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Foxconn’s Chinese factories have been criticized for substandard working conditions. (Darley Shen/REUTERS)
Foxconn’s Chinese factories have been criticized for substandard working conditions. (Darley Shen/REUTERS)

TECHNOLOGY

BlackBerry, Foxconn partnership comes with back story Add to ...

Over the past five years, Hon Hai Precision Industry Co. Ltd. has developed two very divergent reputations.

Better known to most of the world as Foxconn, the Taiwanese electronics manufacturer is perhaps the most famous and successful member of its industry – the company responsible for assembling the most popular smartphone in the world, the iPhone.

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But it’s also synonymous with allegations of substandard working conditions – the dark side of mass outsourcing in the electronics industry.

To technology giants such as Apple Inc., Nokia Corp. and now BlackBerry Ltd., Foxconn’s manufacturing plants represent one of the most efficient ways of getting electronics built cheaply, at large scale and, as a result, at better profit margins.

BlackBerry said Friday it has signed a five-year agreement with Foxconn to have the company build BlackBerry devices for sale primarily in emerging markets, such as Indonesia.

“Partnering with Foxconn allows BlackBerry to focus on what we do best – iconic design, world-class security, software development and enterprise mobility management – while simultaneously addressing fast-growing markets leveraging Foxconn’s scale and efficiency that will allow us to compete more effectively,” said John Chen, BlackBerry’s new CEO.

Foxconn makes the majority of the world’s iPhones and builds other popular consumer electronics, such as Sony’s Play-station gaming console. The company has established manufacturing operations in 10 countries, including India, Mexico and Japan.

By far, the biggest centre of Foxconn operations is in China. There, the company has more than a dozen manufacturing operations, including a massive plant in Shenzhen that employs upward of half a million people and more closely resembles a small, private city than a single workplace.

It is in those Chinese factories where Foxconn has generated the most controversy. Several labour groups and organizations have in the past criticized the company for substandard working conditions and wages.

Foxconn’s most high-profile troubles came after a spate of worker suicides in the past two years. Most famously, one worker killed himself in 2009 after misplacing an iPhone prototype. Foxconn’s response to the incidents also generated condemnation, as the company took measures, such as installing anti-suicide nets around its factory buildings and requiring that employees sign legal agreements promising their family members would not sue in the case of accidental death or suicide.

However, the company has made some progress recently in rehabilitating its image. Over the past 15 months, representatives of the U.S.-based Fair Labor Association have conducted periodic inspections at several Foxconn factories in China to investigate the company’s adherence to an agreement designed to improve working conditions.

The FLA’s final report on Foxconn, issued last week, found that the company had complied with almost 99 per cent of the 360 items listed in the agreement. But the organization found that some Foxconn factories still fell short of Chinese labour laws in the area of working hours. (Representatives from the FLA and Foxconn did not respond to a request for comment).

The partnership with Foxconn effectively allows BlackBerry – a company struggling to move away from the business of making hardware – to outsource some of the risk in its device business. Under the agreement, Foxconn and BlackBerry will “jointly develop and manufacture” certain BlackBerry devices primarily aimed at Indonesia and other emerging markets. The Waterloo, Ont.-based company will retain all the intellectual property.

That leaves BlackBerry free to focus on expanding and monetizing its software offerings and building more solutions for its traditionally loyal corporate and government customers.

Foxconn’s global footprint also offers BlackBerry several advantages, such as the potential to cut shipping costs and bypass certain import taxes.

As Frost & Sullivan analyst Ronald Gruia notes, Apple once looked to Foxconn’s Brazilian facilities to design iPhones that could get around the country’s significant import duties.

And while that strategy doesn’t always work (for example, some countries might impose duties based on the origin of the software that powers the phones), Foxconn’s factories will likely bring BlackBerry’s manufacturing base much closer to the customers it hopes to attract.

“You’re going to see some efficiencies of scale, you’re going to be spending less money to ship,” said Mr. Gruia. “There are always going to be some synergies.”

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