Production line workers at Foxconn's southern China manufacturing hub will get a 30 percent pay rise, as top customer Apple Inc called recent suicides at the plant troubling but said the site was not a sweatshop.
The string of deaths at the site have focused attention on working conditions in a region experiencing growing labor unrest. In his first public comments on the problem, Apple CEO Steve Jobs expressed his concern.
It's a difficult situation, Jobs said at the All Things Digital conference in California on Tuesday. We're trying to understand right now, before we go in and say we know the solution.
Taiwan contract electronics maker Hon Hai Precision Industry, the owner of Foxconn, said on Wednesday 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.
The rise came as Japan's Honda Motor offered a 24 percent wage hike to end a sometimes violent strike at a car parts plant in a region dubbed the world's workshop.
(Foxconn) has to do this as a more aggressive measure to prevent the company's reputation from being hurt more. But it's unlikely the whole thing will calm down because of the raise, said Sean Chen, who manages T$16 billion ($500 million) for Cathay Securities Investment Trust in Taipei.
The move will sure put increasing pressure on other manufacturers in southern China. Keep in mind, though, it's been China's policy to improve wages for its workers. It's just the Foxconn incident that might have accelerated that.
Hon Hai's shares closed 4 percent lower at a nine-month low in a broader market down 1.3 percent, while Foxconn shares shed 1.4 percent in Hong Kong.
MIGRANT WORKER WOES
A total of 10 workers have apparently committed suicide at the company's base in Longhua, southern China this year. The dead are all young migrant workers, among the millions who leave the poor hinterlands of China for the boom towns of the south and east coastal areas in search of work and high wages.
The deaths have triggered investigations by Apple and other big clients, including Dell Inc.
Reasons for the suicides are not totally clear, and analysts said wages may not be a major factor, if a factor at all.
Entry-level line workers at Foxconn's factory earn just over the province's 900 yuan ($131.80) per month minimum wage, before overtime and bonuses, according to a production supervisor. The minimum wage will be increased from July by an as yet unspecified amount.
Foxconn also provides free room and board for staff, a benefit not found at all south China manufacturing sites.
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 a month is absolutely necessary. That's double what it is at the moment, Geoffrey Crothall of the China Labor Bulletin told Reuters Insider in an interview,
However, analysts said 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 rise could cut Hon Hai's 2010 net profit by 10 percent, but there would be less impact in 2011. 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.
(Reporting by Argin Chang, Roger Tung, Kelvin Soh and Faith Hung in TAIPEI; Writing by Jonathan Standing; Editing by Chris Lewis and Lincoln Feast)