How Foxconn cleaned up its mess in India

Lakshmi, who works with Foxconn’s mobile phone manufacturing facility at Sriperumbudur, near Chennai, stayed at the Pallava Hostel in the temple town of Kanchipuram. She learnt that over 400 co-workers staying at another hostel at Puduchatram, on the Chennai-Tirupati highway, took ill. About 159 of them had severe symptoms of food poisoning and were admitted to hospitals.

“They vomited and had diarrhoea. Some fainted too,” Lakshmi, who assembles Apple’s iPhone 14 at the facility now, recalls.

Foxconn is the world’s largest contract electronics maker and is one of Apple’s primary suppliers.

As days went by, the lack of information about her hospitalized colleagues began to increasingly agitate her and other workers.

“News soon began to spread on our WhatsApp group that two of the workers died but the company officials neither confirmed nor denied it,” says Priya, another worker. “The panic that this created brought us to the streets.”

Hundreds of young workers blocked the busy Chennai-Bengaluru highway on 18 December. Their protest, which lasted over 10 hours, exposed the poor living conditions at the hostels run by the Foxconn group, especially Foxconn Hon Hai Technology India Mega Development Private Ltd, the company that assembles iPhones in India. Another Foxconn company operating in India is Bharat FIH, which makes handset and wireless communications devices for local and international brands.

The protests embarrassed the state government and the Centre—the governments had worked hard to woo Apple, and assembly operations in India were still in its infancy. They swung into action. The plant, which was predominantly making iPhone 12 and iPhone 13 back then, was shut down.

On Christmas Day in 2021, the Tamil Nadu government announced that Foxconn was ready to restart production. The company had promised to improve the working and living conditions of temporary workers by expanding their living areas, upgrading bathing facilities and providing drinking water.

Has this happened?

Workers have reported encouraging progress. And encouraging developments have been reported on the investment front over the last one month. On 11 November, Reuters reported that Foxconn plans to boost its workforce at the Tamil Nadu plant to 70,000 by adding 53,000 more workers over the next two years. On 8 December, Foxconn announced that it injected $500 million into its India unit. And on 12 December, Mint reported that Apple is likely to triple its production of iPhones assembled in India over the next two years.

Foxconn, it does appear, has corrected its India act. And at the right time. International brands want to diversify beyond China, and India is, once again, wooing them.

What changed

Let’s circle back to some of the issues around “living conditions” that led to the protests.

All workers were forced to stay only in company-run hostels. They had to sleep on the floor as they were not provided with a cot, pillow or even a blanket. As many as 12-15 people were packed in a 150 sq ft room. Toilets, each shared by 20 or 30 people, were unclean. There was no running water. “Water was provided for an hour, two hours before the shift,” says Priya. For the 6 am shift, water was made available at 3 am for the workers to get ready.

As contract workers, they just got two days’ leave in a year apart from weekly offs and public holidays. “If we take leave for the third day, we will be marked as ‘absconding’ and sent home,” says Lakshmi. The process to get permission to step out of the hostel on holidays was too labourious for the two-hour freedom they got. Contract workers were not made permanent even after a year of doing a core job though a Tamil Nadu government law stipulates that they should be after 240 days, several workers and labour unions said.

“I am the only breadwinner in the family. My father is unwell and I have two brothers who are still studying,” Deepa, another worker Mint spoke to, responds, when asked why she put up with such living conditions. You would hear similar stories from other workers—many of them come from bottom-of-the-pyramid households.

Rajeev Chandrasekhar, minister of state for electronics and information technology, recalls coordinating with the state government to contain the fallout. The Tamil Nadu government worked closely with the Foxconn management for several days after the protests to draw up a plan.

An embarrassed Apple apologised for the lapses and, on 29 December, put the factory on ‘probation’. It also sent independent auditors to investigate.

Foxconn, left with little option, acted quickly. It sent the workers home on paid leave. It then restructured the local management, renovated the facilities, and finally re-opened the factory by mid-January. It took the company many more weeks before it regained full production.

The living conditions have improved today, say the workers. They are given bunker beds, pillows and blankets. The toilets have been renovated and are now cleaned many times a day. Running water is available and the quality of food has improved substantially. Workers are free to go out during holidays—the only condition is that they should return by 6 pm.

The company also does not insist that all employees stay in hostels. “Only about 50% of the workers, especially the new staff, stay in hostels,” says Nithya, a worker. She chose to stay in a rented accommodation.

All this has brought down the worker density in hostels. And now, contract employees who have put in a year’s work or more, are being absorbed as permanent staff with better benefits. Several workers said wages have also increased since July. A worker with 18-24 months of experience earns a gross salary of ₹20,000 now. Earlier, they made about ₹13,000. S Kannan, deputy general secretary of CITU Tamil Nadu, a trade union, attributes this increase more to the rise in minimum wages as mandated by law.

“Earlier, we were treated like prisoners,” says Deepa. “On the whole, our life has improved a lot now.”

Both Apple and Foxconn did not respond to emails from Mint seeking clarification and comments.

‘Friend-shoring is real’

Foxconn could not have got its act together at a more opportune time. Its biggest customer, Apple, is looking to reduce its ‘unhealthy reliance’ on China by diversifying its sourcing. Today, 95% of all iPhones are manufactured in China– 80% from a single plant in Zhengzhou, popularly called iPhone City. The Cupertino-based company’s exposure to China is far more than other technology companies such as Amazon, HP, Microsoft, Cisco Systems and Dell Technologies.

This shift has attained a new urgency due to China’s stringent covid-19 policy and rapidly evolving geo-political situation in the world.

In October, China’s attempts to control the pandemic with strong measures led to a mass exodus of workers and violence at the Zhengzhou facility, which employs over 200,000 workers. These developments hit iPhone production. Bloomberg reported that the overall impact could be as much as six million units. In the Q2 earnings call, Apple’s CEO Tim Cook warned that sales impact due to the China disruption and silicon shortage could be as high as $8 billion. Meanwhile, the relationship between China and the US has irrevocably shifted from being ‘cooperating rivals’ to ‘competing rivals’. Taiwan continues to be a geopolitical flashpoint and analysts dread to think about the impact Apple will have if China invades the island nation.

The iPhone maker is thus investing more in countries like India and Vietnam. Experts tracking phone shipments have said that its procurement from India has risen from 1.5% in 2020 to 3% in 2021. It is expected to touch 7% this year. Apple is expected to produce 12 million iPhones from India in 2022, from about 7 million in 2021. According to a JP Morgan report, India will account for 25% of iPhone production by 2025.

Foxconn’s chairman Young Liu visited India in June this year and met with Prime Minister Narendra Modi. Later, during the company’s Q2 earnings call in August, he said that India will play a very important role in the future and that Foxconn’s investment in India would ‘get better and better’. Since then, Foxconn group’s proposal under India’s production-linked incentive (PLI) scheme for semiconductors has been approved and the company, along with Vedanta group, has announced a $19.5 billion investment in Gujarat to set up a chip plant.

In the meantime, Indian state governments and the Centre are hard at work—they would like to see India as an attractive destination for electronics hardware manufacturing. The Modi government’s Phased Manufacturing Programme and its successor, the PLI Scheme, has already attracted many companies. Besides Taiwanese majors such as Foxconn, Pegatron and Wistron expanding India operations, Google, too, is reportedly keen on making its Pixel smartphones in India.

“The dominance of China in the electronics global value chain is shifting. The need for more diversified and trusted suppliers like India is being felt. Friend-shoring is real,” Chandrasekhar says.

Housing and more

Tamil Nadu has been at the forefront in wooing electronics hardware manufacturers and currently accounts for 40% of all cell phones exported out of the country. A peaceful industrial climate is key to its future ambitions. Over the past one year, the state appears keen to plug policy gaps that led to the Foxconn protests.

“As a state, we want to increase our manufacturing as a share of GSDP (Gross State Domestic Product) from the current 22% to 30% by 2030 and for that, electronics hardware manufacturing is critical,” says S.Krishnan, industry secretary, Government of Tamil Nadu. He is now focussing on an important pain point—industrial housing for those working in the electronics hardware sector. Too often, India’s industrial workers are pushed to live in slums. And company-run hostels, like the Foxconn incident from last year highlighted, are not always perfect.

The state government has allotted 20 acres to Foxconn near its plant to build housing facilities for its workers. It is also investing to create such facilities at other electronics clusters like Hosur.

Tamil Nadu has also unveiled a policy specific to electronics hardware manufacturing with an aim to create a strong supply-chain. “We want to build the entire ecosystem so that players like Foxconn or Pegatron can source the bulk of their supply from within the state,” says Pooja Kulkarni, MD and CEO of Guidance, Tamil Nadu’s single window investment agency.

Similarly, states such as Uttar Pradesh, Maharashtra, Andhra Pradesh and Karnataka are leaving no stone unturned to woo electronics companies.

These efforts are showing results. In 2014, India imported 92% of the mobile devices consumed in the country. In 2021-22, 97% of the devices were manufactured locally and devices worth $5.8 billion were exported. In 2022-23, cell phone exports are expected to cross $9 billion, according to the ministry of electronics and information technology.

There are reports of handset exports topping $60 billion by 2027. Is it feasible?

“Past is not the indicator of the future in the electronics sector. People will be surprised by how India will do,” says Chandrasekhar. He estimates handset exports to be even higher by 2027.

Analysts, however, remain cautious. While there is a strong headroom for growth, they suggest the need to learn from China’s success. Low wages (in the 1990s), abundant supply of labour, high productivity, strong eco-system and efficient infrastructure played a part in the country’s success.

India’s wage cost is low (a Morgan Stanley study puts it at 80 cents/hour against China’s $7.1 or Vietnam’s $1.6) and the supply of labour is large (471 million against Indonesia’s 139 million or Thailand’s 39 million).

But India may lose out because of inflexible labour laws, the difficulty of doing business, lack of free trade agreements (Vietnam and Thailand score here), absence of industrial housing, higher power costs, and not-so-efficient infrastructure. India’s air freight costs, for instance, are double that of China’s.

Meanwhile, many of Foxconn’s workers are unaware of these economic nuances. Lakshmi, Priya and Deepa are happy and hopeful. With the narrative of China + 1 gaining ground, they see higher demand for jobs, going ahead.