x Abu Dhabi, UAEMonday 24 July 2017

Apple values its customers, so why not its workshops?

Those shiny Apple gadgets fetch a high price at the hypermarket, but they come with a hidden cost: unfair labour practices that are easier to lament than to fix.

The shiny, marvellous iPads and iPhones we snap up so happily in gleaming shopping malls have arrived at the end of a supply chain that begins in very different conditions.

Consumer prices are reasonable and profits are high because of efficient manufacturing in China and other Asia Pacific countries. Unfortunately, "efficient manufacturing" seems to involve low wages, excessively long hours and unsafe working conditions in Asian workshops.

These labour problems are difficult to remedy because the corporate response - of auditing factories for compliance with labour laws and voluntary codes of conduct - does not address the root of the problem.

Companies such as Apple (I will focus on Apple but this phenomenon is not unique to one company or industry) exercise tremendous bargaining power over manufacturers. They can create competition among suppliers, and can thereby dictate production schedules - which often require excessive overtime - and so on.

Apple would react instantly to a decline in product quality. Why is it so difficult for the company to use its bargaining leverage to insist that local manufacturers improve wages and working conditions? The answer lies in cost control.

When it comes to customers, Apple applies the notion of value. That is, it sets prices on the basis of customers' perceived satisfaction. But when it comes to suppliers' labour, Apple uses its dominant market position to pay the lowest possible price and has little incentive to push suppliers to adhere to the company's self-professed labour standards.

Apple's business model is no different than those of its competitors. Stories about low wages and bad conditions for workers, many female and some as young as 15, have been well-known in various industries for over 15 years.

Manufacturers and multinationals have joined in a ritual recurring dance of complaints, audits, promises to reform and superficial follow-up - until media attention subsides. Real changes have come only when certain Chinese cities and provinces raised minimum wages and imposed higher safety standards. Low-wage industries have responded by moving to the country's interior and refusing factory access to pro-worker groups.

Apple's principal supplier is Foxconn, a Fortune 500 company and the single largest exporter of products from China. Foxconn, owned by Taiwan-based Hon Hai Precision Industry Co Ltd, also produces for Dell, HP, Sony, Intel, and Microsoft.

The company puts great emphasis on secrecy and security. This suits companies anxious to protect intellectual property, but also protects bad labour practices.

Britain's Mail on Sunday gave the West its first look at Foxconn in June 2006. Other media followed; now we know of employee suicides, factory explosions and reports of bribery, falsified records, underage workers, harmful chemicals and more. This follows the pattern set previously in other industries.

How then can firms like Apple be influenced to take stronger action?

Big companies normally face five sources of pressure: customers, competitors, shareholders, civil society organisations and regulatory oversight. But these have little traction with Apple. The company enjoys enviable customer loyalty, and does not fear competitors because they follow similar practices.

Institutional investors, notably public-employee pension funds, used to be aggressive in pushing companies towards improving labour standards in low-wage countries but they, and NGOs, have been reluctant to push Apple. At the company's recent annual meeting, for example, investors won changes in board election procedures but did not mention China labour issues.

Nor does Apple have to worry about regulators; China's labour laws are seldom enforced.

Still, there is hope. Apple's late CEO Steve Jobs had his virtues but had only a distant understanding of Chinese conditions. However the new CEO, Tim Cook, was the architect of Apple's supply chain and claims a "ground-level" grasp of Chinese factory conditions. We can hope that he will remake Apple's corporate culture to attack the root causes of labour problems in China.

This would require Apple to lead, which would solidify its reputation not only as a leading corporate innovator but also in corporate social responsibility. Apple could once again astonish the world.

 

S Prakash Sethi is University Distinguished Professor at Baruch College of the City University of New York