Sweatshop story behind IT giants

Taiwan's richest man is weathering a bad PR experience, writes Clifford Coonanin Taipei.

One of the world's largest manufacturers of electronics and computer components, this Taiwanese company employs 200,000 people on a state-of-the-art campus in the southern Chinese city of Shenzhen. Its canteen slaughters 3,000 pigs a day to feed the hungry workers, most of whom toil on the production line making computer parts. There is a very good chance that you own something made by this company, either in your phone, in your computer or attached to your belt.

The company is called Foxconn, and it is Taiwan's largest private company with revenues of €21 billion last year. Yet it's a name you've probably never heard of.

Foxconn is the trading name of the Taiwan-headquartered Hon Hai Precision Industry and its founder, Terry Guo, is said to be Taiwan's richest man.

Hon Hai has a market value of €24 billion and is Taiwan's largest listed technology firm by revenue.

Taiwan's IT giants are mostly still headquartered on the island and do most of their research and development there. In general, they have offshored most of their production to the mainland despite the political strains between the People's Republic of China and Taiwan's Republic of China, which came into being when Chiang Kai-shek's Nationalist KMT group fled to the island after losing the civil war against Mao Zedong's communists in 1949.

You can drive for hours in southern China in the cities around Shenzhen and see factories everywhere you look. Many of the bigger ones are Taiwanese factories. Most of them are anonymous, meaning little to even people within the industry.

Foxconn is no consumer brand but its sheer scale inspires awe in those you talk to you about it in the business. As befits its giant status, Foxconn has been very successful at making the most of the cheap labour and land on offer in southern China particularly.

In 2005, exports from Shenzhen broke the $100 billion (€76 billion) barrier for the first time, making it the first Chinese city to do so. The 10 biggest exporters in Shenzhen accounted for 28 per cent of the city's entire export value in 2005, and three of those firms were part of Foxconn.

Other big exporters in Shenzhen include the Quanta group, the world's largest notebook maker, and Compal followed close behind. Other Taiwanese manufacturers on the list included Inventec, BenQ and LiteOn, which make everything from servers to mobile phones on the mainland.

About 15 per cent of Foxconn's workers in the factories near Shenzhen are gainfully employed making the Mac mini and iPod for Apple Computer.

The company also makes Intel branded motherboards for Intel, and motherboards and components for everyone from Dell to HP to Motorola.

The story of what happened when Foxconn was accused of employing Chinese workers in sweatshop conditions is a classic illustration of the growing importance of corporate social responsibility (CSR) in China, whereby firms are required to treat their workers well or run the risk of public relations disasters, or of censure from the Chinese government or other authorities.

Foxconn is famously shy of publicity and Mr Guo was too busy travelling to be interviewed for this piece. He owns about 30 per cent of Hon Hai, a company he founded in 1974 with 10 workers to make plastic parts for television sets.

He pays himself a token one Taiwanese dollar (two cents) a year in salary - the rest is earnings from the shares he owns in his company. Those dividends are enough for him to have spent €23 million on a castle in the Czech Republic.

Then came the bombshell. In June, British and Chinese media ran reports accusing the company of violating workers' rights by forcing them to work overtime for low pay, highlighting the fact that Foxconn made products for Apple Computer.

The story turned into a major public relations embarrassment for Apple, which prides itself on its image. Apple said Foxconn allowed employees at the China plant work longer hours than allowed by Apple's code of conduct and that it had taken steps to address the issue.

It was also bad for business. Analysts say Foxconn is vital to growth for the Hon Hai group as the Taiwan company seeks to increase its profit from demand for higher-margin consumer gadgets and cellphones.

Things started to escalate when Mr Guo brought a lawsuit for €3 million against two Chinese journalists over the allegations and had their assets frozen. The damages were the equivalent of 800 years' salary for each journalist. The negative publicity in the state-run media in China, combined with the international outcry from media lobby groups, forced Foxconn to drop the case.

Then came efforts to mend fences. Foxconn forked over €41 million for land in southern China to build improved staff accommodation, according to newspapers in Taiwan and China.

The reason for the new accommodation came from Mr Guo's decision to promote a "happy and prosperous life" for Chinese staff by providing free private accommodation. Foxconn began work on new dormitories before being visited by Apple's auditors, according to Apple's report on the affair.

JP Morgan expects Foxconn's sales to grow around 50 per cent next year, but says that to maintain growth, Foxconn must continue to invest.

In November Foxconn said it would spend about €900 million to build a new plant in China to beef up its presence in the country.

The latest speculation is that Foxconn has secured the order for 12 million iPhones, the eagerly anticipated iPod plus mobile phone that analysts are expecting to be the next big thing on the market.

Clearly the cunning Mr Guo has something up his sleeve and is not dwelling too long on the bad PR story of the summer. More classic Taiwanese pragmatism.