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DrQuine
The "moment of reckoning" was long ago when the labor conditions and suicides at ...
Randall
"No, no one is pointing a gun to anyone's head and making them work at Foxconn. ...
IHS: Foxconn report a 'moment of reckoning' for electronics
Dylan McGrath
4/10/2012 1:23 PM EDT
SAN FRANCISCO—An investigation by a labor practice watchdog group that revealed serious workers' issues at Taiwanese contract manufacturer Hon Hai Precision Industry Co. Ltd.—which operates under the trade name Foxconn—could be a "moment of reckoning" for the electronics industry similar to what occurred in the footwear and apparel industry in the 1990s, according to market research firm IHS iSuppli.
The Fair Labor Association (FLA) issued a report last month detailing the results of a month-long investigation into labor practices at Foxconn. The FLA said the investigation uncovered "significant issues" with working conditions at three Foxconn factories in China, including workers working excessive hours in violation of Chinese law and not in some cases being properly compensated for unscheduled overtime.
The FLA, which conducted the investigation with the support of Apple Inc., one of Foxconn's largest customers, said that following its investigation in secured commitments from Foxconn to reduce working hours to legal limits while protecting pay, improve health and safety conditions and establish a genuine voice for workers. The FLA said it would monitor the situation on an ongoing basis to verify compliance.
Apple joined the FLA in January under mounting pressure from workers rights advocates and consumers concerned about working conditions at Foxconn in the wake of a string of suicides at Foxconn worker facilities last year.
According to IHS, the FLA investigation of Foxconn, the impact of the investigation could be similar to what Nike Inc. and other footwear and apparel manufacturers experienced in the 1990s, when damaging revelations over their use of sweatshop manufacturing resulted in the creation of fair labor standards for suppliers and ultimately led to the creation of the FLA.
"Much of the press coverage of the FLA investigation has focused on the impact it will have on Apple’s margins or on prices that consumers will pay for iPhone or iPads," said Thomas Dinges, a senior principal analyst for electronics contract manufacturing at IHS, in a statement. "However, the real impact is on the overall relationship of electronic brands with contract manufacturers like Foxconn. Brands now realize that the biggest risk in dealing with contract manufacturers lies in the potential public relations disasters that can arise from worker’s rights issues."
According to IHS, the Foxconn investigation underscores the serious risk to the public image of electronics brands inherent in their $360 billion relationship with the global contract manufacturing industry. The result of the investigation is likely an increased focus on compliance—as well as rising costs for electronics brands, according to a recent analysis from IHS.
Foxconn, the world’s largest maker of electronic components, is headquartered in Taiwan, but operates a number of very large manufacturing facilities in China.
The global electronics manufacturing business, consisting of electronics manufacturing services (EMS) and original design manufacturing (ODM) firms, generated $359.8 billion in revenue in 2011, a testament to the degree to which global electronics brands increasingly rely on them for outsourced production, according to IHS. As recently as 2006, these firms generated total sales of $264 billion, according to IHS. While revenue for EMS and ODM firms is expected to dip in 2012, it is forecast to grow to $426.1 billion in 2015, according to IHS. The firm estimates that contract manufacturing now accounts for 20 percent of all manufacturing.
"While the recent focus has been on Apple and Foxconn, the fact is that nearly all electronics brands make use of contract manufacturers," Dinges said. "Because of this, nearly all brands are at risk from negative headlines in their local newspapers that could arise from news of worker issues."
According to IHS, the moment has arrived for electronics brands to ensure that their contract manufacturing partners are in compliance with FLA rules. IHS expects more audits will take place that will uncover further issues, the firm said. OEMs will be forced to expand their operations that focus on supplier responsibility and compliance, the firm predicted.
As contract manufacturers move to ensure compliance, contract manufacturers will expand their workforces and increase their pay scales in China, causing manufacturing costs to climb, IHS predicted. But given the relatively small proportion of manufacturing costs compared to component expenses, this increase is unlikely to have a major impact on company margins or consumer prices, IHS said.
IHS also predicted that rising costs in China would likely will spur contract manufacturers to seek alternative, lower-cost locations for manufacturing. But because of the already extensive established supply chains and infrastructure in the country, China will remain the manufacturing engine of the global electronics industry, IHS said.
The Fair Labor Association (FLA) issued a report last month detailing the results of a month-long investigation into labor practices at Foxconn. The FLA said the investigation uncovered "significant issues" with working conditions at three Foxconn factories in China, including workers working excessive hours in violation of Chinese law and not in some cases being properly compensated for unscheduled overtime.
The FLA, which conducted the investigation with the support of Apple Inc., one of Foxconn's largest customers, said that following its investigation in secured commitments from Foxconn to reduce working hours to legal limits while protecting pay, improve health and safety conditions and establish a genuine voice for workers. The FLA said it would monitor the situation on an ongoing basis to verify compliance.
Apple joined the FLA in January under mounting pressure from workers rights advocates and consumers concerned about working conditions at Foxconn in the wake of a string of suicides at Foxconn worker facilities last year.
According to IHS, the FLA investigation of Foxconn, the impact of the investigation could be similar to what Nike Inc. and other footwear and apparel manufacturers experienced in the 1990s, when damaging revelations over their use of sweatshop manufacturing resulted in the creation of fair labor standards for suppliers and ultimately led to the creation of the FLA.
"Much of the press coverage of the FLA investigation has focused on the impact it will have on Apple’s margins or on prices that consumers will pay for iPhone or iPads," said Thomas Dinges, a senior principal analyst for electronics contract manufacturing at IHS, in a statement. "However, the real impact is on the overall relationship of electronic brands with contract manufacturers like Foxconn. Brands now realize that the biggest risk in dealing with contract manufacturers lies in the potential public relations disasters that can arise from worker’s rights issues."
According to IHS, the Foxconn investigation underscores the serious risk to the public image of electronics brands inherent in their $360 billion relationship with the global contract manufacturing industry. The result of the investigation is likely an increased focus on compliance—as well as rising costs for electronics brands, according to a recent analysis from IHS.
Foxconn, the world’s largest maker of electronic components, is headquartered in Taiwan, but operates a number of very large manufacturing facilities in China.
The global electronics manufacturing business, consisting of electronics manufacturing services (EMS) and original design manufacturing (ODM) firms, generated $359.8 billion in revenue in 2011, a testament to the degree to which global electronics brands increasingly rely on them for outsourced production, according to IHS. As recently as 2006, these firms generated total sales of $264 billion, according to IHS. While revenue for EMS and ODM firms is expected to dip in 2012, it is forecast to grow to $426.1 billion in 2015, according to IHS. The firm estimates that contract manufacturing now accounts for 20 percent of all manufacturing.
"While the recent focus has been on Apple and Foxconn, the fact is that nearly all electronics brands make use of contract manufacturers," Dinges said. "Because of this, nearly all brands are at risk from negative headlines in their local newspapers that could arise from news of worker issues."
According to IHS, the moment has arrived for electronics brands to ensure that their contract manufacturing partners are in compliance with FLA rules. IHS expects more audits will take place that will uncover further issues, the firm said. OEMs will be forced to expand their operations that focus on supplier responsibility and compliance, the firm predicted.
As contract manufacturers move to ensure compliance, contract manufacturers will expand their workforces and increase their pay scales in China, causing manufacturing costs to climb, IHS predicted. But given the relatively small proportion of manufacturing costs compared to component expenses, this increase is unlikely to have a major impact on company margins or consumer prices, IHS said.
IHS also predicted that rising costs in China would likely will spur contract manufacturers to seek alternative, lower-cost locations for manufacturing. But because of the already extensive established supply chains and infrastructure in the country, China will remain the manufacturing engine of the global electronics industry, IHS said.
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Brutus_II
4/10/2012 6:45 PM EDT
"Apple does deserve some praise for being the first electronics firm to join the Fair Labor Association"
Oh my, how nice of you to endow them with such a generous gift. You gotta be kidding me.
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dylan.mcgrath
4/11/2012 12:02 AM EDT
@Brutus_II-"praise" may have been an imperfect word choice. If I could do it over (in Tuesday's newsletter), I would say "credit." But yes, I think you have to give Apple some acknowledgement for being the first electronics firm to join the FLA. Do you disagree?
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NiwotSteve
4/10/2012 7:01 PM EDT
I must have missed it in the article. Clearly, someone must be holding a gun to the heads of Foxconn employees and forcing them to work for Foxconn and preventing them from working for another employer. Or maybe it is the case that the people work for Foxconn because that employer offers them higher wages and better working conditions than scratching a living on a poorly producing farm or somewhere else in the Chinese economy in a job that befits the skills they walked into Foxconn with.
If there is coercive force in the labor market, then identify the perpetrators and put pressure on China to prosecute them. If employment at Foxconn is strictly a free market agreement to sell labor at a price and given working conditions, then who are the editors of EE Times or any other do-gooder to interfere with a private, freely entered and continued relationship?
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dylan.mcgrath
4/11/2012 12:12 AM EDT
@NiwotSteve- you allude to the fact that many Foxconn workers come from rural China and have few other jobs prospects. That's true as far as I know.
No, no one is pointing a gun to anyone's head and making them work at Foxconn. I believe we would call that forced slavery. But giving a job that doesn't provide safe conditions or a livable wage to someone who has few options and is desperate enough to take it is what we would call, I believe, exploitation. I understand that the two are different, but I don't believe either one is right.
As consumers, we can and should insist that the products we buy are made under safe working conditions by people paid a living wage.
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dencon22
4/11/2012 10:11 AM EDT
The fact is that Foxconn does have some of the best conditions and pay in China. The whole suicide thing was another misrepresentation. considering that the suicide rate in China is astronomical, and the number of people employed by Foxconn, that the suicide rate there is lower than the national average says they're doing something right. so do the lines of people trying to get employed there. China is not America and while American companies should avoid sweatshop conditions, telling the Chinese how to run their country and business is out of line. Our culture does not fit in China and who's to say we ar right and the Chinese are wrong? There is a reason it's cheaper to manufacture in other countries.
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dylan.mcgrath
4/11/2012 1:40 PM EDT
@dencon22- "Who's to say we are right and the Chinese are wrong?"
This specific investigation was not about Chinese firms as a whole, but three factories at one specific company. Among other things, the investigation found that Foxconn violated Chinese law by having workers work longer hours than Chinese law permits. The Chinese are not wrong, but this company (and probably others) are not complying with Chinese law.
Another thing that the FLA's investigation found was blocked exits and lack of protective equipment. That is unnecessarily putting employees in harms way. That's simply wrong, no matter where you live.
Those of us who roll up our sleeves and work for a living ought to be able to identify with the workers on the floor of the Foxconn factories, no matter what differences exist between us. We can make a simple choice: refuse to do business with any firm that does not insist on basic safety for the people that makes its products.
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dencon22
4/11/2012 4:30 PM EDT
I understand what this specific investigation was not about Chinese firms as a whole, however the issue is with Chinese firms as a whole, but if we were honest about that, it wouldn't show Apple in as unfavorable a light now would it? And yes, we can refuse to do business with any firm that does not insist on basic safety, as I referred to sweat shop conditions, but when half the world separates you, there's not a whole lot that can be done other than empty words. Again, those factories are gems in China. They can't change the entire country and the way business is done there overnight, but they are the example of a firm that is trying to do right by its employees - even if it's against the grain of the country. Foxconn losing business and going under would be the worst thing that can happen for China. There are checks and balances in life for a reason and they generally work out. This country had all the issues we are now seeing in other countries and today they are the exception and not the norm. China has a long way to go, but without firms like Apple they would likely never improve.
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Randall
4/16/2012 9:14 PM EDT
"No, no one is pointing a gun to anyone's head and making them work at Foxconn. "
Have things changed in China then? When I was there in the 80's, it was explained to me that the government assigned you a job, and you either did that job, or starved. Moonlighting could get you put in jail or worse.
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ed44
4/11/2012 2:44 PM EDT
"then who are the editors of EE Times or any other do-gooder to interfere with a private, freely entered and continued relationship?"
fellow beings that care because we are all connected? so many self-justifying capitalist pigs here. where are all the christians?
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Tom Mahon
4/10/2012 7:47 PM EDT
What makes this so offensive is that Apple is sitting on a cash horde of $100 Billion. Perhaps Apple shareholders will rebate their new dividends to the 401(k) plans of Foxconn employees.
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rick.merritt
4/11/2012 11:43 AM EDT
Touche, Tom!
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SmokeNoMore
4/10/2012 8:25 PM EDT
How is Apple different from any other company that makes their goods overseas? I have to seek out a soccer ball that was not made with child labor. I guarantee you the Honduran/Sri-Lankan/Guatemalan ladies that stitched my Polo/Izod/Dockers shirt don't get a coffee break and 'downtime'. Developed economies love nice things at low prices... I agree that Apple has a lot of money but the consumer doesn't seem to mind.
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dylan.mcgrath
4/11/2012 12:18 AM EDT
It's true that Apple is not the only company that does business this way in electronics or beyond. Apple may in fact be getting and undue share of the criticism simply because it took the step of joining FLA and commissioning this report.
But just because it's done in other industries doesn't make it right.
As to your point that the consumer doesn't seem to mind, I agree 100%. But I believe moral consumers should rethink that (or think about it in the first place) and send a message to Apple and other firms that we aren't going to buy products unless we have reasonable assurance that they were made in safe working conditions by people paid a living wage.
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dencon22
4/11/2012 10:17 AM EDT
So maybe we should just pull all of the American business out of China. That would really fix all the woes in the world. And sure, let's manufacture in the US - I'm sure the lines to be employed at a US Foxconn plant would be long just like in China. Ha! Sadly, with all the unemployment in this country, no one wants those jobs. People would choose unemployment and welfare. Sad statement about the American people. And remember working for Foxconn is a sought after job in China. Maybe the media should focus on the other manufacturers where things really are bad and some of the other brands that hide behind Apple.
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dylan.mcgrath
4/12/2012 12:53 PM EDT
@dencon22- yes, I believe most Americans would not want to work in unsafe conditions for a wage that does not cover their basic needs. With the labor reforms won in this country in previous generations, the idea of doing so is unsavory. Is that wrong?
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hm
4/10/2012 8:25 PM EDT
These are very good efforts in right direction. Finally poor labour force will also get better pay and improve their life.
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Woodsnake
4/11/2012 2:56 AM EDT
For all the reasons mentioned I don't want to buy any Apple product and I haven't any my whole life. But where can I find a list of manufacturers that have their products " made in safe working conditions by people paid a living wage" ?
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any1
4/11/2012 9:35 AM EDT
I believe that if we knew the working conditions in the factories that many of the products that we buy were made in most of us would be ashamed. It's another inconvenient truth about the world that we live in. Apple is at least acknowledging this issue and will hopefully work towards improving conditions for workers making Apple products.
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Daryl.H
4/11/2012 9:49 AM EDT
What is a "safe working environment" and a "living wage". Please define? All these great platitudes of the writers here make me wonder what are you guys talking about. Are the workers breathing mercury vapor? Drinking water contaminating with arsenic? Maybe or is it to much stress? or maybe a step up for the employee who comes from a home that has a dirt floor? Apple, Nike, Sunbeam... name your company they all have moved off shore. Want to make sure everything is fair? then demand that the merchandise you purchase be made here? Not willing to pay the cost? then go away and stop talking about living wage and safe working conditions.... Give me a break....
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dencon22
4/11/2012 10:40 AM EDT
Thank you for that reality check. Can't wait til the b*&#%ing about high prices and or lower earnings is a big surprise.
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Frank Eory
4/11/2012 6:17 PM EDT
This whole discussion reminds me of a segment several years ago on one of the newsmagazine shows. The subject was the plight of workers in the textile industry in Bangladesh and the influence of Walmart buyers and the endless pursuit of cutting costs.
They profiled a worker -- a single mother living in what westerners would describe as deplorable conditions, and they even brought her to New York, and to a Walmart where she found some of the very clothing she had sewed.
Various Walmart shoppers were asked, on camera, if they would be willing to pay just a little bit more so that this woman and others like her could have a slightly better life, maybe more nutritious food and so on. The majority said "no" -- times are tight, I shop here for the low prices, and all the usual excuses.
Dylan says "moral consumers" should send a message to Apple and other companies that we won't buy their products unless blah blah blah.
Call me cynical, but I suspect that if all the "moral consumers" took Dylan's advice, the effect on sales of Apple or Dell or HP or Nike or Aeropostale or whoever would be less than negligible.
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dylan.mcgrath
4/12/2012 2:03 AM EDT
Sadly, Frank, I agree with you 100 percent. But I don't think it's that people are amoral or that they don't care, I think that people just don't truly think it through. I have to admit, until the last couple weeks, I didn't truly think about it. We've all got plenty of issues of our own to deal with, and it's not that easy to step outside of our situations and think deeply about the plight of other people that we don't personally know. But after giving it consideration, I feel that this is wrong and I personally won't support it.
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dylan.mcgrath
4/12/2012 1:57 AM EDT
Safe working conditions start with unblocked exits and functioning protective equipment, both of which were found lacking in the FLA investigation. The investigation also found that the employees worked excessive hours in violation of Chinese labor law.
"Living wage" is defined as the minimum hourly income necessary for a worker to meet basic needs (http://bit.ly/9l7UOe). In the FLA investigation, 64% of workers said of employees said their compensation does not meet their basic needs. Not a living wage.
IHS said that if ODMs comply with FLA rules, costs will increase. But IHS added, "Even so, given the small proportion of manufacturing costs compared to component expenses, this is unlikely to have a major impact on company margins or consumer prices."
According to an IHS teardown analysis (http://bit.ly/FQQYYn), the 32GB, 4G-capable version of the new iPad has a bill of materials cost of $364.35 and manufacturing cost of $10.75. Apple sells this model for $729. If the IHS estimates are accurate, the manufacturing cost is about 3% of the total cost to produce the device and about 1% of the retail price. If Foxconn were to give all employees a raise of 25%, how much more would you expect the iPad to cost?
You touch on the crux of the issue. At the same time that there is soul searching (among some) over labor practices in foreign countries where the electronics goods we buy are produced, many in the U.S., including the president, are concerned about manufacturing disappearing from this country. The pragmatist in all of us accepts at some level that offshoring manufacturing to developing nations with lower wages makes sense from a business perspective. But if we as consumers insist that the people who make the goods we buy be provided a safe working environment and paid a living wage, perhaps the numbers look different. Perhaps, if the exploitation of human beings were removed from the equation, it might not seem so foolish to just build stuff in the U.S.
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rick.merritt
4/11/2012 11:45 AM EDT
It's about time someone shined a light into this cave.
The electronics industry has been pushing the envelope of how it can use low cost labor since before I started covering the industry 21 years ago.
Yes, many people and whole countries have seen their economies rise up thanks to high tech jobs. But the ride hasn't been and isn't now all wonderfulness.
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dranger
4/11/2012 1:56 PM EDT
The shrill nature of this article's rhetoric screams "hyperbole!" and diminishes its credibility. For example, the statement "working more than 60 hours per week and not being compensated with overtime" implies they were forced to work an additional 20 hours with no overtime compensation. The reality was quite different, up to 14% _may_ have not received full overtime compensation; unscheduled overtime was paid in half-hour increments, and so a worker could have been shorted up to 29 minutes overtime pay.
Leave the rhetoric to the politicians; please keep it out of EE Times.
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dylan.mcgrath
4/12/2012 2:18 AM EDT
@dranger-I don't agree that the article is "shrill" or that it "screams hyperbole." But you make a fair point about the characterization of the overtime pay issue. I have made some changes to that paragraph after considering your comment. Thanks for weighing in.
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Mr Ness
4/13/2012 6:30 AM EDT
I have worked on deals where we have competed head-to-head with Foxconn for Apple manufacturing contracts. I must admit that we struggle to compete with them on price as they have a completely different set of ethics to us.
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DMcCunney
4/14/2012 12:46 AM EDT
The problem is that China is a largely agrarian third-world nation trying to bootstrap itself into the 21st century and become an industrialized first world nation. We act horrified at the working conditions in Chinese factories, but fail to recognize that those jobs are steps *up* in pay, hours, working conditions, and status from being a peasant in the fields, and there is competition to *get* those jobs, with corresponding problems caused by mass migrations from rural areas to urban centers as people move to where the jobs are.
Another overlooked factor is that those jobs are attractive opportunities for *women*, in a culture where men are valued and opportunities for women are not abundant. Electronics assembly is a task that can be done by a woman as well or better than a man, which is not true of many of the other better paying jobs.
Yet another overlooked factor is fundamental differences in the underlying culture. The most important social unit in China is the *family*. Things are done for the benefit of the family, and by our standards, the individual simply may not *matter.* I think you'll find that many of those workers at Foxconn and other manufacturers are sending most of their pay back home *to* their families. They are working for the benefit of their families, not themselves.
What China is going through now is a stage I think every developed first world nation had to pass through on the way to becoming a first world nation. Conditions in China for those workers will improve as their economy expands and they come closer to *being* a first world nation, but while we can try to mitigate what we see ad problems, we can't make them go away.
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DrQuine
4/21/2012 11:24 AM EDT
The "moment of reckoning" was long ago when the labor conditions and suicides at Foxconn were first revealed and made international headlines. Now we're observing a steady evolutionary progression of data gathering and corrective action. Wages and working conditions will continue to improve in China. The balance points will continue to shift for domestic vs. outsourced manufacturing decisions depending upon labor costs, shipping costs, intellectual property, technical support, and delivery time considerations.
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