June 8, 2010 4:03 pm

Foxconn to scrap ‘factory town’ model

 
Workers at Foxconn factory

The model that has made China the workshop of the world is under the spotlight after Foxconn, its biggest electronics maker, announced it was reviewing its large factory towns

The head of Foxconn, the world’s largest contract manufacturer, on Tuesday announced fundamental changes to the way it relates to its workers by abandoning the model of running big ”factory towns” that has long underpinned Taiwanese and Hong Kong investment into China.

Terry Gou, founder and chairman, told shareholders at parent group Hon Hai’s annual meeting in Taipei that a spate of suicides at Foxconn’s manufacturing hub in Shenzhen, where 300,000 people live and work, as well as recent strikes at Honda, made him realise that the “structure [of the manufacturing industry in China] has to change.”

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The unrest at Foxconn – whose clients include Apple, Dell and Hewlett-Packard – and strikes at factories linked to Honda have highlighted growing pressure for better labour conditions in the “factory of the world”.

Foxconn on Sunday announced a second big pay rise for its frontline workers across China. The group said it would offer a 66 per cent performance-related pay rise from October 1, on top of a 30 per cent wage increase that was announced last week.

“Today we are going a bit quickly and moving ahead of everyone else,” but when the adjustment to a higher-wage environment comes, “its speed and ferocity will be greater than you can imagine”, Mr Gou said.

Mr Gou said that companies like Foxconn – which operate a wide range of social services for its staff at large, self-enclosed manufacturing campuses – had to build a community from scratch around their factories when they entered China during the early days of its liberalisation and economic development. But “today we are going to return these social functions to the government”.

The move is a big departure from the model of investing in China used for years by large Hong Kong and Taiwanese manufacturers.

Mr Gou said Foxconn was still exploring ways to separate the work and living environments of its workers, but one option was to sell all its dormitories to the government and rent them back for its staff as needed.

“If a worker in Taiwan commits suicide because of emotional problems his employer won’t be held responsible, but we are taken to task in China because they are living and sleeping in our dormitories,” he said.

This has become too big a burden for Foxconn to bear, Mr Gou said.

In Hong Kong, Samuel Chin, chairman of Hong Kong-listed Foxconn International, said that price negotiations with its clients would be concluded within the next quarter, and that the company aimed to pass on “as much as possible” of the increased costs to them.

Additional reporting by Justine Lau in Hong Kong and Tom Mitchell in Hong Kong

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