Looking Back At Foxconn's First Expansion into Czechia
Author’s note: If you want to watch this video first, it is below:
Author’s note: I was inspired to write this video because I had spent several months there in 2018 and 2019. I missed the country’s beautiful landscape, warmly dour people, amazing coypus, and general atmosphere.
The country has developed a thriving export industry for itself on the back of its early partnerships with Foxconn and other electronics companies. With the exception of Skoda, it is likely Czechia’s most important company. And it is for that reason that the country has managed to deliver exceptional economic growth throughout the years despite macroeconomic challenges elsewhere.
In 2019, its employment rate was 1.9%. Its poverty rate is second lowest of OECD members. And its GDP per capita when adjusted for purchasing power parity is solidly in line with countries like the UK, Italy, Spain and Poland.
Perhaps it is for this reason that the ties between Czechia and Taiwan are unusually strong. The former president Vaclav Havel has had a fondness for Taiwan and kept those ties despite backlash from certain sources.
In short, I miss my time in Czechia and hope to return someday.
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Taiwan's biggest company, Foxconn, is a multinational electronics assembly giant. I profiled the company in an earlier video. You can watch it first if you want to get the lowdown on this company before moving on this topic.
Foxconn draws the majority of its employees from China. So that is what I spent most of the video talking about. But in doing so, I could not spend more time on Foxconn's efforts abroad.
Foxconn has over 200 subsidiaries around the world. The company has factories in Hungary, Slovakia and Turkey. But its manufacturing headquarters for the Europe, Middle East, and Africa regions (EMEA) are located in Czechia. It is the company's most important European site and the hub for its electronics exports into the European Union.
In this video, I want to talk about how Foxconn came to the Czech Republic and how it adapted its militaristic style to the European way of working.
An Extremely Brief Introduction to the Czech Republic
Czechia, or the Czech Republic, is a landlocked country in central Europe with a population of about 10 million people. It is a large, hilly country about the same size of Ireland or the United Arab Emirates.
The lands of what is now the Czech Republic have been populated for centuries. After World War I, Czechoslovakia emerged from the breakup of Austria-Hungary. But the country was then occupied by the Germans in World War II, and then the Communist Party after that. The country left communism after the fall of the Soviet Union and then split into Czechia and Slovakia after the Velvet Revolution.
Today, Czechia is a democracy with a developed, export-oriented market economy. Foxconn is one of Czechia's largest companies alongside automobile maker Skoda Automobile and conglomerate Agrofert.
On a personal note, I visited Prague back in 2017. It’s such a beautiful country. I still have fond memories of the city and countryside. I highly recommend that you watch an older video in this channel about the Czech coypus.
It is without a doubt the best video I ever made and needs more views.
Foxconn in Czechia
The company made its first entrance in 2000. They began by purchasing factory and land in the city of Pardubice, a city of 92,000 located about 100km outside of Prague. They paid about 2.9 million euros for the land, probably a bit under market value but the government preferred it for the potential to develop the local economy.
The assets used to belong to a bankrupt socialist electronics company called HTT Tesla (unrelated to the electric car maker). HTT Tesla has roots going back to 1919 and used to make telephone switchboards and radio receivers. It failed to survive privatization and the subsequent bankruptcy had caused the unemployment rate in its home city to skyrocket.
Foxconn started this factory in order to service its Western European clients with Hewlett-Packard, Sony, and Compaq as keystone customers. A work force of 5-6,000 workers assembled desktops, laptops, and printers there.
Within a single year, the Czech plant was cranking out 10,000 PC's a day. Foxconn Czechia became one of the country's top ten largest companies in just three years. In terms of sales, it is probably the country's second biggest exporter after Skoda.
7 years later in 2007, Foxconn outgrew its Pardubice site and built another factory in Kutna Hora in central Bohemia. This new, more modern plant specializes in the production of servers, a very lucrative space. These two factories are the core of Foxconn's presence in Czechia and provide assembly, logistics and administrative support for all markets in the EMEA region.
State support is a consistent theme when it comes to anything related to Foxconn labor. The company routinely leverages whatever it can get from governments. Not criticizing it. Just pointing out that this is the nature of the business. The industry is famously cutthroat.
Foxconn's incentives were the first made by the new Social Democratic government in the electronics industry since 1989. Foxconn chose the Czech Republic because placing its factories there would allow clients to avoid the EU's high tariff barriers and to be able to say that its products are "Made in the EU" rather than "Made in China".
The government was very much involved throughout the whole factory setup process. A division of the country's Ministry of Industry and Trade, CzechInvest, assisted Foxconn top management in selecting Pardubice for its first European factory.
When the company set roots in Kutna Hora, the city council facilitated the transaction. A series of tax incentives including a 10-year tax grant helped seal the deal.
Furthermore, the city council helped mediate the company's relations with the populace as a whole. As I will mention later, this includes issues relating to labor unrest.
Adjusting to the Culture
As is the situation with any company setting up shop in a new environment, both the Czechs and Foxconn CZ had to make plenty of adjustments to get comfortable with each other.
When Foxconn first came to Pardubice, the townspeople were excited about the company's employment potential. But expectations had been too high. The low pay - 8,000-10,000 Czech crowns at the start - elicited some criticism but not as much as the new work demands.
Foxconn has a militaristic and regimented culture. The work is unpredictable and can ramp up or down with little warning. They can work eight or 12 hour shifts, but there is a max cap of 48 hours with overtime. The night shifts are known for being relatively disruptive for those with families.
The actual tasks to be done at the line can be learned pretty quickly, but it can get repetitive. Since the assembly workers need to keep a fast pace (about 40 seconds for each task), it can get physically exhausting. Thus, most of these line workers are relatively young, under 50.
Just a few weeks after the plant first opened, the Czech daily newspaper ran a story titled "Taiwanese Shock Czech Workers". It ran interviews with workers, those who formerly worked with Tesla and transitioned to Foxconn, with quotes like:
No matter who leaves the assembly line, to go to the toilet or whatever, it has to be reported to the director. When they come back, they can't go straight back to their place, but instead have to wait until the next worker requests a bathroom break, so that they can take their place on the assembly line. If you're caught waiting to get back to work, your salary goes down
People criticized Foxconn for not hiring enough workers and causing too many people to do too much overtime. It was worried that working conditions would become too much like those in China.
It took some time for the company to change its ways. They replaced their Chinese managers with ones from Europe. And Czech managers were sent to China so that they can learn how they could adapt the work culture to suit European tastes. Over time, the partnership calmed down.
A worker who worked at both HTT Tesla and Foxconn said:
With the new Foxconn management, things had to get done and had to get done immediately … When Foxconn started they expected to create in Pardubice something like in Shenzhen. Loyalty is important there. But here, things do not work that way and people do not function like that. So, the Chinese were wrong.
HTT Tesla had a trade union and a collective bargaining agreement from back in the days of socialism and came along with Foxconn's purchase in 2000. Having cut its teeth in China where trade unions are basically extensions of management, negotiating with a European trade union was new.
Czechia's trade unions are also weak though not to the same extent as in China. Union membership has declined since the fall of the Soviet Union, and labor legislation has been largely de-regulated as part of the country's integration into the European Union.
Foxconn at first refused to negotiate with the trade union, and tried to replace it with its own human resources department. But bad press and mediation from the government forced the company to the negotiating table. Soon thereafter an agreement was made. One female worker said about the incident:
Both sides had to temper their demands but I admit that the Taiwanese taught us a lesson. We met about halfway through.
With that being said, labor relations in some places remain lacking. At best, the union has had minimal effect on the company's way of working. They did manage to negotiate wage increases and hour caps for their workers - but not much more.
When workers in the Apple division tried to strike for better conditions and wages, Foxconn shut it down and shifted production elsewhere. As one former worker told it:
Foxconn closed the division within half a year and 330 people were dismissed … Mass dismissal should be announced at the Labour Office, but they did it in clever way because, according to the law, mass dismissal is when a company dismisses 30 or more people. What Foxconn did is they dismissed 29 workers every month … Each month, regularly, they fired 29 people
Another issue has to do with the migrant workers. Foxconn CZ directly employs about half of its workers - the Czech "core" so to call it - and sources the rest from job placement agencies. These are often economic migrants from countries like Vietnam, Mongolia, Bulgaria, Slovakia, Romania and Poland.
These agency workers make less than the full-timers and often enjoy less flexibility in work hours. They often cannot afford to get fired from said job, making them more accepting of changes and work demands from management. But sadly, they are also first in line to be let go anyway when the economy goes south.
One example of this tiered system can be found with housing. Foxconn in China is famous for its big dorms. It allows the company to completely control the environment in which its workers do work - preventing behaviors that they deem to be unproductive.
In 2001, a year after establishment, Foxconn tried to implement a collective dorm regime for its Czech workers but local resistance caused them to change their mind. Now, local Czech employees can commute to the factory from their homes. But at the same time, the migrant workers stay in similar dormitories provided for them by the job placement agencies that brought them into the country.
Czech trade unions try to do their best to protect these migrant workers, but the reality is that the trade union ultimately prioritizes its Czech core. As of recently, the union counts a membership of 250-300 workers across both factories.
Foxconn has been in the Czech Republic for over 20 years now and it seems like they are going to be staying for good. But the company needed to make vast adjustments to its own culture and way of work in order to adjust to European work styles.
It had to deal with managing a vast, multi-cultural work force while at the same time preserving the just-in-time advantages of its business strategy. Foxconn is favored by its customers because it can put together something with immense speed. But they can also ramp down as needed whenever customers want, requiring them to fire workers to save labor costs.
Foxconn and its customers deal with this because they want the political and economic advantages of making stuff "in Europe". The Czech Republic is not as labor-friendly or developed as other countries in Western Europe, but it is still considered to be part of the European Union. The Czech government takes advantage of this by having Foxconn provide jobs for a large portion of its population. But many of those jobs go to irregular workers from outside of Europe. Which makes me wonder.
Well anyway. As Foxconn expands far beyond China due to rising labor costs and shifting supply chains, it is going to have to strike similar balances in India, Brazil, Malaysia, and more. The company can do what it can to accommodate. Customers can do many audits. But the reality is that hard work over long hours is the human cost of having those beautiful but affordable tech gadgets that so many care for. Someone in the end has to do it.