SHENZHEN Taiwan's Hon Hai Precision Industry Co Ltd (2317.TW), a major device maker for the world's top tech brands, will raise its total China workforce by over 40 percent by next year but focus expansion away from its increasingly expensive Shenzhen plant.
Hon Hai, which also trades as Foxconn, will have as many as 1.3 million workers in China by the end of 2011, up from 920,000 now, Louis Woo, special assistant to the chief executive, said at a worker event.
It was the second time the usually secretive company has opened its doors to media in moves to counter negative coverage of labor practices which some groups liken to a sweatshop.
Tens of thousands of workers dressed in colorful wigs and costumes joined a parade of glitzy floats with banners reading "cherish life" and "mutual love." The morale-boosting exercise followed a series of 12 suicides at the company.
Hon Hai's two Shenzhen plants that have long served as its main manufacturing hub will be downsized to as few as 300,000 within five years from 470,000 now and focus on higher-end work such as research and design.
"The expansion plan started a number of years ago, and recently we've found that workers prefer to work in their home provinces," said Woo, adding that the company is building new plants in the inland provinces of Henan and Sichuan, which are among China's most populous provinces.
Salaries in the new plants inland will be higher than the average in those regions, but Woo claimed they would not have an impact on profitability in the longer term.
"In the short term, it will definitely have some impact, but we can overcome them by improving processes or having better workers," he said.
Hon Hai has said it wants to diversify its manufacturing base away from Shenzhen but these efforts have begun picking up speed amid large pay hikes in the more prosperous southern coastal regions.
The new plants further inland will include factories in Chengdu and Wuhan, helping the company mitigate rising labor costs in the Pearl River Delta.
"For a long time, we were kind of blinded by our success," Woo said. "To be very frank and open, I think we were caught by surprise by the structural changes in the worker composition."
Woo said the expansion marked a major "underlying transformation" designed to tap more abundant and stable labor supplies and help draw more factories away from the coast.
Hon Hai and its Foxconn International (2038.HK) subsidiary manufacture for companies such as Apple (AAPL.O), Dell LDELL.O> and Hewlett-Packard (HPQ.N) and Dell DELL.O.
Woo was speaking at an employee event at Hon Hai's plant in Shenzhen, where the company and its main workers' union held a large "treasure your life" rally it said was to help employees have a positive outlook toward life.
The president of the union read from a declaration it said was signed by 100,000 employees, promising to abide by government laws and the company's regulations.
Hon Hai last opened its facility to the media in May, when Chairman Terry Gou showed worker amenities including a swimming pool, bookshops, a counseling center and new dormitories.
(Editing by David Cowell)