The Foxconn Lesson – or how to get ahead on 13 suicides
by admin , June 21, 2010, 1630hrs
By Lee Han Shih
hanshih@corporateobserver.com.sg
If you admire those who can find business opportunities from multiple deaths, take your hat off to Terry Guo.
In recent months Guo’s Foxconn Technology group is hit by 13 suicides. Most of them took place in his massive factory in Shenzhen, the boomtown city in China that borders on Hong Kong.
For weeks until the Chinese authorities clamped down on the reporting, news of the suicides and reportedly inhuman treatment of workers by Foxconn “secret police” had blanketed the media. Guo is painted as a dictator and a money-grabbing heartless tycoon in the Internet, the medium of choice by ordinary Chinese. Foxconn’s shares – listed in Hong Kong under Foxconn International Holdings with the auspicious code of 2038 – had taken a beating. And there are talks in the United States of pressurising Foxconn’s major clients, which ranges from Apple to Dell and Hewlett-Packard, to change suppliers.
This spate of bad publicity would have cowed any lesser mortal, or even Guo’s fellow hard-driven Taiwanese tycoons. But to the 59-year old man who built Foxconn (and its parent Hon Hai Precision Industry) from scratch in just 36 years, it is merely just another opportunity for him to move his business to another level.
In mid-June, Guo took a three-pronged approach to the suicide problems. He announced a doubling of salary to the workers, he also offered them a chance of a “retirement fund” should they work for a full five-year (instead, say, of killing themselves) and he threatened to withdraw from China and back to Taiwan.
In Chinese military lore, this is known as the strategy of “advancing disguised as retreat”, one that has been practiced for more than 2,000 years.
Just take a look of each of his approaches. China, after more than 30 years of reform, is ripe for a fundamental restructuring of its economy. It can no longer rely on an endless supply of labour on low wages building cheap goods for the global market. The country that now looks set to rival the United States in wealth has to move to a medium wage economy that is partially fuelled by domestic consumption.
Put another way, a wage increase is inevitable. So when Guo stood in front of a large crowd of newsmen and announced his plan to double the salary of his workers, he is merely bowing to reality. But to put it the way he did, he achieved three purposes. The first is that it is now known all over China that Foxconn is a good paymaster. The publicity will help Foxconn to attract good quality labour in a land that is seeing labour scarcity. This also put pressure on Foxconn’s many compatriots/competitors – Asus, Quanta, Acer, BenQ – to raise wages and reduce their competitiveness.
On top of this, raising wages will increase the spending power of the ordinary Chinese, and Guo is out to capture a big slice of that pie. It is known that Foxconn is moving into retail in a big way. It has set a target of building 10,000 electronic goods store in China in the medium term. From this perspective, it is not surprising that one of the “concessions” Guo offered to his workers on the “retirement fund” is also the chance to open up a store in the workers’ hometown.
In a nutshell, a Foxconn worker who has worked five years will be given RMB20,000 (S$4,055, which works out to $2.22 a day) as gratuity. He would be offered the right to run one of those electronic stores under the Foxconn franchise. If enough of them take up the offer, Guo could see his target of 10,000 stores achieved in just a few years.
Given his plan for China, it is ludicrous to think Foxconn would withdraw from China. In fact, days after Guo made his threat, Morris Chang, the godfather of Taiwan electronics and founder of Taiwan Semiconductors, said in a forum that wages in Taiwan has become so high that it is not feasible for Taiwanese to pull out their stakes in China and return home.
Nevertheless, Guo’s threat has hit home. China, after all, is made up of dozens of provinces and each hunger for Foxconn’s investment. Guo may not (or could not) pull out of China, but he certainly can pull out of Guangdong province, which houses most of its 820,000 workers. (The Shenzhen complex houses some 450,000 of them, larger than the population of Iceland.) It would be a dark day if Foxconn really uproots itself from Guangdong for cheaper locations inland. Hence the sudden media blackout on all news Foxconn. It would also surprise no one who knows China that Foxconn actually gets more concessions and tax breaks from the authorities for staying on, which would go a long way to make up for the cost of raising wages.
In all, Guo’s three-pronged approach has turned a potentially devastating event into an advantage which has left rivals scrambling to catch up. The end result is that Guo’s already massive wealth – estimated to be US$5.5 billion – is set to rise even higher.
Despite this, it is difficult to garner much respect for the man. Not especially if you remember the comments he made after 11 of his workers had committed suicide. “What is left of 450,000 after 11 (deaths)?” “Our management style works for 449,989 people. Currently the suicide rate is acceptable.” In countries where workers have much say in their destiny, such remarks would have toppled the man. It says a lot about China that it not only allows Guo to carry on after his utterance, but continues to treat him like a super VIP.
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