Foxconn's Founder Opens Up About Making iPhones

eldavojohn writes "Bloomberg Businessweek has an article of interest resulting from a three-hour interview with Foxconn founder Terry Gou (single page), whose company manufactures 137,000 iPhones a day. The article profiles Gou's rise to Foxconn but also offers some interesting tidbits you might not know. On why he is not opening factories in the United States, Gou frankly states, 'If I can automate in the US and ship to China, cost-wise it can still be competitive. But I worry America has too many lawyers. I don't want to spend time having people sue me every day.' If you're interested in how a modern day Henry Ford thinks, you can read the rest about the man steering the ship of the world's largest producer of electronics components and China's largest exporter. This unprecedented transparency was part of an agreement Gou made with his customers during his delayed response to an increasing number of Foxconn suicides."

Comments

Exploitation for the win!

[jandrese]

If I can automate in the US and ship to China, cost-wise it can still be competitive. But I worry America has too many lawyers.

He's basically worried that if he tried to pull the same shit he gets away with in China, he would be shut down. This is undoubtedly a valid concern, but it does cast a depressing light on outsourcing. Basically the US is losing manufacturing jobs because we don't let business completely stomp all over the rights of the workers anymore.

Re:Exploitation for the win!

[MBCook]

Really? I read that line as a worry of a massive unexpected cost. If you can automate a whole factory, and then the UPS guy says he gets injured on your premises, you can lose 20 million easy.

No one would run a factory that was, even with the supposed horrible conditions, in the US. The labor costs alone (even if you only paid minimum wage or less) would be staggering. You'd replace as many people as possible with robots to keep costs down.

But then someone decides to sue you for something ridiculous, and your legal bills are huge. You settle or spend years spending tons of defend it. Or maybe it's a real issue, but instead of the $30k for medical bills and more for pain and suffering, they get some some like $10 million that is completely out of line relative to their injury.

His view sounds rather sane to me. And the last pages of the article point out just how good Foxcon is compared to many other Chinese employers. Conditions there don't sound anywhere near as bad as some of the stuff that when on in the US during the industrial revolution.

Re:Exploitation for the win!

[spun]

These ideas did not help make America great. They helped make robber barons rich and delayed reduced the greatness we could have achieved without robber barons leaching off all the wealth. China may be a different culture, one that has very different ideas about authority and conformity and has for longer than we in the west have been civilized, but they trade with us and what they do is an unfair trade practice. We should sue them, and if they won't change their ways, impose tariffs to address this unfairness.

Re:Exploitation for the win!

[leromarinvit]

Tidbits from TFA:

"a harsh environment is a good thing"
"hungry people have especially clear minds"

This man is a sadist. The sad part is that (mostly) unregulated capitalism, as it exists now in China, essentially forces him to either be an asshole or go out of business.

Re:Exploitation for the win!

[thePowerOfGrayskull]

While I don't agree with the practices in place for humanitarian reasons, I also can't agree with this:

, but they trade with us and what they do is an unfair trade practice. We should sue them, and if they won't change their ways, impose tariffs to address this unfairness

Their culture allows them to do business differently than we do; unfortunately this puts us at a disadvantage. Instead of finding better ways to compete, you're suggesting that we sue them into changing their culture - bringing them down (or raising them up, depending on perspective) to our level simply because we can't keep up?

That kind of argument scares the crap out of me, because I get the feeling people are starting to take it seriously.

Re:Exploitation for the win!

[localman57]

But they're not doing it the way we did. You're missing a fundamental difference. Our society, our expectations, our laws had time to change as technology evolved. They're going through 150 years of technological advance in a few decades. Their big problem is not what is happening to the people today. To put it in savage terms, they have enough people that they can economically afford to treat them terribly.

The problem is that they are mortgaging the future by doing horrible, horrible things to their environment. Eventually, they'll have to fix them in order to become a 1st world nation. Take a look at Los Angeles, and what the California Air Resources Board has done to try and improve the air. Then take a look at photos of Wuhan or any of dozens of other industrial centers. You can't build a stable long term economy in a place where the air itself is debilitating. Same goes for water and soil pollution.

Take a look at Times Beach Missouri ( http://en.wikipedia.org/wiki/Times_Beach,_Missouri ) to get an idea of what they'll be up against in the future. I'm guessing that at its worst, Times Beach was less dangerous than residential areas in China today.

Re:Exploitation for the win!

[vux984]

You want to do something that threatens the endless supply of cheap, pointless shit lining the shelves at WalMart? I think you underestimate the popular consumer backlash that would create.

Meh, the consumer backlash would sort itself out, due to the sudden rise of employment, manufacturing, and so on in the US. They'd piss and moan that tube socks cost more, but they'd get over it. Once upon a time we used to repair holes in socks and other clothing instead of chucking it an buying it new...this is thanks to the absurdly low cost of new thanks to exploited labour.

It really wouldn't be the end of the world if we returned to a paradigm where things initially cost more and got repaired instead of replaced.

The real backlash would come from Walmart and the other corporations.

Re:Exploitation for the win!

[geekoid]

We can't compete because we believe in a madle class, fair wor wages, and competition in the work force.

So either we remove all regulations and let people be indentured servants living in horrible conditions; or we raise the price for them to sell in the US unless they meet a min. standard.

THAT'S the solution to having a global economy that creates a middle class and no just exploit the poor making them poorer.

Re:Exploitation for the win!

[spun]

I'm saying that we uphold our values and protect our interests. Is that really too much to ask of a nation that has been touted as the best on Earth?

Why should give them the benefit of our trade when they do not behave in a fair manner? You seem to be saying we shouldn't hold our trading partners accountable for their human rights violations. Why is it okay to do business with some mass murderers and not others?

Re:Exploitation for the win!

[spun]

Which part? China is a prime example of a hydraulic empire, and their culture reflects that. Considering that they had their first major empire collapse in 500BC or so and six major players left were fielding million man, iron equipped armies at the time, I'm really not sure what you are referring to as 'nonsense.'

Re:Exploitation for the win!

[Antisyzygy]

Agreed. What made America great (when it was great) was the buying power of the US citizen after World War II and Roosevelt's New Deal. Fair wages, fair tax laws, abundance of jobs. 70 percent of the wealth used to be in the hands of 90 percent of the people, now 70 percent of the wealth is in the hands of 10 percent of the people. This is due to reducing taxes on the rich, tax loopholes for the rich, wages not keeping up with inflation, decrease in benefits for American workers, Jobs moving overseas because of cheap labor (and cheap view of lives). It simply is not right that one person should have billions of dollars or even hundreds of millions. Should a corporation have access to billions of dollars? Yes so that they can mobilize resources. One person? Absolutely not. They simply do not spend enough of it on services and products the average person gets paid for to make a difference in the rest of our lives. Philanthropy and true capitalism is dead.

Re:Exploitation for the win!

[spun]

I'm sick and tired of the rich blackmailing us like this. We do not need them. Where would they go, anyway? Would they really be willing to give up such a lucrative market? If they leave, it's not as though the demand for goods and services disappears. We really don't need their investments. We can borrow from ourselves and pay it off by growing our economy.

Re:Exploitation for the win!

[spun]

You like playing host to parasites, I get it. Might I suggest you move to Somalia? There aren't any pesky laws keeping the parasites off you over there.

Re:Exploitation for the win!

[_Sprocket_]

Is it so unreasonable to focus instead on producing the same products with less labor (and thus less cost) than those willing and able to propagate such practices?

That sounds great. I'm all for increasing efficiency and applying technology to the issue. But there's limits. Some jobs are difficult to automate. And even when you can automate, the machines have to be paid for and someone has to run the machines.

This leads us to two issues. One, the machines have to be more cost-effective than an exploited work-force. And even then, what can be automated here can be automated there where the workforce that runs the machines are cheaper (read: exploited).

THis is aside from the fact that - at least from TFA - working conditions might not be quite as bad as the media hysteria has made them out to be.

Yes - I'm sure the suicides and the expose on working conditions at the company by China Business News were just aberrations of an overzealous imagination. Meanwhile, Foxconn hired a New York public relations firm because they just want to get their name out there.

Re:Exploitation for the win!

[mdarksbane]

How do you propose to grow an economy without someone to finance the businesses?

Economies grow through entrepreneurship. Apple and Google grow the economy. Whole foods grows the economy. Random guy with a family owned food mart who never expands does *not* grow the economy. The economy grows through businesses expanding and finding or creating new markets. You need rich people to do that! That doesn't mean they shouldn't have to live under the same rules as the rest of us, but what kind of communist fantasy-land do you think can maintain a modern economy without someone getting rich off of it?

Re:Exploitation for the win!

[chrb]

why not develop improved manufacturing technology and capability -- demonstrating that it's possible to make competitive products without "exploiting" the poor?

Exactly, this is a good strategy for countries that can develop advanced industrial robots. The top 10 countries by robot density all have successful economies when compared with the rest of the world. There are some industries where high levels of automation are not possible yet (sewing clothes together, assembling complex 3D structures, picking vegetables, things that rely on hand-eye coordination and human mobility); these are the human labour intensive industries where cost pressures mean labour is generally sourced from other countries (where outsourcing is possible), or immigrants (where local). But for everything else, the developed world needs to continue to move from a culture of "building stuff" to a culture of "building robots that build stuff". Competing directly with countries like China to provide cheap labour is not going to work, waiting for the salary of the average Chinese to reach Western levels will take too long, and starting a trade war through punitive taxation is only going to hurt both sides in the long term. I do find it odd that people seriously still think the Western world could be competitive with China in traditional manufacturing - it is simple economics that work will flow to the human worker who costs 1/10th of the competition.

Re:Exploitation for the win!

[spun]

Some imbalance in wealth is not only unavoidable, it is desirable to most people. In my experience, people like it when excellence is fairly rewarded, even if they know they themselves are not excellent. People who aren't hypercompetitive assholes, anyway. Equality of opportunity should be maintained, but it is equitable, not equal outcomes I am looking for.

When we as a society allow too much of an imbalance in ownership to occur, we can not maintain a true democracy, and we can not maintain a true free market. That kind of imbalance necessarily means that the rich do not play by the same rules as the rest of us, and it is a fantasy to think they do.

Re:Exploitation for the win!

[JPriest]

Well Oracle is suing Google, and Paul Allen is suing everyone, even Apple, who is suing HTC who is suing etc. ... I can't imagine where he would get that crazy idea.

Where's my anti-Foxconn?

[Lothar 0]

I'm still waiting for an iPhone manufacturer that pays its workers a decent wage and respects meaningful safety standards. I'm willing to pay an extra $100+ for my iPhone to not have a guilty conscience. C'mon invisible hand, supply my demand already.

Re:Where's my anti-Foxconn?

[thePowerOfGrayskull]

I'm still waiting for an iPhone manufacturer that pays its workers a decent wage and respects meaningful safety standards. I'm willing to pay an extra $100+ for my iPhone to not have a guilty conscience. C'mon invisible hand, supply my demand already.

Because you and the other twenty people willing to do this do not a market make.

he's not a modern day Henry Ford

[YesIAmAScript]

Ford wanted his workers to have a living wage, to be able to afford the products they made.

Foxconn doesn't even employ workers long-term, they hire on a week-by-week basis.

I actually don't even dislike Foxconn, but it's not the same as the middle-class building that Ford did.

Re:he's not a modern day Henry Ford

[dreadlord76]

What data do you have to support this? My understanding is that there is a waiting list to work at Foxconn. You sign a contract to work there, with termination penalties, and there is multi-week training before you actually start working. While in training, you are paid, housed, and fed. Not saying you are wrong, but would like to learn more about where you are getting your data.

Re:he's not a modern day Henry Ford

[homer_s]

Ford wanted his workers to have a living wage, to be able to afford the products they made.

From http://cafehayek.com/2010/08/fording-the-gorge-between-fiction-and-fact.html:

Ford raised workers’ wages for two reasons, neither of which had anything to do with raising consumer demand for his automobiles. The first reason was to reduce worker turnover. In 1913, the year before the $5 wage was announced in January 1914, the average Ford employee quit after less than four months on the job. A workforce so unstable and inexperienced prevented Ford’s factories from achieving peak efficiency.

Second, because the $5 wage was conditioned upon Ford’s workers learning English, as well as their steering clear of alcohol and gambling – conditions monitored by Ford executives visiting workers’ homes! – the higher wage was an incentive for workers to be more reliable and productive while on the job.

In short, Ford was something of an early supply-sider. He understood (at least in 1914) that the key to economic growth is not in giving people stronger incentives to spend but, rather, in giving people stronger incentives to produce.

Re:he's not a modern day Henry Ford

[TheSync]

Ford wanted his workers to have a living wage, to be able to afford the products they made.

That may be the public messaging/myth, but closer analysis shows that Ford simply wanted to reduce turnover, and also to increase productivity by linking the wage increase to learning English, as well as their steering clear of alcohol and gambling (monitored in workers homes, no less...)

Moreover, Ford did not employ enough workers for their wage hike to have a significant impact on his own sales.

That said, wages in China are rising, cutting Flextronics' profits and forcing Foxconn to move more factories away from the high-cost coastal areas of China.

Foxconn doubled base-wages for employees in Shenzhen in June, where it has around half its 900,000 workers, but said it would cut the headcount there by about 170,000 over five years.

Re:he's not a modern day Henry Ford

[Grishnakh]

He did figure out that by paying a bit more and helping with education and health he ended up with a lower turnover which helped his bottom line.
Of course that made more profit for him too so no doubt that makes him evil in your eyes.

What's weird is that modern-day capitalists haven't figured this out yet (that turnover kills profit). You think it'd be self-evident, or that they could at least look at what Ford did, but no, they mistreat their workers, create crappy working environments, suffer from high turnover, and then sit around and bitch about it but do nothing to fix it.

that's one way to see it, here's another

[tacokill]

or....
Perhaps the US does have too many laws and lawyers. Perhaps it is more competitive to produce products somewhere else. Perhaps US workers think they are more valuable than they really are (so they erect laws to "enforce" that value). Did you ever consider that maybe it's not exploitation he is after but a better sense of balance? The world is not black and white. This is not a "workers of the world unite" vs "the evil business owners". You do recognize there is a middle ground, don't you?

This guy is telling you exactly what his risk/reward calculation is and you only look at one side of the equation.

Instead of responding with cries of exploitation, as yourself this: could he be right?

Re:that's one way to see it, here's another

[MozeeToby]

There were three suicides at my college in the four years I went there, and it was a small school with less than 2000 students. That means that we averaged 1 suicide per 2600 students per year. During the worst of Foxconn's suicide 'outbreak' there were 10 completed suicide attempts over a 5 month period out of 960,000 workers. That means 1 suicide for every 80,000 employees per year. So by that measurement, my college was apparently 30x more likely to drive someone to suicide.

Re:that's one way to see it, here's another

[uniquename72]

Statistics fail.

For the size of his work force you would expect about that number of suicides in the general population anyway.

Across the general population, yes. But the general population doesn't work in a factory. "General population" includes an awful lot of people who can't work in a factory, including children, babies, the elderly, the infirm, and even people who live too far away from any factory to work in one.

Add in the fact that teens have a disproportionate number of suicides, and that old people also kill themselves, and it's not difficult to realize that a small subset of the population having a suicide rate equal to that of the general population is an anomaly worth investigating.

PR

[rakslice]

"Finally, Gou's company hired the New York firm Burson-Marsteller to help devise a formal public-relations strategy, its first in more than 35 years of existence."

The concept of a company with almost 1M people without a PR strategy is refreshing, but reflecting a little bit more, what that also means is: now anything that we say about the employee suicides, even this, is being carefully managed.

Too many lawyers? Or too many laws?

[blair1q]

I worry America has too many lawyers. I don't want to spend time having people sue me every day.

99% of what goes on in those lawsuits is righteous protection of workers and customers from the bad or evil decisions of managers.

The other 1% is still covered by your insurance, Terry.

Your problem isn't too many lawyers (you just get your own lawyers and then it doesn't take up your time), your problem is there are laws that will keep you from doing things in ways that you deserve to be sued for.

But I'm sure your deployment of nets to catch suicidal employees is a tacit expression of your understanding that your company is somehow culpable for its own behavior and the culture it engenders in the people it aggregates to perform work that makes you an impressively rich man, hyper-impressively considering China's supposed to be a communist country... So you know that you're either doing something very right, or many things very wrong.

Re:Plus

[Fred IV]

the US isn't a corrupt 3rd world country that you can bribe epople to get your way.

True...we're a first world country where you can have lobbyists bribe people for you to get your way instead.

there absolutely is a waiting list

[YesIAmAScript]

In fact, you almost have to bribe someone to get a job interview!

There isn't really multi-week training, you are put on easier lines first and work up to your aptitude.

But just because there's a line to get in doesn't mean there's any job security. When things slow down, you simply aren't brought back next week.

When you get too old for the dextrous work or your fingers grow to be too large to do some work (because their lines are virtually all 16-20 year old women) or merely when someone else will do the job cheaper because they are younger, you are out on your ear.

Like I said, I don't hate Foxconn. But it's not the same as Ford where he employed workers long term and invested in their development.

Please, read the fine article, it's worth it

[acid06]

You'll notice that even though by western standards Foxconn has a terrible work environment, they're actually the best option for Chinese workers, who queue to work there.

Even though the salaries seem low by western standards, Foxconn pays the higher salaries in China. The article mentions several people who are there only to earn some money for a while and then go to work on a lower-paying less-stressful business.

The man himself started his huge empire with a $7500 loan. Hell, I live in Brazil and you can't even begin an auto repairshop with this money here, let alone a small manufacturing plant.

By Chinese standards, Foxconn is great and they actually seem to care about their employees more than the other Chinese companies do. None of the workers are afraid to complain and lose their jobs or anything like that and even strikes happen (and people continue employed).

Honestly, you should just enjoy your cheap electronics while you can because this isn't going to last forever as a newer generation of Chinese people is growing up (also mentioned in the article) and they will want better standards of living - no one needs to take care of them, there's more than a billion of them and they can take care of themselves.

The United states of sue you

[EEPROMS]

Actually Terry Gou must have read Made in Japan" written by the founder of Sony Akio Morita. There is a section were Akio Morita talks about Sony setting up manufacturing facilities in the USA and how Sony was sued by competing (and in some cases companies Sony had a close business relationship with ie suing their own customer) for the most insane reasons. The view that Akio left me was when dealing with the USA have a large legal dept because everyone will try to sue you to stop you competing in the market. Akio also compares the the US legal system with Japans and explains how most of the cases being bought forward in the US would never have got of the ground as the lawyers would lose to much money if they lost. So I can see were Terry Gou from Foxcon gets the view that the USA is not a good place to manufacture, not good news for the US manufacturing industry now that unemployment is heading past the 10% mark. On another note, for those who think this is all about wages and conditions, explain to me why South Korea has a huge ship building industry that leaves the US in their dust but the workers actually have higher wages!! Simple, South Korean workers are dedicated to their job and the bosses dont get multi million dollar kick backs and unlike US CEO's dont just see the stock price but also the products they are making today and in the future. This is why the USA is failing, to many directors looking at the stock ticker and ignoring the "product" that is being made now and what they will be producing in 10 years. Go to Toyota and they will happily show you products they have slated to be made in the next 2, 5 ,10 and 20 years.

We read day in day about US litigation ...

[jotaeleemeese]

Oracle sues Google.

Netapp sues Sun,

Apple sues Nokia.

Nokia sues Apple.

SCO sues IBM, Novell, my aunt and your granny.

And lets not forget Amazon's "one click"....

and that is only IT for starters.

Almost daily we have news about frivolous lawsuits related to patents (software patents!) and copyright.

You may want to say whatever you want about this guy, but please don't tell me he does not have a point to make .....

Makes complete sense.

[MaWeiTao]

His comment about the uselessness of business degrees is spot on. I'm convinced that American corporate over-reliance on business degrees, and marketing, are amongst the biggest problems facing American corporations.

American corporations are saddled with a bunch of business majors who, for whatever reason, have been deemed to be the best suited to manage despite the fact that they barely understand the details of what their company actually does. They haven't worked in the trenches, they haven't actually been directly involved in the product or service but they're first in line to run things. This is a far cry from Asia where engineers and designers routinely are the ones who get promoted to management positions. It ensures they can make informed decisions and employees can't get away with BS. Managers in Asia can be just as self-centered, just as concerned about the next Mercedes they're going to buy. But they're also more likely to make the best choices for the company.

The second disaster is marketing. American companies seem to have adopted the attitude that you don't actually need a good product, you simply need to convince consumers you offer one. By the time the consumer realizes they've been had you have their money. And they've risen to have such power because of stupid suits who don't have enough confidence in the strength of their product. And marketing is entirely self-serving. It doesn't matter how wasteful a marketing campaign is a marketing department/agency will find a way to skew the data to claim it was actually a success. It's rather shocking how much money companies dump into marketing especially considering how low the response rate actually is.

This is not to say there aren't other issues. The cost of labor in the US is exceedingly high, and work ethic is crap. Couple that with entitlement culture and you've got real problems. And topping it all off we've got a government that mismanages and misdirects regulation. Instead of making decisions that are best for the well-being of the nation their policies almost always seem intended to pander to special interests or push certain agendas.