Foxconn Manufacturing Employs 800,000!

Thursday, July 08, 2010

Foxconn factory in ChinaAndy Grove has a great article in the recent issue of Bloomberg Businessweek titled "How to Make an American Job". Below is an excerpt:
Today, manufacturing employment in the U.S. computer industry is about 166,000, lower than it was before the first PC, the MITS Altair 2800, was assembled in 1975. Meanwhile, a very effective computer manufacturing industry has emerged in Asia, employing about 1.5 million workers--factory employees, engineers, and managers. The largest of these companies is Hon Hai Precision Industry, also known as Foxconn. The company has grown at an astounding rate, first in Taiwan and later in China. Its revenues last year were $62 billion, larger than Apple, Microsoft, Dell, or Intel. Foxconn employs over 800,000 people, more than the combined worldwide head count of Apple, Dell, Microsoft, Hewlett-Packard, Intel, and Sony.

Until a recent spate of suicides at Foxconn's giant factory complex in Shenzhen, China, few Americans had heard of the company. But most know the products it makes: computers for Dell and HP, Nokia cell phones, Microsoft Xbox 360 consoles, Intel motherboards, and countless other familiar gadgets. Some 250,000 Foxconn employees in southern China produce Apple's products. Apple, meanwhile, has about 25,000 employees in the U.S. That means for every Apple worker in the U.S. there are 10 people in China working on iMacs, iPods, and iPhones. The same roughly 10-to-1 relationship holds for Dell, disk-drive maker Seagate Technology, and other U.S. tech companies.

You could say, as many do, that shipping jobs overseas is no big deal because the high-value work--and much of the profits--remain in the U.S. That may well be so. But what kind of society are we going to have if it consists of highly paid people doing high-value-added work--and masses of unemployed?
This is an excellent question Grove asks. I have often made a similar argument to the one he is refuting: that it is not a bad thing to ship off the low-value-added work to other countries as long as we continue innovating here in the U.S. Yet, as Grove points out, this results in a much lower number of total employed persons.

The disparity between Apple's U.S. and Chinese workforce is simply staggering. The 25,000 in the U.S. take the lion's share of the profits while 250,000 in China share the lowered manufacturing wages. With unemployment at 9.3% in the U.S. perhaps we are beginning to see the effects of the consistent policy in domestic companies to move jobs overseas.

At the very least, this is a trade-off we must consider. Do we want more jobs with lower wages, or less jobs with higher wages? Chinese employees are certainly making far less than the average American, their low wages being the chief reason to move the factories there. Do we want those jobs here while realizing that minimum wage requirements and health care benefits would likely need to be skirted to maintain margins?

Disclosure: Long AAPL.
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