Monday, September 23, 2013

The symbol of Foxconn and the solution to it

Zhou (Joe) Ye

Being Chinese, I’ve heard hundreds of stories about Foxconn in the news and Internet, and most of them are negative, like suicide of workers, prison-like life in the manufacturing campus, and so on. Foxconn has become a symbol of the position of China in the world’s supply chain network: low-end assembly work in low-margin and high-volume because of large population and cheap labors, despite the fact that China is 2nd largest economics entity in the world already. There’re obviously social problems of fairness and humanity here, caused by capitalism and globalization, which are cursed by left-wing liberals. However, in my opinion, the solution to these problems exactly are from their source – in other words, let market solve it.

Foxconn and Chinese workers are at the low-end position not because Apple or other multinational corporations are evil or they deliberately do this. It’s because these multinational corporations are smart to allocate resources and costs. Any for-profit organizations would do the same if they gather sufficient information and have the ability to make rational decision.

As the figure above shows, Apple planned the global supply chain networks and tried to minimize the cost. Therefore China is no doubt the best choice for assembling because of cheap labor cost – and there’re no much other factors in the decision of picking an assembling location. As the brilliant innovator and smart marketer, Apple gained most of the profits of its products. It deserved that.

On the other hand, the inhumane working conditions in Foxconn finally became a problem. It’s not because Apple or Foxconn felt morally guilty, it’s because this supply chain network might not be sustainable. Foxconn’s moving into inland China, or maybe other Asian countries in the future is not driven by social responsibility, but driven by the market. I believe all such problems can be solved by the invisible hand of market. While if China wants to gain more profits, or at least not losing the role of workshop of the world, it should either keep its labor cost low, which is unlikely to be sustainable, or should make big efforts to make innovations in technology, economic structures, and even the society.

Supply chain network is from the invisible hand of market. It's not inhumane, but it won’t show sympathy either.


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