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September 5, 2006 2:10 am

Hon Hai goes into damage control mode

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Hon Hai, a Taiwanese company that manufactures iPods for Apple, moved into damage control mode on Monday after an argument with a Chinese media outlet threatened to hurt its China-based global manufacturing operations.

Foxconn, a Hon Hai unit, withdrew a defamation lawsuit against two Chinese journalists over reports in China Business News (CBN) that described working conditions at a Foxconn subsidiary in Shenzhen that makes the iPod for Apple as resembling a sweatshop.

The newspaper and Hon Hai said in a joint statement that they would “join hands in establishing a harmonious society and striving for workers’ rights”. The Chinese leadership is using the “harmonious society” slogan to demonstrate stronger attention to social issues and workers’ interests. Chinese authorities have pushed an increasing number of foreign investors to allow the establishment of Communist party branches and labour unions in their mainland companies.

Hon Hai, the world’s largest electronics contract manufacturer, said it was preparing to establish labour unions in its mainland affiliates.

In June, a foreign press report alleged employees at Hongfujin, the Foxconn unit, were being forced to work overtime. Apple said that although some people at its supplier had worked more than the 60 hours allowed by its code of conduct, an investigation had not found proof of forced overtime. When Chinese media jumped on to the story, Hon Hai reacted by suing a reporter and an editor at CBN, demanding Rmb30m ($3.8m) in damages and having a Chinese court freeze the two journalists’ assets.

“Hon Hai’s backing off shows that they have got the message,” said an executive at a Taiwanese company in Guangdong. “Suing journalists who claim to fight for something at the heart of Bejing’s ideological agenda was not a very smart move.”

Foxconn employs more than 200,000 people on the mainland. Its mainland companies sold $22bn to overseas customers in 2005, making it China’s largest exporter.

A Hon Hai official admitted the company had misjudged the situation, adding that Hon Hai had viewed the lawsuit as a means of protecting itself from defamatory reporting but realised only later that it was becoming a political issue. Hon Hai said it had become so secretive towards the press because, as a contract manufacturer, it needed to protect the interests of its brand-name customers.

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