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Foxconn Faces Challenge Reducing Work Hours, Monitor Says

May 16 (Bloomberg) -- Emily Chang reports on today's top news headlines on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

Foxconn Technology Group faces a “challenging” task in trying to meet a July deadline for cutting work hours and improving union participation, said the labor monitor appointed by Apple Inc. (AAPL), its largest customer.

The assembler of iPhones and iPads has resolved 98 percent of the 360 issues raised by the Washington-based Fair Labor Association, the group said in a report yesterday. The company has improved safety conditions, including testing sprinklers and maintaining equipment.

Inspections of the Taipei-based company’s factories began last year after Apple Chief Executive Officer Tim Cook joined the FLA following the suicides of at least 10 Foxconn employees in 2010. Foxconn, the world’s biggest contract manufacturer of electronics, more than doubled wages after protests from worker groups over conditions in a supply chain that includes Microsoft Corp. and Sony Corp.

“They have made a lot of progress, but they still have work to do,” Auret Van Heerden, CEO of the Fair Labor Association, said in an interview. “We are up against the two toughest or most complicated action items: hours of work and union democracy.”

Worker Shortage

A shortage of workers makes it difficult to completely fix the problems, Van Heerden said. Without enough employees to assemble electronics, Foxconn must rely on overtime work to get the job done, especially because Apple’s production cycle is seasonal and gets busier around product introductions, he said. Many Chinese workers also only stay on the job for about a year, which diminishes their interest in getting involved in the union process, he said.

Photographer: Qilai Shen/Bloomberg

An employee works on the assembly line at Hon Hai Group's Foxconn plant in Shenzhen. Close

An employee works on the assembly line at Hon Hai Group's Foxconn plant in Shenzhen.

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Photographer: Qilai Shen/Bloomberg

An employee works on the assembly line at Hon Hai Group's Foxconn plant in Shenzhen.

“It’s becoming increasingly tight, and most factories are struggling to hire enough workers,” he said.

In the coming months, the FLA will conduct additional inspections of other factories where Apple products are made, including those of Pegatron Corp (4938). and Quanta Computer Inc (2382) (2382)., Van Heerden said. Samsung Electronics Co., which makes semiconductors for Apple, isn’t on the list to be audited, he said.

Foxconn, whose flagship is Hon Hai Precision Industry Co. (2317), cut work hours to a maximum of 60 per week, making “significant progress” in meeting Apple’s standards, the FLA said. It committed to reaching China’s legal limit of 40 hours a week plus an average of nine hours of overtime by July 2013.

Union Participation

“We are working very hard to try and meet that commitment, it will be tough,” Louis Woo, a spokesman for Foxconn Technology Group, said yesterday. “A few points are difficult because we need more time.”

Hon Hai fell 0.9 percent to NT$78 as of 10:36 a.m. in Taipei trading, compared with a 0.1 percent gain in the benchmark Taiex index.

“The company should be able to meet the July deadline for reducing working hours by increasing shifts among workers,” said Bamboo Lin, an analyst Sinopac Securities Co. in Taipei. “It’s not a big concern for investors today; the price decline is because earnings were not as good as expected,”

Hon Hai reported first-quarter net income of NT$16.4 billion ($547 million) after sales fell 19 percent from a year earlier, the Taipei-based company said May 15. The average of 11 estimates compiled by Bloomberg was for profit of NT$19 billion.

Internship Programs

Foxconn also improved management of internship programs after the company said in October it found workers as young as 14 at a facility in Yantai, northeastern China, the FLA said. The manufacturer ended internship programs at three other plants.

There have been “encouraging” increases in the participation of workers in union committees since June, the FLA said. Employee representatives increased to 39 percent in the Guanlan factory, 41 percent in Longhua and 30 percent in Chengdu, according to the report.

The labor group said it wants to see more worker participation in the unions by next year. The union committees have been dominated by management, which is common at factories in China, the FLA said.

Foxconn, which has more than 1 million employees, enhanced grievance procedures and safety policies, including adding fire escapes, the FLA said.

The labor group also said it had identified new issues at the Foxconn plants, including insufficient lighting at some workstations and high noise levels, that it conveyed to Apple.

Van Heerden said he wants the changes Foxconn is implementing to have a broader effect on the electronics industry, which hasn’t traditionally been transparent about working conditions.

“My appeal to the rest of the electronics sector is to be more transparent and communicative about conditions on the factory floor,” he said. “We are looking for Foxconn to set the bar.”

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net; Stanley James in Hong Kong at sjames8@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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