Foxconn is Raising Salaries. What Does This Mean For The Global Tech Industry?

Foxconn Technologies, a manufacturing contractor that operates the Chinese plants of Apple, Hewlett-Packard, Dell, and other major tech companies, announced this week that it would substantially increase worker salaries at its factories in Asia. Salaries are expected to rise by 16 to 25 percent, an amount that will bring average worker pay into the $400 per month range. The company also plans to reduce the number of overtime hours allocated to workers.

These changes appear to have taken place in response to sustained criticism of Foxconn’s employment practices – criticism that has only escalated over the previous couple months. After the New York Times published a story alleging widespread mistreat, unsafe working conditions, and preventable accidents at Foxconn’s Apple factories, Apple decided to hire the Fair Labor Association – an independent auditor – to publicly monitor the employment practices at its Asian facilities. Since a substantial portion of Foxconn’s business comes from its work with Apple, the company needs to quickly improve working conditions at its plants. A salary boost and overtime reduction is an easy place to start.

Taiwan-based Foxconn plays a considerable role in the global technology industry. What impacts, then, can we expect these recent changes to bring?

In the short term, the answer is probably not much. Foxconn’s salary move, after all, was designed to keep it in good favor with Western tech companies and to preserve the manufacturing relationship virtually unchanged. The decrease in overtime hours will possibly translate into slower product turnarounds in certain fast-changing industries (think smartphones and tablets), but considering the cutthroat competition and dismal labor standards that these turnarounds promote, such a change is clearly in the best interests of both workers and suppliers.

But, in the long run, Foxconn’s salary boost could have a very real impact on the way Western tech products are manufactured. A recent report published by the Boston Consulting Group predicts that hourly manufacturing wages in coastal China, which once averaged less than a dollar, will jump to $4.50 by 2015 due to a dwindling labor supply. Add in the growing cost of energy and transportation, coupled with the wage deflation seen in the Western world, and in a few years it will save American companies under 10% in overhead by outsourcing to China. Foxconn’s salary boost only helps accelerate the growing equilibrium.

At the same time, one of the chief China experts at the Brookings Institution, Kenneth G. Lieberthal, expressed in an interview the extreme lengths to which intellectual property needs to be protected these days from the Chinese government. Lieberthal described how a visitor to the country needs to take substantial precautions to avoid getting sensitive data stolen from their computers — precautions including switching laptops regularly, turning off cell phones, always using encrypted connections, and never typing in passwords directly, among others.

These precautions necessitate that managers traveling to China enlist a Phoenix TS-trained certified ethical hacker and take substantial precautions so as to avoid getting sensitive intellectual property data stolen from their computers. With IP rights more valuable than ever in the tech world, Lieberthal and other experts are now questioning whether a dwindling savings in overhead for Western companies is worth the risk of losing sensitive information, not to mention the heightened hassle and stress that any management trip to China now entails. Foxconn’s wage hike may only make these precautions increasingly less worth the risk.

This is not to say that Foxconn’s salary raise will directly translate into a return to “in-sourcing” and to domestic production in the tech world. But, if the reversal is already imminent, Foxconn’s new adherence to Western employment standards can only make that wage equilibrium more possible in the future. For the sake of workers, companies, and the industry as a whole, this might just be a positive outcome in the long run.