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Electronics Production | October 14, 2010

India's mobile phone manufacturing industry 2/3

India, as one of the low labour cost countries has been a popular destination for mobile phone manufacturing companies. In order to attract foreign direct investment the state and central government have offered companies umpteen tax benefits.
However, questions that arise are benefits do these companies provide to the local people? Do they assess their impact on the Responsibility (CSR) policies, where they commit to local and international laws as well as social and environmental standards?

In the course of research Cividep had contacted all major mobile phone manufacturing companies in India as well as their suppliers in 2009 to conduct interviews on the companies’ corporate responsibility policies and performance. The companies that were contacted included: LG , Samsung, Nokia, Motorola, Sony Ericsson (all OEM), Laird, Foxconn, Flextronics (EMS) and component suppliers Perlos, Apsocom and Wintek. Out of these 11 companies only Foxconn and Flextronics were available for an interview. All other companies declined or did not even respond to the interview request.

Flextronics

Flextronics has established an Industrial Park in Chennai in the year 2006. The Chennai Industrial Park, located in Sunguvarchatram, manufactures Mobile Chargers, Mechanical Enclosures and printed circuit board (PCB) Assemblies for both domestic and overseas customers. According to the senior manager interviewed, given the current economic environment, the chances of another manufacturing plant in India are slim.

Flextronics Chennai Industrial Park is a notified SEZ Developer and as such, the company is entitled to benefits as provided under SEZ Act. These include tax immunity for a specified period, no customs and excise duty since the product is sold to other SEZ customers and the finished product is not subject to custom duty or sales tax. The company would be liable to customs duty and sales tax if it imported materials and sold the product to a local customer.

Flextronics buys its components locally and from overseas vendors approved by its customer. Further subcontracting work is based on business considerations and value creation; however it can further erode the profit margin. Flextronics is engaged in business with many OEMs and has worked with Sony Ericsson and Nortel in the past as well as Xerox and Dell worldwide. Due to the non-disclosure agreements with customers the company is unable to provide more details about its customers. However, at the time of the interview it was supplying only to one OEM.

Flextronics employs approximately 1600 employees with a gender ratio of 60-40 men to women in three categories: unskilled, skilled and multi-skilled. The majority of the workforce falls into the skilled category because they have completed a minimum of 6 months to one year of work, and the line leaders are multi or highly skilled workers.

Men are usually doing technical work such as fitters, mechanics, electronic welders, due to their technical qualifications from the Industrial Training Institute (ITI). Women are trained in electrical engineering and computer operation.

The company has 3 divisions: Flexpower, where mobile phone chargers are produced and women are in the majority; PCB Assembly, where mobile phones are assembled, caters to OEM customers; and the mechanical division.
The company’s workforce consists of 40% permanent employees and 60% contract employees. The average age of the workers is 20 years.

Workers are engaged through contractors who recruit them young when they have finished their schooling or ITI training. Workers on the contractor pay rolls are provided with an instructor-led as well as on-the-job training. The curriculum includes aspects like the code of conduct, safety and basics of electronic manufacturing etc. They are entitled to wage increases in accordance with the terms of the labour contract.

Those who were directly engaged by the company started as trainees for a year and then moved up the career ladder. Currently, employees join the company directly on the rolls and there is no specific training period, since only skilled employees are recruited. The workforce turnover is high with only 1-2 day notices given by the contract workforce before they resign.

The regular workforce has a 1-2 month notice period by mutual agreement. Due to the high turnover of the contract staff, they are placed primarily in the unskilled category. The company currently works with four labour contractors. The regular work shift is 8 hours a day and 48 hours a week. Due to the current economic climate, there is no overtime. Workers’ wage levels meet the Minimum Wages Act, and currently contract employees’ wages stand higher than that stipulated by the Minimum Wages Act.

At the point of interview in 2009, the minimum wage in Tamil Nadu was Rs. 3,345 per month in the unskilled category and the company paid Rs. 3,485 at that time. The skilled category received Rs. 3,965 per month or about 15% higher than unskilled workers. However, the company claims that present minimum wages they pay are much higher.

Wage revisions are automatic dependent upon the consumer price index or inflation, not on the performance of workers. Flextronics complies with overtime regulations specified under Factories Act, 1948, i.e. overtime compensation is paid with leave.

Workers have 24 days of annual leave, 8 days sick leave and 8 days of casual leave, which is above the legal requirement of one day for every 30 working days, or 15-16 days to a maximum of 18 days in a year according to the Factories Act 1948. Maternity leave is also as per the law of pre- and post-natal for a total of 12 weeks.

The company has a full-fledged medical centre with trained nurses round the clock and a doctor on call at the nearby hospital. The doctor comes twice a week for consultation. The nurses’ team is equipped to handle any medical emergency and there is a fully equipped ambulance stationed at the facility everyday throughout the week.
The medical centre is 100% free for the workers.

Since the area is not been covered under ESI, Flextronics has ensured all employees via the company and provides free medical facilities against injuries. The medical centre is not for occupational injuries alone but for common illness. The health and safety team investigates each and every incident in the company.

The other facilities that Flextronics offers its workers is a crèche, which is not heavily availed of because the workforce is young and not yet parents; transportation facilities which are 98% subsidized by the company; and subsidized canteens.

Foxconn

Foxconn had one plant in the Nokia Tech Park in Sriperumbudur since 2007. Earlier in 2006, Foxconn had another division in SIPCOT SEZ next to Nokia Tech Park where it was manufacturing mobile phone parts for Sony Ericsson and Motorola. This division was closed down recently. Almost all employees are said to be transferred to the Nokia Tech Park plant.

Another supplier Jabil has recently closed its unit in the park. Among these suppliers, Perlos and BYD (a Chinese company) are direct competitors to Foxconn as they also assemble mobile phones and covers in particular. Foxconn produces mobile covers, metal parts and plastic injection moulding. While 8% of the production is exported to other Foxconn sites, 90% of the production is supplied to Nokia India Private Limited. The company benefits from the SEZ package of incentives such as a specific tax regulation.

The Nokia Sourcing Team provides a list of approved vendors and suppliers. Die-cut parts are directly approved by Foxconn through internal audit mechanisms. Production inputs at Foxconn are determined by Nokia with 90% of the materials procured from Nokia itself or Nokia approved suppliers.

Mobile phone manufacturing can be divided into 10 stages; 5 stages are carried out by Foxconn and then dispatched to Nokia for final assembly. Different mobile phone parts are manufactured in different assembly lines. The process of manufacture in Foxconn includes: (1) injection moulding (giving the plastic shape of a mobile) (2) painting, which is done automatically, i.e. workers are not in direct contact with paint and (3) assembling in assembly lines. No work is further outsourced as Foxconn is already a supplier.

Foxconn sources materials from approximately 20 different material suppliers from three countries, namely India, China and Japan. 10% of material is procured locally in the Chennai area, for example from Stockvis in Chennai; the rest come from outside Tamil Nadu for example from Brady in Bangalore. 20% of the material is imported from China and Japan, mostly special material that is not available in India.

Foxconn is the major supplier to Nokia. Earlier Foxconn also supplied to Motorola and Sony Ericsson from its division in the SEZ Sipcot which has been closed recently due to a decrease in business and orders. Foxconn employs around 3,000 people in the Nokia Tech Park Plant. Almost all employees are trainees with an ITI background or plus two years (i.e. 10 years matriculation and two additional years = 12 years of education).

Approximately 60% of the workforce is female and 40% is male as the labour processes involved, according to the supply chain manager, are “not complex…and women have also shown a better output in assembly line work.” The average age of the workforce is about 22 years.

Foxconn hires people as trainees for about 1 ½ to 2 years, following which the trainees may be confirmed as regular employees based on their performance. As a regular employee, they earn a salary as opposed to a trainee stipend. The regular work shift is 8 hours per day, 6 days per week. There are 3 shifts and no overtime work. The leave policies are according to government rules. All health and safety risks are addressed by the safety department and there is a local hospital nearby.

A doctor and nurse visit the factory on a daily basis. All employees have ESI (Employees State Insurance). Other facilities include a free Foxconn company bus shuttle and free canteen food.
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Source: Centre for Research on Multinational Corporations (SOMO); Management interviews.

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This article is part of a series.

India's mobile phone manufacturing industry 1/3

India's mobile phone manufacturing industry 2/3

India's mobile phone manufacturing industry 3/3

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