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Foxconn suicides reveal inconvenient truths

On June 1, Foxconn, the world’s largest contract electronics manufacturer and maker of the iPhone, iPod and iPad, announced a comprehensive 30 percent wage increase for all its production-line workers in China. This bold announcement was followed by another six days later, that the minimum wage at its factory in Longhua, Shenzhen, would more than double from RMB900 (US$132) to RMB2,000 (US$293) starting in October. The company’s actions have sent shockwaves through the foreign investor community in China, according to the Commercial Times. The company has been making news for another reason recently, the alarmingly high number of employee suicides at its Shenzhen campus.

Foxconn, which falls under the umbrella of the Hon Hai Precision Industry Group, is headquartered in Taipei, Taiwan. After the 11th employee suicide at its 300,000-worker Longhua site, Terry Gou, the chairman of Hon Hai, invited over two hundred local and foreign journalists to inspect the facility. This initiative proved effective as the journalists could find little to criticize at the plant. Yet, the very night that Gou returned to Taiwan, the 12th suicide took place prompting him to fly back to Shenzhen immediately.

Gou: “I carry 12 crosses on my back”

At the annual shareholders’ meeting on June 7, Gou said he has ceased the practice of paying the high death benefits, which might be considered by some as an inducement to commit suicide. Foxconn previously paid out almost ten times its employees’ annual wages in death benefits, reported the United Daily News. Gou also stressed, “I carry 12 crosses on my back” and said he takes full responsibility for any management flaws.

In reference to an investigative report by Taiwan’s Suicide Prevention Association, Gou said three of the 12 workers attempting suicide had previous mental disorders, and their actions were in no way related to the work environment or to work pressure. The Foxconn management has been shocked that half of the suicide attempts occurred in quick succession in May, a fact that may be attributed to the so-called “Werther Effect” of copy-cat suicides. After Gou flew to Shenzhen to take personal command of the factory, dozens of suicides were apparently prevented, according to the United Daily News.

Not a “sweatshop,” only a “pressure cooker”

The Taiwanese media has written widely about Foxconn’s management style and Gou’s personality in particular. Yang Ren-kai, a veteran journalist who used to work at Hon Hai said, if Foxconn is a “sweatshop,” Chinese journalists who have snuck into the factory by hiding their identity would have broken the story.

Yang wrote in the Journalist magazine that “Terry Gou is downright masochistic…Gou is the axis of Hon Hai, with all the people revolving around him… Gou is an absolute workaholic. He gets up usually around 7 a.m. and enters his office around 8 a.m., he is busy all day, until around 1 or 2 a.m. before returning home… Gou knows of course how to rally his subordinates; however, he has a superior sense of self-motivation. He started Hon Hai from scratch, and has long been fighting to keep his business afloat during hard times. This is all part of his survival instinct.”

Xin Huai-nan, a former senior executive at Hon Hai, said in an interview with the Hong Kong-based Sing Tao Daily that “Gou does not run a sweatshop, and Foxconn is not a “sweatshop,” but it might be a “pressure cooker.” “Hon Hai’s culture dictates that it must be superior to its competitors. There are three elements that are crucial – the company must produce better products, with shorter lead times and at a lower cost.” Gou asks his staff to achieve all three. That is why Foxconn is like a “pressure cooker.”

Originally established in Taipei in 1974, Foxconn has held the top spot for a Chinese exporting enterprise according to Fortune magazine’s Global 500 for the last seven years. It employs in excess of 800,000 people in China. The entire employee population at its Longhua complex, including 3,700 Taiwanese workers, is greater than the population of one medium-sized city in Taiwan.

Managing that many employees is not easy and requires strict control, according to David Sun, co-founder of the flash memory maker Kingston Technology, speaking in an interview with the United Daily News. “It is not easy to run a factory, let alone to manage hundreds of thousands of employees, he said. Ray Chen, general manager of Compal Electronics, stressed, “I hope Foxconn can properly deal with this crisis as soon as possible. Otherwise this could lead to a chain of events affecting other Taiwanese and foreign enterprises in China.” In their view, this is not just a Foxconn issue, but is symptomatic of the changing economic and social environment in China.

Is rigid management a necessary evil?

The United Daily News said, China has been playing the role of “manufacturing base” in the global supply chain for almost three decades now. Many Taiwanese people have moved to China to set up operations to create large contract manufacturing businesses. They impose strict discipline when managing tens of thousands of employees to achieve fast delivery and quality production for global brand leaders. As well as the in-demand iPhones, iPods, and ipads, the latest computer models for HP and Dell are also made at Longhua. Even Acer Computer depends on these manufacturers to make its notebook computers in a bid to increase their global market share.

How to manage such a huge group of low-paid workers and achieve maximum performance in a short space of time has proved problematic for foreign businesses in China, but it works to the advantage of the Taiwanese firms. However, the Foxconn suicides are showing that even Taiwan businesses are powerless. Gou lamented, “What can I do except to apologize? I have done my best to seek advice from psychologists, feng-shui masters, Buddhist monks and the media, even announcing a 30 percent pay rise.”

Gou is not without his supporters though. Reporter Wang Zhong-fang wrote in her blog, “The recent criticism by the local media of Foxconn’s management style seems correct on the surface but not altogether correct. Those who have not worked in China do not really understand the situation there. Implementing a strict system is a “necessary evil.” Without such a system or discipline, the management of tens of thousands of workers would descend into chaos, with no production at all…” Wang also compared Chinese workers to their Taiwanese counterparts working in clean rooms at science parks in Taiwan. Asking why don’t they commit suicide? In either case, if these employees dislike their jobs, they can always quit, she wrote.

Generation Y factor

The labor conditions at Foxconn, at least on a physical level, are far better than the requirements stipulated in China’s official regulations, and certainly do not qualify as being a sweatshop. However, other factors could contribute to the high suicide rate; chief among these is the low regard given to the formation of personal relationships, which is reflected in the institutionalized management style. Additionally, most of the workers are young and away from their families and hometowns for the first time, so they might be emotionally vulnerable as well.

Most of today’s Taiwanese business leaders, including Terry Gou, were born into the first wave of baby boomers in the post-war period and grew up in poverty. In order to improve their lives and those of their families, they worked extremely hard to succeed. China is entering a stage where the generations born in the 1980s and 1990s are starting to work, noted the Commercial Times. The thinking of this generation is very different from those of their parents. The tried and tested Taiwanese business management models do not necessarily apply to this generation.

In speaking to the Taipei-based China Times, a senior manager at Foxconn said that young employees come to work with unrealistically high expectations. Whether they are pampered children from a one-child household, or hard workers away from their hometown and family for the first time, they are frustrated when reality does not meet their expectations.

Alienation and a lack of social mobility

The United Daily News also pointed out that China has learned from Taiwan’s experience to become the world’s workshop with an export-oriented economy, but the economic take-off in Taiwan in the 1970s differs from the current one in China. In Taiwan initially there were gaps between the cities and the countryside, but it was not as extreme as in China. In the early 1970s, Taiwanese workers in export processing zones went home at night, so their work pressure had an outlet for release and this allowed for the continuation of a normal family life. The Chinese workers, however, migrate to the cities from all over the country. There is no easy outlet for them to let off steam and forget about the pressures of work and life.

Furthermore, Taiwanese workers enjoyed equal educational opportunities, and social mobility is a real possibility. As long as they work hard, they have the opportunity to start their own business or succeed doing other things. While in China, the migrant workers are unable to register their households in the cities that they move to. The younger generations are excluded from equal educational opportunities. They feel hopeless because it is difficult for them to rise out of poverty regardless of how hard they work.

Preparing for the manufacturing shift

The reality is that the issues raised by the Foxconn suicide incidents signal a fundamental structural problem in China’s economic development pattern.

According to the Taiwan Electrical and Electronic Manufacturers’ Association chairman Arthur Yu-cheng Chiao, speaking in an interview with the United Daily News, Foxconn’s wage rise will mean higher production costs in China over the next three to five years and Taiwanese electronics manufacturers will be forced to leave. When this happens, the association will help them move to India, Indonesia, Vietnam and other countries, he said. Taiwanese manufacturers must expand their industrial scope and invest in new industries. Those firms that stay in China will have to enhance production automation.

Taiwan’s Economic Minister is already preparing for this critical moment in China’s transformation. In an interview with the Central News Agency on June 8, Minister Shih Yen-hsiang said the government will encourage Taiwanese businessmen to return to Taiwan to invest, and to help Taiwanese entrepreneurs transfer their investments to South East Asia, especially Indonesia. The government is urging investors to make technology-intensive manufacturing process in automated factory in Taiwan and move labor-intensive industries in Southeast Asia. The tragic Foxconn deaths serve as a stark early warning to Taiwan’s government and businesses to be ready to face these inconvenient truths.