Foxconn Technology Group

This case study highlights the implications and challenges that arose subsequent to the string of employee suicides at Foxconn Technology Group in 2010. The objective here is address some of the issues facing Foxconn which include supply chain responsibility, human capital management, occupational safety, its declining stock price in the midst of surrounding market pressures and the broader institutional context of China’s social policies.

Foxconn Employee Work Life

The average Foxconn employee is only 21.1 years old, the majority of them (85%) do not have any education beyond high school and were thus low-skilled workers, mostly migrants from cities such as Henan, Hunan and Hubei.

Jobs at Foxconn remain highly sought after primarily for their wage rate, which despite being low, pay more than other manufacturers. Unlike other factories, Foxconn offers subsidies for housing, meals and insurance, and free dormitories. In addition, Foxconn engages in legal contracts with their employees which ensures timely, stable and complete pay, something other firms do not provide. For this reason, thousands line up outside the factory in hopes of applying to Foxconn (Appendix A). Despite this, it is clear that employees have not had a positive experience working there, and that it is not a great place to work. Part of this can be attributed to the company culture.

By Mr. Gou’s decision to break down the production process into many simple tasks, workers perform monotonous and repetitive motions to comprise the long 16-hour work days. Furthermore, bathroom breaks are limited, workers were frequently yelled at and there was no speaking allowed on the production line. These practices do not help foster any employee capabilities or competencies. It is clear that there is an imbalance in Foxconn’s employment model, in which the goals of the firm and its employees do not create value for both parties and workers area used as a means to an end. This however, is something entrenched in Gou’s philosophy, who believed that “the company’s benefit was more important than their [employees’] personal benefit”.

Foxconn Suicides

There were an array of different factors which led to the Foxconn suicides, as validated by the testimonials in Exhibit 10 from the case. The main known factors that led to the suicides have been outlined below.

1) Life in Foxconn Dormitories – One of these was the prison-like lifestyle created by the dormitories, in which hundreds of workers sometimes occupied each room. The dorms had no A/C for the hot summers, the common areas were not cleaned or hygienic, theft was rampant and workers were not allowed to freely visit one another.

2) Labor Practices – Despite the Labor Contract Law that was enacted in 2008 to help improve employee wages, benefits, retention, and maximum working hours, they were poorly regulated in China. Though working overtime was not a requirement stipulated by Foxconn, the low wage rate in many Chinese cities made it nearly impossible for workers to live on the minimum wage pay, which was a lowly $90/month in 2007. Accumulating savings or repaying debt was out of the question. This created a vicious cycle of overtime dependency in which many workers took zero days off in the entire month to earn approximately $230/month in 2007. These financial woes combined with the factory’s aforementioned practices and treatment of workers made for a dreadful workplace environment.

3) Migrant Workers and the Hukou System – Given that migrant workers’ hukou’s restricted them from becoming urban citizens, they became trapped by the circumstances they found themselves in once employed. Companies like Foxconn prefer to hire migrant workers since they did not have to pay for their insurance and housing provident expenses as they do with locals. Since migrant workers could virtually never acquire local hukou status and their families could not be educated, served by a healthcare system, or even marry beyond their hukou, migrant workers were stuck. Not only could they or their families never acquire local hukou status, migrant workers were also unable to save enough to support their families financially if they wanted to return back home.

4) Personal and Psychological Issues (Non-Work Related) – Exhibit 10 in the case also cites certain suicides to be accredited to personal problems such as relationship issues. Another one, such as the one of Lu Xin in May of 2010, is accredited to his psychiatric disorder. Though these are not work-related factors, it is important to note that they too play major roles in the wokers’ contemplation of suicides.

5) Special Cases – There were also special cases such as the one of Sun Danyong in 2009, who was allegedly harassed and put in solitary confinement by security offers, suspected of stealing, interrogated, beaten and made a “scapegoat” after being held responsible for losing one of the iPhone 4G prototypes.

6) Family Compensation – Prior to the suicides, Hon Hai/Foxconn offered compensation packages to the families of employees in the case of death, which included suicide. This package consisted of money equivalent to ten years of salary, which some workers cited as the reason for their suicide. (Appendix B)

Who’s at Fault?

Based on these factors, it is evident that there is no simple answer that can explain the series of suicides that took place in 2010. Despite the institutional regime in China and surrounding pressures facing Foxconn, it is clear that the company has played a role in causing the suicides, particularly by choosing not to comply with Chinese labor laws. This in addition to being underpaid, living in poor conditions, the military style performance-based management, abuse by guards and managers, the lack of a support system, and the rest of the factors listed above can be attributable to Foxconn. Though Foxconn must take some degree of corporate responsibility, the company is not entirely at fault. After all, there are several manufacturing firms in China that have worse conditions, yet it is Foxconn that has received ongoing scrutiny on account of its size and massive customers, such as Apple.

For this reason, the Chinese government is also to blame. Part of China’s consistently increasing GDP (Appendix C) can be accredited to its increasing export-based economy. In 2006, a third of these exports were Electronic Goods (Appendix D). The fact that EMS providers had razor thin margins and compete on the basis of price, many manufacturers like Foxconn have no choice but minimize wage expenses to remain competitive, or even alive. It has become a culture not only in the EMS industry, but China overall to abuse “cheap labor”, even if it is at the expense of workers’ safety and quality of life. Resolving this complex issue exceeds the scope of this case, however it is important to understand that Foxconn suffers its own internal challenges and is part of a much larger problem.

Foxconn’s Response

Mr. Gou initiated a “no suicide” pledge for employees to sign, while having suicide nets installed around the perimeter of the factories. Additionally, the monthly salaries were increased to $294 and a 24-hour hotline service was initiated. Sociologists, psychiatrists and spiritual leaders were also hired.

Foxconn’s Challenges

One main challenge Foxconn will face will simply be how to maintain its prices under increasing pressure to better manage its employees. Paying higher wages and decreasing overtime hours will come at an expense to the firm. If these changes still cannot be justified, employee life at Foxconn will continue to suffer and the suicide situation may persist. Another challenge is the growing demands of customers like Apple in the next five years, who will not accept any compromise on quality while Foxconn deals with its internal affairs. Even if Foxconn increases wages, any issues related to quality control will leave the employees susceptible to punishment and continued abuse.

One more issue is upholding and improving the firm’s image, particularly in the Western media, which has been soiled through the suicides and media’s international coverage. In the coming years, the public will continue to become more aware as Foxconn’s internal practices are revealed. This may either result in Foxconn punishing employees or for customers to drop Foxconn as a supplier, which could potentially put many workers out of jobs. Additionally, Foxconn faces the challenge of where to open factories. Expanding into areas where the minimum wage is lower will continue to cause hardships for workers and induce overtime dependency. Lastly, if the stock price does not improve in the next five years, upper level management may be forced to close down some factories or dissolve areas of the company which would result in workers being laid off.

Possible Solutions and Recommendations for Foxconn

Given that Foxconn is both in the international spotlight and also a major player in the EMS industry (with 26% market share), it must become a leader in setting examples for other Chinese manufacturers. Foxconn must start thinking about the future in expansive terms, using the Talent Compact Model as a framework (Appendix E).

Firstly, instead of depending on low-skilled labor, Foxconn must become a global leader and heavily invest in R&D to see how it can atomize its factories’ efficiency, which would cut costs in the long run. Foxconn’s overwhelming number of employees makes it difficult to not only afford, but logistically propagate better workplace standards without compromising on costs. The problem with job creation lies with the Chinese government. Foxconn has no obligation to create jobs, especially given its current situation. Though atomizing its processes will cause Foxconn to require less low-skilled labor and employees, it can better focus on improving occupational standards for this smaller employee base.

Secondly, Foxconn should form a steering group to assess the current state of its employer branding, and obtain information and data through surveys as to what employees would like to immediately see improved. Focusing on improving employee relationships and turning their employees into brand advocates will allow Foxconn to build their employer brand from the inside out. Currently, there is very poor communication between Foxconn and its employees. By having a corporate websites where employee testimonials are shared, it will help increase transparency in a company that was founded on secrecy. This will also help redefine the guiding mission and values that comprise the company’s purpose.

Thirdly, instead of having employees living in fear to discourage poor performance, Foxconn must reward strong employees to encourage high performance and foster opportunity. Foxconn must adapt the AMO framework and managers must provide coaching and reinforcement backed by observation and documentation rather than punishment. Taking a behavioral approach which includes critical incidents (ex. the iPhone 4G leak) and relative comparison approach given the high number of low-skilled employees would be effective, fair and account for special cases. Given the proposed atomization, Foxconn should reward high performing low-skilled employees with eligibility for a training program.

Investing in hands-on training facilities for the low-skilled workers supports the organizational objective of reducing the abundance of low-skilled labor. It will also expose high-performing employees to continuous learning about the new technologies and operation of factory equipment. Doing so would greatly improve employee capabilities and competencies, pay higher wages than low-skilled labor and reduce overtime hours. This will ensure the employees’ motivation for learning and induce self-efficacy during. Foxconn should request government assistance to help subsidize these training facilities, as it would help bring about a skilled workforce while allowing manufacturers save costs in the long term by mechanizing without compromising on quality. Major customers like Apple could also help sponsor training through its CSR initiatives.

Lastly, Foxconn must continue providing 24 hour resources to its employees for stress management, counseling, extra-curricular activities, religious/spiritual accommodations, mental health and psychological therapy, etc. Choosing to expand into areas like Zhengzhou to abuse the lower minimum wage is not a viable solution to its employee branding or internal issues.

By implementing these recommendations and keeping these promises, Foxconn will be able to create synergy by aligning the promise of fair management practices to its employees with the promise to customers like Apple, whose supply chain and reputation will benefit simultaneously. Implementing each of these practices will not only establish a culture based on talent-centricity and authenticity, it will create a stronger value proposition. In doing so, Foxconn’s employer brand will drastically be improved and work-related suicides should be eradicated.

Lessons and Future of HR

This case is merely one of many example which illustrate the costs that companies endure to maintain a competitive advantage. In the unfortunate case of Foxconn, this cost was human life. It also indicates how integral a role human resource practices play in shaping not only a culture, but a competitive advantage that is fair and ethical. It is evident that human resources must engage in two-way communication with all levels of employees in a firm like Foxconn and be proactive in creating opportunities, solutions, addressing issues of occupational safety and well-being, and ensuring successful long-term expansion that aligns with the company’s strategic goals. Failing to do so will not only cause internal issues, but can cause the firm’s reputation to be tarnished on a global scale. The string of suicides in Foxconn was simply a spark that shed light upon various of its employee practices. This indicates the importance of transparency in firms, where secrecy and abuse no longer go unnoticed in the digital age. It is the role of HR to instill fair internal practice and propagate this transparency on all levels of a firm like Foxconn, even in the midst of a broader and more problematic institutional context like China’s.

Appendices

Appendix A: Workers Outside Foxconn

Appendix B: Suicide Letter Excerpt

Appendix C: China’s Increasing GDP

Appendix D: Chinese Exports By Category (2006)

Appendix E: Talent Compact Model

Works Cited

Biggs, John . “The Future Of Foxconn: Problems.” TechCrunch. N.p., 23 Nov. 2011. Web. 2 Mar. 2014. . Chambers, Elizabeth , Mark Foulon, Helen Handfield Jones, Steven Hankin, and Edward Michaels. “The War for Talent.” McKinsey Quarterly Winter 1998: 44-57. Print. Chen, Hanqing. “Who’s Really to Blame for Apple’s Chinese Labor Problems?.” The Atlantic. Atlantic Media Company, 2 Mar. 2012. Web. 2 Mar. 2014. . Chuan, Wu Pei. “Environment and Strategic HRM.” MNO2302 Lecture. National University of Singapore. BIZ2, Singapore. 21 Jan. 2014. Lecture. Fleming, Ryan. “Foxconn Ends Suicide Compensation, May Pass on Wage Increases to Customers.” Digital Trends. N.p., 9 June 2010. Web. 2 Mar. 2014. . Greene, Jay. “Riots, Suicides, and Other Issues in Foxconn’s iPhone Factories.” CNET News. CBS Interactive, 25 Sept. 2012. Web. 2 Mar. 2014. . Chuan, Wu Pei. “HR Planning & Recruitment .” MNO2302. National University of Singapore. BIZ2, Singapore. 28 Jan. 2014. Class lecture. Heath, Alex . “Photos Of The Apple Supply Chain From Inside Foxconn.” Cult of Mac. N.p., 20 Feb. 2012. Web. 2 Mar. 2014. . Lai, Richard. “Foxconn Axes Suicide Compensation, Relocating Some Production to Vietnam or Taiwan.” Engadget. N.p., 9 June 2010. Web. 2 Mar. 2014. . Chuan, Wu Pei. “Performance Management.” MNO2302. National University of SIngapore. BIZ2, Singapore. 18 Feb. 2014. Class lecture. Ready, Douglas, Linda Hill, and Jay Conger. “Winning the Race for Talent in Emerging Markets.” Harvard Business Review Nov. 2008: n. pag. hbr.org. Web. 2 Mar. 2014. Chuan, Wu Pei. “Training & Development.” MNO2302. National University of SIngapore. BIZ2, Singapore. 4 Mar. 2014. Class lecture.

Harsh working condititions, occupational safety, time to USE the facilities, employees know people are ready to take their jobs if they quit

The people outside want a job, and the People inside want to quit

Performance driven culture, beatings, threat of dismissal

“In addition to this ambitious project with the FLA, we’ve been making steady progress in reducing excessive work hours throughout our supply chain,” the company said in its statement. “We track working hours weekly for over 700,000 workers and currently have 97 percent compliance with the 60-hour maximum workweek specified in our code of conduct.”

Despite management’s installation of nets and employee suicide pledges, suicides continued, with two workers from the Zhengzhou branches taking their lives in May and April of 2013.

http://www.pcmag.com/article2/0,2817,2419223,00.asp
http://www.theatlantic.com/international/archive/2012/03/whos-really-to-blame-for-apples-chinese-labor-problems/253892/ http://www.digitaltrends.com/apple/foxconn-ends-suicide-compensation-may-pass-on-wage-increases-to-customers/#!yJ0D6

http://www.engadget.com/2010/06/09/foxconn-axes-suicide-compensation-relocating-some-production-to/ http://www.cultofmac.com/147527/photos-of-the-apple-supply-chain-from-inside-foxconn-gallery/

Thanks for being with me in the learning journey of HRM! We have been sharing issues in strategic HR, recruitment, selection, and performance management. Hope you have fun so far and have accumulated your intellectual capital in HR. Thanks for the team presentations and the participations from the class. I will email each of you during the recess week to provide and seek for feedbacks.

Just a gentle reminder for the Foxconn case (midterm case analysis). some pointers to share…

Deadline has been changed to 07 March, 5pm (not 03 March) to facilitate the recess week break. The submission is through IVLE. Pls submit your case according to your sectional group. 1500 words. pls save your file as docx (with your name clearly stated). I will provide comments and send back to u afterwards. 3 additional pages for extra information plus reference list (so the reference list is not counted under the 3 pages). Use your own