For all the glitz and success that Apple's (AAPL) stable of iPods, iPads and iPhones have enjoyed, the 1.2 million Chinese workers who actually make them at dozens of Foxconn plants remain largely anonymous. While the cost of building a new iPhone 5 has been estimated be be around $17o, only a small fraction of that amount is estimated to come from labor costs ? perhaps less than $10.
While China's largest private employer is taking some steps to improve working conditions, it will soon face something it never has before: Union voting.
"Yeah, they're going to bargain over wages because they'd like more money," says Gordon Chang, author of The Coming Collapse of China and a contributor to Forbes. "They're really going to bargain over work rules because they got some pretty regimented rules right now that just aren't sustainable."
Amidst this backdrop, Foxconn is already moving to put more robots to work and is already in the process of installing 1 million "Foxbots" to replace people. It is also adding a new plant in Brazil, growing operations in Malaysia and possibly expanding in the U.S. As Chang sees it, the company already has 200,0000 employers outside China, pointing out that, "Foxconn started in Taiwan and moved [to mainland China] when things got too expensive. If it moved once, it can move again."
Exacerbating this changing situation is the fact that the country's labor force is aging and, Chang says, for the first time ever its supply of workers in the age range of 15 to 54 years is declining, and its "population trends are accelerating."
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"This is a really big problem for China. You can still have an expanding economy and a shrinking population, but it means you have to expand in spite of trends not because of them," Change concludes.
For now, the still-to-be-selected union reps face a soft year-end deadline, but attention is sure to grow as time passes and the conditions at Foxconn garner more and more attention. In the meantime, Chang says China's days as the low-cost manufacturing hub of the world "are numbered," and its path forward will be more challenging. "It's a problem, especially with electronics manufacturers, because China wants to move up the value chain."
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