How Apple Can Solve Its China Problem

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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