Foxconn looks to AI after maker of Apple and Amazon products celebrates 30 years in China

Gou said that Foxconn aims to become an artificial intelligence platform rather than just a manufacturing company. — SCMP

Gou said that Foxconn aims to become an artificial intelligence platform rather than just a manufacturing company. — SCMP

Billionaire Terry Gou threw a party for more than 100 of his employees last week and sang happy birthday for them. They were all born on June 6, 1988 – the same day Foxconn Technology Group established its first factory in mainland China, one of the first international investors to do so.

The workers number among Gou’s one million employees in China – the largest private sector workforce in the country. Over the past three decades the Taiwan-based electronics manufacturing giant has opened half a dozen factories in China that make products like personal computers and smartphones for brands including Apple and Hewlett Packard.

Foxconn’s net foreign exchange reserves in mainland China over the past 30 years now add up to US$237.4bil (RM945.6bil), representing 7.6% of the country’s total, and the company accounts for nearly 4% of China’s annual export value.

“The success of the opening up of China to foreign investment is very much the success of Foxconn in China,” Gou said in Shenzhen.

Singing happy birthday to workers was a far cry from the crisis Gou faced eight years ago after 11 employees committed suicide by jumping from buildings at the company’s Shenzhen complex. Foxconn was criticised by labour activists at the time, who accused the company of offering low wages and letting employees work illegal overtime.

“(The suicides) certainly depressed us at the time and I was wondering why the tragedies had happened (to us). It was like a mismatch of quick economic growth and slow psychological development,” said Yang Feifei, who joined Foxconn in 2003 and has worked his way up to a supervisor role. “The company is learning and has developed mental health centres and labour unions to prevent such tragedies.”

New York-based China Labour Watch released a report last weekend accusing Foxconn of underpaying and overworking employees at a factory in Hengyang, Henan Province, that makes Echo speakers and Kindle e-readers for Amazon.

Foxconn said that it “works hard to comply with all relevant laws and regulations”, adding that salary reviews are conducted regularly to ensure they are competitive with industry peers.

Yang considers himself lucky to have been hired by Foxconn after he graduated from a technical school in Nantong, Jiangsu Province. Then 18, he was one of five workers hired from a group of 50 applicants seeking work in Shenzhen.

“The competition was very fierce,” he recalled. “I did not want to leave my hometown but my family and villagers were very proud of me at that time for joining Foxconn in Shenzhen.”

Yang said the living conditions in the Foxconn dormitories were not that good in the beginning. “There were nearly 60 workers sharing a dorm room and our monthly salary was only 800 yuan (RM498) during probation, lower than the basic salary level of 1,500 yuan (RM934) in Shenzhen at that time,” he said. “But my salary grew nearly 20 times during the past 15 years and I manage my own teams now.”

That growth in factory worker salaries has been a double-edged sword for China. On one hand, it has increased the purchasing power of Chinese which in turn has powered consumer-led economic growth, but on the other it has made China less competitive on wages and forced companies like Foxconn to introduce more automation.

Earlier this year Gou said that Foxconn aims to become an artificial intelligence platform rather than just a manufacturing company, with plans to invest at least US$342mil (RM1.3bil) over five years to recruit talent and deploy AI applications in all its manufacturing sites.

In 2017 Foxconn partnered with Chinese facial recognition systems start-up Megvii, also known as Face++, to develop new applications for robotics and automation technology.

The Taiwanese company has also invested R&D funds into areas such as autonomous driving and cancer treatment.

However, efforts to diversify away from pure manufacturing and into branded products have had mixed results, partly because it cannot be seen competing with its own customers like Apple. Last year Foxconn bought Belkin International, a US maker of computer accessories, a move seen as safe because the products complemented Apple’s rather than competed with them.

“Reinventing itself is not easy for Foxconn because of its contract manufacturing business model,” said Liu Guohong, a research centre director at Shenzhen-based think tank China Development Institute. “So the innovative areas Foxconn is exploring include AI and robotics production which can be woven into its industrial supply chains.”

Louis Woo, special assistant to the Foxconn CEO, said the AI strategy includes the use of smart robots to replace human jobs that are “dangerous, dull and boring”.

“If you look at the younger generation today, most of them want to work in the service sector rather than in manufacturing. So we have difficulty in recruiting young people to do such work. We will need to automate these processes as quickly as possible,” Woo said.

Foxconn Technology, the trading name of Hon Hai Precision Industry Co, was originally established in Taiwan in 1974 as a low-end maker of plastic parts for televisions. In the 1980s it moved into connectors for personal computers, which established key relationships with early US computer makers like Compaq (which later merged with Hewlett Packard) and Dell.

In the late 1980s, Gou and Foxconn executives began making trips to the Chinese mainland to study the possibility of setting up a factory there. The country had only started encouraging foreign investment a few years earlier under Deng Xiaoping’s open door policy.

US electronics giants like Motorola were also negotiating with Beijing over potential manufacturing investments at the time, as were European giants like Siemens and Philips.

But Foxconn, although Taiwanese, was one of the first when in June 1988 it opened its factory in Shenzhen’s Bao’an district under the name of Foxconn Shenzhen Haiyang Precision Connector factory.

One year later tanks rumbled into Tiananmen Square to clear demonstrating students. China became a pariah in the international community and most western multinationals looking to invest on the Chinese mainland pulled back and waited. Foxconn stayed the course and over the next three decades grew to be the largest contract electronics manufacturer in the world.

Four American companies – Apple, HP, Hewlett Packard Enterprise and Cisco – contributed a combined 60% of Foxconn’s 2017 revenue, according to Bloomberg analytics. The company also relies heavily on US chips and components to manufacture products. The reliance has put Gou in the cross hairs of a different geopolitical crisis: a potential trade war between the US and China.

Part of the strategy to address this is to lessen dependence on Chinese factories. Last year Foxconn announced two separate multibillion dollar investment deals to build factories and R&D operations in the US states of Wisconsin and Michigan.

“Neither the US nor China should be neglected,” Gou said at the anniversary party last week. “The investments between the two countries have to be balanced.”