Business and management
Schumpeter
Foxconn
Robots don’t complain or die
Aug 2nd 2011, 16:19 by T.E. | HONG KONG
OTHER than the People’s Liberation Army, Foxconn may well be China’s largest individual employer, and certainly its most important. The secretive electronics manufacturer, whose prestigious clients include Apple, has a workforce of more than 1m, including over 500,000 in one vast factory in Shenzhen.
Over the past decade Foxconn’s success has epitomised China’s ability to take elegant designs from high-wage countries and turn them out cheaply in huge quantities. Initially applauded for its ability to create vast numbers of jobs, the company’s success has recently come to be seen in a harsher light. Last year there was a spate of employees at the Shenzhen plant committing suicide; in the latest such case, a 21-year-old worker threw himself off a building in late July. In May an explosion at a new factory in Chengdu killed three more employees and, it is believed, caused delays in production of Apple’s iPads.
To pacify its increasingly restive workers, Foxconn has repeatedly bumped up their wages, improved facilities, provided counselling and swathed its factories with nets to catch anyone leaping from a window. All this has resulted in higher costs, and signs that the company’s hitherto hugely successful business model has run its course. At a closed retreat in late July, Terry Gou, the chief executive of the company (which is also known as Hon Hai) unveiled a plan to replace a huge amount of human labour with robots by 2013.
In its public statement on the move, Foxconn talked about moving the more than 1m workers “higher up the value chain beyond basic manufacturing work” and of its “desire to move workers from more routine tasks to more value-added positions in manufacturing such as research and development, innovation and other areas that are equally important to the success of our operations.” But automation on the scale it is talking about would surely mean some of those human workers losing their jobs.
To a large extent, China’s recent economic development has been about reversing the rich-world trend towards automation—that is, using labour to replace capital in the manufacturing chain. Wages are now rising rapidly as a result of the demand for skilled labour (and because of big increases in the legal minimum wage), so one would expect this to make firms adjust their mix of labour and capital.
Many other, smaller, Chinese manufacturers have begun making similar moves, swapping increasingly costly labour with a bit more capital equipment. Foxconn is proposing to do it all (pardon the inevitable pun) in one great leap forward. But it may find this quite a challenge: its expertise has been in quietly running well-regimented armies of people making goods for highly visible companies. It is not known to have any particular skills in creating highly automated production lines; and moving in this direction will put it in direct competition with companies that do.
Still, it may have been an easy decision for Mr Gou. His highly image-conscious customers are bound to have been worried by the spate of horror stories about workers at Foxconn. If he did not change his production methods, the customers might feel obliged to look for another supplier.
Manufacturing experts and economists have been debating for some while now whether China’s rising labour costs and skill shortages might spell an end to the cheap “China price”, leading global consumer-goods companies to shift elsewhere in Asia for their low-cost production—or even bring it back to their home countries. Certainly, some of the West’s strongest (and most highly automated) manufacturers, including Germany's Mittelstand firms, have proved surprisingly resilient to the pressure from cheap Chinese labour.
Others are sceptical: they say that Chinese firms are proving so adept at producing in ever greater quantities with fewer hands that they are set to remain fearsome competitors. Either way, the Chinese authorities will presumably be monitoring all of this very closely, and worrying about the prospect of the country’s industrial progress leading, as it did in the West, to large numbers of relatively well educated and articulate factory workers being thrown on to the streets.
Source
http://www.economist.com/blogs/schumpeter/2011/08/foxconn?fsrc=scn/tw/te/bl/robotsdontcomplainordie
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