apple foxconn scandal case study

Case Study: Apple Inc. (China)

The electronics industry is one of the largest sectors in the global economy and some experts estimate that the sector employs more workers and create more revenue than any other industry in the world. The US consumer electronics industry alone is worth more than $211 billion, and technology and electronics companies top the list of Forbes’ ranking of the world’s most valuable brands. It is an industry that is both immensely profitable and harshly exploitative, and nowhere is this more evident than in the supply chain of Apple Inc. In 2017, the company was worth an estimated $170 billion, making it the world’s most valuable brand.

Foxconn, one of the Apple’s largest suppliers, installed nets after a spate of suicides at its factories in China. Credit: Jason Lee, Reuters.

Despite the vast sums of money at the top of Apple’s supply chain, the workers that make its products face a myriad of abuses: poverty wages, excessive and unpaid overtime well in excess of legal limits, long-term exposure to toxic chemicals without proper protective equipment, unsafe work environments including blocked and locked exits, intense psychological pressure, and the use of forced student labor. The long hours, extremely low pay, and high-pressure work environment led to a spate of suicides, beginning in 2010, by workers at Foxconn, one of Apple’s most important suppliers. In the span of a year, there were at least 18 attempted suicides, resulting in at least 14 deaths. (Foxconn’s shockingly cruel solution to this problem was to install nets around its buildings to prevent workers from jumping, demonstrating just how little the manufacturer and its customers cared about the conditions that workers faced). Between 2010 and 2012, another six workers were killed in explosions at iPad factories. According to reporting by the New York Times, Apple had been warned about the dangerous conditions inside at least one of the factories, but did nothing to prevent the deadly blast.

Amidst mounting pressure from consumers to address the problems in its supply chain, Apple joined the Fair Labor Association (FLA), a multi stakeholder initiative (MSI) that was originally founded to monitor conditions in the apparel industry but that has since expanded to other sectors, including footwear, sporting goods and agriculture. Although the FLA describes itself as an independent monitoring body, member companies play a significant role in the organization’s governance and its funding. As a result, the FLA has an abysmal track record when it comes to improving conditions in the supply chain of its member companies and Apple was no exception. Mere days after beginning its inspection of Apple’s largest supplier, Foxconn, the president of the FLA declared that the “facilities are first-class” and “Foxconn is really not a sweatshop.” Recall that Foxconn is the same supplier in which more than a dozen workers committed suicide just two years earlier, and where three workers had been killed in a factory explosion the prior year.

Six weeks after Apple announced that the FLA would be investigating its supply chain, the FLA published a report detailing a number of egregious abuses, many of which were also violations of Chinese law. It’s worth noting here that virtually all of these findings had previously been reported by independent investigators that Apple had simply chosen to ignore. Although Apple, Foxconn and the FLA publicly committed to fixing the violations, outside assessments showed little improvement. An independent evaluation of the FLA’s own reporting showed the following:

• Apple and its suppliers failed to implement changes to workers’ pay, including compensation for unpaid overtime and adoption of a wage that would cover workers’ basic needs. During the same time period, Apple reported earning nearly $50 billion in profits;
• Despite promises to the contrary, workers in Apple’s supply chain in China continued to work overtime hours in violation of legal limits;
• The promise to “establish a genuine voice for workers” was never fulfilled;
• Although Apple promised that “the FLA’s assessment will cover facilities where more than 90 percent of Apple products are assembled,” the FLA’s reporting covered less than 20% of workers in Apple’s supply chain; and
• Outside data demonstrated that serious labor rights abuses were continuing throughout the company’s supply chain.

It should come as no surprise that workers benefitted very little from Apple’s participation in the FLA. As is frequently the case with a brand’s decision to join an MSI, Apple approached the FLA not out of a genuine concern for the workers’ in its supply chain (Apple had known about egregious abuses at its factories for years), but out of a desire to repair the damage being done to its brand, the most valuable in the world. In exchange for its less-than-critical reporting, the FLA received a sizable fee. Unfortunately, this quid-pro-quo arrangement is all too common in the world of MSI’s, where, absent serious and meaningful changes to structure, governance, enforcement and funding, respect for workers’ rights will always be an afterthought instead of a reality.

In recent years, public attention has waned but workers continue to report serious human rights abuses in Apple’s supply chain. See, for example, the following reports: Apple still has miles to go despite the recent toxins ban , Apple making big profits but Chinese workers’ wages on the slide , and Blood and Sweat Behind the Screen of iPhones – Another Investigative Report on Apple’s Largest Display Screen Supplier .

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How Apple turned the Foxconn scandal into another way to beat its competitors.

Photograph by Antony Dickson/AFP/Getty Images.

Even when Apple loses, it still wins. The well-buffed image of the world’s most valuable company has been scuffed in recent months by investigative reports and activist campaigns—not to mention partially fabricated one-man plays and radio programs —calling attention to the health and safety violations, long hours, and low wages at the Chinese factories that make its products. Read the New York Times ’ long story on Foxconn , Apple’s largest supplier, and you won’t be able to hold an iPad without feeling a soupcon of guilt.

On Thursday, the flood of bad reports continued, with the independent Fair Labor Association releasing the results of its probe of Foxconn, outlining the expected litany of abuses. But for once, this was not bad news for Apple. The company had sanctioned the FLA’s report, and its response was a masterstroke: Apple immediately announced a deal with Foxconn to hire tens of thousands of new workers, tighten safety and overtime rules, and build better employee dormitories. Instead of headlines blaring the Fair Labor Association’s findings, Friday morning brought news stories focused on Apple’s determination to change how it does business with its suppliers—indeed, to set a new standard for China’s entire technology manufacturing sector.

In one deft move, Apple has pivoted from villain to crusading hero. But wait—won’t all those changes cost a lot of money? Yes. And that will benefit Apple even more.

Foxconn is by far the world’s largest electronics manufacturer. It’s best known for building iPhones and iPads, but it’s also a major supplier for Hewlett-Packard, Dell, Amazon, Sony, and many others. Any improvements it makes at Apple’s behest should spill over to its work for those companies as well. And any progress Foxconn demands from its own suppliers—some of which are believed to be even less scrupulous in their labor practices—will compound the effect. Some analysts believe Foxconn is so large and influential that higher wages, tighter regulations, and better working conditions there will ripple across all of China.

The extent to which those changes will affect any given tech company’s bottom line depends on how much leeway it has to absorb higher labor costs. For a company like Amazon, which already loses money on every $199 Kindle Fire it sells, a bump in wages might have a significant effect. Apple, in contrast, has the highest profit margins in the industry. Its new iPad runs from $499 to $829. Adding a few cents or dollars to the production cost is unlikely to affect its profitability. And even if it did, Apple could just raise its prices a little higher. Quality, trendiness, beauty, ease of use—those, not price, are Apple customers’ main concerns.

Could Apple’s competitors try to find cheaper suppliers? It’s possible, but it wouldn’t be easy. Foxconn is so large, powerful, and efficient that Apple and other companies have concluded that they can’t do without it, notes Dara O’Rourke, a UC-Berkeley professor and co-founder of the corporate-ethics ratings site GoodGuide.com . (Apple, in case you’re wondering, gets middling scores in the electronics category.) Any company that moved away from Foxconn in search of a cheaper alternative would be sacrificing quality, quantity, and control over the design of their products—the very traits that make Apple products so successful.

If competitors do race to the bottom, they’ll likely face a public-relations backlash of their own. When Nike sweatshops were making headlines a decade ago, the company eventually moved to improve working conditions in its factories—and its rivals in the garment industry all but tripped over each other to follow suit. “Everybody was trying to fix things before the consumer activists got to them,” recalls Katie Quan, a former garment workers union leader who is now associate chair of the UC-Berkeley Labor Center. “I remember a factory in Indonesia where all of these different companies suddenly had their own codes of conduct posted to the wall—even the ones who hadn’t been targeted.”

It would be premature to say that Apple’s agreement with Foxconn will revolutionize the worldwide tech supply chain, or even Apple’s own. In the case of Nike, public pressure spurred the company and its major suppliers to crack down on the most extreme and visible abuses—worker harassment, blatantly unsafe conditions—but didn’t change the underlying market forces that drive low wages and long hours. If Apple is serious about changing the culture at Foxconn and other suppliers, it will have to back up the recently announced reforms by changing the way its own managers do business. It’s not just Foxconn executives who demand low prices, order last-minute design changes, and insist on inhumanly fast turnaround times. It’s also the honchos in Cupertino, and, by extension, customers like you and me, who are looking for the hottest new product at the lowest price. Many Apple customers will likely be willing to wait a little longer or pay a few bucks more to know that their products aren’t wrought out of human suffering. Now we’ll find out whether the same is true for Apple’s competitors.

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IPhone Maker in China Is Under Fire After a Suicide

By David Barboza

• July 26, 2009

SHENZHEN, China — When a closely guarded prototype of a new Apple iPhone went missing at a huge factory here two weeks ago, an internal investigation focused on a shy, 25-year-old employee named Sun Danyong.

Mr. Sun, a college graduate working in the logistics department, denied stealing the iPhone. But he later complained to friends that he had been beaten and humiliated by the factory’s security team. On the night he was questioned, he sent an anguished text message to his girlfriend.

“Dear, I’m sorry. Go back home tomorrow,” he wrote, according to a message she later posted online . “I ran into some problems. Don’t tell my family. Don’t contact me. I’m begging you for the first time. Please do it! I’m sorry.”

Soon after, in the early-morning hours of July 16, Mr. Sun apparently jumped to his death from the 12th floor of an apartment building in what his employer, Foxconn Technology, says was a suicide.

Apple and Foxconn, one of the world’s biggest manufacturers of consumer electronics and a major Apple supplier, issued statements last week expressing sorrow for the death. Foxconn said it suspended one security officer, pending a police investigation, and that the company was now considering counseling services for its employees.

The Apple statement said: “We are saddened by the tragic loss of this young employee, and we are awaiting results of the investigations into his death. We require that our suppliers treat all workers with dignity and respect.” The company would not comment further.

The local police bureau declined to answer questions about the case. But reports of the apparent suicide have set off a firestorm of criticism of Foxconn’s treatment of Mr. Sun, labor conditions at its factories and the pressures Apple places on suppliers to abide by the culture of secrecy that surrounds its development of new products.

The case also underscores the challenges that global companies face in trying to safeguard their designs and intellectual property in the hotly contested smartphone market, particularly here in the southern Chinese city of Shenzhen, an electronics manufacturing center known for piracy and counterfeiting.

Apple’s popular iPhone is already widely imitated and counterfeited in China. And there are regular rumors on Chinese Web sites about new Apple prototypes leaking out of Chinese factories.

“When you outsource to a third party, you lose some control,” says Dane Chamorro, general manager in China at Control Risks, a global consulting firm. “And if you’re outsourcing to China, it’s going to be even more challenging. There’s going to be a bounty on every design.”

Labor rights groups say the worker’s death should compel Apple to improve conditions at its supplier factories in China and prevent worker abuse.

Foxconn, part of Taiwan’s Hon Hai group, has also been sharply criticized because of suspicions about unduly harsh treatment of the worker.

Foxconn, which produces electronics for some of the world’s best-known brands, like Sony and Hewlett-Packard, operates a cluster of sprawling factories in southern China. One of its Shenzhen campuses has nearly 300,000 workers.

But some labor rights activists say the company treats employees harshly, routinely violating labor laws.

In an e-mail message on Thursday, China Labor Watch, which monitors Chinese factories and is based in New York, blamed Mr. Sun’s death on “Foxconn’s inhumane and militant management system, which lacks fundamental respect for human rights.” The group said it published an in-depth study of Foxconn last year, detailing its abuses.

James Lee, general manager of China operations at Foxconn, defended the company’s labor practices in a lengthy interview on Friday, and also said the company would strive to improve management of its facilities.

“It’s very difficult for the company to defend itself against such charges,” Mr. Lee said of complaints from labor rights groups. “You’re welcome to look at how employees are treated here.”

A reporter toured two of the company’s campuses in Shenzhen on Friday, including the one where Mr. Sun worked. The campuses were so large they contained retail stores, banks, post offices and high-rise dormitories with outdoor swimming pools.

The reporter was not allowed to see manufacturing lines because the company said it had to protect trade secrets.

Outside the gates of one campus, most workers interviewed independently of the company said they were well treated. One of about 15 workers questioned admitted to being forced to work overtime above the legal limit.

In his interview, Mr. Lee, the Foxconn manager, said the company also had a duty to protect the intellectual property of its customers, and that it was honestly seeking answers to what happened to the product.

Foxconn said it still does not know what happened to the missing iPhone. The company said Mr. Sun was given 16 prototypes on July 9 or 10 to deliver to research and development, and failed to report one missing until three days later.

The company says his explanation for the missing phone did not seem credible and that he had had problems before.

“Several times he had some products missing, then he got them back,” Mr. Lee said. “We don’t know who took the product, but it was at his stop.”

In an interview with Southern Metropolis Daily newspaper last week, the security officer suspended by Foxconn denied beating Mr. Sun, saying only that he “became a little angry” and grabbed Mr. Sun’s right shoulder.

Even so, the company paid compensation to Mr. Sun’s family. It declined to say how much, but Mr. Sun’s brother cited a figure of 300,000 renminbi, or more than $44,000, and said Mr. Sun’s girlfriend was also given an Apple laptop computer.

Mr. Sun’s brother doubts he stole the prototype.

“He was honest and modest. He would never steal anything,” said Sun Danxiong, 28, his brother.

Mr. Sun grew up in a small, impoverished village in southwest Yunnan province and ranked first in his high school, his family says. He graduated from the Harbin Institute of Technology, one of the nation’s top schools, before joining Foxconn about a year ago.

On Thursday, with his son Danxiong standing nearby, holding a box with Sun Danyong’s ashes, the father, Sun Yangdong, said Foxconn had treated the family well. But he said he was still in shock that his son could leap from a building because he was so gentle and tender.

Soon after, a security guard, who was joined by two men wearing Foxconn shirts, threatened to “beat up” a journalist’s translator if she persisted in asking the family questions. Foxconn officials later said the guard was not on their staff and might have been with the police bureau.

Back in Yunnan, Mr. Sun said that on the night of his brother’s death, he had e-mailed friends, angry about Foxconn’s questioning of him. In one message, Mr. Sun said he was locked up and beaten. “A Fortune 500 company even has these things,” he wrote.

On Sunday, Danxiong said some of his brother’s friends told him Mr. Sun killed himself out of anger at Foxconn. His brother said: “They told me he was extremely angry at Foxconn; they humiliated him and he wanted to resist the company, and planned to do something big.”

Chen Yang contributed research from Shanghai.