Foxconn is China

Foxconn is China
Commentary: Trouble is brewing over suicides and working conditions




I've never met Gou, but by simply following the history of Hon Hai Precision Industry Co. (HNHPF 7.35, +0.10, +1.38%) -- the umbrella company behind Foxconn and other entities -- you have to assume that the man is an operations genius, perhaps the greatest the world has ever seen.

Gou is actually from Taiwan, although he is best known for the huge Foxconn (HK:2038 5.57, 0.00, 0.00%) facility in Shenzhen. I have not seen it. Few writers or outsiders ever get inside.


Hon Hai suicides raise questions about conditions
The recent series of suicides among a number of Chinese Hon Hai employees has brought attention to their working and living conditions. WSJ took a tour to explore the company's factories and housing facilities.

From what friends have told me and from most reports it is "essentially a steel mill on one end and computers come out of the other end."

The plant is reportedly enormous, perhaps two miles long. The walled and private facility is one square mile or more in overall size.

It employs most of the variously estimated 800,000 people working for Foxconn in China. This is roughly the population of San Francisco. The estimates of people working in the Shenzhen facility itself vary from 260,000 to 400,000.

Like much of what is going on in China, it is unimaginable by American standards. It's the company town concept of the late 1800's reborn to a freaky extreme.

Statisticians have pointed out that by generalized Chinese standards, the 12 suicides per 800,000 workers is low. Low maybe, but they are making a statement that the company does not want made.

Harsh working conditions are involved somehow. These factories are not the hellholes one used to find in Hong Kong, so it is hard to know what is going on. Read about Foxconn raising wages and prices.

This factory makes almost every tech gadget we buy. According to various sources, the plant makes, among other things, almost all Apple Inc. (AAPL 253.51, +3.00, +1.20%) products, including computers, phones and accessories. It makes Intel Corp. (INTC 20.64, +0.09, +0.44%) motherboards, many Dell Inc. (DELL 13.15, +0.08, +0.61%) computers, much of the Hewlett-Packard (HPQ 47.19, +0.69, +1.48%) gear and Cisco Systems Inc. (CSCO 22.91, +0.14, +0.59%) routers, the Sony Corp. (SNE 28.60, +0.38, +1.35%) PlayStation as well as the Xbox360 (MSFT 25.66, +0.66, +2.64%) , the Amazon.com (AMZN 123.03, -0.18, -0.15%) Kindle, most Android phones from Motorola Inc. (MOT 7.11, +0.27, +3.95%) and others. Also Nokia Corp. (NOK 9.54, +0.07, +0.74%) phones. The list never ends.

The level of out-and-out skill that it takes to do this variety of products 24/7 is like nothing we have ever seen. In fact Gou and his pals account for much of what we consider the "China miracle."

Supposedly, he needs no clearance to enter or leave China on his fleet of jets. He has his own airport in China along with private golf courses. Gou has also branched out around the world and is known for his ownership of the Roztež castle in the Czech Republic.

Very little is written about the publicity-shy Gou in the U.S., and apparently he is quick to sue his critics.

I'm sure he makes an interesting conversationalist over a beer or a bottle of Petrus.

That said, subtle threats are arising from the Foxconn folks over the suicides and humiliating PR caused by the suicides. These suicide "statements" are not to be taken lightly in a culture where saving face is important.

So what has cropped up in the media is the real likelihood that Gou will close up his tent in China and either go to India or back to Taiwan where he may well duplicate the Shenzou facility with robots instead of people. I guess this enormous plant has already paid out.

This threat caught my attention because on my first visit to the mainland in 1996/97 I visited a nice factory in Suzhou making computer keyboards and I was told then by the plant manager that they would love to get rid of "these people" and go robotic.

When I heard, that I wondered why the U.S. could not compete on the same basis and wondered why American manufacturing is so stagnant by comparison to China. (I still wonder).

Based on his track record, Gou could probably do it and leave close to a million Chinese without work. The factory would be taken over by the government but never really work well ever again.

This, of course, would be the beginning of the end for China, and I think this sort of Big (with a capital B) Capitalism is a societal disaster waiting to happen. It all leads to robots and cavalier management with everyone out of work except the bosses.

And, it appears that they've been thinking about robots for a while. Investors in China should consider the range of possibilities and keep a closer eye on Foxconn, Gou and Hon Hai because it's all leading to a real mess.

An isolated castle might not be a bad idea.