Apple and Foxconn. This included violations in number of working hours and number of overtime hours in a week. FLA concluded the report by saying the working conditions at Foxconn were “no worse than any other factory in China.” For a reputed and widely known organisation across the world, Apple faces the risk of reputation loss because of their association with Foxconn. For a company that is known for its superior design and technology and is loved by its customers round the world, the unethical work practices and inhuman work condition that its employees were facing in the factories of China was an unacceptable benchmark, people expected and demanded strong response and improved working standards from Apple for its employees.

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