Applicants wait to sign for jobs at Foxconn's Wuhan plant on June 11 at a labor market in the capital city of Hubei province. Foxconn plans to recruit 28,000 workers by August. [China Daily]

Building bases

With 20 plants in China employing more than 800,000 workers, Foxconn is a major player in the world of electronics manufacturing. Its Shenzhen factory, which houses 420,000 staff, is estimated to make roughly 70 percent of all Apple products, including the iPhone and iPad, as well goods for international brands like Hewlett-Packard and Dell.

Although details are still to be finalized, the Henan authorities have repeatedly expressed their willingness to provide the company with favorable conditions regarding land allocation, taxation and labor.

Foxconn spokesman Vincent Tong said this month the company also has plans to shift its major production line north from Shenzhen to Langfang in an attempt to reduce labor costs.

The company is also reportedly planning to invest $5 billion yuan in a new base in Chengdu, where another 100,000 people will be hired.

The relocation will likely be completed by the end of this year. After that, only about 100,000 workers who assemble the iPhone and iPad will remain in Shenzhen, said Tong.

Having several cities compete for the chance to host a Foxconn base is expected to drag down the relocation costs, with each province attempting to undercut the other.

While many media commentators suggested the spate of suicides was the ultimate reason company chairman Terry Gou decided to relocate production, the increased labor costs in coastal regions was no doubt a major factor in the decision.

Following the deaths, Foxconn in June boosted the monthly wage of its shop-floor workers in Shenzhen from 900 yuan to 1,200 yuan. Workers who pass a three-month assessment can also earn as much as 2,000 yuan.

A few weeks later, city officials also hiked the legally set minimum wage by almost 16 percent to 1,100 yuan. In Zhengzhou and Chengdu, the minimum wage is just 800 yuan and 850 yuan respectively.

Contract electronics manufacturers tend to operate on thin profit margins, about 5 percent, leaving most of the revenue to brand owners, technology patent holders and retailers. (ISuppli, a market research firm for the global electronics industry, estimates that the assembly fee for a $499 iPad is just short of $12.)

Cheap labor and large-scale production orders are key to ensuring huge revenue for factories, meaning that any change in wage levels, no matter how slight, will have a major impact on Foxconn's balance sheets.

Late last month, the company warned of increased losses in 2010 compared to last year, when it recorded a loss of $18.7 million.

However, bosses have consistently refused to point the finger at increased labor costs and instead suggest the dip is a result of weaker pricing and higher depreciation expenses.

"We believe the wage increase is healthy," chairman Gou told the Wall Street Journal recently. "It is negative to (our margin) in the short term but we believe it is positive in the long term."