Hon Hai: Vindicated by Apple Report?

In Taiwan's fiercely competitive business of electronics manufacturing, no company has been more successful—and more secretive—than Hon Hai Precision Industry. Run by press-shy billionaire Terry Gou from a nondescript headquarters in a working-class suburb of Taipei, Hon Hai and its executives have long tried to maintain a low profile even as the company has amassed an impressive list of customers, including Dell (DELL), Apple (AAPL), and Nokia (NOK). "Confidentiality regarding our operations is our policy to our clients, our customers," says Edmund Ding, Hon Hai's spokesman and an adviser to Gou.

The company has been growing at a furious pace (see BusinessWeek.com, 6/20/05, "The Titan from Tucheng"). Last year, Hon Hai (which operates factories under the name Foxconn) passed Flextronics (FLEX) to become the world's largest electronics manufacturing services company.


  The Taiwanese company today employs approximately 300,000 people in China, three times the number in 2002. One factory complex alone, in the southern city of Shenzhen, has 200,000 people.

No matter how secretive you want to be, size like that gets you noticed. Recently British newspaper The Mail reported on what seemed to be sweatshop conditions for Foxconn factory workers making iPods for Apple in China.

That prompted Apple to launch an audit on working conditions on the mainland. A report issued by Apple on Aug. 17 found no forced labor but that workers were exceeding the company's limits on hours and days worked per week. (see BusinessWeek.com, 6/29/06, "Fixing Apple's 'Sweatshop' Woes").


  Given the recent attention, there's no hiding anymore, concedes Ding, who says that critics have singled out Foxconn unfairly because of its size. "We are just so big," he says. "In Chinese, there's a saying: 'The big tree catches the wind.' "

Ding, speaking by phone from his office in Taiwan, says that after the newspaper report, Foxconn provided Apple auditors from the U.S., Hong Kong, Singapore, and China itself with unfettered access to its workers. "We gave them a free hand," he says. "They could interview whoever they wanted, visit wherever they wanted."

Ding defends the way Foxconn has treated its factory workers and claims that Apple's report vindicates his company. "I think this report returns justice to us," he says. "Even though the Foxconn group has grown so fast, we try to accommodate all the needs [of our workers]. We know that we can still improve on this. But I also think that the report itself fairly presents the facts and the truth."

Ding says that critics who single out his company aren't being fair since working conditions at Foxconn factories are no worse than those of other companies, including those of major rivals (see BusinessWeek.com, 6/19/06, "Stalking High-Tech Sweatshops"). "If you are talking about a situation in general," he says, "that's fine. If this kind of survey is being done in general for all the companies, then people can accept that. But if it's only for Foxconn, I cannot accept that."


  He points out that the company takes "a very leading position" in providing benefits to its Chinese employees. For instance, the company has a program to help workers interested in studying for their bachelor's, master's, and doctorate degrees. Foxconn provides annual medical checkups for workers, and one of its campuses in Shenzhen has a branch of the local hospital. "Most companies don't have this kind of program," he says.

With the spotlight falling on Foxconn, Ding says the Taiwanese company has to reconsider its longtime policy of avoiding publicity. "When outsiders want to check our product, our customers, we still keep things confidential," he says. "That's our business model. But I think in some respects, we can probably adopt a more open policy in the future. That is one thing we learned from this incident."