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Foxconn’s U.S. plant another blow to cheap Chinese labour meme

The Taiwanese electronics giant that became a poster-child for lousy labour practices in China is ramping up operations in the United States. Hon Hai Group, which rakes in handsome profits as a major contract maker of Apple iPhones and iPads, Sony PlayStations, Amazon Kindles and numerous other popular electronic devices, is setting up a high-end manufacturing base in Harrisburg, Pa. The move by the company – which is better known by its trade name, Foxconn – is the latest evidence of an American resurgence in precision manufacturing, as companies relocate to get closer to key markets, move up the value chain and take advantage of falling production costs and technological breakthroughs.

This does not mean that a raft of low-wage assembly work is coming to America. Nor does it mean the U.S. jobless rate is about to improve markedly. What is making the U.S. attractive again are cheaper energy and labour costs stemming mainly from automation and other efficiencies. The slack in the economy also reduces wage pressures and strips suppliers of the leverage to raise prices in a non-inflationary environment.

But it does underscore the difficulties Chinese authorities face in their own efforts to revamp a flagging manufacturing sector and stoke domestic demand by moving up the food chain to higher-value production. The closely watched Flash Markit/HSBC Purchasing Managers' Index, an early reading of economic performance, signals slower Chinese manufacturing growth this month amid declining export orders, which slid to a three-month low. Among the survey's 11 sub-indexes, nine indicated slower gains or outright contraction, including jobs. Further weakness in the months ahead will make it hard for Beijing to reach its growth projection of 7.5 per cent. And even if it does, that would be the lowest rate of expansion since 1990.

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Hon Hai will invest $30-million (U.S.) to transform an existing R&D facility into an ultra-modern plant that will turn out next-generation telecom equipment and internet servers. It's politically useful for a Taiwanese company with major American customers to show support for the Obama administration's vows to rebuild domestic manufacturing. It also meets demands from Apple, which has promised to bring more of its production home. Hon Hai had already signalled its readiness last year to do just that.

But company chairman Terry Guo insists none of its current Chinese production will be moving to the U.S. "We don't want to move the hand-to-hand worker jobs. We want to move the intelligent jobs, the skilled labour jobs," Mr. Guo declared.

Instead, the company will focus on developing high-end stuff to meet future technological needs. To that end, it is setting aside a further $10-million for an R&D partnership with Carnegie Mellon University in Pittsburgh, which from an old-economy steel town to a centre of high-tech innovation.

This combination of cutting-edge R&D and top-shelf production is exactly what the U.S., Canada and other developed countries need to get back on top of the manufacturing game they once ruled. It's the model that has enabled Germany to remain a manufacturing powerhouse. And it's what China needs to escape its heavy dependence on low-cost exports produced in low-wage factories.

Foxconn has earned plenty of notoriety for allegations of shocking conditions, dismal pay and numerous violations of labour standards at some of its operations in China, where it employs more than a million people. In the latest scandal, the company recently acknowledged that it had broken its own rules by overworking student interns at one plant. Some worked 11-hour days and night shifts, and were assigned duties that bore no relation to their studies. Those who protested were warned they would not get the work credits they needed to graduate.

Still, given the state of employment in a large swath of the old U.S. rust belt, it's safe to conclude that Foxconn won't need to follow the example of one of its vast Chinese plants and rig suicide prevention nets.

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About the Author
Senior Economics Writer and Global Markets Columnist

Brian Milner is a senior economics writer and global markets columnist. In a long career at The Globe and Mail, he has covered diverse business beats, including international trade, the automotive industry, media, debt markets, banking and the business side of sports. More

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