New Report Delves Into Inner Workings of Foxconn's Zhengzhou iPhone Plant

In a lengthy new article posted online today, The New York Times has delved into the inner workings of Foxconn's major iPhone manufacturing plant in Zhengzhou, China, referred to locally as "iPhone City." The article describes how the facility became one of Apple's major global manufacturing plants, as well as the "hidden bounty of perks, tax breaks, and subsidies" uncovered behind the scenes of Foxconn's operations -- negotiations Apple said it is "not a party to."

Looking at the origins of Apple's move to production overseas, the article first details Steve Jobs' decision to manufacture the Macintosh in its facilities in Texas and California in the mid-1980s. Following the company's financial slump in the 1990s, Jobs upon his return made the decision to outsource production in places like China. Partnerships with the likes of Foxconn provided Apple with the "heft and expertise" to create products, including the original iPod, on a massive scale.

foxconn-workers

Workers leaving the Foxconn factory

When Apple’s sales took off after the introduction of the iPod in 2001, Foxconn had the heft and expertise to meet the demand that accompanied each hit product. Foxconn’s factories could quickly produce prototypes, increase production and, during peak periods, hire hundreds of thousands of workers.

“They have brilliant tooling engineers, and they were willing to invest a lot to keep pace with Apple’s growth,” said Joe O’Sullivan, a former Apple executive who worked in Asia.

As the launch of the iPhone approached, Foxconn began scouting locations for a new facility around China and created an Olympic-level competition among cities to be the home of its new plant. Officials from various cities offered perks like discounted energy and transportation costs, lower social insurance payments, and over $1.5 billion in grants for factory construction and dorms for workers. After Zhengzhou was chosen, it only took a few months between the signing of the deal and the launch of assembly lines in August 2010.

The city created a special economic zone for the project and provided a $250 million loan to Foxconn. The local government also pledged to spend more than $10 billion to vastly expand the airport, just a few miles away from the factory.

“I was impressed,” said Jeff Williams, Apple’s chief operating officer, who was part of the early discussions about setting up a factory. “They were very focused.”

To create its cohesive export system, Foxconn insisted that the Zhengzhou facility be located within a "bonded zone." This allowed Foxconn to bypass China's stringent restrictions on foreign manufacturing and directly import and export iPhone components, which was further expedited thanks to the facility's purposeful proximity to a nearby airport.

The iPhone plant continued to ramp up, and in 2014 included 94 production lines for the iPhone 6 and iPhone 5s, with an estimated 230 million smartphones having been exported from Zhengzhou in the years it had been open. The government referred to it as "one of the nation's crucial export centers." With all of the work came a labor force "the size of a national army," who relied heavily on government subsidies and produced 500,000 iPhones a day at peak.

A crushing work force begins arriving for the early shift at 6:30 a.m. They travel by foot, by bus, by motor scooter and even by pedicab. They file steadily into dozens of factory sites, spread out across 2.2 square miles. At the peak, some 350,000 workers assemble, test and package iPhones — up to 350 a minute.

The government pays recruiters a subsidy for every worker they hire, Mr. Liu said. “If the demand is high, then they will pay more,” he said. “If the demand is low, then the payment will be low, too.”

One of the other major topics of the article centered around the help that Foxconn has received from the Chinese government in return for providing its services to Zhengzhou's financial and political surge over the years. Foxconn is said to receive a bonus for each export target it reaches, according to government records discovered by The New York Times, with subsidies totaling $56 million in the factory's first two years of iPhone manufacturing.

Foxconn, in a separate statement, said it was grateful for the support of the government, noting that it was “no different than similar tax breaks all companies get in locations around the world for major investments.”

In response to questions, Apple said it was aware of the government’s infrastructure support. But the company added that it had no knowledge of specific grants, subsidies or tax breaks given to its manufacturing partner.

Foxconn remains a loyal partner in Apple's manufacturing processes to this day, most recently considering expansion into the United States and gearing up to be a major supplier of the 2017 iPhone.

The rest of The New York Times' findings, discovered through over 100 interviews with factory workers, logistics handlers, truck drivers, tax specialists and current and former Apple executives, can be read in the full coverage here.

Note: Due to the political nature of the discussion regarding this topic, the discussion thread is located in our Politics, Religion, Social Issues forum. All forum members and site visitors are welcome to read and follow the thread, but posting is limited to forum members with at least 100 posts.

Tags: China, Foxconn

Top Rated Comments

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47 months ago

Those perks going to disappear by Jan 20th.

1.Trump does not control the perks in China.
2. Any tariffs Trump applies only applies to goods going to the USA, the rest of the world will simply get Cheaper products than the USA.
3. Impacted countries will put a tariff on US imports. Airbus for example would be pleased to see Boeing being 5% more expensive, as will Japanese car manufacturers. Just because China puts a tariff on US imports does not mean they will put a tariff on ones from the EU.

If anything Trump will create a slow down of world trade, creating a global recession and even MORE US jobs lost.

The rest of the world could also turn around and reduce copyright and patent terms, especially medical ones, so that generics will come quicker and cheaper.

Dump the FAA,FDA etc from having sway over policy outside the USA, the EU I am sure would love to take up the mantle.
Dump the US$ as the standard for trade, the euro will do just as well.

Trump is a warning bell to other countries, reduce your exposure to the US and its policies.
Its is also an opportunity to increase trade internationally (excluding the USA) with the understanding that Asia holds 60% of the worlds population, and 96% of the worlds population lives outside of the USA.

The US (if not already) will soon be only the 2nd largest economy, China will be the biggest, and if the EU plays its cards right, they will soon become 2nd leaving the US 3rd.

Unfortunately the US response will be to sow political discord, and if need be start a few wars around the world to try and maintain their grip on world affairs.
Score: 15 Votes (Like | Disagree)
Avatar
47 months ago
People need to stop associating Apple with all of the blame and problems of FoxConn. A LOT of companies get their parts made by them, and I'm willing to bet Apple is doing more than any of the other companies that have work done there to monitor and help the people working there. You don't hear of Samsung sending people there and looking into problems.

Also, as far as jobs and work goes, I bet working there is a pretty desirable option for the employed in the area. At least as far as their options go. The problems are with the country and how it's run.

People (the media) just love to mention Apple when they bring up the issues associated with FoxConn and other factories there because with Apple mentioned in the story, they'll get a lot more clicks, views, and attention.
Score: 13 Votes (Like | Disagree)
Avatar
47 months ago

I'm looking forward to the day factories such as these will be fully automated, and need only a few people for oversight. No more "slave labor" when machines can do the work.

It's time for the planet to move past the concept of there needing to be a job for everyone. We need to embrace a future where most jobs can be done by machines, and decide how best to proceed from there.

The utopia where no one works and everyone gets everything for free?

Just so you know, Foxconn is actually automating these factories and eliminating thousands of jobs a year. The Chinese government is financially supporting this as it allows them to keep manufacturing costs low in a labor market where costs are increasing and creating a real middle class.

This means Vietnam and India will get the next factory cities unless China does something to stay competitive.

Where there were once 80,000 employees in a single factory city complex in China, there are now only 60,000 generating the same output thanks to automation.

Those 20,000 people are now out of work. I'm sure they are better off somehow for being sent back to their villages where they can farm rice.
Score: 10 Votes (Like | Disagree)
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47 months ago
Remember when the People's Republic of China was communist?
Score: 9 Votes (Like | Disagree)
Avatar
47 months ago

You do realize, you are drawing a parallel between them and us (the West) that even during our period of Industrialization did not exist. The future is not always a mirror of the past, especially with difficult cultures and political regimes/empires. There are many, many reasons that conditions may not improve. In fact, there are likely more arguments of why it will not when they try to be even more competitive with us after Jan 20. Your prediction is short sighted.

And what happens on Jan 20, nothing really.
Trump has no magic wand, factories and infrastructure and supply chains all take time to build.

Or, to put it another way, by the time mid term elections are held, no new jobs will have been created in the US, lots more may have been lost in companies who export (US$2 Trillion) as tariffs on US exports by other countries made ones from China , the EU, etc more cost competitive, e.g. Airbus, Samsung,Panasonic, Toyota,etc etc etc etc.
This could see punishment in the polls.
End of term, few if any major players (Apple, HP, etc etc etc) will have started manufacturing by that stage.
Trump is gone, policies are reversed and the world carries on.
Its not just the factories, where is the power, the water, the raw materials, freight haulage, etc etc comping from, all of that takes years and years to happen. Where do 300,000 workers come from ? Where do they live, what about schools, hospitals, roads, water, sewerage, electricity, police, fire, internet, phone, shops, car mechanics, we are talking of a city of over 1 million people by the time you add in all the other services a population needs.
How soon can a city of 1 million people get created ?

But what happens if they go down the automation route, few employees. Well other US manufacturers will jump on that band wagon too, a rush a new automation will cause a fall in costs making it cost effective for a lot more companies. This will lead to few jobs comping back to the US, and a lot of jobs lost to automation.

AI is going to have a major impact, its going to change almost everything and will replace a LOT of jobs.

Instead of trying to bring back non existent jobs back to the USA, the US would have been better to start panning on what to do with a very large number of unemployed. The world has possibly hit (or soon will) peak employment, AI and automation is only going to see employment ratios head one way....down.
Score: 7 Votes (Like | Disagree)
Avatar
47 months ago

And what will people do to earn a living? Watch TV/surf all day? remove all their goals and ambitions? Live in peace and harmony? Turf wars or gang fights? Entitlements? Love to hear your vision for the billions of people on the planet with no jobs.

"We must do away with the absolutely specious notion that everybody has to earn a living. It is a fact today that one in ten thousand of us can make a technological breakthrough capable of supporting all the rest. The youth of today are absolutely right in recognizing this nonsense of earning a living. We keep inventing jobs because of this false idea that everybody has to be employed at some kind of drudgery because, according to Malthusian-Darwinian theory, he must justify his right to exist. So we have inspectors of inspectors and people making instruments for inspectors to inspect inspectors. The true business of people should be to go back to school and think about whatever it was they were thinking about before somebody came along and told them they had to earn a living." - Buckminster Fuller
Score: 6 Votes (Like | Disagree)

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