Foxconn Labour Exploitation Deadlock

By Vincent Zhang

 

Image Reference: http://blog.sina.com.cn/s/blog_67ae918d0100jbe7.html

It is no surprise that China is the ideal place for large manufacturers like Foxconn to profit due to its generally low cost of labour and loose scheme of labour law enforcement. However, what if we say that China provides the necessary environment for “Foxconns” to survive? It would be astonishing to learn that such enterprises cannot even sustain without exploiting their employees, but after having a closer look at the business nature and profiting mechanism of Foxconn, we might come to understand the soundness of the statement.

It is estimated that Apple can draw nearly 60% of the profits from each iPhone 4 product. Such a high rate of profit is mainly due to its strong bargaining power and ability to set the contract prices with its various suppliers (Eastern Morning Post, 2010). As revealed by the graph above, among the total price of $600 paid to Apple for each handset, only $6.54 goes to the assembly sector, which is mainly represented by Foxconn. The situation became more harsh for Foxconn when the world witnessed a significant shrink of demand in almost every industry as a result of the international financial crises breaking out in 2008 and 2009, after which the manufacturing lion received a 83.2% decline of net profits than 2007 (China Accounting Newpaper, 2010).

Out of such a limited space of profiting, the only way out for Foxconn is, quite understandably, to reduce its costs to as low a standard as possible. A statement revealing the strategy is recorded as follows: “When the price decreases by 30%, the quantity of orders must be correspondingly increased to reach the balance. And in order to further increase the profit by 30% you need additional 30% more of the orders. But the problem is that you never increase 30% of labours (to achieve the above ambition).” Therefore by the end of 2009, the number of Foxconn employees expanded by 9.7% as compared to 2008 and reached 117 thousand, while the total labour cost declined by 28%, with each Foxconn employee earning 34% lesson average (China Accounting Newpaper, 2010).

The figures above seem to imply that the only marginal profit for such manufacturers can only come from the exploitation of its workers. Once such exploitation becomes impossible, the consequences can be disastrous for them. The recent 2011 Foxconn yearly financial budget showed that due to an increase in salaries by 16.5% (565 million US dollars), it registered a loss of 218 million US dollars (Foxconn Received Loss Due to Salary Increase, 2011).

Question regarding Foxconn’s sustainability ensues. When conflicts accumulated to certain level, events like the serial suicides usually break out, raising social concern and resistance to the specific Foxconn mode of production. On the other hand, Chinese government, especially Guangdong province, has determined to take initiate to reform its industrial structure so as to depend significantly less on the manufacturing sector, which yields little profit but causes huge external costs and social problems. That China might abandon its “world-factory” label in the foreseeable future can therefore produce profound influences on the world-wide supply chain and the function of many international enterprises like Foxconn and Apple behind.

References

China Accounting Newpaper. (2010). 《富士康成本死局》. Retrieved 4 18, 2011, from JRJ.com: http://finance.jrj.com.cn/biz/2010/05/2803557540781-1.shtml

Eastern Morning Post. (2010). 《iPhone 4 成本187美元组装最不值钱》. Retrieved 4 18, 2011, from NetEase: http://tech.163.com/10/0707/06/6AVHIB2Q000915BE.html

Foxconn Received Loss Due to Salary Increase. (2011). Retrieved 4 18, 2011, from TGBUS.com: http://iphone.tgbus.com/news/class/201103/20110331105041.shtml

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