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Introduction

With
the launch of every new iPhone, nearly every conversation seems to shift in
that direction. Many of the versions may not be a serious update at all,
however, it will sell. Why? Well, because it is Apple. With massive demand,
however comes pressure to produce. Apple in the race to be competitive has
mostly outsourced its production. “Designed by Apple in California Assembled in
China” is printed on the back of every iPhone. US law dictates that products
manufactured in China must be labelled as such. Apple’s inclusion of the phrase
renders the statement uniquely illustrative of one of the planet’s starkest
economic divides – the cutting edge is conceived and designed in Silicon
Valley, but it is assembled by hand in China. The vast majority of plants
that produce the iPhone’s component parts and carry out the device’s final
assembly are based here, in the People’s Republic, where low labor costs and a
massive, highly skilled workforce have made the nation the ideal place to
manufacture iPhones. The company doing the lion’s share of the manufacturing is
the Taiwanese Hon Hai Precision Industry Co, Ltd, better known by its trade
name, Foxconn.

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The
iPhone is made in a number of factories in China, but as its popularity
increased, it was largely assembled at Foxconn’s 1.4 million sq. mile plant
outside Shenzhen, estimated to be home of nearly 450,000 workers at one point
of time.  Today, it may be smaller, but
it is still once of the largest such operations in the world. In 2010, the
media and world witnessed the epidemic caused by multiple deaths, as worker
after worker committed suicide by throwing themselves off the buildings in
tragic displays of desperation. There were at least 18 reported cases of
suicide attempts with 14 confirmed deaths. 20 more workers were talked down by
company officials. The corporate response spurred further unease: Foxconn CEO,
Terry Gou, had large nets installed outside many of the buildings to catch
falling bodies. The company hired counsellors and workers were made to sign
pledges stating they would not attempt to kill themselves.

As
one of Foxconn’s largest clients, Apple came under severe scrutiny when media
learnt that the company was aware of the workers’ conditions in Foxconn
factories. Apple has a strict supplier’s code of conduct which contain clauses
for Labor and Human Rights, Health and Safety, Environmental Impact and Ethics
Management commitment.  Apple in the past
had terminated contracts with suppliers who underpaid employees, continues to
do business with Foxconn.

This
advance in global value chains as the mode of production for an increasing
number of goods and services has had varied impact considerably on the
economies and societies of the world. While it has brought employment and
economic growth to many developing economies, particularly in Asia, it is also
associated with exploitative employment relations, environmental
irresponsibility and recurrent ethical dilemmas. What is really the option for
parent companies to make sure that their suppliers are actually on par with the
expected standards? Where does the line blur that separates the bottom line
with employee welfare? How responsible is one company over the actions of
others? All these are important dilemmas that a company needs to address as it
takes on the global value chain.

 

Apple Inc: The World’s largest
company

Apple
is one of the world’s largest companies. It became the world’s largest brand at
$247 billion in 2015 and became the first company in the world to reach a
Market capitalization of $700 billion, more than the combined worth of Google
and Microsoft. It has reported the highest quarterly profit and amassed high
profits. Much of this wealth was accumulated following Steve Jobs’ return in
1997. Each new Apple product is accompanied by rising crescendos of excitement
at their announcement and long queues outside every Apple store when launched,
indicating that brand loyalty has become a faith that embraces millions.

While
Apple was enjoying a meteoric rise as the world’s most iconic business, there
have been increasing instances where the tragic consequences of human rights,
environmental and ethical dilemmas in the Apple supply chain in China were
emerging. It seems the quality and brand image of Apple ultimately rests upon
the suffering of young workers in electronic sweatshops where human rights,
labor standards, environmental safety and business integrity are routinely
ignored. These abuses in its supply chain were first brought to Apple’s
attention in 2006 and since then the company has made continuous efforts to
eradicate problems and enforce higher standards in all of its suppliers.
However, there is much recent evidence to suggest that the successive
interventions of Apple to advance audit and management systems and improve
standards in suppliers’ factories are too often overwhelmed by the intensity of
the production regimes being enforced. There is evidence of bleak working
conditions throughout much of the electronics supply chain in Asia including at
factories manufacturing products for Dell, Hewlett–Packard, IBM, Lenovo,
Motorola, Nokia, Sony, Toshiba and others. However, as the present market
leader, and currently the richest and most successful consumer electronics
company in the world, Apple has a particular responsibility to ensure the
integrity and responsibility of its value chain.

It
has been said that Apple lowers its production costs through outsourcing, but
this is only possible by exploiting workers. Hence, Apple is the real reason
working conditions are deteriorating. But it is not that simple. Assembling
devices for Apple has always been a cyclical, low-margin business, albeit one
that was highly desirable when the Steve Jobs-led firm could do no wrong, and
its revolutionary products were sure-fire hits. In more recent times, the rest
of the world is catching up to Apple on tablets and Google’s Android platform
has surpassed the iPhone, there are dangerous new uncertainties for business
models with barely any room for error. This leads to the actual exploitation of
workers by the suppliers.

 

Worker Conditions at Foxconn

The
iPhone is a compact and complex machine that requires a large number of workers
working in expansive assembly lines. These people build, inspect test and
package every device, handling anywhere between 600-700 for meticulous work
like fastening chip boards to over 1700 for wiping special polish for the
display. In such sprawling assembly lines, delay or defects can have a ripple
effect, and workers are admonished for any little mistake. The management is
called bath aggressive and duplicitous; publicly condemning any mistakes, while
not keeping any promises they make to the employees. This high-pressure work
environment takes a severe toll on both the physical and mental health of the
employees.

Workers
say Foxconn promised free housing, but then forced them to pay very high bills
for electricity and water. The current dorms sleep eight to a room, which used
to be 12 to a room. The social insurance or bonuses are routinely paid late.
The workers are fined for missing work even due to illness and they have to pay
a penalty if they leave before their introductory period of three months.

Foxconn
has attractive advertising campaigns to recruit young immigrants from distant
provinces who have little hope of finding paying jobs in their hometowns. The
largest group of Foxconn workers’ is that of age group of 18-21 years though
there have been instances of child labor as well. These workers are rarely
allowed to go back as days off are rare and trips to family allowed only once
per year. The worker shifts regularly lasts for 11 to 13 hours, with people
sometimes even sleeping in the factories when new product is being launched. If
targets are not met, penalties such as cancellation of lunch breaks, unpaid
overtime etc. are common.

The
combination of management apathy in this high pressure working environment and
routine exploitation of the workers has created a systematic failure which has
given rise to a situation where depression and suicide has become normalized.
Workers have been quoted with statements like, “It wouldn’t be Foxconn without
people dying”, “Every year people kill themselves. They take it
as a normal thing.”, and “Here someone dies, one day later the whole
thing doesn’t exist, you forget about it.”

 

 

Apple and Foxconn’s Response

Apple
started a supplier responsibility program in 2006, when it established its
Supplier Code of Conduct. Since then the company publishes a supplier
responsibility report annually, in which it makes its audit findings public. When
violations of the Code of Conduct are encountered, Apple insists that the
perpetrating company addresses the violation within 90 days. Should a supplier
not meet Apple’s demands, the business relationship is terminated. In an attempt to ensure Foxconn and other EMS
companies were meeting the guidelines set out in the Supplier Code of Conduct,
Apple probed labor conditions by means of hiring the independent audit provider.

In
June 2010, Steve Jobs was interviewed for over 90 min at the eighth edition of
the annual D conference, a global technology summit. While giving his thoughts
on Google and the iPad, Jobs was also asked to give his thoughts on the Foxconn
suicides: ”I actually think that Apple does one of the best jobs of any
companies in our industry, and maybe in any industry, of understanding the
working conditions in our supply chain. We’re extraordinarily diligent and
extraordinarily transparent about it. We go into the suppliers, and into their
secondary and tertiary suppliers, places where nobody has ever gone before and
audited them. And we are pretty rigorous about it”. However, He went on to
comment on the suicides, which numbered thirteen at the time, by saying they
were ”…still below the national average in the U.S.”, adding that ”…this is
very troubling to us … so we send over our own people and some outside folks as
well, to look into the issue”

Terry
Gou, the CEO of Foxconn stated: ”The first one, second one, and third one, I
did not see this as a serious problem”. After the fifth suicide, Gou
”…decided to do something different”. After the ninth suicide occurred,
Foxconn ordered over three million square meters of mesh netting to be put up
around its buildings, 24-hour stand-by counselling teams were introduced, and
wages were increased. Foxconn pledged to implement further recommendations into
long-term plans for addressing employee well-being. Apple stated that it would
continue to work with Foxconn on these programs, and take key learnings to
other producers in its supply chain.

Apple
has addressed a range of other issues that it has encountered during factory
audits, such as discrimination, wages and working hours, dormitories and
dining, freedom of association, employee treatment, and The Governance of
Global Value Chains: Unresolved Human Rights, Environmental… 123 environmental
impacts. Apple performed follow-up audits and sets key performance indicators
for its suppliers, reports on progress and determines whether other core
violations occurred. From 2005 onwards, Apple has reported and taken action on
recruitment fee overcharges, underage labor, forging of records, and improper
disposal of hazardous waste. It is also engaged in the Electronics Industry
Citizenship Coalition (EICC), an alliance of electronics firms whose aim is to
improve working conditions and reduce environmental impact throughout the
supply chain of the electronics sector.

 

The Road Ahead

It
is clear that Apple is aware of the pitfalls of outsourcing manufacturing to
low-wage countries. In order to balance the assessment of Apple’s and Foxconn’s
responses, it is helpful to see what independent organizations have found after
Apple and its suppliers had promised to address wrongdoings. Organizations such
as the Centre for Research on Multinational Corporations (SOMO), China Labor
Watch, and Students and Scholars Against Corporate Misbehavior (SACOM) have focused on labor practices, while the
Chinese Institute of Public and Environmental Affairs (IPE) has studied
pollution through Apple’s supply chain and its impacts on workers and the
environment. The reports of these organizations need to be approached with the
same rigor as Apple’s supplier reports, yet the fact remains that the findings
in these reports are dramatically different to the information published by
Apple and Foxconn. This shows that conditions have not improved to the point
where critics have been silenced. While these figures could be regarded as a
testament of Apple to discover and disclose the truth, given the years that
these poor compliance rates have existed, what is concerning is that the improvements,
if any, have taken so long. This is a company that would not tolerate 0.01 %
non-compliance in the precision of engineering supplies and yet in employment
practices appears positively lax. Of course, these are largely production
plants in China owned and operated by Taiwanese and other corporations, but if
they are capable of producing such elegant, wonderful consumer electronics it
might be reasonable to expect them to manage to ensure their workforce have
shift patterns that are humane, that they can have regular leisure time, sleep
regularly and are not exposed regularly to hazards?

The following Table shows
some of the promises made by Apple and Foxconn and the results as found by an
independent study SACOM

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