Foxconn Runs into Trouble. Again.

The world’s largest manufacturer of electronic components is at the center of a new controversy regarding labor policy violations. Foxconn, the world’s largest producer of electronic components, recently admitted to forcing underage Chinese interns to work in factory shifts as part of their internships. This controversy is just the latest in a series surrounding the firm.

For example in 2010, 13 Foxconn employees working in China killed themselves as part of a broader trend of labor strikes related to unacceptable working conditions. In India, 250 Foxconn workers fell sick that same year, prompting the firm to temporarily close the factory where they worked. And last October reports first surfaced of 14 year olds working in Foxconn factories in China; the working age in China is 16.

Based in Taiwan, the company produces numerous products including Apple Iphones and Ipads and in 2011 had estimated annual revenue of NT$ 3.452 trillion (USD 117.7 billion) and estimated annual income of NT$ 81.59 billion (USD 2.78 billion). Given that firm is consistently profitable, it is highly likely that these abuses stem from corruption on the part of local management. In this instance then the firm is not operating toward the view of maximizing firm profits, but rather the individual profits of local managers, without regard to the broader social/political costs to the firm of violating the law. This behavior may in fact harm the profits of the overall firm, given that lawsuits or fines imposed by the Chinese government may cost the firm money, making this a situation in which the incentives of individual managers to cheat directly conflicts with the profit maximization of upper level management.

http://www.bbc.co.uk/news/business-24486684

3 thoughts on “Foxconn Runs into Trouble. Again.

  1. Is it a possibility that Foxconn is aware of the labor violations occuring on the local level and has decided that the reduction in costs due to taking advantage of laborers is worth the repurcussions when they arise? It could be true that they are not aware that these abuses are occuring, however I do not think that the company posting consistant profits is an adequate reason to assume this. As we have learned in class, monopolists will knowingly create welfare loss when they reduce output and raise costs- all in an effort to create more profits for the company.

  2. It is also possible that companies that use Foxconn will cancel order agreements with the company for these violations. Last year when the exCEO of Target came he explained that in Target’s supplier agreement contracts if a company was found guilty of such abuses as in this article it would put them on probation or cease all form of contracting with them. Consumers in America frown on such human rights abuses yet firms continue to use such suppliers. An information gap could be the root of the problem… or do people say they want one thing… but are only willing to pay for another?

  3. I did some back-of-the-envelope calculations of the suicides at Foxconn — given the number of employees, it was not a high number.

    Labor standards in China are unclear, in that while various exist on paper, they had not been enforced. Now Foxconn is huge, so has little excuse – they have the resources to find out what local regulations are on paper. When they conform to local practice rather than the letter of the regs, though, they open themselves up to trouble from their customers (not from the government).

    For IO, the underlying issue is how companies can manage themselves. In what aspects lie economies of scale, and where are there diseconomies of scale? If you employ roughly 150,000 workers just in one complex, keeping track of things is not a trivial issue. What do you want managers to focus upon?

    Finally, in a book I’m using in the China class, we read about young women who fake their age to get a job [not to buy alcohol, no one cares about that]. Does the person hiring cast a skeptical eye at patently false documentation, or hire someone eager to work, and who has completed compulsory education (or at least the education readily available in a rural area). Ironically, in some US states you can marry at an age younger than you can work…

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