Foxconned Out of a Job
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Hon Hai Precision Industry Ltd., also known as FOXCONN, is the largest and fastest growing multinational that builds 3-C electronics to industry leaders has become synonymous with Apple (NASDAQ: AAPL) and complaints over labor practices in China. These complaints have resulted in a number of wage hikes and concessions.
FOXCONN operates on razor thin margins already, between 1.1% and 1.5% in 2011, and these numbers are not going to improve. While Wall St. is expecting both sides to have to eat part of these wage and cost increases, which Apple can certainly afford, ultimately production of these products will be pushed to other areas of the world or eliminate those same jobs through automation
And that’s exactly what is on the table. FOXCONN has moved into central China and Vietnam, but in no way close to the $5 billion that was announced in 2009. Most of the projects either have not begun or are progressing slowly, according to a report last fall. While labor is cheaper in Vietnam it is not necessarily higher quality which has hampered foreign investment in the past.
The bigger threat to the labor complaints leveled against FOXCONN will be elimination of the jobs themselves the old fashioned way, through automation. The twist this time will be that FOXCONN employees will be building the robots themselves. Global robot sales rose 18% in 2011 and FOXCONN’s robotics division is looking at deploying as many as 1 million by 2014, putting their excellent implementation of scale and lean manufacturing to a real test.
The Great Shift
The same people complaining about working conditions are also worried that these jobs will also go away thanks to the robots. But, this is the same argument the carriage makers made when the automobile was invented. If FOXCONN’s labor force is reduced significantly it will only be so because these workers will find competitive work somewhere else making the same or better wages.
The real shift, economically, is when these Chinese and other Southeast Asians can afford the products they are producing, which is just beginning to happen. Right now American multinationals, like Apple, outsource their production to places like China or Malaysia who then ship them back to be bought by Americans. But, as we’ve seen time and again this earnings season, the highest growth for these companies is coming from this same area of the world. Eventually, Apple, as an American concern, will be a design and blueprint company earning royalties on products many of their people may no longer be able to afford.
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