You’ve heard of Foxconn. The world’s largest electronics manufacturer, which produces components for tech giants like Apple and Amazon, has been criticized for low wages, labor law violations, and widespread factory abuse. But it’s not too likely you’ve heard of Flextronics.
The world’s second largest electronics supplier, which manufacturers goods for companies such as Sony, Dell, and Microsoft, boasts roughly 200,000 employees across 30 countries and four continents. According to a 2010 report, it controls about half as much market share of the electronics manufacturing market as Foxconn. Yet we rarely hear about the company or its competition with Foxconn—a likely consequence of consumer obsession with the products Foxconn manufactures, which range from the iPad and iPhone to the Kindle and Wii.
Given Foxconn’s high profile client list, it’s always going to be especially scrutinized. In fact, we named Ma Jun—an activist fighting for better labor and environmental policies at Foxconn and throughout China—as our most creative person in business for 2012. But aside from canned statements, you rarely hear the inside perspective on running these factories and the business challenges these companies face in balancing their value proposition (cheap goods made quickly) with concerns about social responsibility. We caught up recently with Giovanni Tomaselli, vice president and managing director of Flextronics International between 2006 and 2009, to learn just how hard it is to both take advantage of the cheap labor that China offers while still maintaining high levels of corporate responsibility. As Tomaselli explains, it’s far from easy.
"You look at companies like Motorola and Nokia—these type of guys who are big pushers of being socially responsible. Well, they are not really. Because what you’re doing is you’re just going to a factory that’s giving it to you for five cents less," he says. "But how do you think they got it to five cents less? It’s because they’re cutting corners."
Some companies didn’t only take price into account, according to Tomaselli. "You had companies where that five cents didn’t matter," he says. "What mattered was that they had a sense of responsibility, and also the fact that they would be walking into the plants and wanted to feel comfortable coexisting with the people who are making their products for them. That was a big deal [to some companies]. Some people just don’t give a hoot. And some do."
What does giving a hoot mean? Besides being willing to pay more for better conditions, Tomaselli says it’s also little things: "We at management didn’t eat in special quarters, where it was cleaner," he says (Foxconn says that this is true at their factories as well, and that their dining areas are all equally sanitary). "We ate with the guys who were making $250 to $300 a month, which is the national pay rate. Conditions are important, yes, but it’s also about the way you feel."
Tomaselli does have specific harsh words for Foxconn’s practices—he calls Foxconn an "impersonal company that’s strictly business." It’s important to take his comments with a grain of salt, especially considering how much scrutiny Foxconn has faced compared with Flextronics. But it does provide a good picture of the race to make cheaper and cheaper goods in China, and how hard it is to compete against products being made at Foxconn’s super-efficient and cheap factories.
During his tenure, Tomaselli helped ship billions of dollars worth of electronics—including XM Radios, Xboxes, and Sony TVs—and says he was responsible for winning away Microsoft’s Zune business from Foxconn. But it was a rare victory.
"We were forever losing out to Foxconn because of price," Tomaselli recalls. "I was actually the [Flextronics] representative to the Chinese government, and we were just constantly dealing with this: We pay better than Foxconn pays, so therefore, we’re not as competitive. We were trying to figure out how they do it, and we just got to the point where we won’t do it." Foxconn, in response, says that it "has regularly increased wages throughout our operations in China to ensure that we maintain our position as one of the highest paying companies in our industry."
Of course, it’s important to take into consideration certain biases Tomaselli is likely to have in favor of a former employer and against a former competitor. Still, much of his criticism isn’t so much aimed at Foxconn as it is the companies who chose to do business in ways that mean they put saving a few cents over better working conditions.
"I’m not saying anything that’s out of school: Human rights is a big issue there. And those guys, they don’t care," Tomaselli says. "But look, human rights is an issue in China all around, no matter how good you are."