Foxconn Technology Group Crisis Communication - Case Study Example

?Crisis Communication Table of Contents Introduction: Case Study Analysis 3 Factors Affecting the Suicide Event 4 Major Players of the Suicide Incident 5 (2) Business Environment Factors 7 PEST analysis 7 (3) Country Environment Factors 9 Porter’s Five Forces Model 9 Conclusion & Recommendations 11 (1) Introduction: Case Study Analysis Foxconn Technology Group also known as Hon Hai Precision Industry Co Ltd is Taiwanese based Multinational Corporation which specializes in manufacturing, assembling gadgets and equipments. The company is headquartered in Taipei (Foxconn, 2013). It was primarily a design manufacturer company whose clients include leading US, European and Japanese corporations, and other information technology processing companies. The main objective of the company is to assemble certain products for iPod, iPad, Kindle, Play station, and iPhone. It is regarded as one of the leading and largest electronic manufacturers of the world. In the year 2010 Foxconn had a dominant share of 49 percent out of the total market share. The annual revenue of Foxconn had increased from $40 billion in the year 2006 to $60 billion in the year 2010. The company had built several industrial parks and it had some of the state of the art supply chain facilities which helped in the prompt and smooth delivery of raw materials. Foxconn had become one of the dominant contractors in the world by 2009 and had an exemplary vertical integration strategy which made the company well positioned in the market. It also offers a one stop shopping facility which helps in meeting the demands of the reliable engineering, low operating costs and the short, frequent delivery times. Since, its inception the main objective of Foxconn was to include a variety of products and also lay special emphasis on the research and development of the products. Presently, the company manufactures products which has diversity and holds patents for more than 25000 products since the year 2009. The company is popular for its excellent recruitment procedure of a talented pool of employees. The company believes in imparting the employees with proper training and development program and making them an efficient workforce. The company hired employees from the rural areas and imparted them with proper training and induction so that they can deliver superior performance. In 2009 Foxconn alone hired 100000 workers which prompted the Taiwanese government to acknowledge it as one of the reputed companies of Taiwan. It had become one of the significant contributors of employment in Taiwan and the revenue generated by the company also significantly contributed to the overall Taiwan economy. However, the company faced a certain crisis in 2010 when several employees had committed suicide in their factory layout as a result of lower wages and improper working conditions. The management of Foxconn was perplexed and stunned by several suicides committed by the employees which had also led to unwanted media publicity and also tarnished the image of the company to a large extent. The negative publicity had affected the company management to a large extent and the company was criticized for its poor working conditions and management procedure. The study will highlight the crisis faced by the company during the suicide attempts towards and their management for public relations. The author of the study will try to focus on the impact of the incident and the way the company management handled the situation. Finally, the study will highlight the business environment factors and will conduct a microenvironment analysis to understand the impact of external and internal forces of the business activities of Foxconn. Factors Affecting the Suicide Event In 2011 there were series of suicides which led to sparking of several controversies and also attracted unwanted media attention in China. Initially, the company management had not responded to the incident in a grave manner, however, the tenth suicide in the factory layout disturbed the owner Terry Gou and the entire management. After the tenth suicide the owner and the management regretted the incident deeply in public and also promised to develop measures which would help to deal with the situation wisely. The management planned to develop several protection measures including reevaluating of the entire management system. This led to error detection in the current procedure and also to the betterment of the existing procedure. Although, the management promised to reevaluate the existing management system and procedure they believed that the root causes behind the employees committing suicide were their personal problems. Apart from the poor working conditions that led to suicides it was also observed that certain suicides were related to loss of iPhone prototype and other factors. Major Players of the Suicide Incident Reaction of Media & Apple to the Incident. The suicides committed by the employees became one of the most heated debates in China, but they also attracted the attention of its major client Apple Inc (Facing Finance, 2013). One of the major reasons behind the disturbance caused by the incident was the young age of the employees committing suicides which also attracted sympathy of the general masses. The incident affected the Chinese government because Foxconn was considered as one of the leading economic development and employment contributors of China and the impact of the incident had the potentiality of severing the relationship with its foreign collaborators. Apple responded immediately to the incident by conducting a high level investigation for the 12 suicide attempts that was conducted in the early part of the 2010 (Kolakowski, 2012). It was a high level investigation since the company also manufactured technical products for Dell, Hewlett- Packard, and Nokia. As per the investigation results it was observed that Foxconn had hired a large number of underage workers in most of its 288 supplier facilities (Kolakowski, 2012).It conducted a repeat audit in which it was found out that most of the immigrant’s worker’s rights were unprotected. Although, the management of Apple claimed to have praised the structure of Foxconn it was rumored that the company had claimed to get its 2 percent share of profit back from Foxconn (Kolakowski, 2012). The management of Foxconn reacted by claiming that the suicides attempts were unfortunate, but not abnormal, because as per statistics 12 suicides within 5 months were not absurd. As per the statistical data of China’s Ministry of Health of 2007 the rate of suicides is 25 per 100000 people hinting that 9 suicides out of a workforce of 450000 is lower than the average (KPMG, 2013). This prompted the management of Foxconn to take several measures and announce several damage control measures. The management of Foxxonn announced an increase in wages and several benefits of workers. The wages and benefits were increased by 20 percent. Although, the management of Foxconn made several attempts to mellow down the situation by offering high wages, no suicide contracts, workers problem assistance as well as psychological assistance it was observed that the image of the company had tarnished to a large extent. The company made several plans of moving their operations from the city factory layout to rural areas. This move was made because most of the workers preferred working in the rural areas in the proximity to their homes. Leading Chinese and American newspapers claimed to have called the factory layout of Foxcomm similar to that of a sweatshop (CLNT, 2010). However, top level managers of leading companies claimed that the problem did not lie in the structure of the factory layout or the managerial procedure, but the problem lay in overtime working hours of the employees (Barboza, 2012). Case Analysis &the Framing Theory. Leading Chinese and American newspapers and channels compared the case with the framing theory which helped in exploring the factory layout of the company and compared it with a sweatshop. These leading newspaper and channels explored the sweatshop incident extensively and compared the incident with a large mishap. The framing theory was originally formulated by the Erving Groff in 1974 who described frames as schematas of interpretation that allowed the individuals perceive, locate, and identify the various label issues, topics, and events. The media scholars applied the framing concept to various media events and certain wealth of definitions and approaches willingly. Nisbet suggested the existence of a framing concept of mass media which was based mostly on the organizing principle that was meaningful and served purposefully over time (Guo, Hsu, Holton, & Jeong, 2012). According to Entman, framing had four purposeful functions like problem definition, casual interpretation, moral evaluation and treatment recommendation (Guo, Hsu, Holton, & Jeong, 2012). These four functions work as a catalyst in accelerating the growth of the company. The four functions also help in scrutinizing the entire media content. However, as per the theory formulated by Gamson and Modiglani in 1989 the media package approach was based on common language and framing devices (Guo, Hsu, Holton, & Jeong, 2012). Van Gorp combined both theories and designed a frame package that used reasoning devices and framing devices which helped in assessing the situation (Guo, Hsu, Holton, & Jeong, 2012). In this case it is observed that the management of Foxconn tried extremely hard to evade the situation in the initial phase by not giving a valid explanation and covering the situation by giving suicidal statistical data. (2) Business Environment Factors The combination of external and internal factors that have an effect and influence on the business process and the operating situation are known as business environment factors. The macro environment factors affect the company’s activities immediately, and micro environment factors do not affect the company’s activities immediately. Micro environment factors and forces comprise suppliers, distributors, competitors etc. PEST analysis The PEST analysis is an instrumental tool used for identifying the external threats and opportunities faced by an industry. Political Factors. The present corporate tax rate of China is 25 percent which has decreased considerably from 33 to 25 percent (KPMG, 2013). The sudden decrease in the corporate tax rate would be favourable for the potential investors in Chinese organizations. However, it is observed that the suicide committed by the employees of the organization has affected the share price of Foxconn and also the image to a large extent. This incident has prompted several potential investors to retreat and make further investment decisions related to Foxconn. Economic Factors. The Chinese economy is one of the most rapidly growing economies of the world with a high contribution from the private consumption sector which has contributed significantly. The fixed gross investment from the private consumption is 25 percent to the Chinese economy (Morrison, 2013). This has resulted in China becoming one of the highest GDP earners in the world which is higher than all the G7 countries. Due to the increasing profits and the revenue generated from the Chinese economy the profits earned by Foxconn were distributed to the employees as incentives and bonus. The employees of Foxconn benifitted even after the suicide events when the management of Foxconn decided to increase their salary and incentives by 25 percent. In 2012 the US trade deficit valuation was around $315 million which was a significant contributor to the Chinese economy (Amadeo, 2013). Social Factors. The booming economic situation has led to the non disturbance in the social life of the Chinese people. Although, the employees of Foxconn work more than the required official hours it is observed that the increased pay and incentives have helped in improving the social life of the Chinese people to a large extent. Technological Factors.Technology plays a pivotal role in the manufacturing and assembling industries of China because it helps with the easy and fast assimilation of parts. Technological innovation has also helped with the improvement of the existing systems which has led to the increase in the organizational outcomes. Technology also plays an integral part in Foxconn because it has led to the improvement in the existing systems, which has ultimately led to the increase in the outputs and also a high quality assembling process. Most of the Chinese assembling industries acquire assistance from the US corporations they closely work with. (3) Country Environment Factors Porter’s Five Forces Model A company management needs to identify certain forces which affect the profitability of the industry. The five forces are as follows: 1) Threat of new entrants: The booming economic situation in China has prompted several investors to invest in the Chinese market and acquire several subsidiaries for cheap assembling and manufacturing purposes. A large number of US corporations have invested largely in the Chinese assembling industries because of their easy access to cheap raw materials and labor. This has led to the emergence of several Chinese assembling companies which have contributed significantly to the Chinese economy. 2) Bargaining power of buyers: In the Chinese assembling industry the main purchasers of the assembling product and equipments are the foreign companies, especially originating from the US and the UK. These Chinese companies are also known as importers to the US corporations because of their easy assembling of tailor-made products which match their requirements. Since, the US corporations can avail the assembling parts at affordable prices. Hence, the bargaining power of buyers is not all high in the Chinese assembling industries. 3) Bargaining power of suppliers: Although, the assembling parts of gadgets and equipment are manufactured in the factory itself and the need of delivery of these parts is minimal within the various departmental units, there is a requirement of the suppliers only when the assembled parts need to be shipped to the overseas partners. The timely delivery of the goods shipment is essential, however, the collaboration between the overseas and Chinese partners has helped the Chinese companies to spend a lesser amount on the supplier. The bargaining power of suppliers is low in this industry. 4) Threat of substitutes: As mentioned before the growing economy and the increase in the profitability of the assembling industry has prompted several local Chinese companies to collaborate with reputed US corporations to manufacture batches of high quality parts and equipment. This has led to various US corporations to collaborate with local Chinese assembling companies for a low cost bulk production. The threat of substitutes is low in this industry. 5) Intensity of rivalry among competitors: The Chinese assembling industry consists of various established companies like Quanta Computer Inc., Motorola, and other local Chinese assembling companies who have been able to capture a large amount of the market share of the assembling industry (Hoovers, 2013). Conclusion & Recommendations It is observed that a proper strategic planning is lacking in Foxconn which is of the utmost importance, helps in the creation of value, and also leads to the overall improvement in the organizational performance (CISCO, 2013). An accurate strategic planning helps in strategic thinking and value creation which bring unity and increase the organizational commitment (CPA Australia, 2011).First and foremost the management should revaluate and revise the existing wage and pay structure and remove the errors which have been a hindrance in the existing system. Thus, if the management is able to develop a proper wage structure along with a satisfying reward and incentive system then it will help in the improvement of the existing organizational climate of Foxconn. References Amadeo, K. (2013). U.S. trade deficit with China. Retrieved from http://useconomy.about.com/od/tradepolicy/p/us-china-trade.htm Barboza, D. (2012, January 25). In China, human costs are built into an iPad. The New York Times. Retrieved from http://www.nytimes.com/2012/01/26/business/ieconomy-apples-ipad-and-the-human-costs-for-workers-in-china.html?pagewanted=all&_r=0 CISCO. (2013). Five ways to improve your company's efficiency. Retrieved from http://www.cisco.com/en/US/solutions/ns339/ns640/networking_solutions_products_genericcontent0900aecd803e865f.html CLNT. (2010). Chinese responses to Foxconn suicides. Retrieved from http://www.clntranslations.org/article/55/foxconn CPA Australia. (2011). Improving business performance. Retrieved from http://www.cpaaustralia.com.au/cps/rde/xbcr/cpa-site/improving-business-performance-brochure.pdf Facing Finance. (2013). Hon Hai Precision Industry Co. Ltd. (Foxconn Technology Group). Retrieved from http://www.facing-finance.org/database/companies/hon-hai-precision-industry-co-ltd-foxconn-technology-group-hon-hai-precision-industry-co-ltd-foxconn-technology-group/ Foxconn. (2013). About us. Retrieved from http://www.foxconn.com/GroupProfile_En/GroupProfile.html Guo, L., Hsu, S., Holton, A., & Jeong, S.H. (2012). A case study of the Foxconn suicides: An international perspective to framing the sweatshop issue. The International Communication Gazzette, 74(5). Retrieved from http://www.academia.edu/1807199/A_case_study_of_the_Foxconn_suicides_An_international_perspective_to_framing_the_sweatshop_issue Hoovers. (2013). Competitors. Retrieved from Amadeo, K. (2013). U.S. Trade Deficit with China. Retrieved from http://useconomy.about.com/od/tradepolicy/p/us-china-trade.htm Kolakowski, N. (2012, February 02). Apple report details response to Foxconn suicides. eWeek. Retrieved from http://www.eweek.com/c/a/Mobile-and-Wireless/Apple-Report-Details-Response-to-Foxconn-Suicides-139217/ KPMG. (2013). Global services tax tools & resources corporate tax rates table. Retrieved from http://www.kpmg.com/global/en/services/tax/tax-tools-and-resources/pages/corporate-tax-rates-table.aspx Morrison. W. M . (2013). China’s economic rise: History, trends, challenges, and implications for the United States. Retrieved from http://www.fas.org/sgp/crs/row/RL33534.pdf Read More