9 - 11 2 - 0 0 2

REV: JUNE 25, 2013

ROBERT G. ECCLES

GEORGE SERAFEIM

BEITING CHENG

Foxconn Technology Group (A)

At four o’clock in the morning on January 23rd, 2010 a 19-year-old young worker jumped from a
building at a factory in Shenzhen, a Southern city in China. Sixteen more suicide attempts followed at
the same place within a year, and the death toll totaled 14 by the end of May.1 The string of suicides
immediately sparked a debate in Chinese society and intensified scrutiny of the working and living
conditions of low-skill workers in China. The factory was operated by Foxconn, a leading electronics
manufacturer that supplied Apple, Hewlett-Packard, and other world-known brands. Foxconn was
under heavy criticism for alleged harsh treatment of its employees and hard pressed to raise worker
pay.

Electronics Manufacturing Services (EMS) Industry

Electronics Manufacturing Services (EMS) providers, also referred to as Electronic Contract
Manufacturing (ECM) providers, manufacture products for Original Equipment Manufacturers
(OEMs) as strategic supply chain partners. While OEMs mainly designed and distributed the
products under their own brand names, some EMS providers were now expanding their service to
include these functions (Exhibit 1).2

The global EMS industry dropped marginally from $223.06 billion in 2008 to $221.10 billion in
2009 (by 0.9%) and was expected to recover in 2010 and 2011 and stabilize over the next decade at an
average annual growth rate of 8%. The Asian region, which accounted for about 60.8% of total EMS
revenues in 2009, was expected to grow at 8.5%, slightly faster than the global market. India, Vietnam
and Malaysia were all emerging EMS destinations and, in particular, were capable of potentially
encroaching on China’s market share.3 In this highly competitive environment, companies operated
at very thin margins. Hard to differentiate themselves from the competitors in terms of
manufacturing and quality certifications, EMS providers generally competed on the basis of price.
Adopting Michael Porter’s Five Forces Model (Exhibit 2), the bargaining power of both suppliers and
customers was high. On the customer side, OEMs enjoyed the advantage of a growing number of
choices of EMS partners, thus constantly increasing price pressures. On the supplier side, EMS
providers were often constrained to select among a limited list of vendors that were approved or
recommended by OEMs. Edi Jianto, general manager at Flextronics Electronics Technology, a top
player in the EMS market, estimated that multinational OEMs could earn a gross profit margin of 50-
60% while Chinese contract manufacturers had an average margin of only 3% (Exhibit 3).4

________________________________________________________________________________________________________________

Professors Robert G. Eccles and George Serafeim, and HBS Doctoral Student Beiting Cheng prepared this case. This case was developed from
published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of
primary data, or illustrations of effective or ineffective management.

Copyright © 2011, 2012, 2013, President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call
1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may
not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

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 112-002 Foxconn Technology Group (A)

Background on Foxconn Technology Group

Founded in 1974 by Terry Gou as Hon Hai Precision Industry Company Ltd, Foxconn Technology
Group (Foxconn) was the largest and fastest growing multinational company in the EMS industry.
Foxconn was first a trade name of Hon Hai before becoming a subsidiary of the company in 2000. It
provided joint-design, joint-development, manufacturing, assembly, and after-sales services to
upstream partners and was committed to providing the lowest “total cost” solution.5 Foxconn and its
subsidiaries not only made products for Apple, Nintendo, HP, and Motorola, but also manufactured
cell phones and parts for Nokia, PlayStation 2 sets for Sony, and computer parts for Dell.6

In 2005, Foxconn took the number one position from Singapore-based Flextronics and had
maintained leadership since then.7 Its 2009 revenue exceeded $60 billion, accounting for 26% of the
EMS market (Exhibit 4). However, the growth rate substantially slowed down after 2008—sales
increased by only 0.5% in 2009 whereas its growth rate was 14.5% in 2008.8 Foxconn would continue
to suffer from a slower growth rate as the increasing labor costs would both tighten the profit margin
and make it harder for Foxconn to offer a competitive price to its clients.

Apart from its vertical integrated one-stop-shopping business model, the core competitive
advantage of Foxconn was price, as emphasized by Pamela Gordon of Technology Forecasters, a
supply-chain research firm, in an interview by Bloomberg.9 The same report mentioned that Foxconn
won Apple’s order to make the iPhone at almost zero profit. The reason that Foxconn could afford
offering a competitive low price was the low labor cost in China. Despite being a Taiwanese
company, Foxconn primarily operated in mainland China and had become one of China’s biggest
exporters.10 The Company and its subsidiaries had approximately 800,000 employees, of which the
Longhua Science and Technology Park alone housed more than half of its employees.11

Longhua Science and Technology Park

Terry Gou set up the first factory in China in 1988 to take advantage of the cheap land and labor.
He picked Shenzhen, a major city in Southern China’s Guangdong Province, north of Hong Kong,
and China’s first Special Economic Zone, as Foxconn’s mainland headquarters. The factory started
with only a few thousand employees, but it grew so fast that in 1995 Mr. Gou purchased a larger plot
of land that later became Longhua Science and Technology Park. The Park covered about 1.16 square
miles, and was essentially a company town made up of assembly lines, dormitories, restaurants,
banks, a fire brigade, a hospital, an employee swimming pool, a grocery store, and an Internet cafe
(Exhibit 5).12

Mr. Gou fostered a culture centered on his own personality and leadership. He demanded intense
loyalty, telling employees that the company’s benefit was more important than their personal benefit.
His photos with Chinese officials were displayed around Longhua, and his managers were expected
to remember a document called “Gou’s Quotations.” He led by example to make sure that products
came out on schedule and he would cruise the Longhua campus late in the night to spot-check
production lines or help repair equipment.13

Mr. Gou was famous for his 16-hour work day and believed in discipline in his management
team. On the Longhua campus, more than 500 monitors broadcasted company news and work-
related programs produced by the company’s television production team. More than 1,000 security
guards were employed to keep order and shield the plant from outsiders.14 At the assembly lines, the
environment was tense and atomized. The production process was broken down into many simple
tasks, so each worker specialized in a single task and performed monotonous motions. Moreover,

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 Foxconn Technology Group (A) 112-002

according to a 21-year-old frontline worker, conversations on the production line were forbidden,
bathroom breaks were capped at 10 minutes every two hours, and workers were yelled at
frequently.15

Besides working under close supervision, employees tended to double or triple the legal limit of
working hours. A typical work shift lasted from 10-12 hours and, according to a survey, more than
70% of the employees worked more than 10 hours per day.16 While overtime work was not required,
by not doing so employees only earned the legal minimum wage, about $90/month in 2007 (60 cents
per hour)17 and $132/month in early 201018. Working 30 days a month, a beginning worker could
earn up to $157/month in 2005, with a starting salary of only $44/month. In 2007, the amount was
$230/month including overtime pay.19

Foxconn Employees
Twenty universities from mainland China, Hong Kong and Taiwan conducted a survey of 1,736
workers from 12 Foxconn factories in nine mainland cities in late 2010; about 1,500 responses were
collected from the three factories in Shenzhen and Kunshan. The average age of the workers was 21.1,
with the youngest being only 15 years old. Most workers migrated from other provinces, among
which Henan, Hunan, and Hubei were the top three cities of original residence. Only a small fraction
obtained education beyond high school. Exhibit 6 shows the distribution of workers’ education level
and the corresponding average wage. The college graduates were paid substantially higher than the
other groups, where most of them sat in offices writing software programs. The majority of the
employees worked at the assembly lines, such as those in Longhua, and were low-skilled workers.

While the pay seemed meager from a developed-world perspective, thousands of workers wanted
to join Foxconn. Compared to other smaller manufacturing factories that often failed to pay their
employees on time or in the promised amount, Foxconn was one of the best places to work for low-
skilled workers. The employees were provided with legal contracts, got subsidies for housing, meals
and insurance, and could choose to live rent-free in company dormitories (eight to ten people per
room).20 The 2010 survey showed that the average monthly living costs of a typical Foxconn worker
were about $160, an extremely low level of standard of living. While the workers could sustain their
own lives, they had little hope of accumulating enough money to obtain a mortgage or handle any
potential health problems.

Labor Practices in China

The problems observed in Foxconn’s Longhua plant reflected a much larger social dilemma facing
China—the need to balance pressures for job creation (by attracting international manufacturing
businesses with its low labor cost as the main advantage) with jobs that reflected international
standards for working conditions. On the one hand, despite the one-child policy, China’s population
continued to grow at an annual rate of about 14 million people a year.21 The country faced the need to
create 100 million new jobs by 2013.22 70 million people were expected to enter the workforce
between 2004 and 2014.23 Meanwhile, since late 2008, a negative demand shock following the
financial crisis had caused millions of job losses. In 2010, increasing labor wages to keep up with the
pace of inflation in China substantially threatened its competitive advantage. This threatened
companies like Foxconn that provided numerous employment opportunities that were strategically
crucial for the welfare of Chinese society.

On the other hand, labor practices were poorly regulated and enforced in China. The government
needed to move quickly but cautiously to address several major challenges. Not allowing for the

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 112-002 Foxconn Technology Group (A)

establishment of independent labor unions, the All-China Federation Trade Union (ACFTU) was
essentially too weak to protect workers since it was under the direct leadership of the government
and would not stand to challenge the low minimum wages set by the government and the lack of
social welfare.

Labor laws were both underdeveloped before the ‘90s and poorly enforced. Since the economic
reform in the ‘90s, a “contract system” gradually replaced the old “cradle to grave” employment
practices characteristic of Chinese businesses. The 1995 Labor Law required all employers to provide
employees with written contracts. However, due to poor compliance in most regions, 15% of all
urban workers and 70% of rural workers were employed without contract.24

On March 20, 2006, China’s National People’s Congress proposed a new Labor Contract Law,
which was finally enacted in January 2008, in order to prevent labor abuse and mistreatment. The law
made it harder to dismiss employees, boosted employee benefits such as retirement provisions, set
the maximum working time as eight hours per day and 44 hours per week, and required employers
to meet the minimum wage standards set by local governments.25 Exhibit 7 lists the minimum wage
in selected cities. While low labor costs had consistently been a key source of the country’s
competitive advantage, people started to feel an increasing hardship from living in more expensive
urban areas, exacerbated by the soaring inflation in recent years (about 5% annually) that eroded
their buying power.26

Migrant Workers
The large proportion of migrant workers in the low-skilled, low-paid population represented
additional social problems. The number of migrants had grown dramatically in the past decade.
Between 1982 and 2000 over 200 million people migrated from rural to urban areas and about half of
this migration happened after 1995.27 According to the 2000 China census, the migrant population
was 121 million in 1995, of which 79 million were intra-province migrants and 42 million inter-
province.28

This large migrant population was preferred by employers as a lower-cost source of labor than
local workers.29 The latest Global Wage Report showed that migrant workers were twice more likely to
earn low wages than their local counterparts (Exhibit 8). The same report estimated that about 60 per
cent of the discrepancy was attributable to worker characteristics, such as education level, and the
remaining 40 per cent to the discriminatory treatment of migrant workers.30

Discrimination against migrant workers was a ubiquitous phenomenon. Urban residents tended
to feel that they were superior to those of rural origin and indeed they enjoyed privileges not granted
to the migrants. China’s unique House Registration System (also referred to as the hukou system),
which was promulgated in 1958 to suppress social mobility as a result of urbanization, was partly
responsible for this social mentality. Everyone had either an urban hukou or a rural hukou, determined
by place of birth at the system’s initiation and then by heritage. Hukou entitled a resident to apply for
housing, education, and health services in only her or his hometown.31

As demand for labor in big cities exploded during the economic reform in the late ‘70s, several
reforms and temporary residency systems came into existence to accommodate this need, and even
the hukou system underwent several reforms. However, only a few exceptional employees were able
to obtain the local hukou, leaving most people with rural origins with no real hope of becoming urban
citizens.32 The biggest difference for the employer between recruiting an employee with an urban
hukou and one with a rural hukou was that the employer was required to pay for the former’s pension
insurance, occupational injury insurance, maternity insurance, unemployment insurance, and

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 Foxconn Technology Group (A) 112-002

housing provident funds,33 in addition to the wage, while no such requirements existed in the latter
case.34 This explained why employers generally preferred migrant workers to local workers and why
life was extremely difficult for migrant workers. Moreover, migrant workers needed to worry about
their families as well, since family members were also not entitled to education and healthcare, nor
were new marriages and births allowed to register outside their hukou place of residence.35 Even
having a stable job, migrant workers lived in constant fear, anxiety and insecurity, as nine academics
put in their open statement calling for more attention and care towards this marginalized group:

From the moment they [the new generation of migrant workers] step beyond the doors of
their houses, they never think of going back to farming like their parents. In this sense, they see
no other options when they enter the city to work. The moment they see there is little
possibility of building a home in the city through hard work, the very meaning of their work
collapses. The path ahead is blocked, and the road to retreat is closed. Trapped in this
situation, the new generation of migrant workers faces a serious identity crisis and, in effect,
this magnifies psychological and emotional problems.36

Suicides at Foxconn Plants

What happened at the Longhua plant in 2010 focused everyone’s attention on the conditions of
low-skilled labor and migrant workers. Before 2010, sporadic suicides happened at Foxconn, at least
two in 2007 and two in 2009. One victim in 2009 became desperate because of the “noisy and
unbearably exhaustive” working conditions and the other took his own life for being suspected and
punished for losing a prototype of Apple’s 4G iPhone.37 Allegations of employee mistreatment
appeared as early as in 2006, when the UK newspaper The Daily Mail criticized Apple for using
Foxconn, as a sweatshop supplier.38 The newspaper articles described the low wages, long working
hours, and tough working conditions at Foxconn plants which the journalists observed first hand.
The sizes of the dormitories varied between a couple of hundred workers per room to about 30
workers. (Exhibit 9 shows a snapshot of a typical dormitory at Foxconn’s plants in 2010, which
conditions were already substantially better than those in 2006). Only fans were installed, so workers
often felt suffocated during the hot and humid summer.39 A poor smell persisted and nobody cared
about cleaning the common place. Workers referred to the dormitory as “the garbage dorm.”40 On
each floor, a public shower and restroom were shared, but workers were not allowed to wash their
own clothes. Instead, they were required to participate in a factory-managed laundry program to
prevent them from consuming too much water. Security guards were on duty 24 hours in each
dormitory building to make sure that workers swiped their cards to enter the buildings, so workers
could not freely go to other dormitories or bring friends to their own places.41 However, security
guards were not responsible for safety issues, and theft was rampant.

Although the criticism from The Daily Mail soon fell silent, the continuous series of suicide jumps
in the first half of 2010 brought Foxconn into the center of the public limelight. In March, three people
jumped from their dormitory buildings. Two more followed in early April and one survivor testified
that the reason for trying to end her life was “too much work pressure.” Exhibit 10 includes the
detailed stories behind these suicides. In May, another six jumps took place and, by the end of 2010,
the total number of attempted suicides reached 17 and only three workers survived.42

Public Reaction
The string of suicides immediately occupied major media’s front pages and entered the public eye.
News articles, editorials, and blogs on the topic flooded the media. Twenty universities across

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 112-002 Foxconn Technology Group (A)

mainland China, Hong Kong, and Taiwan conducted a thorough investigation and produced a report
on Foxconn’s labor practices; nine mainland Chinese and Hong Kong academics issued an open
statement raising the public awareness of the “identity crisis” of migrant workers, who worked and
lived in cities but were not recognized and treated by the hukou system or the society as urban
dwellers.43 In most press reports people took a critical stand, accusing Foxconn of labor abuse and
mistreatment, citing mostly the long working hours and the military style management.44

Nevertheless, a few voices defended Foxconn by emphasizing that the real cause of the suicides
was in fact a larger social problem, not something unique at Foxconn. Health experts mentioned that
the suicide rate at Foxconn was lower than China’s average suicide rate—13 per 100,000 for males
and 14.8 for females.45 Noting that most victims were relative young and fresh to the society, some
people believed that the victims simply could not handle the stress of being a Foxconn employee.
Tang Wenying, a young line supervisor, commented by comparing Foxconn with other similar
factories, “This is a good place to work because they treat us better than many (other) Chinese
factories.”46 Boy Lüthje from the Institute of Social Research in Frankfurt also confirmed this, citing
the timely wage payment, free food, and lodging as examples.47 Despite these merits, Foxconn
suffered from an extremely bad reputation and image after the continuous suicides in contrast to the
fact that it was greatly lauded for creating jobs before the incident happened.

Apple’s Response
As the tragedies at Foxconn unfolded, Apple received significant attention and criticism for its
failure to oversee its Chinese supplier. When asked to comment on the suicides, Steven P. Jobs,
Apple’s chief executive officer, expressed his view that Foxconn was not a sweatshop and that Apple
was “over there trying to understand what is happening.”48 Timothy D. Cook, Apple’s Chief
Operating Officer, together with other executives and two suicide prevention specialists, went to
China in 2010 to review the operations at Foxconn. The experts investigated situations behind the
suicides, surveyed more than 1,000 workers, interviewed workers and managers in person, and
finally presented their findings and recommendations to the executives at Foxconn.49

However, none of the recommendations addressed the issue of wages and Apple’s frequently-
accused aggressive pricing that had passed the pressure all the way down to its supplier’s
employees,50 at a time when Apple was enjoying a 39.4% gross margin in 2010 while Foxconn’s
margin was 8.10% (Exhibit 3) and decreased further to less than 1% in the first quarter of 2011 due to
increased operating costs as a result of a wage and salary increase.51 Whether the investigation report
and recommendations put forward by the experts would be effective was doubtful as well, since
Apple had already done a similar investigation and went through the exactly same procedures when
the British newspaper The Daily Mail accused Foxconn of sweatshop conditions in 2006.52

Foxconn’s Response
In response to the suicides, Mr. Gou showed willingness to do everything possible to stop the
tragedy and Foxconn immediately adopted a series of remedial practices. To directly prevent more
jumps, Foxconn asked its employees to sign a “no suicide” pledge53 and installed 1.5 million square
meters of nets. Mr. Gou commented, “Although this seems like a dumb measure, at least it could save
a life should anyone else fall.”54 The company also increased the monthly salaries twice, first in June
from $132 to $176.47, and second in September to $294, which would benefit 85% of its Shenzhen
workers.55 In order to counsel managers and assembly-line workers better, Foxconn set up a 24-hour
hotline service, hired sociologists and psychiatrists, and even invited Buddhist monks to the Longhua
plant to conduct a religious ceremony to dispel misfortune.56

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 Foxconn Technology Group (A) 112-002

Although the company had taken sweeping actions, it was extremely challenging to improve
workers’ conditions in a real sense under the current social environment. At the same time, Foxconn
had to deal with its rising operating costs, which caused its first quarter net profits in 2011 to fall
almost 20% from a year earlier.57 While the company was still growing with an expected employment
of as many as 1.3 million workers in China by the end of 2011, it had started seeking “better” places
for expansion.58

The city of Zhengzhou in Henan Province was one of its new targets, where the minimum wage
was $118/month, substantially lower than the $162/month at Shenzhen (Exhibit 7). In 2010, it started
to build two factories in Zhengzhou, including a 0.54-square-mile science and technology park.59 It
had already moved the production of Apple’s iPhone4 there and planned to “fully expand [the]
investment in Henan, using Zhengzhou as the base,” quoting chairman Gou.60

Foxconn’s Performance
Foxconn’s troubles did not go unnoticed in the stock market and in 2010 the stock price of Hon
Hai dropped by 24%. The stock price dropped by 5.7%, the most in a year, on June 6th of 2010, in
Taipei trading after the company agreed to more than double wages at its Shenzhen factories
following the spate of suicides.61 Sell-side analysts quickly cut their estimates for next year’s earnings
out of concern that the salary increases might impede Foxconn’s competitiveness.62 “The question is
whether they can pass it on,” said Allen Pu at Fubon Financial in Taipei. “We don’t know if clients
like Apple will accept Foxconn raising prices,” he said. 63

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 112-002 Foxconn Technology Group (A)

Exhibit 1 Electronics Manufacturing Services: Value Chain

Source: Frost & Sullivan, "Asia Pacific Electronics Manufacturing Services (EMS) Market," Chart 2.2, 2008.
http://www.frost.com/prod/servlet/report-toc.pag?repid=P197-01-00-00-00, accessed July 15, 2011.

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 Foxconn Technology Group (A) 112-002

Exhibit 2 Competitive Landscape of the EMS Market

Source: Frost & Sullivan, "Global Electronic Manufacturing Services and Original Design Manufacturers Markets," Slide 47,
2010. http://www.frost.com/prod/servlet/report-toc.pag?repid=N6B5-01-00-00-00, accessed July 15, 2011.

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 112-002 Foxconn Technology Group (A)

Exhibit 3 Selected financial information of Foxconn, Apple and Flextronics

Panel A: Selected financial information of Foxconn (aka. Hon Hai Precision Industry Co., Ltd.), in
millions of dollars except for ratios and percentages

Fiscal Period Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
Ending 2005 2006 2007 2008 2009 2010

Total Revenue 32,854.40 45,735.20 58,976.90 67,560.80 67,862.20 103,817.30

Growth Over Prior 75.10% 39.20% 29.00% 14.60% 0.40% 53.00%
Year (%)

Gross Profit 3,356.20 4,478.50 5,726.00 5,822.80 6,461.80 8,458.70

Margin (%) 10.20% 9.80% 9.70% 8.60% 9.50% 8.10%

EBITDA 2,214.30 3,233.10 4,067.20 3,579.60 4,057.10 4,287.70

Margin (%) 6.70% 7.10% 6.90% 5.30% 6.00% 4.10%

EBIT 1,759.60 2,622.60 3,160.80 2,445.70 2,891.90 2,983.90

Margin (%) 5.40% 5.70% 5.40% 3.60% 4.30% 2.90%

Earnings from 1,580.00 2,295.70 2,933.40 1,963.60 2,645.70 2,614.20

Cont. Ops.
Margin (%) 4.80% 5.00% 5.00% 2.90% 3.90% 2.50%

Net Income 1,467.20 2,073.50 2,691.00 1,909.70 2,621.60 2,672.50

Margin (%) 4.50% 4.50% 4.60% 2.80% 3.90% 2.60%

Diluted EPS Excl. 0.147 0.2 0.254 0.179 0.246 0.244

Extra Items
Growth Over Prior 37.00% 36.60% 27.00% -29.50% 37.30% -0.8%
Year (%)

Panel B: Selected financial information of Apple, Inc., in millions of dollars except for ratios and
percentages

Fiscal Period Sep. 24, Sep. 30, Sep. 29, Sep. 27, Sep. 26, Dec. 25,
Ending 2005 2006 2007 2008 2009 2010

Total Revenue 13,931.00 19,315.00 24,578.00 37,491.00 42,905.00 65,225.00

Growth Over Prior 68.30% 38.60% 27.20% 52.50% 14.40% 52.00%
Year (%)

Gross Profit 4,042.00 5,598.00 8,152.00 13,197.00 17,222.00 25,684.00

Margin (%) 29.00% 29.00% 33.20% 35.20% 40.10% 39.40%

EBITDA 1,806.00 2, 660.00 4,721.00 8,796.00 12,449.00 19,364.00

Margin (%) 13.00% 13.80% 19.20% 23.50% 29.00% 29.70%

EBIT 1,643.00 2,453.00 4,407.00 8,327.00 11,740.00 18,385.00

Margin (%) 11.80% 12.70% 17.90% 22.20% 27.40% 28.20%

Earnings from Cont. 1,328.00 1,989.00 3,495.00 6,119.00 8,235.00 14,013.00

10

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 Foxconn Technology Group (A) 112-002

Fiscal Period Sep. 24, Sep. 30, Sep. 29, Sep. 27, Sep. 26, Dec. 25,
Ending 2005 2006 2007 2008 2009 2010
Ops.
Margin (%) 9.50% 10.30% 14.20% 16.30% 19.20% 21.50%

Net Income 1,328.00 1,989.00 3,495.00 6,119.00 8,235.00 14,013.00

Margin (%) 9.50% 10.30% 14.20% 16.30% 19.20% 21.50%

Diluted EPS Excl. 1.55 2.27 3.93 6.78 9.08 15.15

Extra Items
Growth Over Prior 355.90% 46.50% 73.10% 72.50% 33.90% 66.90%
Year (%)

Panel C: Selected financial information of Flextronics International, Ltd., in millions of dollars

except for ratios and percentages

Fiscal Period Mar. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31,
Ending 2005 2006 2007 2008 2009 2010

Total Revenue 15,730.70 15,288.00 18,853.70 27,558.10 30,948.60 24,110.70

Growth Over Prior 8.60% -2.80% 23.30% 46.20% 12.30% -22.10%
Year (%)

Gross Profit 1,010.20 933.50 1,075.80 1,585.30 1,625.10 1,310.00

Margin (%) 6.40% 6.10% 5.70% 5.80% 5.30% 5.40%

EBITDA 787.70 734.00 809.00 1,116.70 1,104.80 918.80

Margin (%) 5.00% 4.80% 4.30% 4.10% 3.60% 3.80%

EBIT 451.00 432.40 491.20 696.00 583.40 453.30

Margin (%) 2.90% 2.80% 2.60% 2.50% 1.90% 1.90%

Earnings from 331.50 110.50 320.90 -681.40 -6,135.50 18.60

Cont. Ops.
Margin (%) 2.10% 0.70% 1.70% -2.50% -19.80 0.10%

Net Income 339.90 141.20 508.60 -681.40 -6,135.50 18.60

Margin (%) 2.20% 0.90% 2.70% -2.50% -19.80% 0.10%

Diluted EPS Excl. 0.57 0.18 0.54 -0.95 -7.47 0.02

Extra Items
Growth Over Prior NMi -68.40% 200.00% NM NM NM
Year (%)

Source: Capital IQ.

iNM = not meaningful, since the Diluted EPS is negative.

11

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 112-002 Foxconn Technology Group (A)

Exhibit 4 EMS Market: Market Share of World’s Top 5 Participants (2009)

Source: Frost & Sullivan, "Global Electronic Manufacturing Services and Original Design Manufacturers Markets," Slide 50,
2010. http://www.frost.com/prod/servlet/report-toc.pag?repid=N6B5-01-00-00-00, accessed July 15, 2011.

12

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 Foxconn Technology Group (A) 112-002

Exhibit 5 Longhua Science and Technology Park (2007)

Source: Jason Dean, “The Forbidden City of Terry Gou,” The Wall Street Journal, August 11, 2007,
http://online.wsj.com/article/SB118677584137994489.html, accessed June 23, 2011.

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Exhibit 6 Education Level and Wage (including overtime pay) at Foxconn (2010)

Education Level Number of Workers Average Monthly Wage Average Monthly Wage
(in RMB) (in US Dollars)i
Elementary school 28 1957.14 287.81
Junior high school 440 1853.48 272.57
High school, Technical 893 1924.32 282.99
secondary school
College, Junior college, 204 2696.13 396.49
Graduate School
Total 1565 2005.60 294.94

Source: “Foxconn Investigation Report,” published by twenty universities from mainland China, Hong Kong and Taiwan,
October 9, 2010. The report is in Chinese and can be downloaded at http://tech.sina.com.cn/it/2010-10-
09/09574726168.shtml, accessed June 23, 2011.

iCalculated at 6.8RMB/USD by the case authors.

Exhibit 7 Minimum Wage in Selected Provinces (as of December 31st, 2010)

City (Province) Minimum Wage (in RMB) Minimum Wage (in USD)i
Shanghai 1120 164.71
Shenzhen (Guangdong) 1100 161.76
Beijing 960 141.18
Nanjing (Jiangsu) 960 141.18
Wuhan (Hubei) 900 132.35
Changsha (Hunan) 850 125.00
Zhengzhou (Henan) 800 117.65
Chongqing 680 100.00

Source: Chinese Labor Consulting Web. http://www.51labour.com/zhuanti/0613/, accessed June 23, 2011.

iCalculated at 6.8RMB/USD by the case authors.

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Exhibit 8 Incidence of low-wage employment by major demographic characteristics, local workers

vs. migrant workers (2008 and 2007 respectively)

Source: International Labor Organization. “Global Wage Report 2010-11: Wage policies in times of crisis.”

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Exhibit 9 Dormitory at Foxconn’s Plant (2010)

Source: “A dormitory building belonging to Foxconn at Longhua where it is known workers making the i.phone live,” photo
no. 7379004-1275784861, http://www.sinopix.com/sinopixweb/photo_pop.jsp?photo_id=1571309, accessed July 22,
2011.

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Exhibit 10 A Snapshot of Foxconn’s Death Toll (excerpt from “Dying young: the Foxconn suicides
and China’s booming economy”)

18 June 2007 Hanging in her dormitory toilet?

Hou, a 19-year-old Hunan worker, was found hung to her death in the toilet of her dormitory
room. She entered Foxconn in the summer of 2005 after leaving middle school in Huihua City.

Hou’s parents were shocked upon hearing the tragic news. Two weeks before Hou’s death, she
had phoned them to share her plan to quit soon after receiving her wages (New China Net, 27 June
2007).

1 September 2007 Dying from overwork?

Liu Bing, 21-year-old, died two hours after resigning from Foxconn. He left because the work was
“too noisy and unbearably exhaustive.” His job responsibility was loading and unloading heavy
goods. Overwork is the suspected cause of his death (Southern Metropolis Daily, 6 September 2007).

16 January 2009 Unbearable work pressure?

Feng, a 23-year-old university graduate, jumped from a 14th floor building to his death. The police
found a suicide note in his dormitory, “Too much work pressure; unstable emotions.” Foxconn
responded that Feng’s death might be related to a bonus reduction in connection with work
productivity (Southern Metropolis Daily, 17 January 2009).

16 July 2009 Unmanageable consequence as a result of “Apple leak”?

Sun Danyong, a 25-year-old Yunnan graduate from the Harbin Institute of Technology, worked as
an administrative staffer at Foxconn’s Shenzhen Longhua plant since 2008. On 16 July 2009, Sun, who
was held responsible for losing one of 16 prototypes of Apple’s fourth-generation (4G) iPhone,
jumped from the 12th floor of his apartment building to his death. Foxconn issued a statement:
“Regardless of the reason of Sun’s suicide, it is to some extent a reflection of Foxconn’s internal
management deficiencies, especially in how to help young workers cope with the psychological
pressures of working life at the company” (Li Jinming, Foxconn’s General Manager, quoted in
Southern Metropolis Daily, 21 July 2009). The “psychological pressures” referred to included being
suspected of stealing, interrogation and solitary confinement by security officers, and having his
home searched. He was allegedly beaten and humiliated. His final online chat with his friends
revealed both his agony and relief, “Thinking that I won’t be bullied tomorrow, won’t have to be the
scapegoat, I feel much better (Southern Metropolis Daily, 21 July 2009).” Apple, one of the direct
buyers of Foxconn products, released a press statement: “We are saddened by the tragic loss of this
young employee, and we are awaiting results of the investigations into his death. We require that our
suppliers treat all workers with dignity and respect (quoted in CNET News, 21 July 2009).”
Commentators suggested that Apple’s secretive culture and business approach—creating and
suspending great surprise in the market and thereby adding sale value to its products—have sent
extreme pressure all the way down its Chinese suppliers.

23 January 2010 Fell to his death but why?

Ma Xiangqian, a 19-year-old Henan-native, entered Foxconn in November 2009, was found dead
lying near the stairway of a factory dormitory on 23 January 2010. Despite management’s first
conclusions otherwise, an autopsy confirmed the death was due to falling (People’s Daily, 13
February 2010). Ma’s two sisters insisted that their brother was beaten to death at work because

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“there were scars on his dead body—he was black and blue in the chest area, had blood in his mouth
and nose, and a big wound in his forehead” (Guangzhou Daily, 26 January 2010). Foxconn refuted
local media’s reports that Ma had been assigned to cleaning toilets after he damaged equipment (due
to his inexperience).

11 March 2010 Financial stress?

Li, in his early 20s, jumped from a 5th floor dormitory after his Chinese New Year wages were
stolen.

17 March 2010 Attempting suicide

Tian Yu was rescued after she jumped from her dormitory. Journalists have been trying to contact
her but no further details were disclosed.

29 March 2010 Attempted suicide

Liu Zhijun, a 23-year-old Hunan graduate from Xiangtan University, jumped to his death from the
14th floor dormitory. He joined Foxconn in August 2009 (China Daily, 31 March 2010).

6 April 2010”Too much work pressure,” testified a female worker survivor

Rao Leqin, an 18-year-old Jiangxi worker, jumped from her 7th floor dormitory but a tree broke
her fall. She had worked in Foxconn for just a month.

Reports first alleged that Rao was troubled by a romantic relationship. When interviewed at the
hospital, she clarified that she was “under work pressure.” She added that she did not have
boyfriend.

Foxconn extended a typical work day to 12 hours. Rao said, “Morning assembly starts from 7:45
a.m. The working hours are very long. I get off at 6:50 p.m.…Recently I’ve been put on to the night-
shift which I couldn’t quite get used to it.” Her job was to inspect parts and components under the
microscope. Rao believed that it was difficult for her to resign without losing her wages. “At that time
[when she attempted suicide], I had only 15 yuan left. Earlier, I borrowed 50 yuan from my co-
worker. I was running into deep [financial] problems,” she said (New China Net, 26 April 2010).

7 April 2010 Attempted suicide

Ning, an 18-year-old Yunnan worker, jumped to her death.

6 May 2010 Psychiatric breakdown?

Lu Xin, a 24-year-old Hunan graduate from Xiangtan University and an alumnus of Liu Zhijun
(who killed himself on 29 March 2010; see above), jumped to his death from the 6th floor. He entered
Foxconn in August 2009. Lu allegedly suffered from a psychiatric disorder. According to his friends,
Lu showed symptoms of delusions like “being followed and threatened [by someone who wants to
kill him].” He was on the verge of personal breakdown around the May Day Holiday (on the 1st May
International Labor Day, 2010). Commentators suggested that Lu’s mental problems were triggered
and related to work pressure (Southern Metropolis Daily, 7 May 2010).

Source: SACOM (Students & Scholars Against Corporate Misbehavior), “Dying Young: Suicide & China’s booming
economy,” May 25, 2010. http://sacom.hk/wp-content/uploads/2010/05/dying-young_sucide-chinas-booming-
economy.pdf, accessed June 23, 2011.

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Endnotes

1 “Foxconn factories are labour camps: report,” South China Morning Post, October 10, 2010.

2 Frost & Sullivan. "Asia Pacific Electronics Manufacturing Services (EMS) Market," Chart 2.2, 2008.
http://www.frost.com/prod/servlet/report-toc.pag?repid=P197-01-00-00-00, accessed July 15, 2011.

3 Frost & Sullivan. "Global Electronic Manufacturing Services and Original Design Manufacturers Markets," Slide 47, 2010.
http://www.frost.com/prod/servlet/report-toc.pag?repid=N6B5-01-00-00-00, accessed July 15, 2011.
4
”Multinationals manufacture margins,” China Daily, January 4, 2011. http://www.chinadaily.com.cn/
cndy/2011-01/04/content_11788715.htm, accessed June 23, 2011.
5 Foxconn official website. http://www.fih-foxconn.com/about/default.aspx, accessed June 23, 2011.
6 Jason Dean, “The Forbidden City of Terry Gou,” The Wall Street Journal, August 11, 2007.

http://online.wsj.com/article/SB118677584137994489.html, accessed June 23, 2011.

7 Arik Hesseldahl, “Fixing Apple’s ‘Sweatshop’ Woes,” Business Week, June 29, 2006.
http://www.businessweek.com/technology/content/jun2006/tc20060629_008337.htm, accessed June 23, 2011.
8
Consolidated Financial Statements and Report of Independent Accountants, Hon Hai Precision Industry
Co. Ltd., December 2007, 2008 and 2009.
9“A suicide outbreak at Foxconn has unsettled customers like Apple and Dell,” Bloomberg Businessweek, June
7, 2010.
10 Foxconn official website. http://www.fih-foxconn.com/about/default.aspx, accessed June 23, 2011.
11 “Light and death: A series of deaths expose a big computer-maker to unaccustomed scrutiny,” The

Economist, May 27, 2010. http://www.economist.com/node/16231588, accessed June 23, 2011.

12 Dean, “The Forbidden City of Terry Gou.”
13 Ibid.
14 Ibid.
15 “Life and Death at the iPad Factory,” Bloomberg Businessweek, June 7, 2010.
16 “Foxconn Investigation Report,” published by twenty universities from mainland China, Hong Kong and

Taiwan, October 9, 2010. The report is in Chinese and can be downloaded at http://tech.sina.com.cn/it/2010-10-
09/09574726168.shtml, accessed June 23, 2011.
17 Dean, “The Forbidden City of Terry Gou.”
18SACOM (Students & Scholars Against Corporate Misbehavior), “Dying Young: Suicide & China’s
booming economy,” May 25, 2010. http://sacom.hk/wp-content/uploads/2010/05/dying-young_sucide-
chinas-booming-economy.pdf, accessed June 23, 2011. The dollar value is calculated using 6.8RMB/Dollar
exchange rate by the case authors.
19 Dean, “The Forbidden City of Terry Gou.”
20 Ibid.
21 Robert E. Kennedy and Katherine Marquis, “China: Facing the 21st Century,” HBS No.9-798-066 (Boston:

Harvard Business School Publishing, 2002).

22 Allan Zhang, “Hidden Dragon: Unleashing China’s Private Sector,” PricewaterhouseCoopers, 2003.

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23 The U.S. Government Export Portal, “Twelve Cities in China Given Permission to Construct Subways,”
2004.
24 “Multinationals to China: no New Labor Rights” (Business against Labor Rights in China),

Multinational Monitor, ISSN: 0197-4637; Volume 27; Issue 6 November 1, 2006, p. 34.
25Lyn Denend, Bruce McKern and Jennie Tung, “The Business Environment of China: Challenges of An
Emerging Economic Superpower,” Stanford GSB case No.IB-57 (Stanford: Stanford Graduate School of Business,
2009).
26 Li Hong, “Worker’s pay rise is long overdue,” People’s Daily Online, March 9, 2011.
http://english.peopledaily.com.cn/90002/96743/7312867.html, accessed June 23, 2011.
27
Marcus Schuetz and Carola Ramon Berjano, “China’s Migrant Workforce and the Reform of Its Housing
Registration System,” HKU case (Hong Kong: Hong Kong University Press, 2009).
28Jack Linchuan Qiu and Carolyn Cartier, “Networked Mobility in Urban China: Hukou, Working-Class
ICTs, and the Case of Sun Zhigang,” paper presented at the annual meeting of the International Communication
Association, San Francisco, CA, May 24-28, 2007.
29 SACOM, “Dying Young: Suicide & China’s booming economy.”
30 International Labour Organization, “The Global Wage Report 2010-11: Wage policies in times of crisis.”
31 Schuetz and Ramon Berjano.
32 Schuetz and Ramon Berjano.
33 Richard J. Buttimer Jr., Anthony Yanxiang Gu and Tyler T. Yang provides a detailed introduction of the

Chinese Housing Provident Fund in International Real Estate Review 7, no.1 (2004): 1-30. The beginning paragraph
states that “Out of concern that many of its citizens could not afford to purchase their housing units, the Chinese
government created the Housing Provident Fund. This program… combines a 401(k)-like savings and retirement
account with subsidized mortgage rates and price discounts to provide a mechanism through which an
employee could save for, and eventually complete, a housing purchase.”
34 Andrew Watson, “Social security for China’s migrant workers–providing for old age,” Journal of Current

Chinese Affairs 38, 4 (2009): 85-115.

35 Schuetz and Ramon Berjano.
36 The original full Chinese text is available at http://tech.sina.com.cn/it/2010-05-19/13214206671.shtml,

and the English is translated in “Dying Young: Suicide & China’s booming economy,” May 25, 2010.
http://sacom.hk/wp-content/uploads/2010/05/dying-young_sucide-chinas-booming-economy.pdf, accessed
June 23, 2011.
37 SACOM, “Dying Young: Suicide & China’s booming economy.”
38 “The stark reality of iPod’s Chinese factories,” The Daily Mail, August 18, 2006.
http://www.dailymail.co.uk/news/article-401234/The-stark-reality-iPods-Chinese-factories.html, accessed
June 23, 2011.
39 China Labor Watch, “Follow up on Foxconn.” http://www.chinalaborwatch.org/pro/proshow-127.html,

accessed June 23, 2011.

40 China Labor Watch.
41 “Foxconn Investigation Report.”
42 “Foxconn factories are labour camps: report.”

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43 See note 37.

44 “Foxconn Investigation Report.”
45
World Health Organization, “Suicide rates,” http://www.who.int/mental_health/prevention/suicide/
suiciderates/en/, accessed June 23, 2011.
46 “Chinese factory asks for ‘no suicide’ vow,” MSNBC.com News Services, May 26, 2010.

http://www.msnbc.msn.com/id/37354853/ns/business-world_business/t/chinese-factory-asks-no-suicide-
vow/, accessed June 23, 2011.
47 “Life and Death at the iPad Factory.”
48 Miguel Helft, “Apples says Chinese suppliers made changes after suicides,” February 15, 2011.

http://bits.blogs.nytimes.com/2011/02/15/apple-says-chinese-supplier-made-changes-after-suicides/,
accessed June 23, 2011.
49 Apple Inc., “Apple Supplier Responsibility: 2011 Progress Report,” http://images.apple.com/

supplierreponsibility/pdf/Apple_SR_2011_Progress_Report.pdf, accessed June 23, 2011.

50 “Apple secretive about its supply chain,” People’s Daily Online, January 21, 2011.
http://english.people.com.cn/90001/90778/7268382.html, accessed June 23, 2011.
51 “Hon Hai Q1 profit down nearly 20%,” The China Post, May 1, 2011. http://www.chinapost.com.tw/

taiwan-business/2011/05/01/300643/Hon-Hai.htm, accessed June 23, 2011.

52 Hesseldahl.

53 “Chinese factory asks for ‘no suicide’ vow.”

54
“Thirteenth employee at China’s iPhone factory attempts suicide amid row over working conditions,” The
Daily Mail, May 28, 2010. http://www.dailymail.co.uk/news/worldnews/article-1282163/China-Foxconn-
iPhone-factory-crisis-13th-suicide-bid-employee.html?ito=feeds-newsxml, accessed June 23, 2011.
55 “Foxconn to raise wages again at China plant,” Reuters, October 1, 2010. http://www.reuters.com/

article/2010/10/01/us-foxconn-idUSTRE6902GD20101001, accessed June 23, 2011.

56
“Foxconn invites monks in wake of six suicides,” China Daily, May 13, 2010.
http://www.chinadaily.com.cn/china/2010-05/13/content_9842460.htm, accessed June 23, 2011.
57 “Hon Hai Q1 profit down nearly 20%.”
58 “Foxconn to raise wages again at China plant.”
59“Zhengzhou Foxconn to realize output value of 500 BLN Yuan in five years,” in China economic news in
brief from Xinhua News, December 12, 2010. http://news.fnchn.com/China_economic_news_in_97095.aspx,
accessed June 23, 2011.
60 “Foxconn steps up investment in Henan,” China Daily, June 18, 2011. http://www.chinadaily.com.cn/

bizchina/2011-06/18/content_12729071.htm, accessed June 23, 2011.

61
“Hon Hai falls on plan to double wages at China plants,” Bloomberg, June 7, 2010.
http://www.businessweek.com/news/2010-06-07/hon-hai-falls-on-plan-to-double-wages-at-china-plants-
update2-.html, accessed June 23, 2011.
62 Ibid.
63 Ibid.

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