Foxconn is a controversial company. Whenever people bring it up, they do it
in the context of their labor practices. Usually for the purposes of implying, “If you buy
Apple products, you are supporting slave labor.” But Foxconn is bigger than just its Apple
business. They make computers, laptops, TVs, mobile phones (the old school kind), that X-box
everyone is excited about and so much more. In fact, Foxconn is Taiwan’s biggest
company by revenue. Yeah, bigger than TSMC. It made $178 billion last year.
It is a corner stone of Taiwan’s electronic manufacturing industry. And
it does so much more than just assembly. In this video, I want to talk about Foxconn
and its bombastic founder - Terry Gou. But first, the name. Sometimes you hear
it called Hon Hai. Sometimes Foxconn. The company’s official name in Taiwan is
Hon Hai. The trade name is Foxconn - named as such because the company says
that they can produce electronics at "fox-like" speed. I generally
will refer to it as Foxconn here. Foxconn is really big. It
is not only Taiwan’s biggest company by revenue but also the third
biggest technology company worldwide. The company is also complicated. It
is a sprawling company with over 200 known affiliates and subsidiaries. Its
most prominent subsidiaries include: American accessories manufacturer
Belkin. Maker of Apple accessories, routers, surge protectors and USB hubs. Sharp Corporation, the major Japanese manufacturer
that makes televisions and other electronics. Foxconn acquired a majority share in the
company in 2016 after extended wrangling. FIH, manufacturer of mobile phones for Nokia.
Listed stock on the Hong Kong stock exchange. The company has made a variety of
other acquisitions, but most of these are smaller companies with the goal of filling
out Foxconn’s overall service and product lines. Terry Gou founded Foxconn some 46 years
ago first as Hon Hai Plastic Material Corporation - an electrical
components manufacturer. It got its start making plastic turning
knobs for black and white televisions, just another company amongst
many doing this sort of business. But as Terry Gou researched the industry
in an effort to figure out ways to make a better TV knob, he realized that the entire
plastic molding procedure needed improvement. He built a factory capable of improving
the precision of making plastic molds. Customers were very impressed by the
quality of his finished products. Hon Hai‘s next big breakthrough
came when Atari put in an order for 2,600 pieces of a plastic
connector for their joystick cable. Terry soon realized the potential of
the US market. He flew to the US and visited 32 states in 11 months. In trying to
acquire an order from a big US-based PC maker, he booked himself into a motel near an
IBM facility in Raleigh, North Carolina. With persistence, he got an
order for PC connectors from IBM. By 1988, Hon Hai (by now rebranded as Foxconn) had NTD$1 billion in revenue. Three years later
the company IPO’ed in the Taiwan Stock Exchange. Around then the company began exploring
production expansion in the Mainland, starting with a factory named "Haiyang" (ocean)
located in the then-dusty city of Shenzhen. His first employees were 150 migrants from
rural Guangdong, 100 of them were women. Foxconn quickly expanded in China, building
factories in Shenzhen, Shanghai, Chongqing and Kunsan. Local governments looking for economic
growth and jobs offered preferential tax policies and good infrastructure. On the other side,
a titanic macro trend in American and western companies to outsource the dirty work of their
manufacturing to Asia. Foxconn ate it all up. By 1996, Foxconn generated $500 million in
revenue and China was its key production base. Today they have 32 plants in China
employing hundreds of thousands of migrants. In 2001, the company had $4.4 billion and became
Taiwan’s largest private manufacturing company. Four years later in 2005, revenues had
exploded to $28 billion and Foxconn beat Flextronics to be the world’s biggest
electronics manufacturing service provider. In 2006, Foxconn took on the job
of assembling Apple's iPhone. As Apple's fortunes rose, so did Foxconn's.
Apple is Foxconn's single biggest client. Estimates say Apple contributes up to
50% of Foxconn's total revenue. Much of Foxconn's success comes as a result
of the explosion in the mobile industry. Terry Gou is retired now. He tried to
make a run for the Taiwan Presidency but that did not work out. He lost
to a Korean fish in the KMT primary. It is weird to think that he
would try for it in the first place - with Foxconn and himself having
such close ties to the Chinese government. The government literally helped him create a
customs-free zone in Zhengzhou city out of nothing so that they can build iPhones. It's hard to
think that there isn't a relationship there. Foxconn’s general attitude is to stay out of
limelight and to let the main brand shine. So it can be difficult to learn
how they do what they do so well. Their business strategy for their customers can
be best described as “land-and-expand”. Their goal is to be a vertically integrated one-stop shop
for all of their customers’ manufacturing needs. Over the decades, Foxconn has persistently moved
up the value chain. They started with connectors. Then they moved to cables. And from there to
printed circuit boards and finally whole PCs. Their subsequent acquisitions have
been in service of this strategy. For example, they orchestrated a merger of their
subsidiary Innolux with Chi Mei Optoelectronics to help build the largest
TFT-LCD firm in the world. Another Foxconn strategy is price.
Foxconn is a late-comer to markets, but they enter with aggressive pricing. Their size helps fund these new market
entries. They are able to leverage their strengths and profits from one industry to
pay for its extremely low prices in others. In this, Foxconn is like any of the American
tech giants. The big difference is that it focuses on manufacturing rather than
the Internet or computer software. There’s another reason why Foxconn can
deliver such low prices. It is a source of a lot of the controversy and bad press surrounding
the company. And that is their labor practices. Foxconn builds their factories
in areas with low cost of labor and preferential tax regimes. China,
India, Vietnam, Brazil, Czechia. The like. (Notice that Wisconsin is
not included in that list. Who would ever think that
Wisconsin had “cheap labor”?) For example, their EU headquarters in Czechia.
To find workers that meet their requirements, Foxconn recruited a range: From young workers
from Slovakia and Poland to Romanian elders in their 50s. They use adverts to find their
workers. I sat on a bench with one such ad. In China, Foxconn uses adverts
to source a supply of young rural workers - migrants from rural
China between the ages of 16 and 29. Their pitch to these young people is:
“Hurry towards your finest dreams, pursue a magnificent life. At Foxconn, you can
expand your knowledge and accumulate experience.” It is an entry level job - like how young
people used to work at fast food restaurants as their first full time gig. No one ever
sees themselves working there forever. (Though I know this trend is changing
even in America, which is also sad) Foxconn’s work culture can be best described
as “authoritarian”. Strategies and goals flow from the senior management levels
out of the Taiwan headquarters. Middle management in factory cities like
Shenzhen and Chongqing try to devise ways to achieve those goals and
delegate work to the lower levels. Every Foxconn worker learns
Gou’s work philosophies: ```
Successful people find a way. Unsuccessful people find excuses. A harsh environment is a good thing. Execution is the integration of speed, accuracy and precision.
``` And one of my favorites: “Obey,
obey and absolutely obey!” The job is tough. Factory workers are monitored
via CCTV. Production discipline is maintained at all times. “No sleeping, no conversing, and
no laughing” is the top rule in the factory. You work 10 hours a day during normal hours. Busy
season, it is 12 hours. Overtime is voluntary, but if you do not do overtime then you won’t make all
that much money. So most end up doing overtime. It is not slave labor. They’re paid. The pay in
China got a boost after a few well-publicized jumping incidents. Now workers can make something
like $400 to $700 a month depending on your level. This is actually not all that bad considering the
2017 Chinese minimum wage is $275. A few other changes include having no more than eight persons
per dorm and capping overtime at 60 hours a week. Workers often know about the
realities of the job going in. They have a bit of black humor about it:
“No jump, no pay increase” - one has said. About Foxconn’s labor practices - I am not really
a bleeding heart type. But neither am I a cruel, evil capitalist. Foxconn has a rather rigid
work culture - but you do not get to employ a million people in China without offering
something that those workers want. It is not the Mao era anymore.
People can choose what they wanna do. And to add, it is not like the white
collar working life in China is all that much better either - Google 996 if
you do not believe me. Or ask your Chinese (and Taiwanese) working friends. Least
the factory workers get paid overtime. Another thing. The jumping incidents and
the subsequent pay raises made Foxcon's business more expensive for Apple. So
starting in 2010 with the iPhone 4, Apple began mixing in iPhones made by
one of Foxconn's competitors Pegatron. Pegatron is a low cost competitor to
Foxconn. Considering how cheap Foxconn is, that's an achievement. And it seems like
their guaranteed pay is lower. But Pegatron stays out of the limelight and Foxconn gets
slapped with the slave labor reputation. Foxconn is such a big and sprawling company that I
can’t cover the whole thing in just one video. My goal was to shed just a little light on a company
that is much bigger than most people realize. Foxconn is bigger than TSMC, but TSMC gets
most of the glamor. Foxconn came along first, but TSMC remains the golden child of the Taiwanese
economy. Few people want to think about the stuff that Foxconn does - it is nothing like the
glamor of etching microchips with lasers. And TSMC is Taiwan-first, while Foxconn and Gou
have an unpleasant close connection to China. But Foxconn is as big and vital to Taiwan
as the semiconductor manufacturers are. And Foxconn remains the leader in assembly -
and that says as much about its market power as anything else out there.
