How Apple Can Solve Its China Problem

How Apple Can Solve Its China Problem

Apple is on the brink of becoming the poster child for worker abuse. Journalists and rights organizations are starting to draw attention to the enormous contrast between Apple’s quarterly billions in profits, and the desperate plight of abused workers in China.

And the closer you look, the uglier this issue gets. And it threatens to damage Apple’s long-term prospects for continued growth and success.

Here’s the problem, and also what Apple can do about it.

The culture of Chinese manufacturing is rife with horrors, including child labor, unpaid overtime, slave-like living and working conditions, punitive withholding of wages, unsafe handling of chemicals and equipment, rampant environmental abuses and more.

Employees who polish iPad cases sparkle in the sun like Twilight vampires, even after showering, because the aluminum dust is so thoroughly embedded in their skin.

In addition to the reality of manufacturing, there’s also the perception. The New York Times published a devastating story Jan. 25 (“In China, Human Costs Are Built Into an iPad“). The story emphasized workers being killed by chemical explosions, child labor and general worker abuse.

The whole point of the article was to contrast Apple’s spectacular financial success with the horrors of working conditions suffered by makers of Apple products.

The online comic The Joy of Tech illustrated some hilarious suggestions about how Apple could spend its $100 billion cash hoard, ending with the not-so-funny suggestion that Apple share the money with factory workers.

A cultural meme is developing that Apple is awash in billions made by callously destroying the lives of Chinese youth. Once established, it will stick to Apple like aluminum dust, and become impossible to shake off no matter what Apple actually does.

Inside the Culture of Chinese Manufacturing

Chinese factory jobs aren’t careers for most employees. They’re temporary “sacrifice” jobs. (Meet a few of these workers.)

People in their early 20s leave their homes, and deliberately sacrifice two to 10 years or more of their youth to the cause of saving money for the future. Many of them are undereducated country bumpkins or ethnic minorities with limited job prospects outside factory work. Others are relatively well educated, but factory work offers the best option for job security in a tough economy.

By working like dogs, and saving all the money, workers can start small businesses or get married after they leave the factory.

It’s brutally hard work. Open coercion is the rule at many of these factories. Rather than “inspirational posters” at Chinese plants, managers have plastered threats aimed at employees, according to the Times article. One banner reads: “Work hard on the job today or work hard to find a job tomorrow.”

In other words: You’d better work your ass off or you’re fired.

Workers live in dorms, where in some cases 20 people live in a small apartment designed for three. Many of these dorm buildings are surrounded by anti-suicide nets to catch jumpers.

The larger factories operate 24 hours a day, so some workers labor through the night and sleep during the day.

Many of the jobs involve the deadly combination of using volatile chemicals at high speed. Explosions make headlines. But far more common are long-term health issues from the use of chemicals with inadequate protection.

One problem, according to some critics, is that component suppliers are selected in part on how inexpensively the work can be done. As a result, suppliers push the envelope in terms of costs, leaving themselves minimal or zero profit margins. In order to make any money at all, they have to pay workers less, force workers to emphasize speed, rather than safety and use unauthorized chemicals and other cheats.

In other words, cheating is built into the system. By squeezing suppliers down to zero margins, the companies that survive are the ones that cheat without getting caught. Those that play by the rules, or get caught cheating, are shut down or driven out of business.

So the core competency of electronics component manufacturing in some sectors is the cutting of corners, the concealment of abuses and the skillful application of health and safety violations.

What Apple Is Doing About It

Apple CEO Tim Cook appears to have made the welfare of contract-manufacturing workers a higher priority, and also has made an effort to bring the issue out of the shadows.

Apple says it did 229 audits last year, which is 80 percent more than the year before.

Apple recently published a “Supplier responsibility progress report” to address the problems and what Apple is doing about them. The report included an official list of suppliers — something Apple had refused to do in the past because such a list makes it harder to keep secrets about upcoming products.

Apple claims to have a zero-tolerance for child labor. Audits bring attention to transgressions, and Apple puts some companies on notice: Fix them or we’ll find another company.

To a very large extent, chasing down violations is a cat-and-mouse game between Apple and managers within contract manufacturing firms. It’s like a game of Whack-a-Mole — when they fix the handling of a toxic chemical over here, up pops a spate of worker suicides over there. When they address the suicides with new programs and policies, here comes an unauthorized chemical in use by a supplier. It never ends.

Is That Enough? 

What else should be done? Leander Kahney’s recent post on Cult of Mac, “Should Apple Make Its Products In The U.S.?”

The article addresses many of the arguments and counterarguments over this question. But the bottom line is that the US doesn’t have the expertise in the numbers required to do what China can do. And the costs would be astronomical. Not only would each worker have to be paid more, but more workers would have to be employed due to vastly higher legal standards for employee welfare in this country.

Although Apple could build products in the United States, such products would not be the iPhones and iPads that we currently use. The combination of physical perfection and low cost could not be achieved in the United States.

In fact, you could view the Apple product phenomenon of the past decade as something possible only with the killer combination of European design culture, American marketing genius, Taiwanese manufacturing expertise and Chinese improvisational ingenuity and self-sacrifice.

Underpaid, over-worked and abused workers are part of what make iPhones and iPads possible. Nobody wants to hear this, but I’m afraid it’s true.

Apple’s options, oversimplified, are:

  1. Move manufacturing out of China.
  2. Take a hands-off approach to worker welfare.
  3. Aggressively chip away at the problems associated with contract manufacturing with a program of iterative improvement, higher standards, constant audits and growing transparency.
  4. Initiate an aggressive program of paying component suppliers and contract manufacturers more in exchange for transparency, worker welfare and environmental safeguards.

The first option shouldn’t make sense to anyone. For those concerned about the welfare of Chinese workers, unemployment isn’t a solution. And for those who love Apple products, moving manufacturing outside China would most likely reduce quality and increase costs.

The second option is another non-starter. The reality is that as the most valuable and profitable technology company, Apple would be destroyed in the court of public opinion, and become the source of global animosity that would tarnish the brand. It’s also unethical on its face. In fact, this is already happening, even though Apple does not pursue this option.

The third option is the best option, and in fact it’s the one that Apple is actively pursuing, to its credit.

And the fourth option is the other best option, which Apple is not pursuing adequately. Several leading Silicon Valley companies, including HP, actively pay component suppliers more to improve conditions. Apple’s current approach of demanding from suppliers nearly impossible schedules, nearly impossible quality at nearly impossibly low prices is driving many of the problems. And Apple clearly can afford to pay a little more here. The idea that Apple squeezes every penny out of its myriad suppliers, forcing them to survive on razor-thin margins while the company reports profits that exceed Google’s revenues is the kind of reality that could make people stop buying Apple products purely on ethical grounds.

So that’s what Apple needs to do: Keep doing 3, and start doing 4. Chip away at the problem, iteratively investigating, auditing and fixing. But also pay a little more to suppliers in order to meet these stringent requirements.

Apple gets more blame than it deserves for worker abuses in China, and doesn’t get enough credit for the enormous effort the company has expended in raising work standards in China.

However, there’s one missing piece to this puzzle, which is the price Apple pays for components.

There’s already plenty of coercive levers involved in Chinese manufacturing. Apple squeezes suppliers, and suppliers squeeze their employees. What’s lacking is the addition of positive incentives and the removal of excuses.

The problem won’t really be solved until the core competency of chinese manufacturing companies is the creation of high quality, low-cost components and products without destroying the lives of employees — instead of the current core competency of cheating without getting caught.

And that’s going to cost a little more. Apple can afford it.

Photo credit: Mike Clarke/Getty Images

Related
  • Carl Friend

    Times said $65.00 more so that would not keep people from buying. 

  • ddevito

    Who f’ing cares? Do you think China would care about us if the roles were reversed? I don’t think so.

  • Carl Friend

    Actually, no United States company should be allowed to have their products made in China!  Our next major war will most likely be with China and that puts us at a disadvantage!

  • dcj001

    If we (everyone but you, ddevito) believe that we are more responsible and “better” than communist nations, and the rest of the world, for that matter, then we should care, and we should make things as good and safe as they can be.

  • Carl Friend

    See, all this crap I was told and taught as a teen and a college student in  the  mid-eighties was nothing but lies about how other good paying jobs would replace those jobs leaving the United States. Well, those changes never came for workers in the United States and has been going downhill!

  • Koen

    No one is forcing those people to work there. If they could get a better job, they wouldn’t be working there. Those working conditions say something about the situation in China, not about Apple.

  • trife ro

    It´s one of most hypocrisy points of view i have read in a long time.

  • twitter-316132483

    The true price of our cheap goods is slowly exposed, but as long as consumers vote with their dollars, these practices will remain.  If not china then the jobs and factories will move to India, Bangladesh, etc…
    With time, hopefully the new form of slavery will be exposed and thus some of the jobs might get a chance of returning back to the US. But I do not hold such an event extremely likely.
    Most people sympathize with this new fangled form of slavery, but are not willing to pay more to obtain the same goods that we acquire cheaply today.
    Dr. Nir Hus MD., PhD,
     General Surgery, Trauma and Critical Care Medicine. 
     Miami Florida
     http://www.NirHus.com
     http://www.Nir-Hus.org
     @NirHus:twitter 

  • igadgetuser

    Truth is people in china do any sort of job to keep feeding their family coz its not like U.K to sit at home and play XBOX. NO JOB, NO INCOME, STARVE TO DEATH.
    but its really bad what they go through to make our shiny mac’s, i pod’s, i pad’s and iPhones.

  • MarlettoCazzone

    You are a stupid moron.
    Shut up!

  • Carl Friend

    It shows corporate greed on Apples part.  $17.00 a day. It points out what I was told and taught that better jobs would come for workers in the United States and higher wages.  Well that did not happen.  I know many people with two incomes only making  $34,000 a year. We used to make things in the United States now so much is outsourced.

  • Marcos

    Simple: Respecting people, if Apple wants me to keep buying its products. My last acquisition here in Brazil ( and believe me, here they are very expensive ) was an iPhone 4S 64GB. I have an iMac 27, i5 and my wife has an iMac 24 Core 2 Duo…I love Apple products, but I respect human being more…

  • mlahero

    The blame falls on both Apple (and whatever other company) and the Chinese work standard. Saying it is entirely the blame of China smacks of naivety, Apple plays its part and turns a blind eye just like all of those other companies.

    When you have $100 billion in your pocket there is no excuse for playing part in the brutal exploitation of a people.

  • mazatlan

    holy crap mike? you are an ass. do you own any apple products? you pick on apple because they have a huge cash base? really?, i also don’t think they are the first company to outsource. how do you propose to run the company? if your answer to my first question is yes, are you a share holder? if not you should be, we made a boat load of money last week. how would you propose to bring back the jobs? of course we all want that! do you really think apple doesn’t want to employ america? how about we rid ourselves of unions so we can all afford quality american made products at a REASONABLE price.

  • mazatlan

    here! here! 

  • mazatlan

    wow! aren’t you the articulate one.

  • ddevito

    If Apple really cared about factory working conditions would it have done business with China to begin with?

    I don’t think so.

  • ddevito

    Yeah, we have an economic crisis now – can you imagine if we left China?

    Pleeeeeeeease.

  • ddevito

    China will be the death of Apple.

  • Diana Garetson

    How is it not about Apple when Apple (and many, many other companies like it) chose to make their products in China?  That’s a business decision.  They could choose to do their manufacturing in a country with better labor standards.  They could build their own manufacturing centers if they really wanted to.  That’s how things used to be done.  But they didn’t.  They didn’t because it’s cheaper and more efficient to do the manufacturing in China and other developing nations, where exploitative labor practices are used, and Apple decided that that’s a trade off they’re willing to make.  Of course it’s about Apple.  Just like it’s about Lenovo, Microsoft, Samsung and the many of other companies that contract out their manufacturing to companies like Foxconn to lower production costs.  To pass this off as an issue that’s only about China is to give these companies a pass they don’t deserve.  These are choices Apple makes and they matter.

  • tedcranmore

    If I hire a company to build a deck in my backyard, I likely hire by them for their ability to do the 
    job at a price that I like. If many  seem similar in capability, I hire the company with the lowest price. By hiring the company that gives me the cheapest price, am I ‘squeezing’ that company’s workers? Am I supposed to hire the most expensive one just so it’s workers make more? I’m amazed that so many people think by analogy that is what I should do if I’m a good person. If Apple does the same thing they are abusing the workers who flock to these jobs? We have no idea without living in China what the alternatives really are. It’s likely they are even worse than working at Foxconn. I’ll jump on the bandwagon regarding safety concerns, but complaining how much these workers are paid makes little sense without understanding and comparing to all alternatives within the Chinese economy and culture.

  • Diana Garetson

    Ridiculous.  You really think getting rid of unions can bring the cost of manufacturing down to the point where it can even come close to competing against a plant in China or elsewhere in Asia where the labor practices are like those at Foxconn where someone might get $17 for 16 hours of work?  How does that logic work?  Are we magically going to stop enforcing labor laws and repeal the minimum wage?

  • Honyant

    Really! You want to get rid of unions so that you can enjoy the same working conditions as the Chinese.

  • Luis Dominguez

    Just an idea but what would be wrong about creating Apple factories around the world?  I mean like not only in China, but in the US, Europe, South America, etc…  

  • portablefrontier

    Mike, I’m disappointed that you’re singling-out Apple while giving a pass to HP, Dell, and other off-shore manufacturers. Unless you require all companies employing workers off-shore to adhere to a universal set of standards, and according to the Times Apple’s are the highest, as a VC you know better than most that you only enable free-riders. You help the Dells and others who are not, unlike Apple, making the workplace of their off-shore workers a priority.

    I don’t expect the Times to be particularly fair and balanced on an issue involving business. But I do expect a VC to be savvy enough to know when a cry for one company to improve its practices is being fed in part by competitors who up to know can’t seem to compete on product quality, innovation, or price so instead seek a comparative advantage elsewhere.

  • CharliK

    Yep. This is no more just an Apple issue than fixing the US economy is. Everyone has to do their part. So where’s that list of what Dell, HP, etc need to do. 

  • PeterLin

    Three points:

    (a) The first Times piece made clear that the reason Apple needs to build in China is that while, yes, labor is [much] cheaper, mainly there is simply no other place in the world where all of the tools and supplies (“means of production” if you will) come together in such close proximity. The Chinese government has, for example, opened huge swaths of land close to the coast so that private investors can build factories and simply leave them vacant so that they can use them when the need arises. And all of the chip makers and screen makers and manufacturers of necessary parts are all there. As well as not only cheap manual labor and well trained semi-professional labor.

    (b) If Apple were to pay suppliers and assemblers more in order for them to perform more ethically, without inspecting, what guarantees that those folks actually perform to the standard that you have mandated? The answer isn’t to start by offering to pay more in the hope that folks will perform to higher (e.g. US standards) but rather to make include those reasonable standards in bid contracts as well as mechanisms for enforcement and such and then to inspect in the course of work to ensure that the terms and conditions of the contracts are met. And if they aren’t, to then find providers up and down the supply chain who will perform to those standards. Apple (Foxconn on Apple’s behalf) already pays the highest wages in China. How much higher should the wages be? Double? Triple? Why is that necessary?

    (c) And we as consumers must be willing to pay more (remember the Apple tax?) because a company manufactures to higher standards. We do some of that now with fair trade and free trade bananas, for example, but the vast majority of bananas, I’d wager, are grown under the same brutal conditions that existed in the 1800′s.

  • poppa1138

    It’s not up to Apple to sort workers rights,it is the workers themselves,fist step is to get unionised and fight for their own working rights.

  • AdamChew1

    How can the writer be so sure that paying more for components will be passed on to the workers.

    If i am not mistaken as the writer of this piece claimed to improve conditions, yes, what sort of conditions? – very subjective.

  • AdamChew1

    Looks like you conveniently forgot about the greed of Dell, HP, Microsoft because they too subcontract to Foxconn.

    You too conveniently forgot the greed of the bankers which brought the nation to her needs.

    How about your good self do you always pay more for goods and services, oh it is called prudence when you pick the cheapest.

  • hasmoresensethanyou

    Hey Fanboi it is the employer’s fault not the employee. Get a brain and think about what your stating before you type it out. It is the employee’s fault for continuing to work in the condition, but if you need a job you will take what ever you can get and deal with it.

  • flyboybob

    I was in China last month and they are creating an economic miracle in a Communist country. By our standards there are what seem like abuses. However, there are 1.3 billion Chinese and they need to bring themselves up from poverty just like American workers did in the early part of our industrial revolution which had even worse abuses. Before they started the great Capitalist experiment in the late 1970s most Chinese lived in bitter socialist poverty with no hope of ever improving their lives. 

    Everyone likes to throw rocks at the guy at the top and Apple is the target because they are at the top of the electronics business. Foxconn is part of a huge Taiwanese conglomerate with factories around the globe including here in the US. Apple is no different from any other company. They are in business to produce great products for their customers which will increase share holder value. We live in a global economy so get used to it. When Chinese labor becomes to expensive business will go to places like Africa to find new cheaper workers when their skills become good enough to do the work. If you want utopia then look at China under Mao and you will see poverty, hunger, misery and major widespread abuses everywhere except for the Communist Party leaders at the top. The Chinese people know what the alternative is to Capitalism and they don’t want to go back.Free enterprise in China has created wealth and business opportunities for everyone. I was amazed at the number of BMWs, Mercedes Benz, Buick and Chrysler cars running around Zhuhia. There are small business thriving around the city. They pay for these luxuries with cash. They work hard, get a good education, live frugally and save their money. A lesson we in the US could learn.

  • hasmoresensethanyou

    If I remember correctly this is a Mac site and the URL seems to support it! so hey portablefrontier I am dissappointed that you seem to think a mac rumor/news site needs to point out issues with other computer company issues. Get some common sense please!

  • joelucky85

    Everyone seems to be on the case of Apple now. Partly jealousy I suppose. But at the same time shedding light on bad practices is a good thing as it creates awareness of issues. But singling out Apple is rather silly when 40% of world’s electronics are being made by Foxconn. Anywhere here is an article from Forbes today that is worth reading and pondering:

    http://www.forbes.com/sites/ti

  • Guest

    Don’t buy apple products, they are lier m.. Sucker !

  • Ryan Vaughn

    I love it, typical American BS.  So Apple is now the BIG EVIL Company.  It’s the ONLY company buying and manufacturing goods in China, so lets blame them for all of the wrong doings that occur there.  I am sorry, I don’t agree with what Apple does, but I also don’t agree with what any American company that buys and manufactures goods in China.  Simply put even if Apple were making things in Canada or the U.S. or even Mexico, there would be 100 more companies that would rely on the Chinese workforce to produce the goods we use everyday.  A few weeks back workers at a Foxconn that make XBoxes threatened suicide.  They didn’t this time, but who knows when they might actually  go through with it.  When some 80 to 90 % of the things every American use on a day to day basis comes from China, we really need to rethink how this country and not some company, is doing things.  You can blame Apple, it’s easy to blame the successful ones, but no one is looking at Big Picture. There are manufactures out there that are guilty of way worse, but no one wants to admit that the problem isn’t just Apple, it’s the American people who are really to blame.  Why want things to be pretty, entertaining and cheap, but we want to get rich and own ten homes an twenty cars and only work when necessary.  But, we don’t want think about how it’s possible to obtain that.  The truth is American dream is built on a Chinese Nightmare.  Apple, Google, Samsung, and every other big name company are all equally at fault here.  So either wake up and push for change by not buying their products and start demanding that it’s American made or SHUT THE FUDGE UP!

  • Guest

    Not all big companies depend on Chinese manufactures like Apple does. Like Samsung they makes mostly their own in Korea, workers are paid and treated well. Very few minor stuffs made in China for Samsung.

  • J

    “Although Apple could build products in the United States, such products would not be the iPhones and iPads that we currently use. The combination of physical perfection and low cost could not be achieved in the United States.”

    Complete rubbish.  Does China have some magical manufacturing formula that the US doesn’t?  Of course not.  American companies are as sophisticated as Chinese counterparts.  What China does have is a worker willing to live in an inhumane manner, but not for long I’m afraid.  Do technology companies expect to have this unending supply of workers who live at work and will work at low wages doing dangerous tasks at all hours of the day without standing up for themselves?  If companies really believe in a perpetual source for this kind of worker, I have some mortgage backed securities I’d like to sell to them :).  

  • Ryan Vaughn

    And I can assure that the working conditions in those plants aren’t any better than they are in China.  The fact that any product sold in the U.S. is made in a foreign country is a shame.  I made less than $14,000 last year, so I don’t think that this country is any better at taking care of it’s people than China is at taking care of theirs.  So let’s stop playing world police and start fixing our country.

  • Ryan Vaughn

    China has a work force that can’t sue it’s employers for unfair treatment.  They are also far more educated than anyone in this country.  Face it, Americans are ignorant and that’s because our government wants it that.  If more Americans had a clue then this country wouldn’t been in the shit it is in.  Plus go find something made in America and tell me it’s not rubbish.  You can’t.  American made goods… yeah that’s an oxymoron.  More like American made crap.

  • Guest

    just don’t guessing game here, Samsung factory workers makes good money, about $3000 per mo with benefit. If you open back of Samsung products Galaxy SII, Samsung TV and others it’s clearly written “made in Korea” Apple doesn’t make any hard wears for their product but Samsung does and mostly 100%

  • Guest

    Let’s say many other big US companies depend on Chinese manufactures but not as much as Apple does, they don’t push manufactures to make certain amount of products like apple does. So suck Apple!

  • Funnyis

    Funny, Here i thought Apple got a discount because they prepaid for parts. Dont now how people that write about this, get it wrong. Common sense if you go to the grocery store you pay less if you buy in bulk than single item. That is why Apple is able to get deeper discounts.

  • Hannibal_Chew

    “Underpaid, over-worked and abused workers are part of what make iPhones
    and iPads possible. Nobody wants to hear this, but I’m afraid it’s true.”
    The above statement is contradicted by your list of 4 options, one of which is to tell Chinese quasi slaves – “tough shit”.

    The whole problem is the Walmartization of dangerous industrial operations.
    Walmart forces suppliers to produce at absolute rock bottom cost to Walmart or they buy elsewhere.   Country of origin irrelevant.

    China on the other hand is openly dumping heavily subsidized cheap auto parts here.   They were called out on it recently.  
    We should do the same – TARIFFS instead of subsidies of course.  

    Clearly you have zero interest in promoting the idea of Americans actually producing any consumer products of any sort. For example, circuit boards, little plastic pieces could be made in China then assembled here. That is a very common concept. The best example is the typical ‘American made’ automobile with parts from 12 countries in it.

  • Hannibal_Chew

    How would you know?  100% of non food items in a Dollar Store are from China.  
    In my area – a Chinese owned solar panel plant, a Japanese owned railcar plant, a 58% Fiat owned Chrysler plant, etc.
    However all the output is MADE IN USA!

  • Christopher Franko

    My favorite line is “and apple just cant afford it”
    O really?

    Apple now has $97.6 billion cash on hand.

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Mike ElganMike Elgan writes about technology and culture for a wide variety of publications. Follow Mike on Google+, Facebook and Twitter.

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