Cover Story September 9, 2010, 5:00PM EST

The Man Who Makes Your iPhone

(page 8 of 8)

There's a joke among executives whose livelihoods depend on Foxconn: In 20 years, there will be only two companies. Everything will be made by Foxconn and sold by Wal-Mart (WMT).

Gou finds the punch line flattering, and unrealistic. "This is just a joke. I'm not saying I am so great. I just work hard and work smart." For more than a decade, Gou has exhorted his executives to achieve 30 percent annual growth, but now that the company has grown so immense, he has dialed that target back for 2011 and beyond to 15 percent. Still, he's not about to ease up—on himself or anyone else. "I never think I am successful," he says. "If I am successful, then I should be retired. If I am not retired, then that means I should still be working hard, keeping the company running."

Foxconn's next evolutionary wave has already begun. It established itself by building city-size factory campuses. Now, Gou wants to pass the burden of employee services on to local Chinese governments. "We came in the early '90s to Shenzhen and built factories and provided dormitories and cafeterias and everything, even laundries." says Gou. "We are not just a factory, we take social responsibility." Now, "I think we need to change the way things are. Businesses should be focused on business and social responsibility should be government responsibility."

Authorities in Chengdu, Sichuan, have already agreed to a deal in which Gou will spend $3.5 billion over five years to build factories for component manufacturing and assembly, while the government will provide low-cost housing to his workers. "We don't want to still be running cafeterias," says Gou.

The move inland will enable Foxconn to pay its workers less and might help prevent suicides, too. If workers are closer to home, reason Foxconn executives, they're more likely to have someone to turn to when problems arise. So Foxconn is building a facility in the city of Zhengzhou, the capital of Henan province, which has a population of more than 100 million. Migrant workers from Henan account for about a fifth of Foxconn's workforce. "We want to go to the source of abundant workers and where there is a support group of family and friends," says Woo.

As Western companies outsource more of their design work, Gou faces stiff competition from specialist notebook makers Compal and Quanta as well as electronics maker Flextronics, which have superior research teams. "Design capability is Hon Hai's weakness," says Wang, the Taipei-based analyst at Gartner. "But they are very aggressive about poaching engineers, and they have very deep pockets."

While Foxconn still exports most of what it produces in China, global brands are looking to sell to increasingly affluent Chinese consumers. That's why Gou hired Woo to help develop the so-called channel business, which will take Foxconn into retail. Woo, who ran the consumer side of Apple in Taiwan in the 1990s, says he plans to have 10,000 retail outlets in China by 2014, many operated by former Foxconn factory employees. In most economies, an individual's journey from the low wages and long hours of the factory floor to the relative comfort of white-collar work can take generations. Thanks in part to Gou, Chinese laborers may make it over the course of a few years.

Gou has plans to capitalize on the changes he has wrought. Perhaps most intriguing is his plan to move additional production to the U.S. The company currently employs about 1,000 workers in a Houston plant that makes specialized high-end servers for corporate clients the company declined to disclose, and Gou envisions a fully automated plant to produce components within five years. "If I can automate in the U.S.A. and ship to China, cost-wise it can still be competitive," he says. "But I worry America has too many lawyers. I don't want to spend time having people sue me every day."

Balfour is Asia correspondent for Bloomberg Businessweek in Hong Kong. Culpan is a reporter for Bloomberg News .

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