June 9th, 2011
04:52 AM GMT
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Hong Kong, China (CNN) – While Apple Inc. continues to move from strength to strength, the Chinese firm instrumental in creating Steve Jobs’ recent success has fallen on hard times.

Foxconn became international news when it was beset by a rash of employee suicides in early 2010. The Taiwan-based company, which has a million employees in China, was hit by a factory blast in May that killed four. Then on Tuesday, the company lost its blue chip status after it was taken off the Hang Seng Index in Hong Kong. In its place came insurer AIA and Hengan, a major producer of toilet paper on the mainland.

How did Foxconn slip into the toilet? After all, it’s not only the world’s largest computer component supplier for red-hot Apple, but for Nokia and Sony as well. Foxconn makes more mobile phones than any other company.

In many ways, Foxconn is caught in a sea change sweeping across China: The days of making fortunes simply as a low-cost, low-margin manufacturer are drawing to a close.

Foxconn lost around 34% of its market value in the past year, which contributed to Hang Seng’s decision to drop the manufacturer from its Hang Seng index. "When deciding which companies are to be added to or dropped from the HSI, companies are evaluated on several factors, including their financial performance, their market capitalization and turnover," an index spokesperson told Agence France-Presse.

Terry Gou, chairman of Foxconn’s parent company, Hon Hai Precision Industry Co., said yesterday that the losses from the company stem in large part from a massive shift in relocating much of its China production facilities from coastal areas farther into the interior, according to Taiwan’s Central News Agency.

The company also increased pay 30% to mainland employees in the wake of the suicides.

"Last year some tragedies befell employees of our company, and it took us months to minimize the damage," Gou said. "Our performance in 2010 was barely worth a passing grade, with plenty of room for improvement."

Gou told reporters after the annual meeting that the company will start to move away from low-margin contract business and into higher value technology processes, such as solar and optoelectronics. “This is a year for solidifying our base; next year will definitely be a harvest year,” http://in.reuters.com/article/2011/06/08/hon-hai-idINT8E7GJ01P20110608">Gou said.

Analysts believe Foxconn is moving in the right direction, and will improve returns this year. But it comes as other businesses that built their success on harvesting China as a low-cost supplier – such as Hong Kong’s Li & Fung – are suddenly seeing diminishing returns as China’s wages and domestic market grows.

As Li & Fung noted in an earnings statement this year: “With the entry of China as a major supply market from 1979, the world has basically been in a low supply-cost era for the last 30 years.

“The change in wage policy in China in 2009 and the subsequent significant higher export prices brings this status quo to an end.”

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Filed under: BusinessChina


soundoff (20 Responses)
  1. In The Minority

    I really have a hard time feeling bad for this company for losing their :Blue Chip: status and lowered profit because they have to pay their employees more.......

    June 9, 2011 at 6:11 am |
  2. Guanxi

    All the money goes to greedy Apple. Employees are left with leftovers and scrap. That's what American capitalism is all about.

    June 9, 2011 at 7:02 am |
  3. Zack

    @ Guanxi,
    Nobody is forcing them to work in that factory. You complain about American capitalism, but I'm willing to bet that those employees don't complain about the ability to feed themselves or their families. If you don't like your job, get a new one. If you can't get a new job, it's because you were too lazy to stay ahead of the curve and now you are no longer competitive in the job market.

    June 9, 2011 at 7:55 am |
  4. Loory Lee

    China has a ability to supply everything for the world,without China,the world would face a terrible inflation.Others may say Vietanam may be a good alternative for China,but never forget that china has a chain.

    June 9, 2011 at 7:59 am |
  5. leo

    @Zach
    How can you change your job if the job market is controlled by the American capitalists? Does not really matter where you go, it is the same condition. I have worked in an American call center outsourced here in Asia and they pay us way much less compared to our American counterparts. These companies only want profits. They do not care about the welfare of the people. This is Capitalism in action.

    June 9, 2011 at 10:43 am |
  6. clement

    events, yes events pple. they will be okay. give them time they will be alright

    June 9, 2011 at 10:58 am |
  7. Ash

    Why is everyone complaining about the "American capitalists." If it weren't for American capitalists, these jobs would still be in the USA. These people would've never been hired to do this work in the first place, and this company wouldn't even exist. Everyone is for capitalism when they have the competitive advantage and then against it when they have the disadvantage. Hypocrisy if you ask me.

    June 9, 2011 at 1:21 pm |
  8. slk

    The days of treating china and skilled chinese people worldwide like crap is over....enough is enough.
    The days of making enormous profit off chinese manufacturers must be stopped by the chinese government.
    Profits of apple,GE,etc... must be shared with these wonderful killed workers who build and manufacture quality products.
    Many foreign companies in china are very guilty of this abuse of chinese people and chinese workers

    June 9, 2011 at 1:22 pm |
  9. mjs

    @guanxi...Such a wealthy foreign company in USA would give workers BMW's , benefits like child care,educational benfits,complimentary products they manufacture.
    Its discrimination for foreign companies to abuse local chinese wokers. Its western colonialism.

    June 9, 2011 at 1:27 pm |
  10. chim loe

    tooo bad!!

    June 9, 2011 at 1:48 pm |
  11. Zack

    @ leo
    Nobody is forcing you to work at an American call center. If you want to make the same money as Americans, move to America. That's how that works... Although, you'll have some trouble finding a call center job here. All of those jobs went to Asia because they are willing to do the work for so little pay. If you guys demanded the same pay as Americans, and refused to work for less, then the jobs would go somewhere else, and you would be unemployed. Which, I'm sure you would blame that on American capitalism as well.

    @ mjs
    What planet are you from? The bigger the company, the worse off it's lower level employees are. In fact, many of the largest corporation take out life insurance on it's rank-and-file employees naming the company as the beneficiary, giving no money to the family, so that the company actually makes money if an employee dies. Which discourages the providing of adequate health care.

    June 9, 2011 at 2:42 pm |
  12. Bennedict Seabrook

    hmm i was told to invest in fidelity china investoo.co.uk says that they are expecting the chineese economy to grow 9.5% this year. I wonder however if other companies will go the way of foxcon.

    June 9, 2011 at 4:55 pm |
  13. Kyle H. Davis

    What most people don't realize is that Foxconn was simply a target of the media when it came to the employee suicides. They employ tens of thousands of employees in China, and the suicide rate of their employees is actually LESS than that of the national average of China. – It just goes to show you the power of the media... It's a shame that Foxconn had to go through all that, just because of one sided reporting.

    June 10, 2011 at 1:44 am |
  14. Averageman

    @Zack
    Zack:
    You seems to be an arrogant man. You have the empty pride and do not have the guts to admit that the huge American corporations are exploiting the world. You probably need some fixing in your brain.

    June 10, 2011 at 4:14 am |
  15. capitalism

    can't blame american only – china, i believe, is getting rich from capitalism. rich enough to surpass the US economy and also become the world's top luxury buyer by 2015? capitalism in itself is a problem! but to blame it purely on "americans" is short sighted. it's also ridiculous to just point out only the good in China that has obviously come out of capitalism and its complete blatant copying of capitalistic ideals as well products spawned out of a capitalistic regime (mirrored twitter, facebook, nike, foursquare – weibo, renren, li ning, jiepang), and then not want to take any negative news or light upon itself. this race and goal for profit and goods is what drives capitalism and it's also what happens to build your skyscrapers, and permit there to be a cash operated market in which bentleys, ferraris, and all the other sorts of useless "needs" are brought into China. obviously everyone only wants to focus on the grandeur that capitalism has brought China and forget about that in capitalism in practice, there is often a loser in the end.

    foxconn and all factories should be taken into account of the type of employees that are being hired; these are usually migrant workers and the country should look into the instability of uprooting and having people transition from a more simplistic life into the capitalistic one that drives for profit. and seriously i have not heard one person say let's not buy an apple product in all of this. if gap was utilizing kids in sweatshops then you'd sure as hell hear about boycotting the company who is selecting the factory of whom they operate with. the spotlight is on foxconn because people still want their damn products and foxconn is a Taiwanese company in China.

    June 10, 2011 at 5:20 am |
  16. Ted

    China showed the World that they could manufacture goods cheaper, at probably the same quality as the US. The Chinese government encouraged their citizens to do more work for less pay, because their strategy was to create an export driven economy, resulting in a Chinese-favorable trade imbalance with the US, and loss of jobs in th US. The major US companies moved their manufacturing facilities to China because Chinese companies were posing a threat to their existence with their low cost model. No doubt this has shown signs of success, but is all this sustainable? We are beginning to know the answer!

    June 10, 2011 at 9:03 am |
  17. Dennis

    You will know more about the fact about Foxconn and IPad 2 in this video:

    June 13, 2011 at 7:03 am |
  18. Meiguorenyumin

    Now I am embarrassed that I own one

    June 16, 2011 at 8:05 pm |
  19. icons pack

    I congratultae, what words..., a brilliant idea

    hpixel

    September 23, 2012 at 2:21 pm |
  20. Windows 8 icon constructor for Windows

    Cannot be

    September 24, 2012 at 9:03 pm |

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