Foxconn Increases Raise in Factories

The New York Times, By DAVID BARBOZA, Published: June 6, 2010

SHANGHAI — For the second time in a week, Foxconn Technology, the world’s largest contract electronics manufacturer, said that it planned to substantially raise the salaries of its huge Chinese workforce.

The move comes as Foxconn — which make items for global companies like Apple, Dell, Hewlett-Packard and Sony — struggles with severe labor shortages and a rash of suicides at factories in southern China.

In announcing the wage increase late Sunday, the company, a unit of Taiwan’s Hon Hai Precision Industry Company, said that within three months the basic salaries of many of its 800,000 workers in China could reach nearly $300 a month, about double what many were earning a few weeks ago.

The increase is the strongest sign yet that labor costs are soaring in China’s biggest manufacturing centers and that consumers in other countries may eventually be forced to pay more for a wide range of goods that are made here.

Last week, the Japanese automaker Honda settled a two-week-long strike at its transmission plant in southern China by agreeing to raises of 24 to 34 percent, according to people with knowledge of the negotiations.

Also last week, Foxconn said that it would immediately raise the salaries of its Chinese workers by 33 percent. The announcement led several other major manufacturers to say that they may also be forced to raise salaries.

Economists say soaring labor costs in China could change the cost structure of global supply chains.

“These moves are symbolic and significant,” says Dong Tao, a Hong Kong-based economist at Credit Suisse. “The outcome is simple: manufacturers either improve productivity, shrink their margins or pass the costs on to consumers.”

Experts say China’s booming economy has led to labor shortages and fierce competition for young workers in this country’s coastal manufacturing centers, where a huge share of the world’s toys, textiles and electronics are made and assembled. And now, with food and housing prices soaring in China, many factory workers are beginning to demand higher salaries and better working conditions.

Beijing is backing some of the demands, encouraging local governments in various parts of the country to raise the minimum wage. The government hopes the moves will ease anxieties over inflation and help combat a widening income gap between the rich and the poor.

The recent walkout of 1,900 workers at Honda suggested that workers are gaining new bargaining power and that the government may allow them to flex their muscle.

At Foxconn, a bizarre series of suicides at the company’s Shenzhen campuses this year has led to intense scrutiny of labor conditions at Foxconn’s factories, which have been widely criticized in the Chinese media for being unduly harsh. Police in Shenzhen say 10 Foxconn workers have committed suicide this year.

Foxconn executives have blamed social ills and say the suicides are not work related. But Apple, Dell and other global companies say they are looking into conditions at Foxconn, which is China’s biggest exporter.

In a statement on Sunday, Foxconn said the “wage increase has been instituted to safeguard the dignity of workers” and help advance the company’s growth initiatives.

As recently as two weeks ago, the basic salary for many workers at Foxconn’s huge factories in the southern Chinese city of Shenzhen was about 900 renminbi per month, or about $132 a month.

Last week, Foxconn said that salary would immediately rise to $176 a month. And now, the company says that after a three-month trial period, workers will be paid $294 a month.