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Foxconn's factory in Foshan City, located in southern China's Guangdong province, is seen here in June. Foxconn has announced plans to build a new Northern China factory, amid financial losses.  (Source: AFP/Getty Images)
China's largest consumer electronics manufacturer is struggling under international scrutiny

A local notice posted on the government bulletin board in Henan city of Hebei points to Foxconn moving ahead with plans to build another massive city-sized manufacturing town nearby. 

The creation of the new Northern plant marks Foxconn's latest bid to stem the tide of suicides and disgruntled employees.  Foxconn has tried a variety of schemes to stem the suicides -- buddhist monks, letters asking employees not to kill themselves, and most recently safety nets.

However, the moves that may be having the biggest effect are also the most expensive.  Foxconn raised wages for its employees and additionally may be relocating some production to cheaper Vietnam or building replacing employees with robots at a Taiwanese facility.

It's also begrudgingly going ahead with plans to build the Henan plant in Northern China, despite the fact that it will have to pay the employees higher wages.  By moving its production closer to its migrant worker's homes it believes they will be happier.  Many employees report being distraught at leaving their families and traveling long distances to reach the current plants.

Employees at the new plant will be paid a basic wage of $176 a month during their three-month probation period, with total income up to $340 a month (with overtime).  After passing examinations, the monthly wage would rise to $300 a month, with total income of up to $440 a month.  Overtime is limited to 3 days a week, and one day a week will be guaranteed off.  

These higher wages are having an impact on the bottom line of Foxconn's parent company Hon Hai Precision Ltd.  The Taiwanese firm released a document [PDF] stating that due to these and other factors, its first half losses for this year would increase from the first half loss it posted last year.

Foxconn's dilemma is that it needs cheap labor, but moving to new facilities in Vietnam or Taiwan could incur many additional costs.  Building new plants in China, where Foxconn is already well established is respectively cheaper.  Plus China has an immense worker pool with an estimated 150 million migrant workers.  Many of these workers are at a prime age for manual labor, with two-thirds of them between the ages of 16 and 30.

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RE: New Plant
By Estee on 6/30/2010 8:34:45 PM , Rating: 2
A couple of things to note on this, as I discussed with Foxconn internal management/employees:

- This was something in process a while back. Foxconn did not become the world's largest CM by sitting on its laurels. They new that the Shenzhen market would go hot and costs would rise accordingly which would necessitate and eventual relocation on some (i'll get to this next) production

- The thought is that companies that want more value / experience would stay in Shenzhen (LH), but of course would have to pay the price delta (i.e. Apple). The small margin products (like computers) would go to other Foxconn sites

- Even internal management doesn't understand the basis of all the employee salary raises. One line-manager told me that even in some cases, the day-to-day uneducated line workers are now making more money than the engineers there! Foxconn is notoriously cheap and stingy when it comes to costs, so this be a business decision based on a simple principle: kill your competition! Foxconn has many locations setup inland already (as well as a cheaper supersite - see below). If they artificially drive up worker costs in the more predominantly urban areas (Shenzhen), it would force other CM's to move out. However, Foxconn already has many sites setup in China, where the other CMs don't. This would effectively kill them and make Foxconn the defacto supplier of cheap labor again which would enable them to renegotiate labor margins again even with the higher employee salaries.

- There is one wild card here that none of the media outlets have discussed (due to the sensationalism of the suicides): Vietnam. Foxconn has invested in a super-site/city that will trump all of their China factories. This was built with a 5-10 year plan in mind for mucho-mass production products (think phones - hint hint). It is 3-4X the size of the largest Chinese plant at this time and could accomodate up to 600K+ people. No one knows why Terry G. (CEO of Foxconn) has used this trumping card, as he is notoriously frugal and very business-savvy.

"It's okay. The scenarios aren't that clear. But it's good looking. [Steve Jobs] does good design, and [the iPad] is absolutely a good example of that." -- Bill Gates on the Apple iPad

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