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In the headlines: Suicides and Chinese corporate real estate May 27, 2010

Posted by Bob Cook in Asian Expansion, Company Case Studies, Real Estate Markets, Silicon Valley.
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Update:  September 13, 2010:  The cover story of this week’s BusinessWeek is a profile on Foxconn and its founder Terry Gou.

Foxconn, a business unit of Taiwanese-headquartered Hon Hai Precision Industry, has, to its dismay, been in the news as of late. Foxconn and Hon Hai are not household names, even though Hon Hai is #109 on Fortune’s Global 500 and has the largest contract manufacturing operation in China. A slew of high tech companies – Apple, HP, Intel, Nintendo, Sony, Dell and others – outsource manufacturing to Foxconn, and the products manufactured by Foxconn are, in fact, household names:  iPhone, iPad, iPod, PlayStation, Xbox, Wii, Kindle and others.  Hon Hai / Foxconn typically shuns publicity and has developed the secretive culture necessary to assure customers that the IP entrusted to them remains guarded. Lately, though, the company’s operation in Shenzhen has garnered unwanted headlines: “String of suicides continues at electronics supplier in China”.

iPhone factorySome think the number of suicides (nine, confirmed, as of this writing) is not all that high given the fact that Foxconn employs at least 200,000 workers (and according to some reports, over 400,000) workers in Shenzhen. Over the years, though, there have been allegations of poor working – and living – conditions. You see, Hon Hai / Foxconn doesn’t have just factories for its workers, but it also has dormitories, all in an environment that – depending upon your point-of-view – is either like a college campus or like a prison labor camp. A few years ago, a famous muckraking article was written about “iPod City” where Apple products are assembled and assemblers are housed. The recent suicides have drawn attention to the factories and its dormitories once more.

The Hon Hai / Foxconn complex in Shenzhen is a city within a city.   In a walled compound, measuring roughly two miles by three-quarters of a mile, in amongst the factory buildings, there are dormitories, restaurants, a hospital, and all sorts of recreational facilities – a 21st Century company town, the responsibility of what-must-be one of the world’s largest corporate real estate departments.

Whether conditions are deplorable or not (which has been Apple’s appraisal) – whether it is a 21st Century Chinese version of 19th Century America’s Pullman or not – the scale of the real estate operation that supports the Hon Hai / Foxconn business is mind-boggling. Hon Hai / Foxconn doesn’t file SEC reports so there’s no public record of exactly how much of its real estate operation is devoted to housing employees, but you can get a sense of the scale from the SEC filings of Nam Tai Electronics, another (albeit much, much smaller) Chinese manufacturer. Nam Tai reports that it has 1.7 million square feet of real estate in Shenzhen. Of this, .7 million square feet – more than 40% – is for dormitories, cafeterias and recreational facilities. Nam Tai’s provision of housing accommodations is no small side-line. The same is probably true of Hon Hai / Foxconn which must be providing many millions of square feet of dormitories and related facilities to its employees.

The willingness of Chinese-based companies to provide living accommodations for their workers sets them apart from foreign companies and may be why they are the low-cost producers in the country. The word “willingness” may not, however, be apropos here. Some think Chinese-based contract manufacturers benefit from the resulting “dormitory labour regime” which gives them more control over the workers. In any event, the provision of worker dormitories is certainly part of  the engine that makes China the “World’s Factory” and is likely to keep it in that position for a long time. And, the lack of willingness on the part of foreign companies to adopt the practice is likely to keep contract-manufacturing as the predominant method that foreigners tap that Factory.

It will be interesting to watch the Hai Hon / Foxcomm story unfold. Apple’s involvement as a customer is going to assure press coverage. Today, it was briefly the world’s most valuable tech company, and for awhile, it’s been  the cultiest – just perfect for muckraking. Expect to see a lot of footage about poor working conditions and poor living conditions, debates about the benefits and evils of company towns … and maybe even an interview with a Chinese corporate real estate exec or two.

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1. Is Employee Housing Far-Fetched? What is Google up to now? « Corporate Real Estate Strategy - November 22, 2010

[…] to receive it, but most U.S. companies now tap Chinese labor through contract manufacturers like Foxconn (infamous for its worker housing), so few provide housing […]


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