Profits of doom

PUBLISHED : Saturday, 05 June, 2010, 12:00am
UPDATED : Friday, 08 May, 2015, 4:18pm

Foxconn, the world's largest electronics contract manufacturer - the maker of iPhones and iPads for Apple and many other devices for famous hi-tech firms - has seen 13 staff suicide attempts, 10 of which resulted in deaths, so far this year. The news has shocked the world and drawn Beijing's attention. Many have accused the company of running a 'blood and sweat factory'.

The Foxconn deaths are just the tip of the iceberg, reflecting some of the mainland's structural labour problems. They have exposed an inhumane and militant management system that is not unique to Foxconn. These suicides signify a deeper problem for China created by its cheap labour supply as the world's factory.

The reality is that the mainland has exploited its cheap workforce, which has been the engine behind the country's decades-long economic miracle. China has built its national wealth by allowing capitalism to ruthlessly exploit its vast army of workers, adding to their misery and despair.

China is the world's second-largest economy, with a gross domestic product of over US$4 trillion and foreign exchange reserves standing at US$2.4 trillion. More than three decades of rapid economic progress has seen China develop into a rich and powerful country with many poor people - not an ideal governing model in the long term. It's time for Beijing to seriously review and improve the basic wages of workers.

Foxconn actually provides comparatively better pay and benefits than other factories in the Pearl and Yangtze river deltas: basic-level operators began at 900 yuan (HK$1,025) per month - which was raised by 30 per cent from this month, after the recent spate of worker suicides. Foxconn seems to provide adequate recreational facilities for staff on the factory grounds. Workers are housed in living quarters while senior executives are put up in houses in a well-designed residential setting. The overall living environment for workers is acceptable.

Foxconn's annual turnover was more than US$10 billion in 2006, with a profit of nearly US$720 million. Last year, after the financial crisis, turnover plummeted to US$7 billion, with only US$39 million in profit. There is intense pressure on companies like Foxconn because the electronics outsourcing industry operates on thin profit margins. The real winners are its overseas, multinational clients like Apple and Dell, which often rack up double-digit profit margins at least. The profit margin for an iPad is an estimated 70 per cent. China has truly become the world's factory, but the grim reality is that its millions of low-paid workers have brought benefits only to Western capitalist multinationals.

At the root of Foxconn's problem is its sheer size - 800,000 mainland employees, including 420,000 in Shenzhen - which makes proper personnel management almost impossible. In order to raise productivity, it has no choice but to implement a militant management system. The production lines are reportedly divided up like military platoons, to run with maximum efficiency. The company applies stringent quality-control requirements; all products must be of top quality, produced quickly and cheaply. Most of its 3,000 Taiwanese managers have had military training, while the workers are mostly migrant workers from rural areas. So it is not difficult to see the gaps in skills and discipline.

These workers need more than a well-equipped living environment or recreational activities. They are far from home, without a proper support system to help them cope with personal problems - so they may tackle them in extreme ways. The management system seems to lack the human touch and - since negative emotions are contagious, especially in such a pressure-cooker work environment - things can quickly go wrong.

Foxconn cannot go on with business as usual. It needs to change its management model, such as breaking up into smaller operations of no more than 100,000 workers per factory, in order to manage them properly. What it needs now is to raise the level of care and respect for workers, rather than efficiency and profit.

Albert Cheng King-hon is a political commentator