The Future Of Foxconn: Ten Thousand Horses Galloping

Shenzhen is a town of migrants. The estimated median ages is between 15 and 25 and the old and battered sits in wild contrast with the brand new. Even in the few years between my last visit and this one, the city has changed so drastically that I barely recognized it. The last time I was here I imagined the place as a cross between a favela and Blade Runner, high and low tech mashed together, the sharp tails of known carcinogens mixing with the soft end of Suntory in a highball glass and the scent of a young executive assistant’s Chanel No 5.

Now it’s mostly Suntory and Chanel, the carcinogens banished to the outskirts of town. There’s a boom in China, and Foxconn’s executives see a way out of many of the messes, real or imagined, that plagued the company.

Foxconn is pinning their future success on their employees’ future success. While this may seem like uncessary largesse, it is an interesting bet on the future of a working class that has been transformed into a middle class. And those workers, once forced by circumstance to stand for ten hours a day, are workers that no longer need or want what seemingly meager financial benefits Foxconn has to offer.

The future of Foxconn, if Louis Woo has anything to do about it, is in retail. While the retail – or channel – business is less than 1% of Foxconn’s revenues, the goal is simple: to empower Foxconn employees through education and entrepreneurship.

“We call this ‘integrated services,'” said Woo. His mission is to create a system wherein a Mom and Pop shop in the hinterlands can sell white goods – appliances, fridges, and the like – as well as electronics. Foxconn would take the orders and ship out immediately (if the item isn’t in stock) and the local representatives, who were trained on the line in Shenzhen, would be able to handle installation, troubleshooting, and minor repair issues.

Think of it as a million Best Buys blooming.

“The stores are called 10,000 Horses Galloping and we’re opening them primarily in the third-tier cities,” said Woo. “So these are the small format stores which means they’re about a 1000 to 2000 square feet.”

The company has opened 304 so far, with many more planned.

How do they work? Foxconn employees, including line workers and engineers, can apply to the program after five years at a major factory. Employees receive various benefits including a large line of credit, direct support from Foxconn’s customer service representatives, a two-month investment in advertising and real estate. In 2010, the company announced it would invest $45 million in the effort, giving each store owner about $13,500 in credit (90,000 yuan).

Most of the after sales support will be handled in the shops.

“The managers will be able to troubleshoot the items sold at these stores nless it’s a major malfunction with the chips,” said Woo. “After all, many of them worked on the line where they were made.”

This move reflects China’s burgeoning middle class where, as one importer put it: “The Chinese once only sold noodles to other Chinese. Now they’re selling everything.”

“I think a lot of Chinese consumers today are wary about what they bought or what they are buying. There are lots of counterfeits,” said Woo. “So we put our reputation behind the product.”

Normally, many of these smaller cities and towns would have no access to white goods and technology of any kind. Many of the shops will end up like general stores. “Demands for PC products other than mobile phones are not that at that big at this point in time. So we want to make sure that our store would be able to service the consumers in those cities first,” said Woo. In many cases just having access to a washing machine or air conditioner is a big deal, let alone the latest tablet.

Woo gets applicants every day who want to expand the brand and bring the stores back to their home towns. The company is also planning to open more of a mail-order presence in the mainland as well as partnering with MediaMarkt, a European chain, to bring big box retailing to major Chinese cities.

They’re also launching something they call the IT Malls, which currently work in 34 centers in 20 cities in China. These shops will bigger than the 10,000 Horses Galloping model but smaller than the big box stores. It is, then, a comprehensive retail plan that will be isolated in China, at least for the time being.

“The American market is already mature,” he said when asked if the shops would come to the U.S.

Foxconn is also changing how it treats trained workers. The company now offers advanced training to experienced managers including classes in engineering taught by professors from Tsing Hua University, one of the major technical and engineering schools in the country. These same employees can work towards their PhDs while working at Foxconn.

I asked if anyone can make the rags to riches move – from assembly line to PhD – but no one has thus far. However, line employees can take reduced-price classes in order to work on their degree while working in the factory.

Foxconn is reacting to the idea that there is little promise – and in fact, there is more than a little threat – in continuing to manufacture in many of China’s urban areas. While we are still decades away from any meaningful change in the manufacturing equation, the company is looking ahead to a time when Chinese are not workers but consumers.

The company is also seeing the importance in openness – at least as practiced by a $100 billion company in the heart of the Chinese mainland. “In the 37 years of our history we never talked to the press,” said Woo. “Most of the time our customers don’t even want us to write about anything.”

“So, you know in a sense, for the last 30-something years we were living quite comfortably kind of under the radar,” he said. Woo said the company is trying to change as quickly and efficiently as possible, turning itself into more than a black box – product in, product out.

Through the rise of education, automation, and efforts like entrepreneurship, Foxconn is working to build a company for a new century. How far they can run from the past is still not certain.

“The Chinese mentality was such that when when you are small you hope the things would just go away,” Woo said of the Foxconn suicides and the future of the company. “But given our size, we have no guarantees that nothing like that anything like that will happen again. There is a certain Chinese philosophy that believes that if you are person of integrity, a company of integrity, then your name will be cleared eventually.”

Woo looked pained as he look at me across the conference room where we met, in a seemingly unused office building near the main circle. He picked at some of the fish from lunch, fish that was cleaned, cooked, and served by Foxconn. Outside, the birds in the trees continued to trill and the young people, perhaps night shift workers unable to sleep, wandered the grounds, stopping in the Foxconn cybercafe, grabbing a library book from the high-tech machine near the dorms. It was a closed system, one of those biospheres made to test how humans would survive on Mars.

But how long does this biodome last? How long before it becomes to expensive to make a cheap product here? How long before other countries fix their infrastructure enough to rival China’s best efforts? It won’t be long, to be sure, until others grab for Foxconn’s crown.

But, for a while, while the rest of China roiled outside, this city that manufacturing wrought was a relative oasis.

“We don’t want these issues in China, any more than you want them in the US,” he said, finally.

This is part four of a four part series that will run this week about Foxconn. You can read the whole series here.