Production line workers at iPhone maker Foxconn’s (富士康) southern China manufacturing hub will get a 30 percent pay raise, after a string of deaths at the site focused attention on working conditions in a region experiencing growing labor unrest.
Hon Hai Precision Industry (鴻海精密), owner of Foxconn, said yesterday that the cash component of wages would rise by 30 percent effective immediately, more than the 20 percent rise the company had talked about late last month.
It said the higher increase reflected rising prices in China, and it hoped to earn workers’ respect and raise efficiency.
PHOTO: REUTERS
Hon Hai’s shares fell as much as 2 percent in a broader market down 0.5 percent, while Foxconn shares shed 1.4 percent in Hong Kong.
A total of 10 workers have died at the company’s base in southern China this year, all apparently suicides. The deaths have triggered investigations by Apple and other big clients, including Dell Inc.
Apple CEO Steve Jobs, in his first public comment on the events, said on Tuesday that the deaths were “troubling,” but the factory “is not a sweatshop.”
“It’s a difficult situation,” Jobs said at the D8 annual gathering of top technology executives. “We’re trying to understand right now, before we go in and say we know the solution.”
Reasons for the apparent suicides are not totally clear, and analysts said wages may not be a major factor, if a factor at all.
However, demands for higher pay among workers in south China are likely to increase as a labor shortage in the region increases and gives workers more leverage.
“In Shenzhen, where the Foxconn factory is located, I think a basic wage of 2,000 yuan [US$293] a month is absolutely necessary. That’s double what it is at the moment,” Geoffrey Crothall of the China Labour Bulletin said in an interview.
However, many companies would be able to absorb the costs given their materials and shipping costs are dropping.
“Companies are largely going to absorb these costs and try to recoup them with higher export volume,” said Glenn Maguire, Asia chief economist at Societe Generale.
Analysts also noted that business models may change as the era of cheap south China labor comes to an end.
In a research note, JP Morgan said a 30 percent wage raise could cut Hon Hai’s net profit for this year by 10 percent, but there would be less impact next year. It believes the company will step up efforts to convince customers to move to less costly inland areas of China and may seek price rises.
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