Question

In 2015, Apple released its ninth annual supplier responsibility report. In it, the company said that in the past year it had carried out 633 audits of factories in its global supply chain, covering 1.6 million workers in 19 countries—including the massive facilities operated by Foxconn in China, where most of its iPads and iPhones were made. Apple’s own auditors had conducted these inspections, supported by local third-party experts.

The supply chain audits had turned up some persistent problems. Eight percent of workweeks were not compliant with the company’s 60-hour maximum standard, and auditors had also found instances of underage workers and excessive fees paid by foreign contract workers. As a result of the audits, workers were retroactively paid for unpaid overtime and refunded excessive fees. Where underage workers were found, the supplier was required to pay for the young person’s safe return home, fund his or her continuing education, and continue to pay their wages—a stiff penalty that deterred the practice. In addition, Apple had trained more than 2 million workers on their rights under the code of conduct and local laws.

“We care deeply about every worker in Apple’s global supply chain,” said the company’s senior vice president of operations. But, he acknowledged, “gaps still exist, and there is more work to do.”

In 2015, Apple was the largest publicly traded company in the world, with a market capitalization in excess of $700 billion. The company directly employed almost 100,000 people and operated more than 450 stores in 16 countries, as well as its iTunes online music store. Fortune magazine had named Apple the most admired company in the world for eight years in a row.

Although Apple seemed to be making progress, its path to supplier responsibility had been lengthy and difficult. Since the 1990s, Apple had outsourced almost all of its manufacturing, mostly to China. The company’s biggest supplier was the Taiwanese firm Foxconn, the largest contract manufacturer of consumer electronics in the world. Foxconn’s facility in Shenzhen, China, operated like a good-sized city, with its own dormitories, cafeterias, hospital, swimming pool, and stores. In its complex of factories, 300,000 workers—many of them young women and men from rural areas—churned out electronics for Sony, Dell, IBM, and other major brands, as well as Apple.

In 2006, a British newspaper ran a story alleging mistreatment of workers at the Shenzhen facility. Apple investigated and found some violations of its supplier code of conduct, which it had introduced in 2005. In 2010, other developments focused a fresh spotlight on harsh conditions in Foxconn’s factories. In a few short months, nine workers committed suicide by throwing themselves from the upper floors of company dormitories. (Foxconn responded by putting up nets to catch jumpers, raising wages, and opening a counseling center.) In 2011, two separate explosions at factories where iPads were being made (one was Foxconn’s facility in Chengdu), apparently caused by a build-up of combustible aluminum dust, injured 77 and killed four. At Wintek, another Chinese supplier, 137 workers were sickened after using a toxic chemical called n-hexane to clean iPhone screens.

In January 2012, the public radio show This American Life broadcast a feature by monologist Mike Daisey about his interviews with workers leaving their shifts at Foxconn’s Shenzhen facility, which related in dramatic fashion their disturbing stories. Although Daisey’s piece was later criticized for not being entirely factual, it prompted some listeners to launch a petition drive on www.change.org that quickly garnered more than a quarter million signatures calling on Apple to protect workers that made their iPhones.

Page 393Just one week later, Apple announced it had joined the Fair Labor Association (FLA), the first electronics company to do so. The FLA, founded in 1999, was a nonprofit alliance of companies, universities, and human rights activists committed to ending sweatshop conditions. At Apple’s request and with the company’s financial support, the FLA immediately undertook the most extensive audit ever conducted of conditions in China’s electronics supply chain. In its report, issued in March 2012, the FLA found a number of serious violations of Apple’s supplier code of conduct, including excessive overtime, pay that was too low to meet workers’ basic needs, and many workplace accidents and injuries.

Under intense public scrutiny and pressure from Apple, Foxconn made significant changes. According to one report, after the FLA issued its findings the company’s CEO Terry Gou rushed to Shenzhen, where he told his managers emphatically, “The world is watching! We are going to fix this, right here!” The supplier worked to reduce overtime, cutting hours first to 60 a week and then to 49. It also raised wages, by as much as 50 percent in some cases, to offset fewer overtime hours. It replaced workers’ stools with chairs with sturdy backs and put automatic shut-off devices on machinery to prevent injuries. (But, it also began introducing automation and moving some production away from the industrialized coast to less affluent, interior provinces.)

Whether its reforms had helped or hurt Foxconn remained an open question. In 2015, a Chinese NGO released data allegedly showing that Apple had begun shifting work from Foxconn to Pegatron, another supplier, in order to save money. Pegatron had an 8 percent cost advantage over Foxconn, mainly because it paid its workers less. “As two suppliers essentially compete over labor costs, to only demand that one side [Foxconn] improve labor conditions is no different than making it sacrifice market share,” said the NGO.

1. What were the interests and sources of power of Foxconn, Apple’s supplier?

2. What social, ethical, and environmental risks were present in Apple’s supply chain?

3. What were the advantages and disadvantages to Apple of using its own company-specific supplier code of conduct, rather than an industrywide code?

4. What are the advantages and disadvantages to Apple of relying on its own internal audits, as contrasted with using an independent auditor like the Fair Labor Association?

5. What more, if anything, could Apple do now to reduce supply chain risk and create shared value?

Answer 1

What were the interests and sources of power of Foxconn, Apple’s supplier?

Foxconn sources of power include the Chinese government who is concerned about the FDI and not the working conditions of workers in its country. Another source of power is surplus labor in China. Moreover, If Foxconn increased wages it would incur a higher manufacturing cost which Apple may not be willing to pay. Therefore, their interest was to satisfy the primary stakeholders. And not the workers in their factories.

What social, ethical, and environmental risks were present in Apple’s supply chain?

Life-threatening chemical toxins usage in the factories, Long Working hours and hiring underage workers are some of the social, ethical and environmental risks that are present in Apple supply chain.

What were the advantages and disadvantages to Apple of using its own company-specific supplier code of conduct, rather than an industrywide code?

Apple's Supplier code is more stringent than the industrywide supplier code. Apple conducts its own audits. Advantage of doing this is that it can legally safeguard itself from suppliers mistakes. And disadvantage being that it increases costs.

What are the advantages and disadvantages to Apple of relying on its own internal audits, as contrasted with using an independent auditor like the Fair Labor Association?

Relying on internal audits as contrasted with using an independent auditor gives a clearer picture of the exact scenario.