Foxconn’s Labor Condition

Introduction (A)Background of Foxconn Foxconn is the subsidiary of the Hon Hai Precision Industry Co. , Ltd. , which is a Taiwanese multinational electronics manufacturing company headquartered in Taiwan. It is the world's largest maker of electronic components. Foxconn is primarily an original design manufacturer and its clients include major American, European and Japanese electronics and information technology companies. Notable products manufactured by the company include iPad, iPhone, iPod, PlayStation, etc.Foxconn has factories in many different countries, which together assemble around 40 percent of consumer electronic products in the world. The reason why Foxconn become famous is that it helps Apple to assemble iPhones. In recent year, demand for Apple’s products increase dramatically. Foxconn thus mainly focus on assemble its products and receiving fewer orders from other company. However, Foxconn has been involved in several controversies, most relating to how it man ages employees in China since it is the largest private-sector employer.The employees’ suicide cases are reflecting on this problem. Therefore, Apple hired the Fair Labour Association to conduct an audit of working conditions at Foxconn in 2012. (B)Issue of the news Strike was happened in Zhengzhou factory of Foxconn in 5 October this year. Three to four thousands of employees stop working. This may affect the progress of the production line for assembling the iPhone 5. The poor working conditions are the main reason lead to the strike as Foxconn did not concern about the physical and mental health of employees.The long working hours make employees feel tired. Their effort put into the work did not have reasonable return as they only earn a very low wages for such a long working hour. Employees therefore cannot concentrate on their works. Moreover, Employees face high pressure working at Foxconn. Recent news had pointed out that Foxconn workers were fail to meet the high prod uct quality standard of Apple, because the structure of Iphone 5 is more complicated and workers have not been given enough training before they start their work, so high failure rate is obtained.The long working hour and the unsatisfactory in the production of the iPhone 5 make employees therefore face tremendous psychological pressure. Although the spokesperson explains it is only the employee dispute and will not affect the factory production. We disagreed that the strike did not bring any negative impact to Foxconn. In this report, we will examine the consequences of the strike and recommend suitable methods to solve the problem in order to minimize those negative impacts bring to the Foxconn. CausesFLA has investigated that Foxconn was fail to provide reasonable work time, compensation as well as working condition for the workers. For instance, more than 40 percent of workers had experienced or witnessed an industrial accident in the factory. (A)Long working hour with low wages The long working hour is unreasonable to the workers. In Foxconn, workers have to work for twelve hours per day excluding overtime working but they only have two to three holidays per month. Thus, they need to work over seventy hours per week and they can only get one holiday after working for ten to fourteen days.The average number of hours worked per week at Foxconn is found to be exceeded both the Fair Labor Association (FLA) Code Standard of sixty hours per week and the Chinese legal limits of forty hours per week. The wages of the workers are also relatively low. After raising the wage in 2010, the basis wage of a worker is about two thousand dollars per month. It is not reasonable for such a long working hour but the wages is so low. If the workers want to earn more, they need to work over time so that they can earn about four thousand dollars in which over 70% of the wage are overtime pay, reward and allowance. B)High pressure Leadership had high demand requirement for the q uality of iPhone 5, for example the appearance of effect can only within 0. 02 millimeters. But Foxconn did not provide any training course for employees, employee faced difficulties in producing such perfect iPhone 5 under the strict requirement. Supervisor blamed the assembly workers every day not only because of the failure in producing the perfect product but also because of receiving so many complaints about the appearance of iPhone 5 from all over the world. In Foxconn, worker is like a machine.Workers are specialized to maximize the productivity of the factory. They are required to complete each action in two seconds. Furthermore, workers who go to toilet more than ten minutes, talk or fail to meet the product targets will receive warning or even dismiss. The workers therefore are under pressure due to the tight schedule and the dissatisfaction of the products’ quality from the ultimate users, the supervisor and themselves. Consequemces Employee is a very important ass et of a company as it can’t function well without enough manpower.It is very obvious in the manufacturing company that without enough workers it cannot produce the goods on time which may affect their profit as well as their reputation. Foxconn may need to delay or even fail in delivering the iPhone 5 to Apple on time due to the strike. It may need to compensate the loss that Apple incurred due to the insufficient supplies of iPhone 5 which may decrease the profit estimated by Foxconn. Also, the complexity in producing the iPhone 5 may increase the cost of production as the raw materials used may be more than expected while the imperfect iPhone 5 provided for Apple may affect the reputation of Foxconn.Besides, Foxconn’s bargaining power may decrease due to the failure in providing the products that the customers wanted. Recommedations We are confident that Foxconn may suffer loss due to the strike and we are going to give some recommendations to Foxconn in order to min imize the potential loss that may incur. We suggest Foxconn to increase the basic salary, hire more employees and provide more training to solve the above problems. (A)Increase basisc salary Employees in Foxconn receive low basic salary and they have to work overtime in order to earn enough money for maintain their living standard.According to the National Bureau of Statistics of China, the consumer price index of food, clothes and necessity increased by 5%, 3. 1% and 2. 2% respectively in October (compared to same period last year). ( http://www. stats. gov. cn/tjsj/jdsj/t20121112_402850686. htm). The inflation further increases workers’ burden of living. If Foxconn increase workers’ basic salary then they do not need to work overtime which may shorten their working hour. (B)Hire more employees Employing more workers can also shorten working hours.Foxconn is now using two-shift system, so workers need to work for twelve hours per day. If more workers are employed and three-shift system is used, workers only need to work for eight hours per day. Under this system, the factory can still maintain 24-hours operation while workers have shorter working hours. Besides, employing more workers can release workers’ great pressure. Workers are required to maintain high efficiency, so they are not allowed to do unnecessary things even talking and smiling.Based on the investigation, nearly half of the employees feel stressed while working (http://cn. nytimes. com/article/business/2012/11/06/cc06foxconn/zh-hk/? pagemode=print). If Foxconn employ more workers to share the heavy work load, workers do not need to work with the unreasonable high efficiency. Then, their high pressure can be released. (C)Provide more training By providing training resource to frontline workers, the workers are able to much more familiar with the technical knowledge of the products, and lower failure rate which may also reduce their pressure.For example, Foxconn can invite a specialist from Apple Incorporation, in order to introduce or demonstrate the technical knowledge about product manufacturing in front of the frontline workers. Therefore, the probability of making mistakes decrease, workers will not be punished and they can be more relaxed. Although the above practice will raise the operating cost of the factory, the potential benefits can resolve the existing problems of the company that is the settlement of the worker’s strike. How can the recommendation be beneficial to Foxconn The suggestion we recommended not only minimize the potential losses that may incur.It can also improve the overall situation of Foxconn in management accounting perspective. (A)Higher fixed cost structure Hiring additional employees lead to an increase in fixed cost, while increase in overtime pay rate lead to an increase on variable cost. Since the specialist salary and training materials are usually a fixed amount, the overall training cost is regarded as fixed cost in general. With the assumption that China has great growth potential, and the global economic atmosphere will be improved in the coming future, a low variable cost tructure and higher contribution margin ratio are most preferred. The reason is that Foxconn’s profit will increase more rapidly as sales increase, in other words, greater profit can be resulted in good years. In addition, our recommendation helps workers are able to take enough rest, so that higher efficiency can be achieved. (B)Ethical concern – CSR Apart from amending the cost structure of Foxconn, we suggest the management should take account of corporate social responsibility in decision making process.With reference to the article of Foxconn worker condition, they received low paid relative to excessive worktime and they suffer in high working pressure, especially in assembling the Iphone 5. By introducing corporate social responsibility, Foxconn should consider the needs of all stakeholders incl uding employees when making decisions. In details, it should provide safe and humane working conditions for workers. Also, it should pay fair compensation and provide opportunities for training, promotion and personal development.According to KPMG International Survey of Corporate Responsibility Reporting 2011, reputation on brand, ethical considerations and employees’ motivation are top 3 businesses imperative that drive companies into corporate social responsibility. It indicates how companies enjoy the result of corporate responsibility. Except voluntarily fulfilling the moral obligation, a company can develop a good image in society which enables them to attract loyal customers. With the positive reputation, the company will be distinguished from the others and become the customers’ preference.Besides, employees tend to stay in the company with goodwill and work hard with the enjoyment of being ethic. Thus, corporate responsibility increases employees’ loyal ty and productivity. The potential benefits of corporate social responsibility will be the incentive of Foxconn to take their employees into consideration and provide better support for them in decision making process. Conclusion To sum up, we think that the strike may bring negative impacts to Foxconn and it should find ways to prevent it and solve it as soon as possible in order to minimize the loss which may incur.Our recommendations of hiring additional employees and providing training resources will lead to an increase in fixed cost, and net income will decrease consequently with the assumption that the variable cost keep constant. However, we believed that the decrease in profit can be compensated by the overall benefit bring to Foxconn by increasing the workers’ morale, production efficiency and higher product quality. More importantly, it helps Foxconn to create a positive public image. Since our recommendation will lead to a significant increase in fixed cost, Foxcon n should pay attention to its sales volume.It is because increase in fixed cost will lead to an increase in break-even sales volume, so margin of safety will be dropped consequently. It means that the risk of incurring a loss will become higher. Therefore, Foxconn should ensure that current sales level should above or equal the break-even sales volume, and prevent from emerging loss. However, it is expected that Foxconn can still have a steady growth in sales volume in the coming future, because there is still huge demand in Apple products.