News emerged a few days ago that Foxconn had effectively laid off 60,000 workers in China and replaced them with robots. “So what?” you might think. And to be honest, if it keeps the cost of our tech devices down, then good for Foxconn, right? Well, unfortunately it’s not that simple.
The changing dynamics of the Chinese labour market could have a profound effect on us here in the West, and even portend similar disruption to our own workforce in the not-too-distant future.
These stories have been doing the rounds for years because – well – contract manufacturers like Foxconn and others have been investing significant sums into robotics for years. Why? The answer’s pretty simple, according to IHS analyst, Alex West.
“Robots don’t need to stop working, but they don’t get drowsy, distracted or depressed either, so quality and consistency of manufacturing is enhanced. With the developments in AI and predictive analytics, robots are also far less likely to get ‘sick’, reducing downtime,” he told me.
To that I’d add that they don’t go on strike, commit suicide or complain to the papers about poor working conditions – all problems Foxconn for one has encountered. But robots can also add value in other ways, such as helping firms win business from their rivals, according to West.
“Robots are evolving, becoming more intelligent as AI solutions help them to ‘learn’ on the job, but also becoming far easier to program and integrate on production lines,” he continued. “Collaborative robots are also making robotic solutions safer and easier to install without the additional safety concerns and equipment.”
There’s clearly a drive for this in China, the tech manufacturing centre of the world. The Chinese government has made investment in robotics a priority in its 13th Five-Year Plan, with IHS forecasting a 30% CAGR. But this threatens to create social instability as human workers are shelved in favour of machines. Foxconn and others claim bots are only used for repetitive tasks that humans don’t want anyway. But there’s no guarantee that there are enough skilled roles to fill the gap.
“Dull, repetitive jobs on the plant floor will be replaced by a range of higher-skilled positions such as robot/systems integrators, programmers, and data scientists supporting enhanced AI,” argued West.
“However, there will be less of these more advanced roles, and some of the type that existing workers will not have the skillsets to be able to transition to.”
This might seem a long way from the UK. But our workforce is also facing a robot invasion – not from these industrial bots, but service robots like Softbanks’ Pizza Hut-serving Pepper. In fact, a Deloitte study has claimed that 35% of UK jobs have a high chance of being automated in the next decade or two.
Robots still only account for 0.3% of all machinery produced in China last year, according to West, so there’s still a long way to go. But it’s probably time to start getting nervous in the UK.
What is Microsoft’s future in the mobile space? It’s a question that’s generated more than a few column inches over recent years. Now with Redmond agreeing to sell the feature phone division to Foxconn and licence the Nokia name, things have perhaps started to get a little clearer.
First, the bad news. IDC is predicting Windows Phone’s market share for 2016 will stand at just 1.2% this year – that’s down from 2% last year, 2.7% the previous year, and 3.3% in 2013. The firm is clearly not getting any OEMs on board for future devices anytime soon, and there was no mention of new Lumias in the Foxconn announcement – just that it would support current devices. From this – and speaking to a few experts for an upcoming feature – I think the smart money’s on a Surface handset.
Surface has done pretty well in the tablet/laptop space – albeit after a few iterations. And a high-end Surface handset would show off the best features of Windows 10 Mobile, as Microsoft finally harmonises its OS across all platforms. It could have crack at competing with the Samsung Galaxy range and potentially the iPhone. Whether this is enough to prop up Microsoft’s mobile hardware business is unsure, however, and more job cuts could be on the way.
A Surface smartphone could appeal in particular to business executives and the like, according to IDC analyst Susana Santos. “It’s a strategy that makes sense, but it takes time. It’s too early to say if it’ll work or not. It certainly won’t help with its volumes. These devices are more expensive and not as easy to sell,” she told me.
With the business market set to rise only to 20% of the global smartphone market, according to IDC, this is also a concern if Microsoft can’t persuade those BYOD consumer/employees to migrate away from their iOS or Android handsets. It’s been said many times before, but Microsoft is in many ways still a victim of its lack of vision a decade ago, which let Apple and Google steal the hearts, minds and wallets of consumers.
And what of its chances of getting those sought-after OEMs on board?
“Of all companies, Microsoft knows the value of a developer and application ecosystems, but has been poor to drive this agenda in the mobile realm. I’d expect it to continue with Windows phone, but play mostly in the higher-end,” Quocirca’s Rob Bamforth told me by email. “The words it has used seem to indicate an interest in mobile computing devices, with telephony capabilities, rather than emphasis on ‘handsets’, so I think that means higher-end pricing and positioning – and perhaps a closer connection to Lync/Skype for Business and Skype Meeting. Perhaps we might be looking for a Skype Surface.”
The question is whether Redmond can maximise its IP and engineering talent in this space, “gluing the bits together in a way that Apple seems to mange elsewhere”, according to Bamforth. If it can, it’ll be the greatest comeback in the history of computing.
I’ve just finished another piece for IDG Connect taking apart the Taiwanese technology industry – it seemed like as good a time as any on the back of Computex 2014.
If you haven’t heard of the show it’s the second largest IT event in the world and is held every year in Taipei as it has been for 34 years.
Well, the island formerly known as Formosa has been punching well above its weight on the tech scene for decades now, thanks to lots of government investment, a booming chip industry and a steady stream of bright young engineers and designers pouring from its universities.
But as I found out, many of its major firms are facing an unprecedented set of challenges which could threaten its long term future.
Firstly the PC market is in decline – which is bad news for 4th and 5th placed global brands Acer and Asus. Whether terminal decline we still don’t know but it has certainly meant Taiwan’s major ODM/OEM firms have had to adapt to a new mobile-centric output.
The two big brands mentioned above, however, haven’t done a very convincing job so far.
“The whole shift to mobility including smartphones and tablets is the new growth curve for the whole industry,” Forrester analyst Bryan Wang told me from Computex. “What I have seen is that Taiwanese companies are losing in this space.”
Gartner’s Amy Teng was not much more optimistic.
“These manufacturers have to rely on brand vendors to consume their production outcome. This business relationship is weak because today’s PC supply chain is advanced and standardised enough to transplant from vendor to vendor easily,” she argued.
Teng added that the move from high volume, low customisation products to low volume, highly customised products is a big challenge – especially when these manufacturers are being asked to be more cost effective and quicker to market.
All is not lost, though. The country’s semiconductor firms are still well placed and there are opportunities in other areas for those ODM/OEM giants like Wistron, Foxconn, Quanta and Pegatron.
“Regarding how to overcome, or thrive in the coming decade, I do not see any opportunity in the smartphone/tablet space now. However, Taiwanese companies still stand a chance in the connected home space, which is set to evolve in the next couple of years,” said Wang.
“Home/smart gateways, set-top-boxes and smart routers – these could be the angles. At Computex here, I do see home grid, smart plugs, smart home solutions are evolving as an interesting area.”
This week news emerged that the Indonesian government is planning to levy a 20 per cent luxury goods sales tax on all smartphones made outside the country. It’s an old fashioned piece of protectionism which could hit mobile phone makers in the region pretty hard and is unlikely to have the desired outcome.
As I mentioned in my story for The Register, Indonesia is a growing smartphone market with massive potential – as the world’s fourth most populous nation.
Firms that might be particularly dismayed by the tax include BlackBerry, which counts Indonesia as one of its few remaining strongholds, and Apple, which only recently restarted iPhone 4 production to target budget conscious locals.
If the rumours are true it can be seen less as an attempt to spur local handset makers, of which there are few, and more as a means to persuade more global manufacturers to locate facilities in the country.
Foxconn has already stolen a march on its rivals here by announcing a $1bn investment in facilities there.
Canalys analyst Jessica Kwee told me that, seeing as most domestic smartphone makers are focused on cheap, low-end handsets it’s unlikely that high-end users will be persuaded by the tax to buy local.
“What I think is more likely to happen is that the extremely wealthy would continue to buy their premium phones as is,” she said.
“Then other users will resort to the grey market to source their high-end phones – either via grey importers, by buying when they travel to nearby countries like Singapore or Malaysia, or by requesting from their friends etc. The latter would certainly not benefit the government.”
It’ll be interesting to see whether the government follows through with its plans. After all, at one stage it was mooting the tax only on handsets over Rp 5 million (£260), which I still reckon is the most likely outcome.
In terms of the abuses uncovered by the rights group, they’re pretty similar to those detailed at Foxconn over the years which led to a landmark agreement between Apple, the Fair Labor Association and the Taiwanese manufacturer to sort out conditions at its plants.
When I say “similar” I mean things like overworking and underpaying staff, breaking local employment laws through discriminatory hiring, excessive overtime and the like and subjecting employees to sub-standard living conditions.
You can usually gauge the seriousness of the allegations by the speed of the tech giant in question’s response and the length of its statement. So it was that Apple came back within a few hours with a long response claiming it had undertaken 15 audits at Pegatron and that it had been “in close contact” with CLW investigating findings highlighted by the group.
Their latest report contains claims that are new to us and we will investigate them immediately. Our audit teams will return to Pegatron, RiTeng and AVY for special inspections this week. If our audits find that workers have been underpaid or denied compensation for any time they’ve worked, we will require that Pegatron reimburse them in full.
One para that was lopped off my story referred to the fact that Pegatron facilities, including the ones mentioned in the report, produce gear for a raft of big name technology brands besides Apple. Microsoft, Dell, HP, Nokia and Asus have all had kit made by the Taiwanese headquartered manufacturer in the past.
Beyond Pegatron too there have reports of various rights abuses, in Samsung suppliers, and Chinese manufacturers making kit for firms including Telstra, Sony and Phillips.
However, the fruity-themed Cupertino giant, unfortunately for it, now has a reputation which makes it easier for hacks like me and rights groups like CLW to build a compelling narrative around such incidents.
For better or worse that’s the way it is but hopefully with Apple taking a lead, as it is certainly appears to be trying to do, on improving labour rights among its suppliers, others will follow. We mustn’t forget Apple boss Tim Cook used to be the firm’s COO and so will be well aware just how big a task it is to clean up the supply chain.
This is a process which will take years, not months, but it’s reassuring to an extent that stories like this still make the headlines, because once they stop then the whole process of improving the rights of shop workers in countries like China is likely to grind to a halt too.
China watchers will be well aware of the story by now. Most of the shiny tech kit we buy in the western world is produced in conditions ranging from ‘challenging’ to downright miserable. Apple provider Foxconn is often highlighted as a prime offender but the depressing truth is that it is one of the better employers. As long as labour rights abuses continue, though, they should continue to be reported.
The below is a piece I wrote up from my chat with IHS analyst Tom Dinges:
Half of China-based OEMs still don’t require third party audits of their manufacturing providers despite many high profile cases emerging this year involving serious breaches of labour laws and widespread strikes, according to market watcher IHS iSuppli.
The supply chain analyst revealed the news as part of a wider survey of the global technology industry.
Over the past year incidents at factories belonging to Apple supplier Foxconn, as well as plants run by contract manufacturer VTech and Samsung provider HEG Electronics, among others, have highlighted the poor level of compliance with local laws at many plants.
Although China has strict labour laws which prevent children under the age of 16 working, keep working hours and overtime to manageable levels and prohibit discrimination, they are poorly enforced.
Not-for-profit groups including China Labour Watch and Hong Kong-based SACOM have time and again uncovered incidents alleging such rules have been broken, with reports claiming physical violence, bullying and filthy living conditions are the norm in many factories.
Staff dissatisfaction comes to a boil periodically in the form of strikes or bouts of violence. In October it was claimed that thousands staged a walk out at Foxconn’s Zhengzhou factory where the iPhone 5 was being made, while a month earlier, scores of workers were hospitalised after a mass brawl at a managed dorm near Foxconn’s Taiyuan plant.
“There are aspects of the labour laws many firms turn a blind eye to for the sake of satisfying their customers and getting products out of the door,” IHS analyst Tom Dinges told me.
“Considering how much of the supply chain is embedded in China it’s too costly to move to another region so the issue is ‘what do we do to ensure our suppliers adhere to the local labour laws they’re supposed to?’.”
Dinges added that the ‘headline risk’ of bad publicity, especially as it filters down to middle America through regional media outlets, should be forcing change on this front.
Foxconn is one notable supplier which seems to be taking a lead on this, having agreed with Apple to on-going audits by the Fair Labor Association, although worrying cases of rights abuses continue to emerge at some of its plants.
China Labor Watch also claimed at a Congressional hearing in the summer that the audit process is flawed in many cases, with widespread bribery and collusion on the part of suppliers and auditing companies.
Dinges said that as the industry matures this situation should improve, with auditors taking their cue from financial investigators.
“These organisations will have to meet a certain expected level of authenticity, vigour and independence,” he added.
“We’re past the stage of hyper growth. Now a lot of what is produced there ends up staying in China. If that’s the case then the factory employee is also a customer and you want to be sure to treat your customers well.”
Now we all know Foxconn is regularly harangued by the NGOs for one misdemeanour or another. Labour rights violations at its plants have been highlighted time and again so I won’t go into them all again now.
The landmark agreement with the FLA and Apple was meant to set the tone for an improvement in pay and conditions, and at the three plants audited by the FLA things do seem to be progressing pretty well.
However, outside those factories there are still some disturbing reports.
The latest came from an undercover reporter from the Shanghai Evening News who lasted 10 days as a newbie worker at Foxconn’s Yu Tian plant, making iPhone 5 devices. Filthy living conditions, bullying by staff, forced overtime – the list of misdemeanours was usual Chinese tech factory fare, although interesting to hear it from a source other than an NGO.
Maybe that’s why Foxconn broke with usual tight-lipped tradition and issued a lengthy statement on this saying it would investigate and address any issues such as those found by the hack, adding in a rare admission of fallibility, that it is “not perfect”.
More disturbing news still came to me from an unnamed source, who claimed that 100 workers at the Taiwanese ODM giant’s Zhengzhou plant – also producing iPhone 5s – have been hospitalised after a food poisoning incident.
Now I must stress that Foxconn has completely denied this with the following statement:
Foxconn has checked with the relevant departments and medical facilities at their Zhengzhou campus and they have confirmed that there has been no such incident.
I haven’t been able to verify independently with the local hospital so for now I’m keeping an open mind.
However I think it’s pretty obvious that the labour problems in Chinese tech factories are far from over and will require the continued scrutiny and determination of the big name brands as well as the not-for-profits for some time to come if genuine change is going to happen across the board.
A final, if rather depressing footnote: Foxconn is still pretty widely regarded as a leader in the tech ODM space when it comes to pay and conditions in China.