Download Labour changes `may lift` Foxconn image Summary of the news

Labour changes ‘may lift’ Foxconn image
Summary of the news
Terry Gou, the chairman of Hon Hai, promised that Foxconn would keep raising workers'
salaries and cutting work hours in its mainland factories. Foxconn would build hi-tech
facilities in Hainan province and expand operations in Brazil to help relieve the pressure
on its existing factories in the mainland.
Introduction
Foxconn (Foxconn Technology Group) is one of the electronics manufacturing operations
of Hon Hai. Its plants in the mainland are the main plants making Apple's popular iPhone,
iPad and iMac devices. There are 3 economic concepts involved in the news. The 3
concepts include labour productivity, change in supply as well as marginal benefit and
marginal cost.
Economic Analysis
1. Change in supply of Foxcoon' s products
Individual supply refers to the quantities of a good that a producer is willing and able
to sell at different prices over a period of time, ceteris paribus.
A change in supply is caused by a change in other factors except for its own price.
Since workers' salaries will be increased, the production cost for Foxconn to produce
output increases and the supply decreases from S0 to S1. However, Foxconn will also
build hi-tech facilities and expand operations, so its scale is expanded and the supply
increases from S0 to S2. There are 3 possibilities of the change in supply.
(Assume the demand remains unchanged)
P. 1
Figure 1 shows one of the possibilities which is
that the decrease in supply is greater than the
increase in supply. Since the decrease in supply
from S0 to S1 is greater than the increase in
supply from S1 to S2, the supply decreases
finally.
Therefore, the equilibrium price increases from
P0 to P1 and the quantity transacted decreases
from Q0 to Q1.
Figure 2 shows one of the possibilities which is
that the decrease in supply is less than the
increase in supply. Since the decrease in supply
from S0 to S1 is less than the increase in supply
from S1 to S2, the supply increases finally.
Therefore, the equilibrium price decreases
from P0 to P1 and the quantity transacted
increases from Q0 to Q1.
Figure 3 shows one of the possibilities which is
that the decrease in supply is equal to the
increase in supply. Since the decrease in supply
from S0 to S1 is equal to the increase in supply
from S1 to S2, the supply remains unchanged.
Therefore, the equilibrium price and the
quantity transacted remain unchanged.
P. 2
2. Labour productivity
Average productivity of labour means the average output per man-hour.
Before changes are made by Foxconn, the labour productivity of Foxconn is low
because the working condition of the workers is poor. Also, due to low salaries and long
working hours, the workers have low incentives and low work efficiency.
In the news, Terry Gou promised to cut working hours so the total input of labour
decreases if the number of workers employed does not change. Moreover, Gou also said
that Foxconn would build hi-tech facilities, so the same amount of labour can produce
more units of goods and the total output will also increase with the help of better
machinery. Also, Foxconn will keep raising the salaries of the workers, so workers'
incentives increase and their working efficiency will be enhanced.
After changes are made by the Foxconn, the total output increases due to better
machinery and higher working incentives for the workers while the total input of labour
decreases due to the cutting of work hours. Therefore, labour productivity increases.
3. Marginal benefit and marginal cost
The additional cost incurred from doing one more unit of an act is called the marginal
cost while the additional benefit acquired is the marginal benefit.
The marginal benefit for Foxconn to increase worker's salaries and cut work hours is
to maintain its goodwill and image.Through the establishment of a good image and
goodwill, Foxconn can gain more profit in the long run. The marginal cost is the
higher production cost of upgrading the device in the short term.
Since the marginal benefit is greater than the marginal cost, Foxconn increases
worker's salaries and cuts work hours. Fulfilling its social responsibility may affect
Foxconn’s short-term profit, but it also helps achieve profit maximization in the long
term.
P. 3
Conclusion
In fact, many Hong Kong manufacturers have relocated their factories to the mainland
because of the low production costs in the mainland. However, the production costs in the
mainland are rising rapidly nowadays. Hong Kong manufacturers have to find another
place to set up their factories to increase their competitiveness in the world market.
I think Brazil is a suitable place because the raw
materials are rich there and the transportation of
raw materials can be lowered. In the news,
Foxconn will expand operations in Brazil.
Since Hon Hai has been accused of labour-rights abuses which led to a series of worker
suicides in 2010 and an industrial accident in 2011, the image of Foxconn has been
damaged a lot. I think it is necessary for Foxconn to increase workers' salaries, improve
working conditions and cut work hours to maintain its goodwill.
To conclude, there are 3 possibilities for the supply of Foxconn's products to change,
including increase in supply, decrease in supply and no change in supply. Moreover, the
labour productivity increases after Terry Gou has promised to make changes in the plants
at Foxconn. Last but not least, Foxconn should increase workers' salaries and cut work
hours because the marginal benefit is greater than the marginal cost of this action. Lastly,
I suggest Hong Kong manufacturers to set up factories in Brazil rather than in the
mainland.
P. 4