Explosion Thrusts Foxconn Back into the News

May.27.11 | About: FIH Mobile (FXCNF)

By Ryan Cole

Is the Foxconn incident an economic story, a political story – or none of the above?

It seems the press can’t get this story right.

On one side, you have analysts looking at the recent Foxconn (OTCPK:FXCNF) plant explosion and wringing their hands over the implications for the supply stream.

On the other, you have activists wringing their hands over working conditions, declaring this to be the straw that will break the camel’s back and end unfair labor practices in China.

Neither is right.

Supply Chain Stronger Than Assumed

First, the simple: The Foxconn explosion happened in an iPad 2 manufacturing plant. It appears the floor affected made Apple’s propriety A05 chip, and a number of other stations that made the iPad’s back cover have been shut down for inspection.

Estimates of the effect range wildly, from a 350,000 disruption in iPad supply to nearly three million missing from Q3 delivery.

The truth is, Apple has almost 300,000 iPads in inventory, and between other plants picking up the slack and the affected Chengdu plant scheduled to be back online by mid-June, it’s unlikely we’ll notice a dip in iPad supply.

The most hysterical reports say that a 10 to 20 percent drop in iPad production could have numerous roll-on casualties, like a one to two percent drop in Samsung sales (Samsung makes the flash memory found in Apple’s mobile devices). Or the equivalent of LG Displays losing a month of production (LG makes the iPad’s screens).

Don’t believe it. While hard facts are difficult to come by, all good sources are pointing to the Chengdu plant being secondary, with most iPads made in Shenzhen. The damage to the plant was limited to a single floor, out of ten manufacturing buildings. The majority of the plant will reopen in less than a week’s time, after an inspection.

In other words, we’re looking at a very minor blip in iPad supply – one that probably would go unnoticed if it weren’t for the public nature of the cause.

The more complex issue is worker rights.

Are the Times A-Changing?

Foxconn has an atrocious history here. Last year it hit the headlines when a spate of worker suicides made news. Horrid working conditions have been found by numerous investigators – everything from underage employees, to unlawfully long working hours, to lax safety standards, to an oppressive management and security regime.

One worker – who later committed suicide – alleged he was interrogated and beaten by security when it was suspected he leaked an iPhone prototype.

Worse, just a few weeks ago, a workers’ rights group held a demonstration against Foxconn specifically over poor ventilation and dust in the air.

The very same dust that ignited and caused last week’s explosion.

While workers’ rights in China are a topic that deserves attention, it’s unlikely this incident will bring it.

The Wrong Fight

For one thing, no manufacturing plant anywhere in the world has figured out how to handle combustible dust in a safe manner. The United States itself has had over 100 combustible dust accidents since 2002 – many with more than the three deaths and 15 casualties suffered in Chengdu.

It’s possible that poor ventilation helped contribute to the accident, but that’s difficult to prove.

There’s no denying that working conditions in China are a huge problem. There’s the humanitarian aspect – but there’s an economic component, as well. As long as Chinese plants are allowed to mistreat and mishandle their workers, Chinese plants will have an unfair advantage producing goods cheaply.

But this is not the right fight. Combustible dust is a worldwide issue, not a worker issue.

Further – to really see any change, there’s going to need to be a groundswell – either in China, or in consuming countries.

Foxconn produces a huge number of electronics components for a myriad number of companies – Apple, Dell and Hewlett-Packard being among the largest. Some analysts estimate that half of all electronics in the world rely on Foxconn plants somewhere in their production.

That makes the manufacturer more or less impervious to any sort of boycott.

Individual companies can apply pressure, but it’ll be difficult to make much headway without a united front.

And looking to the Chinese government for anything beyond cosmetic improvements is a fool’s errand.

Improving working conditions in Chinese plants is a long-term project – and, barring further developments, this incident won’t prove a catalyst. It’s a very small stepping stone, nothing more.

The true story at Chengdu isn’t economic, nor is it political. It’s a human tragedy.

To try to make more of it misses the point.

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