Foxconn says it may move some production back to Taiwan

 

BATTERED BY a wave of suicides at its huge Shenzhen plant, Taiwanese electronics maker Foxconn says it is considering moving some of its production back to the self-ruled island where it has its headquarters.

Foxconn, which makes iPads and iPhones, as well as a host of electronic goods, at its factory in Shenzhen, said it would consider moving back to Taiwan if the island was prepared to make it worthwhile by offering incentives.

Terry Gou, head of Foxconn parent Hon Hai, told shareholders this week that the existing China factory model may not be sustainable, given the rise in production costs. Most Taiwanese firms moved to China because of cheaper labour and other production costs, but an economic slowdown in Taiwan, combined with rising costs in mainland China, means the differences are narrowing.

Foxconn’s facilities in Taiwan tend to be highly automated, whereas on the mainland they are much more labour intensive.

This intensive labour model, with long working hours and rigid systems, is one of the reasons given for worker unhappiness in southern China.

Taiwan is also trying to woo companies back. Last month it cut business income tax from 25 per cent to 17 per cent, and it is planning to set up several free trade zones for tariff-free imports.

The fallout from the Foxconn crisis continues to mount. There are fears of a domino effect causing serious production disruption in Shenzhen, one of the most heavily industrialised cities in China.

On June 6th, more than 1,000 employees of the Shenzhen-based Merry Electronics went on strike demanding more cash, which brought 10 per cent of the firm’s production line to halt. After the strike at Merry, 2,000 employees from the Shenzhen-based Yacheng went on strike for better pay.

Arthur Chiao of the Taiwan Electrical and Electronic Manufacturers Association told the Global Times newspaper that Foxconn’s wage hikes could cause a big rise in production costs in China, which could see many of his organisation’s members leaving the mainland.

Taiwan is a strong southeast economy, benefiting from its close economic, if not political, links with China in recent years. More than a million Taiwanese live and work on the mainland.

The municipal government in Shenzhen has announced a rise in the city’s minimum wage to 1,100 yuan (€133) a month starting in July. This marks a rise of 10 per cent in some parts of the city, but up to 22 per cent in other districts.

“Shenzhen’s current minimum wage standard is lower than those of Guangzhou and cities in the Yangtze River Delta regions,” Wang Min, head of the city labour authority, told local media.

“It is part of the reason why Shenzhen will encounter a labour shortage this year.”