Eric Francisco Vicente-Flores

Foxconn Case Study: A Look at Ethics in the Global Marketplace

  There are two types of globalization; that which involves the market and the other that involves production.  Globalization of markets refers to the merging of historically distinct and separate national markets into one huge global market.  Globalization of production on the other hand, refers to the “sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production; such as labor, energy, land and capital” (Hill).  It is safe to say that the current standing of the world can owe its debts to globalization.  Whether it is food, technology or information, everything feels within arm’s reach in today’s world.  However, with the birth of globalization and a unification of markets that expands every day, there are also negative aspects to this system. Enter Hon Hain Precision Industry Company, better known as Foxconn, a Chinese manufacturing company founded in 1974.  Its name references its ability to produce and assemble consumer electronics at fox-like speed.  It is currently the world’s largest contract manufacturer of electronics and assembles products such as the Ipad, Iphone, cameras, e-book readers, TV’s, car parts and game consoles (Ngai 5).  Due to the globalization of production, western countries have decided to use China as one of the main sources of assembly for their products and Foxconn serves as China’s largest manufacturer.  Interestingly, Foxconn began a simple facility with only 150 workers.  In the 1990s it entered into a stage of expansion which led it to increase its labor force, something that was not hard to do considering China’s surplus of workers.  During this time, the company started to employ the technique of specialization of labor leading it to diversify its product lines in its factories around the regions of China.  At the end of the twenty-first century the company had clustered its facilities into Pearl River Delta in China’s south and the Yangzi River Delta in the east.  Foxconn chose these regions because it provided the company with preferential tax policies, land, infrastructure and a huge supply of labor (Ngai 6).  During the 2000’s, Foxconn rose to the top by acquiring capital all over China.  Its CEO Terry Gou led the once small company to make what in 2008 was estimated to be US$61.8 billion (Ngai 7). 

After the global crisis of 2008-2009 was over, and Foxconn managed to secure deals with Apple as well as continue its business with other big firms, its revenues rose to more than $95.2 billion.  “Foxconn provides global customers with complete design capacity, fast volume capability, and efficient customer service” (Rouland 189).  The company manages to attract most of its customers by offering a low-risk entry level of investment from them.  It does this by extending a chain that runs all the way from raw material extraction to the final assembly of the product its consumers are seeking.  A Foxconn spokesman explained the company’s methods for expansion and cost-savings; “We either outsource the components manufacturing to other suppliers, or we can research and manufacture our own components.  We even have contracts with mines, which are located near our facilities.” (Barboza 3).  What this means is that when companies such as Apple decide to take part in Foreign Direct Investment, the risks that they face are lowered by investing in a company like Foxconn that has its own supply chain.  Foreign direct investment can be considered a direct effect of globalization.  By Apple participating in FDI, it outsources jobs to China, were labor laws are in a less favorable position for workers.  While Apple is not the only one, it is definitely one of the biggest offenders in recent history.  At the release of the white Iphone 4, Apple wanted the company to produce white Iphones without any slow-down on the production of the normal Iphone 4 (Weir).  This in turn, created higher stress levels within the Foxconn employees, who already had to deal with horrible working conditions.  In turn, many workers resorted to suicides; leading many to question the ethicality of the international world.  Companies such as Apple, Sony, Microsoft and HP might follow the labor laws set in place within western countries, but most of the consumers who buy their products do not realize that this means nothing in the countries where the products they consume are made.  Globalization, while pushing humanity as a whole towards the epitome of progress, has also brought about a major negative implication into the world market- the promotion of unethical behavior towards the working class of developing nations.  This can be observed by studying China’s FDI driven economy, Foxconn’s unethical treatment of its workers and Apple’s (as well as other major companies’) unwilling nonchalance to do anything about the suicides that occurred in Foxconn’s facilities.    

China’s FDI Driven Economy

FDI brings a lot of progress with it.  The United States is actually a great recipient of it from Great Britain, The Netherlands and Japan.  The difference is that developing nations such as China have yet to mature the way the United States had matured by the time it became the recipient of FDI.  Due China’s economy being almost completely driven by FDI, it has grown far more than other East Asian countries in the past decades.  However, this has also “widened labor and social inequality” (Ngai 3).  Foxconn provides a clear example of the negative effects that FDI investment has created in the global market.  While there is a balance of payments going into China, only the wealthy are profiting from capitalist businesses.  FDI has also led China into a loss of sovereignty as many private firms now hold major control over major firms; affecting the development of just labor laws in the marketplace.

  If a country is not mature enough, it can get stuck in what has been called “a race to the bottom”, where countries like China are making a lot of money but they cannot invest it in their labor force because it will lead to an increase in the price of the work hours (Hill).  This becomes a vicious circle where developing nations have the capabilities, money and drive to improve themselves, but they are pressured by western companies to stay as is;

“The Chinese national economy has thus fundamentally undergone a transformation from being based on heavy industry, with guaranteed lifetime employment and generous welfare provided to urban workers, to one that mainly relies on foreign and private investments and massive use of migrant laborers in light industries, where wages an labor protection are severely suppressed” (Ngai 10)

If Foxconn raises the wages of its workers, it will in turn make any newer contracts it has with Apple more expensive.  Apple can either justify this by raising the cost of its products or it can simply choose to do business with another foreign firm.  Since Apple products are already a bit on the overpriced side, Apple will most likely choose the latter, and save money on its manufacturing process.  This will lead to a drop in investment and hurt Foxconn as a business firm.

While China is part of the UN, whose stance in ethical business is that “businesses should support and respect the protection of the internationally proclaimed human rights and make sure they are not complicit in human rights abuses”, China has yet to sign the Declaration of Human Rights; a document prepared by the United Nations detailing inalienable rights that every human is born with and should never be violated (Hill).  By doing this, China has effectively kept itself from having to follow any of the rules that have kept the western world from mistreatment of its workers.  Also, by relying so heavily in FDI, Chinese workers are more or less at the mercy of the private firms that invest in the country. 

The globalization of markets has also led to the merging of separate national markets into a global one.  As time has progressed, this has led to the alienation of smaller firms, leading to an oligopolistic environment.  “In twenty years, there will be only two companies—everything will be made by Foxconn and sold by Wal-Mart”, said a business executive when referring to the growth of Foxconn in the global marketplace (qtd inNgai 8).  The future mentioned by the business executive might not be so far off since in 2011 Foxconn was “projected to capture more than half of the world market share in electronics manufacturing and service (Dinges, 3).  With statistics like that it is hard to disagree with the prowess Foxconn now holds and the state the global market has evolved into in recent years.  However, there is a chance this oligopolistic environment could lead to change in China.  Perhaps if Foxconn becomes a large enough firm, with all the other electronics manufacturing companies in China merging into it, Foxconn might become influential enough to demand higher prices from its consumers.  This might lead to a better working environment for its employees.  The chances of this happening are slim however, since Foxconn’s costumers can simply direct their FDI to another country giving evidence of the aforementioned statement; Chinese workers are at the mercy of private firms and showing the negative effects globalization has brought to the market. 

Foxconn: Company Structure

China has over one million citizens in its workforce, and Foxconn has become its main workshop.  Becoming the world’s largest producer of consumer electronics has led the company to hire a massive amount of workers.  80% of all the people that rush to get a job there actually get hired (Weir).  Foxconn’s smallest factories employ 20,000 people while its two largest ones house around 400,000 workers (Ngai 3).  By China relying so heavily on FDI, its working class is now stuck in a state of harsh working conditions.  In 2010, eighteen Chinese workers attempted suicide by jumping off one of Foxconn’s manufacturing facility.  They were all between the young ages of 17 and 25 years.   

            The Chinese government dismisses the horrible treatment of workers because Foxconn provides different territories around the country with a boost in their GDP.  This gives government officials an incentive to dismiss claims by the working class that is faced with mistreatment.  In fact, an interview involving an anonymous Foxconn worker actually showed how the Chinese government is aiding Foxconn; “Foxconn is hiring, the whole city has gone crazy too.  Local officials grab people and ask if they’d be willing to go work at Foxconn.  The government has made it an official task.  Officials at each level have a recruitment quota.” (qtd in Ngai 13).  In two of the cities Foxconn has facilities in, human resource officers actually assisted walk-in applicants to directly apply to Foxconn.  All these governmental services have lowered the costs of recruiting and finding workers (Ngai 13).  Foxconn also manages to find laborers by using students of vocational universities.  The students have no say in the matter of where they go to work, meaning that many of them do not get to use the skills that they learned in their classes.  The Chinese education department and government officers more or less force schools to make students intern at Foxconn factories around China.  Foxconn prefers these to normal workers because it exploits a legal loophole that allows the company to hire the students without requiring them to sign a labor contract.  By doing this, students are not defined as employees and are not protected by the “regulations” of the Chinese labor laws.  This leaves many young workers without the benefits of the trade union and without the reassuring default of labor disputes (Ngai 14).    It works as a sort of de-humanization process that leads workers to question themselves every day they work.  Part of the problem is with the Chinese companies’ hierarchical management as seen on the diagram on the right.   The pyramidal division of label consists of thirteen levels.  There are three major levels that include the thirteen levels of the pyramid.  The top level gives those in command rewards such as share dividends, the middle level supplies the worker with housing and the bottom level, where the laborers of the manufacturing plant are found provides only minimal wages.  As shown in the assembly line diagram, the workers are subjected to different levels of management; essentially making them deal with multiple bosses at their respective stations.  The workshop of each facility includes line leaders and their assistants, team leaders and supervisors.  The division of labor is so strict and specific that the workers start to consider themselves as simple nobodies.  Their job is work for the benefit of their superior.   The harder and faster they work, the better compensation for the line leaders of that area, which in turn provides the department section with more money; leading to a trickledown effect where the actual laborers do not gain any more money for working harder, yet get punished severely by their superiors if they do anything wrong.  As soon as they start working, the students are caught in a hopeless environment.  An interviewed student-worker said, “I fell that what I’ve learned in my major is of no use…We don’t learn any technical skills at Foxconn; everyday is just a repetition of one or two simple motions, like a robot” (Ngai 15).  The workers are displayed as costs more than they are thanked for their hard work.  Without them the manufacturing of products would not be possible.  The control the company has over its workers along with the exploitation of students has led Foxconn to grow even quicker.  The cut of costs has supplied the company with more financial gains.  This has led it to expand its facilities and exploit even more of the Chinese work force.  By gaining more money, it gives even more incentives to Chinese officials to promote the company and aid its financial growth.  Local governments actually compete among themselves in order to house within their region the next Foxconn facility.  Government officials negotiate with the company’s president, Terry Gou, and offer him a myriad of incentives; from tax cuts, to resources such as land and already existing infrastructure, everything seems to be at the mercy of the company in China. 

            Such business practices should lead businesses like Apple and HP to question if Foxconn would be the right company to invest in.  The company, however, has devised a plan to keep away any unwanted attention.  Shenzhen Longhua, the biggest manufacturing facility that the company owns house around 430,000 workers.  It is labeled a “campus” by the managers of the company because that is the image it tries to portray.  “The 2.3 square kilometer facility houses the actual assembly factory, the warehouses for the materials, twelve-story dormitories, an employee care center, banks, two hospitals, a library, a post office, a fire brigade, an exclusive television network, an educational institute, bookstores, soccer fields, basketball courts, a track and field, swimming pools, cyber theaters, various supermarkets, multiple cafeterias, restaurants and even a wedding dress shop” (Ngai 17).  This facility is used to model the company for its customers.  The other manufacturing facilities do not have any of the additional perks found at the Shenzhen Longhua plant.  This shows just how quick investors are willing to dismiss the unethical behavior that is practiced by their manufacturing companies.  If they truly cared, they would at least perform some research on the companies they are investing before drafting a contract.  Instead, international companies care about the costs, leaving the workers to fend for themselves in an unsafe environment.

            The philosophy of Terry Gou follows that of a Chairman Mao’s Communist China.  He has been quoted saying things such as “leadership is being decisive.  Leadership is a righteous dictatorship.  Leadership is a battle between experimenting and practicality”.  In fact, it is safe to say that he follows his same mentality.  Foxconn tests its higher level promotions by asking them to write, from memory, Gou’s quotations some of which read like this; “Execution is the integration of speed, accuracy, and precision.  Suffering is the identical twin of growth.  Outside the workplace, there is not high-tech, only execution of discipline” (qtd by Ngai 20).  Such strict mindsets are usually frowned upon in the developed world, yet in economies of the lesser developed nations, it is not accounted for if it is for the benefit of the western firms.  FDI, in China has provided men like Gou with power to stand on the backs of the lower class and proclaim the notions of a failed governmental state.  Looking at Foxconn it seems like the more globalized the world becomes and the more that developed nations exercise their rights to do as they please with the freedoms, the more that wealthy individuals from developing nations such as China seem to hang on to their past ideals. 

 

 

Foxconn: The Working Conditions

            Inside Foxconn, workers are subjected to long hours, non-existent social link and little to no privacy coupled with low wages.  Most factories have poor ventilation, leading to high temperatures during the summer.  In the middle of a Chinese summer day, the assembly line’s room temperature can spike up to 95degrees Fahrenheit.  Poor ventilation and the buildup of aluminum dust led to an explosion that killed two workers and injured more than seventy workers (Weir).  While they are working, workers are not allowed to speak a single word to one another.  Doing so will lead to a penalization point, the gaining of a single point is enough to make a worker lose their monthly “bonus”.  Psycological stress is easy to come by at Foxconn.  Every day, before starting their work, they are asked “How are you?”, and the workers have to shout “very, very good!” in unison (Ngai 21).  Women workers who were interviewed have recalled stories about their punishments if they make any sort of mistake.  In one instance, they were all forced to stay after their shift was over and watch as one of them was humiliated publicly by her peers.  Whoever makes a mistake has to read-aloud a self-criticizing note.  If the person cries, she is yelled at more.  As discussed before, the division of labor is very strict.  This causes the each subsequent tier of worker to treat their inferiors harshly because they are under pressure by their bosses.  So in the production line, workers are made to work faster if a line leader is rushed by section managers.

            Life inside the factories is gloomy.  Workers are not allowed to have phones or visits from their family.  They also have to sleep in small rooms with six other strangers and must also pay for the room.  Most shifts end at eight hours yet almost every worker is imposed four hours of overtime, most of which are unpaid.  As of March 2011, the basic monthly wage of a person who worked 40hours a week was $186 at Shenzhen, factory that paid the most, while every other factory fell below that payment. 80% of workers interviewed said that they had less than four days of rest in a whole month during peak seasons of production (Ngai 24).

            With these working conditions it is easy to see why eighteen workers attempted to take their lives in 2008 with many more taking place until this very year.  The worker’s physical as well as psychological limits were reached, leading them to commit suicide by themselves as well as in groups.  Tian Yu was one of the people who attempted to commit suicide in 2010, however she lived.  Unfortunately, she will now live the rest of her live on a wheelchair or a bed, due being paralyzed.  On May 17, 2010, just a few weeks after she started working, Tian jumped from the building where she worked.  In an interview months later she said;

“I entered Foxconn on February 8, 2010, and asked to go straight to work the next morning…I lost my way.  Finally I arrived at the line-late my first day of work…At the time when I should have received my first month’s wages, I didn’t get my wage-card.  I asked my line leader what went wrong.  She simply told me to ask at the Guanlan plant [an hour away by bus].  There I asked one after another and still couldn’t find a clue.  I was like a ball being kicked around.  No one tried to help” (Ngai 34).

The suicides created a spark in media coverage.  All of a sudden Foxconn and Apple were inundated with questions regarding ethics in their business.  In order to calm the global uproar, Foxconn agreed to raise the worker’s salaries (though not by much).  Similarly, Apple agreed to help Foxconn develop a counseling center so that workers could vent and express themselves (Weir).  But the problems still continue.  When Foxconn decided to raise the basic wage of its employees, workers said that they noticed a clear increase in production and their workload, most likely to offset the costs.  As firms such as Apple expand and sell their product globally thanks to the unification of the markets, workers in less developed countries have to work more.  Before the workers received a raise, they produced an output of 5,120 cell phone cases a day.  This number increased to 6,400 a day, leading to many workers to feel even more exasperated than before (Ngai 26). 

            So why do people do it?  Why do people resort to this treatment if they know what is happening?  When ABC News Correspondent, Bill Weir, visited China to see the working conditions, he discovered something important.  While many people were having a horrible time working for the Foxconn factories, and the Foxconn suicides were being broadcasted all over the media, thousands of people lined up in order to get a job at the Foxconn facilities.  When he asked some of them why they wanted to do this, they said they wanted some work experience or that the suicides just did not intimidate them.  As Weir dug deeper, he found out that the families of the workers inside the facilities were living a better life due to their family member working there.  To many Chinese people, Foxconn shows hope for a better life.  While many of them were being forced to participate through work-study programs, there were even more that searched for jobs in order to give their families a better life.

            Another interested fact about Foxconn is that it is actually considered one of the best Chinese companies in terms of employee treatment.  This has caused many to question just how bad the working conditions in developing nations are.  While many look at Foxconn with a scowl, they forget that there are hundreds of other firms in hundreds of other countries that are doing the same thing (Weir).

 

 

Change in the Industry: The Power of Stakeholders

Exploring the negative effects of globalization through FDI is a double edged affair.  It is very easy to point fingers and say “don’t do that”, but the change must come from the demand source itself.  It is safe to say that most companies only answer to stakeholders and the people who influence the monetary situation of the company.  Foxconn itself follows what is called the Friedman Doctrine which states that “the only social responsibility of businesses is to increase profits as long as they follow the law” (Hill).  There are others such as Post, Lawrence and Weber (creators of the stakeholder concept) who say that a company should listen to the needs of both the primary and secondary stakeholders (Barnett 147).  They say that companies should not just worry about the people who own the majority of the stocks, but the workers themselves, who are making the profits possible.  However, many corporate managers only see the owners of stock as stakeholders.  Since the companies feel like they have to answer to their shareholders, there is really only one way to make a company change the way to proceed with their business; keep them from making profits.  However, money is the most powerful tool that consumers have against corporations, not only because money can buy most of the things in today’s globalized world, but because the consumers hold the profits of the company themselves.  By cutting off their monetary supply, consumers literally hold corporate change in their pockets.  This can prove an extremely difficult task however, seeing as people have become enamored with Apple products and consumer electronics in general.  By March 2011, Apple had sold over 108 million Iphones and over 19 million Ipads (Richman 1).  Apple has already shown that they will not do much until they are forced to, especially since the reason why they did not sell more was because they could not produce them fast enough (Weir).  When the deceased Steve Jobs was replaced by Apple’s current CEO, Tim Cook, he simply stated that Foxconn was a great facility that listened to the demands of its workers and that Apple would not work with them, unless it knew.  Cook also said that Apple takes working conditions very seriously and will not accept its partners cutting corners (Weir).  This was obviously not true, since the most Foxconn did to stop more suicides from taking place was put a bar over every window and place a large net around its facilities, essentially boxing in its workers and worsening the situation.  Normally, domestic factories that create products and jobs earn enough money and gather enough attention to make sure that the government invests capital into the enterprises.  As time has shown however, China is not willing to do this in order to keep costs down and keep FDI from slipping away, giving even more reason to secondary stakeholders (the consumers), to step up and demand the change themselves. 

Conclusion

            Globalization has led to a new, more open environment for business to expand upon.  It has also completely changed civilization by leading to a more unified world.  Transactions can take place halfway around the world, in order to buy a product that was inexpensively produced in an underdeveloped nation.  Businesses such as Apple, Sony, Microsoft and Dell are able to grow at a massive rate due to the increasing profits they make, thanks to the cheap labor of other countries.  Similarly, companies such as Foxconn have grown substantially during the last three decades due to the investment that western companies provide them with.  This however, has an adverse effect.  Not only are jobs from western countries transferred to the developing nations; the jobs are created only because the companies can exploit cheap labor through unethical behavior. 

Workers at Foxconn, the world’s biggest manufacturer of consumer products, are caught in unending cycle of mistreatment and dangerous working conditions due to China’s heavy reliance on foreign direct investment.  The workers cannot voice their opinions due to the surplus of cheap laborers that can be easily used to replace them.  Furthermore, companies like Apple mainly answer to their primary stakeholders which hold stocks in their company and only care about immediate profits.  The most viable option to change the way companies such as Apple change the way their suppliers change their standards is by consumers speaking with their wallet and even that has a very slim chance of happening.  Many people look at the glamour of consumer products without realizing the labor that went into assembling the electronic.  This makes it harder to impose upon companies to change their ways and has left the working population of developing nations to fend for themselves.  China, in essence, has lost a lot of its sovereignty to the likes of private western companies that only care about profit.  By investing in Chinese manufacturing companies, companies like Apple and Sony have made it impossible for China to improve its labor laws in fear of losing profits from western investments. 

The Chinese government will continue to help manufacturers like Foxconn profit from the working class without giving them the proper treatment even though China is part of the United Nations.  Though the global union has vowed to upheld ethical behavior in the international market place, China has yet to sign the Declaration of Human Rights proposed by the UN, making it almost impossible for western nations to impose laws that demand the ethical treatment of its workers.  While Foxconn continues to grow, a global “race to the bottom” will be maintained as other companies find way to offset costs and provide their western customers with cheaper manufacturing costs.   Until an answer is found to offset the negative effects of market and production globalization, workers, such as those in Foxconn will continue to be subjected to unethical treatment and bad working conditions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Works Cited

Barnett, Tim. "Corporate Social Responsibility." Encyclopedia of Management. Ed. Marilyn M. Helms. 5th ed. Detroit: Gale, 2006. 137-141. Gale Virtual Reference Library. Web. 9 Dec. 2012.

Barboza, David; Chen Xiaoduan Contributed. "Clues in an IPhone Autopsy." The New York Times. The New York Times, 06 July 2010. Web. 01 Dec. 2012.

Dinges, Thomas. "Press Release." Foxconn Rides Partnership with Apple to Take 50 Percent of EMS Market in 2011. N.p., 27 July 2010. Web. 09 Dec. 2012.

Hill, Charles W.L., International Business – Competing in the Global Marketplace, 6th ed.

Ngai, P, and J Chan. "Global Capital, the State, and Chinese Workers: the Foxconn Experience." Modern China. 38.4 (2012): 383-410. Print.

Reich, Robert B. The Work of Nations: Preparing Ourselves for 21st-Century Capitalism. New York: A.A. Knopf, 1991. Print.

Rouland, Roger. "Foxconn Technology Co., Ltd." International Directory of Company Histories. Ed. Derek Jacques and Paula Kepos. Vol. 121. Detroit: St. James Press, 2011. 188-193. Gale Virtual Reference Library. Web. 1 Dec. 2012.

Weir, Bill, prod. "A Trip to the IFactory." Nightline. AmericanBroadcastingCompany. ABC, New York City, New York, 20 Feb. 2012. Television.

Stories from Eric Francisco Vicente-Flores

Thursday, June 5th, 2014

  There are two types of globalization; that which involves the market and the other that involves production.  Globalization of markets refers to the merging of historically distinct and separate national markets into one huge global market.  Globalization of production on the other hand, refers to the “sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production; such as labor, energy, land and capital” (Hill).  It is safe to say that the current standing of the world can owe its debts to globaliz