now ODMs, component makers face labor shortages in western China [DIGITIMES, April 12, 2013]
Mainly because Taiwan-based notebook ODMs have been accelerating the process of shifting production to plants in Chongqing and Chengdu, in western China, the factories of ODMs and component makers in the region are seeing increasing difficulty recruiting enough workers, according to Taiwan-based supply chain makers.
Since the ODMs and related upstream suppliers are already facing labor shortages during the slow season (the first half) of 2013, the sources are concerned that the shortages will become more serious in the second half.
Acer’s 7-inch entry-level tablet is also suffering from unstable supply due to a labor shortage at component suppliers.
Quanta Computer plans to move all its notebook production except those for Apple, to its plants in Chongqing in 2013. Compal Electronics will shift 90% of its notebook capacity to Chongqing plants and will expand capacity in the second quarter.
Since people in western China are less willing to work in factories, the governments are mainly pushing student workers to aid the IT firms. Currently, about 50% of IT firms’ workers in Chongqing are students, and in Chengdu the proportion is 60-70%, the sources noted.
Since students in western China are required to conduct internship activities at factories in order to graduate, the governments can easily mobilize a large number of student workers to help IT firms. However, student workers’ high rates of absenteeism is causing the makers difficulties managing their production line manpower.
In addition, recruitment competition will also become a serious issue as the makers will need to offer attractive packages to draw people’s attention, but it will impact their profits, the sources said.
- Hewlett Packard’s better practices which could be a model for others in the electronics industry [1:00 – 3:50], see also the related written report:
The factory [with 14,000 workers], in Chongqing, makes computers for Hewlett-Packard, a company with little of Apple’s glamour. It is operated by Quanta, a little-known Taiwanese manufacturer.
Neither Quanta nor Hewlett-Packard claims it has solved every labor woe. And the amenities are partly selfish: one of the biggest problems for Chinese factories is that workers are constantly leaving. Hewlett-Packard hopes that by improving living conditions, turnover and training costs will fall.
- What changes Foxconn has made, and what challenges lie ahead as Foxconn and Apple say they are trying to improve working conditions? [4:23] See also the other parts of the related written report, Signs of Changes Taking Hold in Electronics Factories in China [The New York Times, Dec 26, 2012]:
With 1.4 million employees in China — the most of any private company — Foxconn is setting a bar that all manufacturers will be judged against, say executives at other companies.
“When the largest company raises wages and cuts hours, it forces every other factory to do the same thing whether they want to or not,” said Tony Prophet, a senior vice president at Hewlett-Packard. “A firestorm has started, and these companies are in the glare now. They have to improve to compete. It’s a huge change from just 18 months ago.”
Foxconn, more than any other company, has proved that Chinese plants can deliver obsessive attention to quality. The company has helped make China into a manufacturing juggernaut through strict discipline that is visible everywhere, even in the salutes managers give visiting executives. That discipline, say former Apple executives, is one reason every iPhone is put together so well. …
… Though Foxconn has trained managers to treat employees more gently, foremen still use profanity and intimidation, workers say. The managers speak in a manner that often feels like a threat,” said Mou Kezhang, who works in iPad quality assurance at the Foxconn factory in Chengdu [with 164,000 workers producing iPads for Apple out of 1.4 million employees in China].
Here is what was A typical work day for a Foxconn worker in Chengdu (animation only) [NMANewsDirect YouTube channel, May 10, 2011]
Background report: Foxconn and Apple Fail to Fulfill Promises: Predicaments of Workers after the Suicides [Students & Scholars Against Corporate Misbehavior, May 7, 2011]
FLA REPORT SHOWS SOME POLICY CHANGES AT FOXCONN BUT FEW IMPROVEMENTS FOR WORKERS [Students & Scholars Against Corporate Misbehavior, Aug 24, 2012]
On 21 August, the Fair Labor Association (FLA) released a verification report on labour practices at three Foxconn factories producing for Apple in China that were the subject of an earlier FLA investigation. In its report, the FLA trumpets the speedy progress at Foxconn in remediating widespread labour rights violations. However the FLA has overstated the improvements at Foxconn. Firstly, most of the actions completed by Foxconn are changes at the policy level only, but few substantial changes in labour practices were found at this stage. Secondly, Foxconn has deliberately delayed implementing many of the actions called for in the remediation plan, even those that are almost cost-free. Thirdly, workers have had no opportunity to participate in the remedial action process. SACOM has repetitively demanded democratic trade unions at Foxconn as an indispensable step in reforming its labour practices.
Terry Gou always speaks proudly of “Foxconn-speed”. The world’s biggest IT manufacturer can build a factory in 76 days in Chengdu. When talking about legal compliance, however, Foxconn buys time by undertaking “gradual reform.” To be fair, SACOM agrees that some reforms take time to accomplish. However, it makes little sense that Foxconn is reluctant to immediately rectify some problems that do not require expenditure of much of the company’s considerable resources. For instance, Foxconn still refuses to deliver a copy of the collective bargaining agreement to workers, and workers are kept in the dark about the company’s remedial action plan.
SACOM reiterates that factory inspection alone cannot eliminate labour rights violations. A democratic trade union trusted by workers is the most sustainable solution towards decent working conditions.
Those Were the Years, When I Was at Foxconn 那些年, 我在富士康 [sacom2005 YouTube channel, Feb 24, 2013]
Current situation: [OPEN LETTER TO APPLE’S SHAREHOLDERS] INFLUENCE APPLE WITH YOUR SHARES [Students & Scholars Against Corporate Misbehavior, Feb 26, 2013]
Dear Apple’s shareholders,
On the eve of Apple’s annual shareholders meeting in the U.S., Students & Scholars Against Corporate Misbehaviour (SACOM) and other labour organizations in Hong Kongcome to the Apple Store located in Causeway Bay, to protest against the Apple Inc. (Apple) conniving at suppliers’ harsh labour practices. Meanwhile, SACOM also take the opportunity appeal to shareholders to look squarely at Apple’s shameless infringement on labour rights. Apple shareholders should use their influential power to take part in governing Apple and to force the management to adhere to the labour rights standards.
Since 2005, Apple has released the Apple Supplier Code of Conduct stating that suppliers should comply with the international labour standards, and requesting that “Apple’s supply chain provides safe working conditions, respect workers, that they are treated with dignity”. SACOM, however, find Apple fails in its responsibilities which laid down in its Supplier Code of Conduct. To make sure that workers can meet the daily production targets, the management adopt a number of inhumane management methods. For instance, depriving workers’ legitimate rights to take toilet breaks, ergonomic breaks and meal breaks.
Apple joined the Fair Labor Association (FLA) in January 2012, but the labour rights abuses are still widespread in Apple’s supply chain.. At the end of 2012, SACOM conducted investigation in three Apple’s suppliers, Foxlink, Pegatron and Wintek. Similar to Foxconn, military-style management is adopted in the factories. Rampant labour rights violations including unpaid overtime work, long working hours, forced internship, excessive use of dispatch labour, poor occupational safety. The following is the voice from a Sichuan student who worked at the polishing department of Riteng for producing iPads.
“The production target is 5000 pieces per day. I am really exhausted…. I want to go back to the school, but my teacher said we would not receive our graduation certificates if we left.”
Apple always deploys its staff to monitor the on-site production process at its suppliers. Obviously, it knows very well on the non-compliance, but it keeps turning a blind eye to the problems. Apple’s net profit recorded at US$ 41.7 billion (about HK$ 325billion) last year. Yet, it still requires its suppliers to complete the production by urgent orders with a very low unit price and a short delivery time. Harsh management methods are inevitably adopted. Although Apple has been well-informed of these violations, it has intentionally neglected its corporate social responsibility. All these labour rights violations are incredibly shameful.
Shareholders, as the company’s investors, should bear the moral responsibility for the operation and purchasing practices of Apple, and monitor Apple to improve the labour practices at its suppliers. SACOM call on Apple’s shareholders to scrutinize the company to strictly enforce its commitment on its Code of Conduct and corporate social responsibility, that is:
- to allow workers to form trade unions by democratic elections in accordance with the Chinese Trade Union Law;
- to stop using student workers immediately;
- to provide a living wage of all workers which enables workers to support themselves and their families;
- to review management methods and to ensure workers are treated with respect and dignity;
- to conduct labour rights training for workers, particularly training on occupational health and safety; and
- to compensate victims for the non-compliance of the Apple’s Code of Conduct.
Students & Scholars Against Corporate Misbehaviour
Chongqing – the unofficial biggest city in the world [stefhoffer YouTube channel, March 3, 2012]
Commentary: Labor shortages, rising wages in China push notebook component firms toward automation [DIGITIMES, April 1, 2013]
China continues to increase minimum wages but labor shortages along the coast continue sending the notebook supply chain moving inward to central China. The lack of labor is notebook firms’ biggest problem currently and some brands have decided to work with component providers to build automated production lines. However, some other firms have noted that automation is difficult to achieve because currently there are no standards or rules to follow.
China’s wage levels continue to climb despite the slowdown of the global economy. According to statistics, since the beginning of 2013, seven major provinces and cities such as Beijing, Zhejiang, Henan, Shaanxi, Guizhou, Guangdong, and Shenzhen have all increased their minimum wages. Take Shenzhen for example, the minimum wage was increased from CNY1,500/month (US$241/month) to CNY1,600/month [US$257/month], the highest in China. As for minimum hourly wages, the highest is Beijing at CNY15.2/hour [US$2.4/hour].
Actually many firms have been paying their workers more than the minimum wages in order to secure their workforce, and in the past this usually happend in the coastal areas, such as Kunshan, Shanghai and Guangdong, where big firms and major manufacturing facilities were mostly located. Now this is also happening in inland areas, as firms move away from the coast looking for cheaper labor.
In the notebook supply chain, most firms such as Foxconn Electronics (Hon Hai Precision Industry), Quanta Computer, Compal Electronics, Wistron, and Inventec are all gathered in Chongqing or Chengdu in central China, and this will raise the labor costs in those regions.
Some observers have noted that labor shortages in China are worsening because young workers are reluctant to enter the manufacturing sector. This will cause problems such as delayed shipments and increasing labor expenses.
Some component makers believe by upgrading to automated production process, the problems can be solved. Simplo, a Taiwan-based notebook battery provider which has a global market share of 20%, faces labor shortages during the boom season. The firm has been aggressive in increasing the percentage of automated production in recent years, which has helped the firm increase efficiency by 40%.
Notebook firms revealed that many in the supply chain were at first reluctant to move plants to Chongqing due to moving costs. They received subsidies from the local governments, but they know that it is not a long-term policy. Labor shortages and increasing labor costs will likely continue and firms may be forced to move again. Hence, automated production may be one of the solutions to this problem.
Foxconn reportedly to move production lines out of China [DIGITIMES, Feb 27, 2013]
Seeing that Foxconn Electronics (Hon Hai Precision Industry) has no plans to recruit standard workers in China, rumors have started circulating in the IT market that Foxconn is considering moving its investment focus from China to countries such as Brazil, Indonesia, Taiwan and the US.
Foxconn has declined to comment on the rumors, but some market watchers noted that China will still be an important investment target for the company in 2013, judging by the current market status.
Foxconn’s recent investments worldwide should not be regarded as moves out of China since the investments simply show the maker’s global market planning, the sources pointed out.
Although China’s rising labor costs and strict policies for environmental protection will gradually impact Foxconn’s profitability, compared to the US, Brazil and Indonesia, China currently still has advantages in terms of cost and infrastructure, the sources said.
Acer to shift 90% notebook production to Chongqing, China [DIGITIMES, March 1, 2013]
Acer recently decided to increase the percentage of notebook production in Chongqing, China to 90%, beginning in the second quarter of 2013, according to industry sources. Due to increasing production in Chongqing, as well as Chengdu (both being in western China), local supply of labor and components is expected to be tight.
As growth of the notebook industry slows down, ODM firms have been more sensitive to production cost changes. While scattered manufacturing plants mean higher production costs, the ODMs have been working towards centralizing their production. Nevertheless, brand clients have been more eager to diversify risks by issuing orders to plants in different locations. But the ODMs have managed to have Acer agree to shifting most of its production to western China.
HP has shifted production for most of its notebooks to Chongqing while Dell and Lenovo’s production mainly takes place in Chengdu. As for Acer, its major ODM partners Quanta Computer and Wistron have moved 100% of their notebook production capacity to Chongqing while Compal Electronics, which maintained 50% of capacity in Kunshan and 50% in Chongqing in 2012, will increase the proportion of capacity in Chongqing to 90% in 2013, the sources said, adding Compal will start moving its equipment in the second quarter.
With the exception of Apple products, Quanta’s notebook production for other brands will be moved to Chongqing, the sources said. To meet clients’ demand, Compal continues to have notebook production in Kunshan, Chengdu, Chongqing and Hefei. However, Compal’s Hefei plant is a joint venture with Lenovo and due to its location, production costs have been rising, and hence company president Ray Chen has disclosed plans to centralize capacity by moving production to the western regions in China. Compal’s Chengdu plant is predicted to ship more than 500,000 units per month in the second quarter and the Chongqing plant is expected to achieve the same figure starting in March and April.
The sources revealed that while notebook production will be concentrated in Chongqing and Chengdu, the ODMs will keep their tablet and server production lines in Shanghai, Songjiang, and Kunshan. Take Inventec for example, the firm plans to shift production focus at its Shanghai plant from notebooks to servers and all-in-one (AIO) PCs.
The centralization of notebook capacity in Chongqing and Chengdu has prompted component providers to consider moving production to the western regions of China as well.
The sources said the labor cost in inland China is relatively low compared to coastal regions but the transportation cost remains high. So far the cost difference in transportation has been subsidized by the local government but no one knows when the subsidy might end, the sources added.
According to statistics provided by the city government of Chongqing, export processing trade value increased 150% in 2012, reaching US$15.364 billion. Notebook exports reached 35.44 million units, an on-year growth of 130% with an export value of US$12.541 billion. Notebook export value accounted for almost 30% of total 2012 export value of Chongqing.
China’s Chongqing Plans 1.5 Trillion Yuan Investment: Xinhua [Xinhua via Bloomberg, Aug 20, 2012]
China’s southwestern municipality of Chongqing plans to boost industrial investment to 1.5 trillion yuan ($235.9 billion) in the five years through 2015, the official Xinhua News Agency said today, citing the local government.
The investment will help Chongqing expand its total industrial output beyond 3 trillion yuan, the report said.
China’s industrial-output growth unexpectedly slowed in July to a three-year low while investment and retail sales missed estimates, raising pressure on Premier Wen Jiabao to step up efforts to support expansion. Chongqing’s industrial investment plan will focus on building seven “big manufacturing industries,” including electronic information, automotive, equipment and parts manufacturing, oil refining, material and energy industries, according to Xinhua.
The electronic information manufacturing industry, which includes notebook computers, will receive 300 billion yuan [US$47.2 billion] in investment, while the car-manufacturing industry will receive 200 billion yuan, Xinhua said.
The equipment manufacturing sector will get an investment boost of 250 billion yuan, and Chongqing’s oil and ethylene refining sector will receive 150 billion yuan, the report said.
Chongqing consolidating IT role: Party chief [Xinhua, March 22, 2012]
CHONGQING, March 22 (Xinhua) — Chinese Vice Premier Zhang Dejiang, newly appointed Party chief of Chongqing, has promised unremitting efforts to consolidate the municipality’s role as a global leader in information technology.
Zhang told visiting Acer President Jim Wong on Wednesday that Chongqing would ensure “continuity and stability in its reform and opening-up policies” so as to make the drive.
Zhang was appointed Party chief of Chongqing, replacing Bo Xilai, under a decision by the Communist Party of China Central Committee last Thursday.
“Chongqing will diversify and optimize its policies to improve its opening-up,” Zhang said, while emphasizing the importance of upgrading vocational and technical education to train high-quality professionals for foreign-funded IT firms in Chongqing.
Wong and hundreds of other senior executives from the world’s leading IT firms including Hewlett-Packard (HP) and Intel have gathered in Chongqing to attend the China International Expo of Cloud Computing, which opened here Thursday.
The three-day event features symposiums and exhibitions of new IT technology, products and services.
Wong said Zhang’s reassurance helped enhance investors’ confidence.
He said the company plans to build Acer’s manufacturing base in Chongqing into the world’s largest communication technology research and manufacturing center in two to three years.
Taiwan-based Acer is the world’s largest vendor of completed PCs and notebooks. Acer’s plants in Chongqing, which only commenced business in December 2010, realized an output of 5 million notebooks in 2011.
In the year, 35 percent of Acer’s global notebook shipments were supplied from Chongqing. Meanwhile, rival HP plans to have 60-70 percent of its notebook shipments supplied from Chongqing in future.
Chongqing mayor Huang Qifan also met the entrepreneurs on Wednesday, saying the city has become home to the world’s five leading notebook producers and six vendors, as well 500 suppliers of the sector.
The city had a total output of 25 million notebooks in 2011 and is aiming for an annual output of 100 million of the products in three years.
Chongqing laptop output among top 3 nationwide [CQNEWS, Dec 17, 2012]
The output volume of laptops, printers and LCD screens in Chongqing is expected to be among the domestic top 3, only second to Shanghai and Jiangsu, according to Chongqing Municipal Commission of Economy and Information Technology.
Five global laptop brands including HP and Acer have established factories or placed big processing orders in Chongqing; while the world’s top 5 original equipment manufacturers like Inventec and Foxconn have also invested here. In addition, some 705 more laptop supporting enterprises gathered in the city too. The “5+6+700” industrial chain of the laptop sector has taken shape in Chongqing.
Statistics show that Chongqing produced more than 35 million laptops from January to October, 2012, up 99% year on year. According to the current momentum, Chongqing will see the total output volume of laptops, printers and LCD screens respectively hit 45 million, 9 million and 9 million in 2012, which will all rank among the top three in China.
Rail linking Europe expected to open up China’s less-developed West [Xinhua, July 2, 2011]
CHONGQING, July 1 (Xinhua) — A cargo train filled with laptops and LCD screens has left Chongqing, a mega-city in China’s less-developed western regions, starting its 13-day trip to Duisburg, Germany, which marks the official launch of the new transcontinental rail freight route.
The new rail route witnessed its official opening on Thursday night, after three test runs since March last year.
Clattering out of the station at about 9 p.m., the cargo train is set to travel 11,179 kilometers across the far western Xinjiang Uygur Autonomous Region, Kazakhstan, Russia, Belarus, Poland, before finally reaching Germany.
The route offers a major shortcut to the more traditional sea trade routes from Shanghai and Guangzhou, cutting travel time to Europe from about 36 days by container ship to just 13 days by freight train, said Huang Qifan, mayor of the inland business hub.
Huang said that the train is also safer and less expensive than sea transport.
Though the rails have been there for over ten years, the route is new as no train services linking Chongqing and Europe have been provided before due to complicated customs checks and cargo transfers, according to Ma Zhongyuan, director of Chongqing customs.
Last year, China signed a strategic agreement with Russia and Kazakhstan to open the new freight route, as the country is trying to build the inland labor-rich municipality into an international high-tech hub, especially for laptops.
Foxconn, the world’s biggest contract electronics supplier, Acer, Taiwan’s leading computer maker, and Hewlett-Packard(HP) are already in place in Chongqing to produce laptops.
In the first five months this year, Chongqing sold 2.43 million laptop computers abroad. The exports were valued at 840 million U.S. dollars, accounting for 20 percent of the city’s total export value.
The city’s export of new- and high-tech products totaled 14.26 billion in the period, up 182.5 percent year-on-year.
Officials believe the shorter transport time to Europe by railway will make made-in Chongqing notebook computers more competitive.
Last month, a new cargo air route also became available between Chongqing and the European cities of Moscow and Luxembourg.
The province-sized city is already a major transport center at the junction of China’s prosperous East and poorer West, as cargo can be sent out of Chongqing along the Yangtze River, the country’s longest waterway,via air and railway.
The new rail route will be used to link south China’s Pearl River Delta manufacturing hub and the country’s southwest industrial belt with Europe, officials said.
Just last mouth, a rail route connecting Chongqing and a port in the southern manufacturing hub of Shenzhen went into operation.
The transcontinental track will also boost trade between southeast Asia and the Europe, as railways have already linked Chongqing with the southwestern border province of Yunnan and Guangxi Zhuang Autonomous Region, said Cai Jin, vice president of the China Logistics and Purchasing Association.
Currently, the train only leaves Chongqing for Duisburg once a month, but train services may be increased to once per day in the future as the city’s exports to Europe increase, according to Huang.
CHONGQING, May 10 (Xinhua) — A new freight rail has started operating across Eurasia, linking the southwest Chinese economic hub of Chongqing with the Port of Antwerp in Belgium and cutting the travel time for goods traded between China and Europe in half, officials said Tuesday.
The 11,179 kilometers of rail, running through Kazakhstan, Russia, Belarus, Poland, and Germany, was first used on March 19. Transporting goods from Chongqing to Antwerp on this route takes about 16 days, or half the time required for the goods to be transported by sea, Chongqing Mayor Huang Qifan told reporters. Full story
HP to continue with investments in China [Xinhua, Sept 23, 2010]
NEW YORK, Sept. 22 (Xinhua) — Hewlett-Packard Co. will expand its presence in China, Larry Irving, the company’s vice president for global government affairs, said on Wednesday.
“Our goal in China is to be a good partner in China, to bring more products to the Chinese market and to be a good employer as well,” Irving told Xinhua at the Clinton Global Initiative annual meeting in New York.
HP’s presence in China began in 1981 with the opening of the first China HP representative office in Beijing. After years of solidifying business relationship, China Hewlett-Packard, the first high-tech joint venture in China, was established in 1985.
Nowadays, HP is the second-largest PC maker and a leading foreign PC vendor in China.
Earlier this year, to bolster its presence in China, HP joined hands with China’s Chongqing to announce a plan to operate a 20,000-square-meter facility in the city, where it will make state-of-the-art notebook and desktop PCs.
Irving said HP will continue to invest in China.
“We have private conversation with the Chinese government, about our particular circumstances,” he added. “HP’s presence has been grown in China. We are making more investment in China, not less investment in China. We see China as a great opportunity.”
Chinese Premier Wen Jiabao said last week that China is committed to building an open and fair business environment for foreign investors.
“All foreign enterprises registered in China enjoy national treatment,” Wen said in a speech at the opening ceremony of Summer Davos 2010 in Tianjin.
Chongqing, Chengdu among top investment destinations in China: U.S. businessmen [Xinhua, Feb 4, 2010]
NEW YORK, Feb. 3 (Xinhua) — The southwestern Chinese cities of Chongqing and Chengdu are among the best investment destinations in that country, several U.S. business executives agreed.
“Chongqing and Chengdu have such huge population centers, so they have greater opportunities than many other places,” David J. Hofmann, director for North America at Inter-China Consulting, told the China Investment Strategies Conference held here Wednesday.
Chongqing and Chengdu have enough labor forces to support the economic sector, especially some export-led industries, according to Hofmann, whohas 30-year business experience in China.
The two cities are also good places for innovators as they boast rich talent potentials, he added.
There are good universities and well-educated students in Chongqing and Chengdu who can play the operating and managing roles for investors’ companies, said the business executive.
Hofmann was echoed by Gene Huang, chief economist and vice president of FedEx, who said China’s strategy to develop its western regions is very supportive for doing business in Chongqing and Chengdu, which would remain attractive for U.S. investors “for quite some time.”
President and co-CEO of Tishman Speyer Rob Speyer also agreed that there are enormous government investments in the two cities.
State councilor stresses technological innovation for Chongqing’s development [Xinhua, April 9, 2010]
CHONGQING, April 9 (Xinhua) — State Councilor Liu Yandong has called for more efforts in scientific and technological innovation to boost development in China’s Chongqing Municipality.
Liu made the remarks during a recent inspection tour of Chongqing, the only municipality in China’s central and western regions.
She said innovation in science and technology is crucial to combat the financial crisis, optimize industrial structure, adjust the economic growth mode, and to achieve fast development.
Liu urged the municipality to make breakthroughs in its pillar industries, strive to foster technology-intensive burgeoning industries of strategic importance, speed up its building of a science and technology innovation center and an industrial base to apply scientific research to industrial production.
During her inspection, Liu visited schools, scientific research institutes, high-tech companies and cultural institutions.
BEIJING, Feb. 21 (Xinhua) — Disposable income was at 8,231 yuan (1,205 U.S. dollars) per capita in 2009 for Chongqing’s urban residents relocated to make way for the Three Gorges project, said the National Bureau of Statistics (NBS) of China Sunday.
The figure was 11.5 percent up from the previous year, according to a statement on the NBS website.
The growth could mainly be attributed to the steady rise in salaries as the local government had taken measures to increase employment opportunities for relocated residents, according to the announcement.