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A Case Study Analysis of Foxconn: Perspective of a manufacturing sweatshop in China

Boyao Zhang
R/W Grad VI
University of Delaware English Language Institute
May 29th, 2016

A Case Study Analysis of Foxconn: Perspective of a manufacturing sweatshop in China
An irreversible trend of economic globalization presents opportunities and challenges in China. Overall, foreign direct investment (FDI) and open trade, two major elements of commercial globalization, have played a crucial role in the international business market in the last thirty years (Lessmann, 2013). To avoid shortcomings, numerous developed countries have established their manufacturing industries in developing countries. Due to the advantages of lower labor cost and abundant resources, China has become the first choice of international manufacturing processing enterprises; therefore, as far as China's economy is concerned, the manufacturing processing industry is a vital element of national income and a crucial part of China's economic structure (Chan, 2013). Nevertheless, although it is indisputable that FDI and open trade have positive effects on the Chinese economy and the development of technology, in recent years, Chinese economic and environmental issues are undeniably caused by economic globalization. (Chen & Ge, 2010; Lessmann, 2013). Foxconn, a representative company of manufacturing industry in China, is a beneficiary and victim of FDI and open trade (Guo, 2012). This case analyzes the labor and the environmental issue of Foxconn caused by FDI and open trade, and recommends the future strategies for Foxconn.
Background
Foxconn, the trading name of Hon Hai Precision Industry Company operated in China, is a multinational electronics-processing supplier owned by the Taiwanese and one of the most eminent companies in the global supply chain. It has contracted to numerous large electronic processing companies such as Apple, Samsung and SONY, and has approximately 1.4 million workers in its global factories (Chan, 2013; Guo, 2012). However, although Foxconn shows the improvement of China’s export-oriented industry, because of the development of economic globalization with FDI and open trade, the drawbacks of Foxconn has been shown in the labor market and the environment (Chan, 2013; Guo, 2012; Mozur, 2012).
According to an uncompleted statistic, from 2010 to 2015, 56 Chinese Foxconn employees committed suicide. Meanwhile, more than hundred employees’ deaths were caused by overwork. As for the child labor, although the labor law forbids the underage to participate the work, due to a lack of regulation from the government, around 2 million Foxconn employees are minors (Mozur, 2012). In addition, as for the environmental issue, because of the pursuit of profits, cheaper simple functional sewage pollution prevention facilities that cannot effectively purify industrial wastewater and polluted gas are used in the factories. Therefore, amount of harmful wastewater is discharged into rivers, and polluted gas is discharged directly into the sky. These behaviors have resulted in serious pollution of ecotope, and affected human’s health (Chen, 2010; Mozur, 2012).
Suicide Caused by Overtime Working
The major reasons that cause Foxconn employees’ suicide are high pressure and overtime works (Lessmann, 2013). According to the statistic, although limited working time in China is 8 hours, the average working time of Foxconn employees is 14 hours. In order to achieve the daily goals and earn call back pay, workers have to work extra 6 hours each day (Chen & Ge, 2010). Therefore, overtime and high pressure works cause physiological and psychological burden for employees. If the employees fail to decompress and adjust the mentality timely, the probability of suicide and mortality may increase.
Overtime Working Caused by Inequality
Foxconn employees have to extend their working time in order to achieve the goals and earn more money (Guo, 2012). However, most of the jobs provided by Foxconn are unskilled with lower wage; therefore, it has become a vicious spiral (Chen & Ge, 2010; Lessmann, 2013). In order to maximize the profits, reducing the cost is one of the most vital factors foreign investors usually consider (Lessmann, 2013). Thus, the numerous jobs they provide are unskilled with lower wage (Chen & Ge, 2010).
Increasing FDI provides extra opportunities to workers who are poverty; however, due to the different regional economic situations, foreign investment may cause the unequal dispersion of nature and capital resources. In this case, workers always follow the dispersed resources and may cause the damage of local wage in the region with fewer materials (Lessmann, 2013). Uneven distribution of resources caused by regional inequality can accelerate the deterioration of income inequality (Chen & Ge, 2010; Lessmann, 2013).
Child Labor Issue
Another issue Foxconn has to face is child labor. This is a global problem in the business market because of the relationship between profits and business ethics. In these years, although the child labor rates in the world market have declined remarkably, the main reason is the decreasing child labor rates in developed countries. Due to the rising demand of unskilled workers and extreme economic polarization, the child labor participation rates in China have grown markedly (Dagdemir & Acaroglu, 2010). As being a representative company of this issue, rising manufacturing processing orders from foreign investors and the extreme economic polarization cause the increase of child labor participation rates in Foxconn (Mozur, 2012).
The extreme economic polarization of poverty and wealth has played a critical role in the child labor issue, which means poverty forces families have to gain income in order to survive (Chen, 2010; Mozur, 2012). FDI and open trade can create substantial jobs and provide these opportunities. Therefore, compared to sending children to schools, numerous parents who are poverty have to decide to send children to work without alternative choices. Thus, the business market opens more to child labors, and this type of rate is rising dramatically (Dagdemir & Acaroglu, 2010).
Due to the high pressure of living and the weak ability of resisting, increasing rate of child labor caused higher rate of suicide in Foxconn as well (Guo, 2012). Although rising orders from open trade and cheap child labor costs are able to create a huge profit margin for the company, a negative image of the manufacturing sweatshop has been established by the shocking suicide rate and squeezing the labors. In this case, even if Foxconn is currently able to generate revenue by the business model relying on cheap labor and overtime works, this is not a sustainable business model (Dagdemir & Acaroglu, 2010). Because of the integration of local economy and global economy, the child labor participation rate in China has been incontestably influenced by globalization, and the government plans to formulate policies for decreasing inequality in order to limit increasing rates (Dagdemir & Acaroglu, 2010; Lessmann, 2013). Once the China's economy of society model can be improved, uneven economic relationship can be eased. However, if the business ethics and managements could not be optimized, the business model of relying on child labor might be severely condemned and attacked (Mozur, 2012; Lessmann, 2013).
Heavy Environmental Pollution
Overall, in the past thirty years, based on FDI and open trade, Foxconn has played an indispensable role in the growth of China's gross domestic product (GDP). However, because of the crucial position in the economy and weak regulation, Foxconn has already resulted serious losses and pollution of the environment including destroying ecotope and wasting resources. An increase of sulfur dioxide and wastewater emissions always accompany the growth of China’s economy, and the production of Foxconn is vital factor (Zhang, 2014).
Most of the manufacturing processes produce amount of wastewater. Meanwhile, because almost 90% of Foxconn's orders are metal and electronic products processing, sulfur dioxide and carbon dioxide have become the main pollution factors. Due to the awareness of maximized profits and a lack of regulation, amount of wastewater and exhaust containing harmful substances such as sulfide and carbide are directly discharged into the river, the ocean and the air without purification treatment by numerous Foxconn's factories. In this case, it is considered that wanton discharge of pollutants is the vital cause of China's serious air pollution of fog and haze, and the shortage of water (Zhang, 2014).
Future Outlook
Income inequality caused by foreign direct investment and open trade is a serious problem in the Chinese economy. As for the future outlook of this issue, because the major factor of income inequality is lower labor wage, one of the main elements of manufacturing industry of FDI, the Chinese government plans to switch the economic model from industrialization to technicalization and servitization in order to enhance the economic strength and provide high-level position (Dagdemir & Acaroglu, 2010). Although this inequality is increasing at present, based on the gradually improved regulation of the labor market and the increased position of the international business market, income inequality will be solved effectively in the future (Chen & Ge, 2010).
According to this trend of economic development, under the condition of maintaining the original economic advantage, Foxconn should carry out the transformation of enterprise business model and ethics (Zhang, 2015). On the internal management of enterprises, the company should develop and manage the effective salary management system and focus on the optimization of overtime and bonus. In the case of following the labor law, the time limit for the overtime working should be made (Mozur, 2012). In the current stage of social injustice, although Foxconn does not need to reduce the number of child labors, reducing the participated time of underage labors is a reasonable method (Zhang, 2015). As for the pollution, it is necessary to establish a complete and effective sewage discharge system, and two of the important parts are the purification treatment of the pollutants and the punishment regulations of the enterprisers (Mozur, 2012; Zhang, 2015). Only focusing on the reestablishment of a positive corporate social image can obtain an invincible position in the future competition (Mozur, 2012; Zhang, 2014; Zhang, 2015).
References
Chan, J. (2013). A suicide survivor: The life of a Chinese worker. New Technology, Work and Employment, 28(2). Chen, Z., & Ge, Y. (2010). Foreign direct investment and wage inequality: Evidence from China. World Development, 39(8).
Dagdemir, O., & Acaroglu, H. (2010). The effects of globalization on child labor in developing countries. Business & Economic Horizons, 2(2). Guo, L. (2012). A case study of the Foxconn suicides: An international perspective to framing the sweatshop issue. The International Communication Gazette, 74(5). Lessmann, C. (2013). Foreign direct investment and regional inequality: A panel data analysis. China Economic Review, 24(1). Mozur, P. (2012). Foxconn factory in China used 14-year-old workers. Wall Street Journal, 28(4). Zhang, H. (2015). Is China’s economic growth sustainable: A general equilibrium analysis. The Journal of Developing Areas, 49(4). Zhang, Y. (2014). Study on environmental effects and regulation of foreign direct investment (FDI) in China. Environmental Engineering and Management Journal, 13(5).

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