The chaos of Foxconn’s centralization: the beginning of the "bribery door" case
The empire of Guo Taiming, chairman of Hon Hai Group (2317.TW, known as "Foxconn" in mainland China), is experiencing the torment of "bribery door".
When the successive incidents of jumping off buildings made Hon Hai Group a public focus, new troubles "patronized" Hon Hai. Recently, the news that Hon Hai Group broke the news that high-level officials were suspected of asking for bribes from suppliers was disclosed by the media. Regarding the media reports, Hon Hai Group claimed that most of them were not true, and promised to disclose them within one month.
However, according to the China Business News reporter’s exclusive knowledge from authoritative sources, the mainland police accidentally seized the criminal fact of Deng Zhixian, director-general and manager of SMT(Surface Mount Technology) Technical Committee of Hon Hai Group during the handling of the case, which also triggered a wave of anti-corruption in Hon Hai Group.
Why did this "bribery door" trigger? Why are there loopholes in Hon Hai’s seamless procurement management system? After nearly a month of continuous investigation, our reporter tried to peel away the layers of fog.
The suspect "shakes" out of the "bribery door"
In 2012, Deng Zhixian’s SMT involved a purchase amount of up to 10 billion yuan, and Deng Zhixian, who has been in charge of SMT for many years, has therefore become an important part of the "supply" of various suppliers.
"Deng Zhixian’s fall is very accidental." On January 24, 2013, the reporter learned exclusively from an authoritative insider: "He was reported by a person involved in other cases and was controlled by the mainland police."
Deng Zhixian, who is in his fifties, is the director-general and manager of SMT(Surface Mount Technology) Technical Committee in Hon Hai Group. According to the reporter’s understanding, in addition to Deng Zhixian’s arrest, several cadres of the Technical Committee were assisted in the investigation, and Liao Wancheng, a former senior vice president of SMT and vice chairman of the SMT Technical Committee, did not know where to go because he was closely related to the case.
It is reported that Hon Hai Group has more than 30 technical committees, which are responsible for procurement and project audit in a certain professional field. In addition to SMT technical committee, there are IE (production engineering) technical committee, automation technical committee and institutional product technical committee. The personnel of these technical committees have certain decision-making power in procurement.
A person familiar with the operation of Hon Hai Group’s Technical Committee revealed that the role of the Technical Committee in procurement is similar to the "expert committees" of many domestic bidding centers. When it comes to the production technology and production technology in the professional field, it is necessary for the Technical Committee to review the rationality of the product production technology.
It is this system design that invisibly gives Deng Zhixian and other key people of the Technical Committee the core purchasing power. It is reported that in 2012, the purchase amount of SMT where Deng Zhixian was located was as high as 10 billion yuan, and Deng Zhixian, who has been in charge of SMT for many years, has thus become an important link for suppliers from all walks of life to "supply".
However, walking too much at night is easy to hit ghosts. Authoritative sources told reporters exclusively that because the people involved in other cases disclosed the details of Deng Zhixian and others’ demands for bribes in order to make meritorious deeds. In September 2012, the Shenzhen procuratorate arrested Deng Zhixian. It is reported that after learning the case, Guo Taiming, chairman of Hon Hai Group, made it clear that he hoped that the mainland police could dig deep and completely eradicate the "moths" in the procurement process of Hon Hai Group.
At the same time, Shenzhen government officials also attached great importance to this case. An ordinary bribery case is particularly sensitive because of Hon Hai’s important position in Shenzhen’s economy. It is reported that all parties are fully investigating the involvement of other higher-level personnel behind Deng Zhixian. As the case is still in the detection stage, the reporter’s interview was also declined by the relevant departments in Shenzhen.
Earlier, Taiwan Province media reported that Li Jinming, chief executive and commercial officer of Hon Hai Group, received a report letter in September 2012, accusing SMT executives of soliciting bribes from suppliers for a long time. So Guo Taiming asked to report the case to the mainland public security department, and asked Li Jinming to form a project team to conduct an internal investigation. The local criminal bureau in Taiwan Province has received a report from Hon Hai, and has consulted the mainland public security bureau to assist in the investigation, and more than 10 Hon Hai executives have been assisted in the investigation.
Hon Hai Group issued a statement on many cases involving senior officials of Hon Hai disclosed by Taiwan Province and other media before, saying that most of them were not in line with the facts. However, Hon Hai also said that Chairman Guo Taiming had instructed that the fraudsters and their reasons would be strictly investigated, and the related incidents would not be allowed to happen again.
There are loopholes in the "perfect" procurement system
"In addition to colluding with the business group bosses, technical committees like SMT also have the dominant position in equipment procurement."
On the surface, Hon Hai’s procurement system is standard.
A former Hon Hai employee who has been engaged in procurement told reporters that its procurement system is mainly divided into BOM (Bill of Materials) procurement and non-BOM procurement. Among them, the BOM part is the accessories and raw materials needed to produce products, and most of them are consumables; Non-BOM procurement refers to the production materials needed in the production process, including equipment, accessories and so on.
The standardization of Hon Hai’s procurement system is reflected in the strict screening of suppliers. Before purchasing all products (BOM and non-BOM), the supplier must have complete legal person qualification, and the product safety must meet various certification requirements. During the screening process, the supervisors of the four departments, namely, production management, quality control, industrial management, and financial management, will be arranged to inspect the factory. However, if the procurement involves non-BOM equipment or products with specific production process on BOM, the Technical Committee will conduct the final review. Only after passing the examination can the supplier be issued a code, which means that it has obtained the procurement qualification.
After screening the suppliers, the products must be tested. After the sample is qualified, the quotation will be started. Hon Hai is good at price comparison, so buyers will often ask for COST DOWN, which will bring greater profit pressure to suppliers.
After a supplier signs a supply contract with Hon Hai, he can get the supplier code, but this does not mean that he can be a Hon Hai supplier safely. The quarterly evaluation will directly affect the qualification of its suppliers. Every evaluation is still the responsibility of the people on the four pipelines: production management, quality management, industrial management and management.
The four pipelines are a unique management method creatively established by Hon Hai. These four management departments are independent but closely coordinated to monitor and manage the daily production and operation of the enterprise. This management system seems to be "perfect", and it seems difficult for suppliers to handle four responsible persons at the same time. But it’s not. Usually, the heads of the four major pipelines are subordinate to the vertical departments under the business groups (there are many business groups under Hon Hai Group, which are in charge of different sectors). "If the boss of the business group says hello, the situation will be different."
"In addition to colluding with the business group bosses, technical committees like SMT also have the leading role in equipment procurement. Although the people of the four major pipelines must check, the technical Committee is the last to sign. Moreover, if any one of the four major pipelines does not sign, the Technical Committee can put pressure on them to push the procurement through. " An employee who has worked in Hon Hai for many years in production management told reporters.
Jia Su (a pseudonym), a senior official of a Shenzhen enterprise who has cooperated with Hon Hai for more than ten years, admitted to the reporter that Taiwan Province enterprises such as Hon Hai and Inventec are different from Taiwan Province family enterprises that entered the mainland in the early days. "In Taiwan Province family enterprises that entered the mainland in the early days, from the finance to the boss, they rarely choose bribery to get purchase orders, but now Taiwanese cadres (Taiwan Province cadres) who have great power in Hon Hai enterprises can become a shortcut for suppliers to get orders. In Hon Hai, as long as you dare to spend money on Taiwan, many things are easy to handle. "
Under the circumstances that power is too centralized and cadres lack self-discipline, Hon Hai’s strict procurement system encounters great challenges.
Anti-corruption shock wave
Hon Hai’s supplier system is experiencing not only shocks, but also internal adjustments.
After Deng Zhixian’s bribery incident was exposed, some enterprises that have cooperative relations with Hon Hai are also suffering from the impact.
It is reported that Hon Hai has terminated its cooperation with the supplier Shenzhen Telu. Shenzhen Delu mainly produces electronic product testing equipment, etc. However, at present, German law does not recognize bribery. However, after many investigations by reporters of China Business News, it can be confirmed that the SMT supporting enterprise located in Dongguan for Hon Hai has been involved. It is reported that with the further investigation of Deng Zhixian’s case, Hon Hai’s supply chain will be adjusted accordingly.
Hon Hai’s supplier system is experiencing not only shocks, but also internal adjustments. Recently, Hon Hai employees disclosed to reporters that the IGDBG (New Green Number) business group has been dissolved in Hon Hai’s bribery storm, and the personnel diversion has basically ended.
"I have already agreed to leave my job. At present, many people have left, and I am the only one left in our department." An employee of the original IGDBG (New Green Number) business group told the reporter, "It is said that the reason for the dissolution is the commercial crime of the relevant person in charge of IGDBG. The business group has suffered losses for two consecutive years, but he and several of his best friends have eaten kickbacks. Eating too much made Guo angry. "
According to insiders, after the notice of dissolving the business group was issued, the employees of IGDBG’s original production line responsible for TV and LED were all diverted to CCPBG (consumer electronics products) business group, and the employees of tablet computer production line were diverted to FIH (Foxconn International). Some employees said that the treatment given by CCPBG was unacceptable. In just over two months, thousands of people left their jobs in the diversion.
IGDBG new green number business group was established in early 2012, which was reorganized and renamed from TMSBG business group (Technology Merging Services Business Group) established in June 2009. Since 2009, a production and research base has been established in Hengyang, Hunan. Our main business is to develop and manufacture e-books, tablet computers, electronic photo frames, LED energy-saving lamps, smart air filters and other products, and we are a global supplier of E-Ink e-books and digital photo frames. IGDBG was originally an important business group of Foxconn’s product innovation and transformation, but since its establishment, it has suffered losses continuously in the past two years. Guo Taiming has repeatedly warned that he hopes to turn losses into profits.
The new green number business group, which was established less than a year ago, was abolished. For Hon Hai, is it to adjust the department by fighting corruption, or are there other considerations? In this regard, as of press time, Hon Hai has not yet responded.
Hon Hai said a few days ago that it has revised the procurement procedures and strictly controlled the supervisor’s ethics, and will not allow similar incidents to happen again. However, in the supply chain management department, there is no institutional revision document released on a large scale. "Foxconn’s regulatory system has been standardized, but corruption cases still need to be reflected from the institutional level." A Foxconn management cadre said.