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World’s Biggest Outsourcer Investigated for Fraud

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Shenzhen One Of The Fastest Growing Cities In The World
Daniel Berehulak/Getty Images News/Getty Images

Everyone knows that China is the world’s most popular destination for manufacturing outsourcing. A Chinese company, Foxconn, is the world’s largest outsourcing firm, employing over 1.2 million workers (and growing). Like many other outsourcers, Foxconn in turn makes use of it's own stable of outsourcers to handle specific functions to other vendors. Lately, there have been questions about how Foxconn chooses it’s outsourcing partners. One way to become an approved vendor for Foxconn may be to bribe a manager.

It’s still early days on this issue, but the initial probe seems to be about rogue Foxconn mangers asking for bribes, rather than a policy of bribery by Foxconn executives or the requests of their clients. However, if Foxconn’s central management has not been responsible for systemic bribery, it has been responsible for systemic bad judgment.  Foxconn has been notorious for taking shortcuts that individual managers couldn’t have accomplished without the backing of top firm officers, and their connections within the government. For example, when Foxonn fell behind in the production of iPhones, it had schools emptied and the students put to work without pay. That doesn’t sound like the work of rogue managers. However, it does sound like the work of a corporate/government alliance.  

Now, the Chinese government has said that it is focused on finding and eliminating corruption, from high officials (or “Tigers”) to small-time  operators ( or “Flies”). The reasons for the anti-corruption drive in China may be to make a more honest, open China. Alternatively, it may just be a way of redistributing money and power in China as new players take over positions of power.  Whatever the reason, eliminating corruption has the potential to be a game changer in China. Corruption was once the only way to get things done in a communist country that wanted a fast-moving capitalist economy.    

Every country on earth today, has gone through a period of government and business corruption, eventually moving towards greater transparency and less corruption. This move doesn’t come from people becoming nicer. It comes from the uncertainties and risks of a closed, corrupt business model. While China’s old mode was undoubtedly corrupt, it did produce over a million Chinese Millionaires. That’s proof that while it may have been unfair, the old, corrupt, system that YOU used when you outsourced to China did work (at least if you were one of the millionaires).

If the “New China” does have the will to eliminate corruption, will they be able to replace the “grease” of corruption? Or will they create a fair and transparent system that loses its competitive edge against other outsourcing locations? Transparent is the way to go for a modern economy, here’s hoping that China finds the right way to encourage business and doesn’t just start a messy process of punishing political losers.

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