Billionaires You’Ve Never Heard of #9: Terry Gou, the Man With 1.2 Million Employees

Terry Gou Foxconn CEO
Terry Gou, Foxconn CEO

Terry Gou (Guo Taiming) is a Taiwanese businessman with a fortune of $6.5 billion as these lines are written.

He is the founder and CEO of Foxconn (subsidy of Hon Hai Precision), the largest electronics manufacturer in the world.

To tell you how big Foxconn is, it manufactures 40% of all electronics sold worldwide. These include:

  • iPads
  • iPhones
  • Kindles
  • All Nintendo consoles
  • Nokia phones
  • Sony devices (including Playstations)
  • Xiaomi devices
  • Xbox
  • Electronic chips
  • Cisco modems
  • Dell and HP computers
  • Google hardware
  • Motorola devices
  • Microsoft hardware
  • Huawei devices
  • Toshiba and Sony devices

Foxconn employs around 1.29 million people in 16 countries (mainly in China) and is the fourth largest private employer in the world.

Starting from nothing, Terry Gou built and developed what was originally a 10-people factory into the largest private employer in China.

This is how he did it.


History

Gou was born off Chinese parents who fled to Taiwan during the Maoist revolution.

After high school, he went to work in a rubber and medicine plant to finance his studies at the Maritime Technical College.

He was discharged from the military in 1973 after his service and went to work in an overseas shipping business.

Working as a clerk, he saw how much Taiwan exported to the rest of the world. He wanted to be involved.

One year later, his mum gave him NT$200k (USD$7.5k, roughly $40k in today’s money) for his wedding.

He used half of it to marry his wife, and the other half to buy plastic molding machines he used to make channel-changing knobs.

Hon Hai Plastics was born.

“In the beginning, I was a poor boy who didn’t know anything. I learned how to make plastic sets with workers, and how to manage the factory. I experienced ups and downs, and grew step by step.”

A year later, the company had used all of its capital, and shareholders (Hon Hai was a joint venture Gou had established with his friends) did no longer want to invest any more money in it.

So Terry borrowed NT$700k from his father-in-law, bought the whole company, and changed its name to Hon Hai Industrial.

The company became profitable shortly after that.

In 1980, Gou got his first big success when he won a contract to produce connectors between the Atari’s console and the joystick.

He doubled down in cable R&D and in 1981, Hon Hai developed a special connector for computers, which greatly helped the manufacturing.

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In 1982, the company changed yet again its name to Hon Hai Precision. It had considerably developed and acquired a capital of NT$16 million ($1.6 million in today’s money).

Confident in his manufacturing capabilities, Terry Gou embarked on an 11-month journey through 32 US States to find customers.

He won a few contracts (among one for a supplier of Intel) and went back to Taiwan.

In 1985, he established the US branch of Hon Hai and transformed the structure of the company. Hon Hai became a holding, and Foxconn carried the activities (Gou owns 12% of Hon Hai which owns 20% of Foxconn, which means he owns 3.6% of Foxconn. 60% of Foxconn investors are pension funds.)

In 1988, Taiwan’s wages began to rise.

While most Taiwanese factories were relocating to Vietnam, the Philippines, and Thailand, Gou decided to move to China.

China was an odd choice.

Nobody wanted to do business in the communist country due to the absence of infrastructure and the communist government.

On the upside, China had an endless stream of cheap labor.

So Gou crossed the sea and established his first factory in Shenzhen where he produced computer peripheral connectors.

In 1991, Gou took Hon Hai public in Taiwan.

In 1996, he understood that China’s upcoming economic hegemony was inevitable. So, he doubled down.

That same year, he offered Compaq to make computer chassis at a much lower price than they would pay if they made them themselves.

Not only Foxconn’s chassis were cheaper, but they were much easier to assemble for Compaq.

Low prices and high quality attracted other customers, and Foxconn started manufacturing for Intel, IBM, and Apple.

In 1998, Terry Gou signed a contract with Dell. The Dell execs were tough and didn’t want the assembly to be made in China, but in the US.

So Terry obliged. He bought a factory in Kansas and furnished it as fast as he could.

In 2001, Gou won another contract from Intel to manufacture their motherboards at the expense of Asus (also a Taiwanese company).

That year, Foxconn became the largest company in Taiwan, ahead of TSMC.

In 2007, Foxconn built yet another plant in Southern China, for $500 million, and announced an investment plan in Vietnam which never materialized, officially due to supply chain issues.

In 2008, Terry Gou announced that he retired…before coming back 5 months later to “support employees during the economic crisis”.

In 2011, Foxconn announced they planned to open several factories in Brazil. The idea was to invest $12 billion and hire up to 100 000 people to manufacture and sell Apple products in the country.

It never happened.

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The iPhones produced in Brazil cost $1000 (twice as much as in the US), and the factory never employed more than 2500 people. The company stopped all manufacturing activities in 2017.

While there is no official reason as to why Foxconn gave up on Brazil, sources have reported several causes.

Firstly, Gou demanded that at least 30% of the $12 billion investment he promised be met by the government and other private investors.

In the midst of political and economic turmoil, the Brazilian government never found the sum.

Furthermore, Foxconn calculated that from a business perspective, producing in Brazil didn’t make much sense.

Wages, interest rates, and tariffs were too high. The currency was unreasonably strong, governments weren’t stable, unions weren’t flexible, the iPhone and iPad markets were too small, and finally, labor productivity was low.

Gou expressed the latter in the Wall Street Journal, stating that “Brazilian workers’ wages are very high. But Brazilians, as soon as they hear ‘soccer,’ they stop working. And there’s all the dancing. It’s crazy“.

Brazil was far from Foxconn’s failure to meet its promises.

In 2012, Foxconn bought 10% of Sharp then entered into negotiation to buy more.

They ended up buying 66% of the company in 2016 for $3.8 billion instead of $6.2 billion, after it was reported that Sharp had not disclosed all of their liabilities.

In 2014, Foxconn bought Asia Pacific Telecom which enabled them to operate a 4G network in Taiwan and broaden their manufacturing activity.

In 2015, Foxconn announced its intention to produce phones in India. In 2019, the company said it was ready to mass-produce iPhones albeit in a fewer volume than initially intended.

Foxconn eventually shifted 10% of the iPhone production from China to India in 2021.

In 2016, Foxconn joined forces with Tencent and another Chinese car manufacturer to build a fully autonomous electric car by 2020 (they have yet to succeed).

In 2017, as Foxconn sought to develop a chipset production line, Terry Gou tried to buy Toshiba’s semi-conductor department. He failed (it was acquired by a US company) and only got the Toshiba computer production line instead.

In 2017, Foxconn announced its intention to build a $10 billion screen plant in Wisconsin and to hire 13 000 employees.

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In 2019, the company announced that the investments would not go over $600 million and that around 1 500 people would be employed.

In the end, they didn’t do anything. Foxconn hired enough people to get financial incentives, and gave them nothing to do.

Most of them have been fired by now. As for the buildings, they sit there, empty.

Officially, the cause of failure was the high labor cost in the US, but according to The Verge, it was slightly more complicated.

As we have seen, Foxconn made several grand announcements but rarely delivered on its promises – besides in China.

Terry Gou’s real intention may not have been to build electronics in the US, but to establish a production base in case Trump carried his tariffs policies on China where Foxconn made the bulk of the products sold in the US.

Furthermore, such a factory gave him leverage against Trump’s tariff intentions. Wisconsin had not been chosen by Foxconn out of nowhere. It was an important political battleground for republicans, and Gou thought he could use his project to pressure the Trump administration.

In 2018, Foxconn bought Belkin international, an electronics manufacturer headquartered in California.

Two years later, Foxconn’s revenue reached $193 billion. The company was elected biggest electronic manufacturer in the world for the 14th consecutive year.

In 2021, Foxconn announced its intention to begin manufacturing chips for electric vehicles, as well as electric vehicles themselves.

Their goal is to produce 250 000 vehicles per year under the brand “Foxtron”.

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They also bought a GM factory in the US.


Foxconn Infrastructures

Foxconn operates the bulk of its factories in China where they have 16 plants.

The biggest factory is in Shenzhen. It hosts between 230 000 and 450 000 workers.

The reason Foxconn is so big is that they make pretty much…everything themselves.

Let’s take a Nokia 1209 headset as an example.

The plastic casing, the speaker, the keypad, and the printed circuit-board connector are all made by Foxconn. The TFT LCD screen is made by a Gou-owned company. And overall, 70 percent of the phone’s components are made by Foxconn, or one of their companies.

While vertical integration is nothing new (and practiced by every billionaire I have written about so far), Gou took this principle one step further: he vertically integrated the life of his employees.

The factories are situated in walled campuses in which Foxconn built dormitories, swimming pools, schools, a bank, book stores, and other amenities for its workers and their children.

The biggest of them, in Shenzhen, has been dubbed “Foxconn city”. It hosts a chicken farm that produces eggs for the workers and inhabitant can even enjoy their very own Foxconn TV channel.

Gou was justified to do so for several reasons. First of all, there was nothing in Shenzhen when he first got there. Second, these amenities attracted migrant workers and kept them efficient.

All of this infrastructure also cost a lot of money, which meant that competitors couldn’t just come in that easily.

Now that China is much more developed, Foxconn has cut back on social services, and picked up the habit to demand that local governments provide cheap housing and welfare for the workers.

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As we can imagine, such a big company is not without controversy.

In 2010, Foxconn made the news when more than a dozen workers committed suicide.

This attracted international attention and Apple, which almost only manufactured with Foxconn at the time, demanded better work conditions.

Workers got a 30% raise and certain rules were relaxed.

The company further established a 24/7 suicide hotline for employees, installed nets around the dormitories to prevent defenestration, and organized celebrations to distract workers.

Yet, other revelations soon followed.

The company was accused in the media of practicing child labor (internships had been given to 14-year-olds), human rights abuse (security beating workers), and not paying any benefits to the victim of a work accident.

It’s only several years later that Foxconn understood they needed to change management practices.

They decided to shift their system and go to the workers, instead of having the workers come to them. To do so, they built factories in mainland China where most immigrants came from, so that employees could stay with their families.

But the harm was done and the company has since inherited a negative reputation from journalists typing their diatribes on Foxconn-made products.

The problem with the Western press is that they have a hard time seeing the bigger picture.

The truth is that Foxconn was far from being the worst employer in China.

They pay workers on time, and also pay them for overtime, which is a luxury. They provide them with several amenities, among which is health insurance.

Regarding the suicide issue, Foxconn still has a lower suicide rate per 1000 workers compared to many other companies, or countries.

In fact, their work environment is why Foxconn is so successful at attracting so many candidates. Most other firms, smaller, can’t provide as many guaranteed benefits and aren’t as honest or reliable when it comes to getting paid.

When Bloomberg visited the Shenzhen factory, it did so freely, and could talk to and interview workers without any supervision from anyone.

The situation was therefore far from being the “slavery camp” often reported in audience-hungry media companies.

While Foxconn tried to export its Chinese manufacturing model abroad, it never succeeded.

They failed in Brazil, they failed in Vietnam, they failed in the US, and they failed in Indonesia.

Nonetheless, they have built factories in the Czech Republic, Slovakia, Hungary, and Turkey.

The rest of their factories are located in Japan (Sharp factory), Malaysia, Mexico, South Korea, India, and the US.

On the management side, the company is known for its military rhythm, quality checkups, low prices, and respect of schedule.

Gou called his management model CMM (later upgraded to eCMMs) which stands for e-enabled components, modules, moves, and services.

The purpose of this model is to reduce costs to a minimum by taking care of as many manufacturing activities as possible when building the customer’s product.

Gou, like Jeff Bezos, is known to be an extremely cheap CEO. Factories don’t have elevators, toilets don’t have toilet paper, and the company doesn’t have any vehicle fleet.

Gou takes a salary of NT$1 per month (roughly $0.03) and pays executives bonuses out of his own pocket not to impact the company’s profitability.

When Foxconn receives an order from a customer, the price is calculated to barely break even.

This enables them to be extra competitive.

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Terry Gou and the Future of Foxconn

Foxconn was based on two converging trends. The first one was the development of computers and smartphones. The second one was the opening and development of China.

Terry Gou saw this boulevard of opportunity and rushed into it.

His tenacity, stubbornness, and hard work made Foxconn the giant it is today.

In a biography written by Taiwanese writer Zhang Dianwen entitled Tiger and Fox, Gou is reported to have said:

“If I decide to do it, I will breakthrough. If I fail to do it, I will die on the battlefield like Genghis Khan.

The biography was called as such since Terry was said to have “the power and cruelty of a tiger, and the cunning and cleverness of a fox.”

Terry Gou says he works 16 hours a day, and has never taken more than three consecutive days of holidays since founding the company.

In 1997, Apple offered Foxconn a manufacturing contract if it could deliver x units of Mac computers in a certain lapse of time.

Gou stayed all night to watch over the production line and finished the work by himself three minutes before Apple’s deadline.

He won the contract, and many at Apple said that Steve Jobs could not have achieved what he did without Foxconn (it’s true).

When he went to the US to find clients during his 11-month trip, Gou would show up uninvited to companies’ headquarters and wouldn’t leave until he had a deal.

He had to be escorted out of the premises by security more than once.

While several scandals about his private life have leaked in the press, he never fought back.

But when it came to negative articles about Foxconn, Gou pressed charges until the newspapers and journalists were condemned.

One of the lawsuits, for example, lasted 10 years.

Gou also sued a US-controlled Chinese battery maker when according to Foxconn, they hired 50 employees from Hon Hai and stole trade secrets.

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It’s easy to criticize Foxconn, but let’s not forget that the ultimate destination of their products was none other than the West.

None of the Western tech companies could have built the hardware they built had they not counted on the speed and professionalism of Foxconn.

Steve Jobs is revered as a genius, but he’s merely a tree hiding the forest. While he was the one with the ideas (except for the ones he stole), it was Terry Gou who executed and delivered.

In 2019, Gou finally announced his retirement from Foxconn – definitive, this time. He ceded his chairman seat to a close collaborator, and established a committee of nine people as “CEO”.

At this occasion, he declared:

The first 20 years of my career were to earn money for me and my family. The second 20 years were for my ideas. For the next 20 years, I no longer want to work for myself, but for others.

Foxconn will now continue its growth towards other tech activities it’s not yet involved in.

These concern chipsets, electric vehicles, artificial intelligence, and robotic.

In 2013, Foxconn announced it aimed at replacing a maximum of its workers with robots. While they admitted they had fired 60 000 people after doing so, it’s unclear how many workers have already been replaced.

As for Terry Gou, no one knows what he plans on doing next.

After an aborted bid at the presidential election in 2020, he instructed Foxconn to buy Western vaccines and delivered them to Taiwanese, along with TSMC.

Will he pursue the philanthropic route?

Time will tell.

In any way, he won his bet to build Foxconn into a mega-company that completely transformed the economy of the island.

And transformed the world at the same time.

For more billionaire stories, head to auresnotes.com.

Sources:

Wikipedia

Wikipedia

Wikipedia

21jingji

Marketscreener

Sohu

Reuters

Bloomberg

Forbes

Pantheon

Cleverism

Ebrary

The Verge

Tech.qq

Counterpointresearch

Zdnet

NY Times

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  • Post category:Billionaires Series
  • Post last modified:May 14, 2022