Лекция: Aug 6th 2011 | HONG KONG | from the print edition

WITH more than 1m workers, Foxconn may be China’s largest private employer. The secretive electronics giant is renowned for taking designs from Western firms, such as Apple, and using cheap labour to crank them out in huge quantities. But its fantastically successful business model seems to have run its course.

At a closed retreat in late July, Terry Gou, the chief executive of the Taiwanese-owned company (which is also known as Hon Hai), unveiled a plan to hire 1m robots by 2013. In a public statement, Foxconn talked about moving its human workers “higher up the value chain” and into sexy fields such as research. But at least some will surely lose their jobs.

Robots are easier to manage. Several Foxconn employees have committed suicide; in the latest case, a 21-year-old threw himself off a building in late July. In May an explosion at a new factory in Chengdu killed three employees and, it is believed, caused delays to the production of Apple’s iPads. To pacify its increasingly restive workers, Foxconn has repeatedly bumped up their wages, improved facilities, provided counselling and swathed its factories with nets to catch anyone leaping from a window. All this costs money.

China’s competitive edge has long been its vast supply of cheap hands. But as the country grows richer, skills shortages are driving wages rapidly up. Foxconn’s decision to alter its mix of capital and labour is thus logical, and mirrors what many smaller firms are already doing.

But the switch may not be smooth. Foxconn’s expertise has been in running well-regimented armies of people making goods for highly visible global companies. It is not known to have skills in running automated production lines; and moving in this direction will put it in competition with companies that do.

Rising wages are good for Chinese workers, and for firms that want to sell them things. But they also raise questions. Do they spell an end to the cheap “China price” for manufactured goods? Will multinational firms shift production elsewhere? Or will Chinese firms adapt nimbly to automation and remain fearsome competitors? They might, but Chinese robots may be no cheaper than robots elsewhere.

Finally, will the shift to a more capital-intensive capitalism throw legions of workers onto the streets? The Chinese authorities will be watching nervously.

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