May 28, 2010 9:00 pm

China: Showing the strain

Foxconn employees China

Employees work on the assembly line at Hon Hai Group’s Foxconn plant in Shenzhen, Guangdong province, China. Nine of the 11 company workers who either committed suicide or attempted to had worked at the company less than a year

Terry Gou is used to having everything under control. When an earthquake struck during Hon Hai’s annual meeting a few years ago, and investors interrupted his presentation with frightened screams, the company’s founder and chairman silenced them with a stern look and a few words: “It’s just an earthquake!”

That approach runs through Hon Hai – also known by its trade name, Foxconn – the world’s largest electronics contract manufacturer, which for two decades has operated according to three principles: authority, control and discipline.

But now everything is not under control. The centre piece of Mr Gou’s manufacturing empire, a vast factory town in the southern Chinese city of Shenzhen, housing 300,000, has been shaken by a spate of suicides. Since the start of the year 12 workers have jumped from buildings; 10 have died – three in the past week.

The deaths have stoked criticism of working conditions at Foxconn and, by extension, all of southern China. In a region covered with factories, Foxconn is the “workshop of the world” writ large, an institution symbolising the best and worst of the country’s manufacturing miracle and the legions of migrant workers who have laboured to build it.

International controversy over working conditions in the south is nothing new. Western clothing brands, such as Timberland and Nike, and multinational retailers, such as WalMart, that benefit from the region’s low production costs, have all attracted foreign criticism. But the deaths at Foxconn have prompted a broader debate within China itself. While the company and local authorities say personal reasons were behind each death, critics claim that a high-pressure and isolating work environment raised the risk of suicide. Across the country academics, labour advocates and young people are comparing their nation to an inhumane industrial revolution-era world dominated by the search for progress and profits.

“When I look at Foxconn, I feel reminded of Charlie Chaplin’s Modern Times,” said an anonymous contributor to one online forum. “They show a world in which human beings are being degraded to gearwheels in a huge machine. Isn’t that exactly what’s happening here right now?” Another wrote: “This is not just Foxconn’s crisis, it is our crisis, our tragedy.”

Foxconn’s customers are growing nervous. Sony, which declined to comment on the suicides this week, on Friday joined HP, Dell and Apple in saying it was re-evaluating working conditions at its manufacturing partner. Analysts, however, say Foxconn is unlikely to lose orders over the incidents because the company is the backbone of the world’s electronics manufacturing system.

For Yang Lixiong of Renmin university in Beijing, the incidents illustrate part of a bigger socio-economic problem. While China has benefited from globalisation, its workers have not, he argues. “Our country is in a race to the bottom because our only advantage is cheap labour, and therefore our development is built on a mountain of sweatshops.”

This argument is not new. Indeed senior officials both in Beijing and in the provincial government in Guangdong, where Foxconn is based, have said the country must adjust its growth model to include higher-end, more sustainable economic activity.

But such changes will be hard to implement, Prof Yang says, as the main official measure of performance is economic growth. “That means local governments have an incentive to squeeze the workers and support the companies to make a profit,” he says. “The only way to change that is to make policy dependent on what people at the bottom want, not those on the top.”

This is unlikely to happen any time soon as the ruling Communist party shows no inclination towards introducing democracy. The government is, however, watching developments at Foxconn nervously as it wants to avoid unrest. Yesterday, Chinese media were instructed not to give the affair big coverage.

Foxconn on Friday announced plans to raise wages by 20 per cent – from current basic pay of Rmb950 ($139, €113, £96) per month, with most workers earning Rmb2,000 including overtime – in a bid to calm the situation. Its global business model rests on a huge manufacturing base spread across China and beyond, employing 800,000, which has to function just in time – with no room for glitches or bad publicity.

Nokia mobile phone handsets, iPods, HP computers, Sony PlayStations and digital cameras – most of these devices are made by contract manufacturers. And Foxconn, with T$1,959bn ($61bn; £42bn; €49bn) in revenues last year, is the biggest.

It was a long road for Mr Gou to get there. Born in 1950 to Chinese refugees in Taiwan, he graduated from a maritime technology college. In 1974, with a loan from his mother, he started a garage workshop making plastic parts for television sets, later diversifying into personal computers. The next step was signing up foreign companies such as Dell to assemble their products, an operation he moved to southern China in 1988 when labour costs in Taiwan started rising.

Throughout decades of expansion and diversification one thing has remained constant: Mr Gou’s tight control of all aspects of the business.

This is partly underpinned by commercial logic. The branded electronics groups that make up his customer base demand high levels of confidentiality. Since products for rival brands might be rolling off the same production line, the group can win trust only by guaranteeing no design or technical detail will leak out of the factory or across to other brands. For this reason, Foxconn long refused to let outsiders into its plants. While that rule has been re­laxed, visitors remain subject to tight restrictions. “You could say that we operate in a high-security environment,” says a Foxconn executive. “Maybe that’s why Terry has become such a control freak.”

Having built one of the most sophisticated manufacturing machines in the world, Mr Gou believes that he knows best how to run a factory. Criticism – whether from shopfloor workers, boardroom colleagues or investors – is dismissed. He is feared for the lectures he delivers to analysts or reporters from his seat on the podium in Hon Hai’s spartan staff canteen in its headquarters in Dirt City, a dreary Taipei suburb. In management meetings, executives who ask questions he considers silly are made to stand.

Further down the corporate hierarchy, life is highly regimented. Foxconn’s workers receive three meals a day – prepared by the biggest kitchen in Asia – but must visit a certain one of the plant’s several canteens at a certain time. “Otherwise it’s just impossible logistically to feed so many people at the same time,” explains Liu Kun, a Foxconn spokesman.

In the dormitories where about 90 per cent of workers live, doors must be kept shut at all times. On some production lines, there are restrictions on when they can go to the toilet.

Despite these apparently harsh terms, jobs are sought after. “Working at Foxconn is not particularly bad,” says Qing Tong, a 28-year-old former Foxconn employee who recently published a book about her experiences. “It’s better than in most other factories.” Currently taking a break to raise her child, she hopes to work again but as a writer. She never finished school but says she has read up on many subjects since – in the company library and on the internet.

Yet while queues of thousands of migrants still form daily at the Shenzhen recruitment centre, observers say the harsh regime will grow less attractive over time. “Our generation has a broader horizon, more access to information than our parents,” says Ms Qing. “The most important thing for us is to realise our values in life, no longer just endure.”

A different generation, born at the height of the one-child policy between 1985 and 1995, is entering the labour market.“These only children have never worked the land, and they don’t have strong ties to their rural hometowns,” says Prof Yang. “They can take much less pressure than the first generation of migrant workers, so once they have some emotional trouble, they are more vulnerable.” This, some analysts argue, makes them more prone to consider suicide.

Foxconn is not the only big company to face the trauma of a series of suicides. At France Telecom there has been a spate among office workers , 11 since the start of this year alone. Similar clusters have appeared around the world as people with a suicide risk imitate what they hear or see, says Michael Phillips of the Suicide Research and Prevention Center at Jiao Tong University. Foxconn has responded with similar arguments to criticism of its working conditions.

This week, Mr Gou himself rushed to Shenzhen to address the crisis. He showed dozens of reporters around the plant and hosted a panel of psychology and sociology experts. He walked around the factory town, trying to bond with staff, and even ordered 1.5m square metres of net to be installed around buildings.

And yet another young man jumped to his death within hours of his boss’s departure. Foxconn staff say they are at their wits’ end.

“In the latest case, we even knew he was going to jump,” says one manager. “We sent two others to sleep next to him, and co-workers tried to hold him back. But he shook off their hands and jumped anyway. What on earth can we do?”

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