My thoughts on labor issue of 鴻海/富士康, what’s yours?

My thoughts on labor issue of 鴻海/富士康, what’s yours?

By Steve Hwang

Following a recent string of suicides at the Shenzhen facility which employs and houses more than 300,000 people, labor policy and military management model in 鴻海/富士康 are being accused for the cause of suicides.

The military management model and production disciplines in 鴻海/富士康 were once credited for making the company the world’s fast growing and largest contract electronics manufacturer. Suddenly, news, financial analysts, and scholars blamed and urged 鴻海/富士康 to end such business strategy and practice.

The management model and labor policy deployed in鴻海/富士康 are not isolated cases, rather this is the same approach as other manufacturing oriented companies in Taiwan use daily.

Indeed, this business practice and strategy provided the competitive advantage for Taiwan companies to rapidly expand and become world biggest ODM/foundry in 1990.

Let’s look at company comparison data among 鴻海(Hon Hai) &its customers, and other Taiwanese & world renown companies. And I like to bring your attention to the comparison of revenue/per employee and profit/per employee.

鴻海 (Hon Hai) 550,000 employees; revenue US$ 61.8 billion; revenue/per employee US $ 127,160; profit /per employee: US$4,120

Dell 80,800 employees; revenue: US $ 61.1 billion; revenue/per employee US $ 756,597; profit /per employee: US$32,382

Apple 32,000 employees; revenue US $ 32.5 billion; revenue/per employee US$1, 014, 909; profit/ per employee: US$151,063

H.P. 321, 000 employees; revenue US $ 111.8 billion; revenue/per employee US$368, 735; profit /per employee: US$25,947

Google 20,164 employees; revenue US $ 21.8 billion; revenue/per employee US$1.080, 914; profit/ per employee: US$209,624

CISCO 66,129 employees; revenue US $ 39.5 billion; revenue/per employee US$597,922; profit /per employee: US$121,762

Intel 82, 500 employees; revenue US $ 37.6 billion; revenue/per employee US$455, 588; profit /per employee: US$64,145

TSMC 24.466 employees; revenue US $ 8.9 billion; revenue/per employee US$ 330,101; profit /per employee: US$143,055

Acer 8,000 employees; revenue US $ 17 billion; revenue/per employee US$ 2,110, 000; profit /per employee: US$50,000

As we can see that revenue and profit/per employee in 鴻海(Hon-Hai) is 10-50 times lower as compared to world class companies. It means that 鴻海 (Hon Hai ) created wealth and profit by the size of work force, rather than productivity and knowledge of people.

The true gauge for the company performance is revenue and profit per employee. This metrics provides best measurement on how company convert talented people and knowledge into wealth. 鴻海 (Hon-Hai) needs urgently converting to a new knowledge and R&D oriented company in order to compete effectively and become a world class company. Otherwise, the empire of Hon Hai will start to crumple due to rising labor wage in China and other production sites.

The change to knowledge and R&D oriented business model for 鴻海(Hon Hai) and other OEM/ODM companies in Taiwan is inevitable. The labor issue in 鴻海(Hon Hai) may be an opportunity so Taiwan can start transition to next phase of new industry – a industry based on people’s talent, and knowledge, rather than size of work force and capital (money) investment.

What’s your thought? Give your comments.

Thank you,