Apple uncovers poor conduct at some of its contractors

I think the foreign pressure will be good for China, in awakening people to higher labor standards. And it will produce good response provided it isn't too aggressive or done with a political agenda in mind - as too often happens.

But this story has another side that is less pleasant. The foreign firms, Apple included, seem to me almost obsessed with greed, to the point where they won't let the manufacturers make a decent profit.

As an indication, most consumer goods exported from China can be resold at 10 times their cost, and often at 20 times or more. The prices really are incredibly low compared to the West.

For e.g., I used to be able to buy a small gyroscope made in the US, at a wholesale price of $7.50 + shipping. But I could buy the identical product in China for US$0.55, and sell it locally in Canada for $15.00. That's not a bad margin.

But the US multinationals especially, will try to force the price down to $0.45 or $0.35, to increase their margins even further. They truly don't give a damn for the welfare of Chinese manufacturers or workers. They know that price pressure will result in abuses, and they know a factory cannot afford to kiss them off.

One of the worst in the world is Wal-Mart; their price pressure tactics are legend. They will send their own experts to a factory to find every 1/10 of a cent of potential price reduction and demand that they receive all of it. That's just blind greed.

For my part, if the factory doubled their price, I would still be happy, but the large corporations have a different religion and that is the root of the problem.

The only solution I see is for China's manufacturers to become much better organised and much more aware, and to collectively rebuff all this pressure, even if it means losing some production to Thailand or Vietnam.

China does have to get a much higher share of the revenues from its industries. For too long, China has made only $1.00 on an iphone that eventually sells for $400.00. The prices must rise so the factories can improve the lot of their workers, and that means pushing back hard on the multinationals.

"But this story has another side that is less pleasant. The foreign firms, Apple included, seem to me almost obsessed with greed, to the point where they won't let the manufacturers make a decent profit."
-watchingchina

what a hilariously meaningless statement. all apple or any company does when outsourcing is go with the lowest bid. which, btw, is the only reason any of this manufacturing is in china to begin with.

if apple wanted something other than the lowest bid they'd make it in the western world.

I laugh every time I find 'fair trade' tea or coffee on a store shelf. Does it mean everything else we buy is non-fair? Should Apple or Nike offer 'fair trade' iPod or sneakers?

We use internet to shop for the best deal, and no one cares if the employee wages of a more expensive store is higher than a cheaper store. Walmart is the most successful retailer in the world because customer shop there for a superior combination of price, selection, quality, and service. A large part of its success comes from its legendary supply chain management.

The labour abuse and other horror stories will continue if customers demand dvd players for US$19.99. If customer only buys 'fair trade' products, then things can change for the better. The customers' votes with their wallets speak much louder than lip service to equity and fair trade.

The silver lining to the story is a shortage of cheap labour in China now, and factories are increasing wages and improving work condition to attract workers. Basic economics work.

"China’s reluctance to grant visas to foreign reporters and its censorship of the press does allow factories to elude ... scrutiny ... But even China may have limits. ... a government mouthpiece, reported that 62 workers had been poisoned in a poorly ventilated factory in Suzhou run by Wintek, a Taiwanese manufacturer"

Note that the above news item implicitly shifts part of the blame to the Taiwanese -- How the Taiwanese business "exploits" the Mainland people.

China selective reports, and manufactures, "news" to fit the agenda of the government or its corrupt officials.

Does this surprise anyone?

China has been doing this, since before the Communists, going back dynasties before dynasties.

watchingchina hits the nail on the head, as usual.

Most of the graft that goes on is the part of the foreign firm's lack of oversight. Any subcontractor is likely to shirk if not watched carefully. Chinese manufacturers in an attempt to eke out a bit more revenue may make the walls of a bowl a few millimeters thinner, or sew a few less fibers per shoe. The immense competition for these contracts only worsens the matter.

MNCs have to know that they must invest in supply chain oversight, no matter what country in which they operate (do you think Vietnam is any better?)

Customers looking to buy at cheapest prices is a very rational and understandable behavior, same as suppliers will always look to sell their products for few cents more.

Blaming Walmart and the likes for the labor abuses is like blaming a woman being too beautiful to induce rape. Suppliers always have the choice of not selling to Walmart or any of those evil empires and continue to make and sell expensive products in their own countries while paying their workers bundles of money. These abuses are perpetrated by the very same people who live in the same community as the workers.

Trying to justify such abuses by blaming foreigners are pathetic and will only ensure the continuation of such shameful practice. My sympathies to the workers!

@devils advocate
" It was reported that some of the critical components in the faulty Toyota cars were made in the US. (And Toyota said that it would use Japanese made one ones in the future. Did the Economist or other Western publications blame the US government or component suppliers for the recent/current fiascos? "

An excellent question indeed!

@chelau
Great analysis!

@All
' The Chinese Worker ' was one of the three finalists on Time's 2009 "Person of the Year" list of candidates. I was very disappointed when Ben Bernanke was chosen instead.

I do believe the REAL and the ONLY CULPRIT of the current very sad state of welfare of workers in ALL developing countries IS THE CONSUMER IN RICH DEVELOPED COUNTRIES as chelau has so correctly pointed out. Thank you.

Admit ably China does have its issue with the labor abusing, not from the government level, but from the private sectors who exploit the government's lack of enforcing the existing China labor laws. But on the other hand, why the west compaies go to China or any other 3rd world country for their manufacturing at first place? If China can establish and enforce the labor laws like the west industrialized countries, could these companies still go there for their manufacturing?

Looking closely, what is the reason for these companies go to those 3rd countries at first place: To help improving the living standard of people there? Hardly! Those companies, specially the publically traded companies like Apple, have their first priority on “PROFIT” as documented in their various financial filings. To make profit, you either raise the selling price up, or squeeze the cost down. Since it is harder to raise the price in the developed country's market like the US, squeezing the cost down become a nature choice for the companies. How to do it, well, anyone from the China suppliers providing products to West companies like US based K-mart; Wal-Mart and Apple / Dell, or EU based Carrefour, will tell you the similar stories of pressures from their customers on lowing the cost – at all cost.

And what suppliers can do, follow the "food chains" to squeeze the poor workers, the results is what this article describes.

What this article misleads is its pretending that western companies held high moral and requirement for its suppliers respect the labors and follow the labor stands while implies that it is the Chinese or Taiwanese factories who do not respect the workers rights.

How about those factories start follow the standard and raise the cost accordingly (to not squeeze the workers of their hours, the suppliers will have to pay the OT and other fee associated with workers benefits as outlined in law or Apple like companies)? The Apple alike companies will simply go somewhere else where the factories are more than willing to squeeze the labor cost to meet their demands, and when the issue was discovered again, Apple alike or Economists can simply do the same thing as they are doing now.

This is what Capitalism + democracy of the west is all about, Shame on the auther of this article for playing innocent.

Everyone (by now) should realize the private enterprises are all about profits and that any activity that can be understood as "good corporate citizenship" by a company is PR and marketing baloney.

I don't like how the last paragraph lays blame to the Chinese government. China is a poor country that has underdeveloped institutions and mechanism to ensure human (and, in this case, worker) rights. We know this very well and no one in the right mind would expect China can miraculously improve to Western standards by tomorrow although they are improving bit by bit over the past decade. The Chinese government also has the hard task of balancing - too much protection of worker rights and it risk losing ground in its export industry (one of the critical roots for the country's economic growth and development) because of a lost of cost competitiveness, too much ignoring worker rights would cause resentment from the masses and scrutiny from the "holier than thou" Western nations.

The factories in China are NOT the main blame either. They do what they do to survive in a cut-throat industry and takes full advantage of whatever they can get away with - lest they will go out of business because it is Apple and Western Companies that are playing hard-ball by negotiating down prices (and margins). When pricing meetings take place, do you think the Western Companies are saying, "well, we'll give you a higher price but worker's rights must be maintained"? NO. They are saying, "give me the lowest you can go, then go lower than that or else I am going to the next factory down the block". The fact the IP can be kept confidential for Apple by Chinese factories clearly show that the Western companies DO IN FACT have all the leverage of the situation - it is to the advantage of Western companies bottom line if the plans for iPad are kept hush, and in fact it is kept hush - even though profits are to be had by factories that sells or reveals this information. So if the Western companies have the leverage to dictate, then I suggest that worker rights can also be dictated. The chance for extra profit is not what is motivating the factories to cut corners, it is the lack of margins and the survival instinct by the factories that is the culprit.

So whose fault is it really? Where's the blame? Why are the Chinese factory always the butt of jokes when toys with lead paint or tainted dog food reaches America shores? Isn't it the responsibility of the IMPORTING company, the company whose NAME is on the product and whose BRAND is on the line to manage their works (i.e. their factories) and meet importing rules? Consumers don't buy a toy because it is "Made in China" they buy a toy because it is from Mattel.

You are gonna depend on people half way around the world barely making enough to economically survive and who have no sense of the standards of modern society (i.e. they drink out of lead painted tin cups all everyday!) to make sure dog food isn't tainted? In my mind, the blame is clear: it is the American companies that come to China to look to find ways to gain more profits that are the culprit for lead paint on toys, abuse of local workers, and other maladies of globalization. The media and the mindset of nationalism is what makes China the bad guy on the news.

I have American friends that work at Hon Hai that produces Apple goods. Apple doesn't freaking care about workers - they care about price per unit. That's it. Not that you can blame them - they are a corporation, for crying out loud; not a charity.

So if the American companies can't be sensibly reprimanded because they are corporations, afterall, then what solution is there? The American government has to be the last line. They are the ones that set the rules of conduct of their corporations - they can set the rules and mechanisms that prevents corporations from abusing foreign workers or that stringently upholds the quality of imports.

BUT isn't the Western governments democratically elected by its own citizens? So if you are an American, there is your answer to where the solution lies - in you. I am an American for the record, but I just feel that the concept I wrote in this post should be made clear to others.

It is ironic that a Communist regime is doing this to its labour, while a business house from a so called capitalist country is trying to tell China,how it should improve the lot of its labour.World has been going ga ga over China for much too long.Time has come to stand up and read the riot act to the Chinese.They have seized political power with a promise to usher in a revolution and are ending up in an Orwellian nightmare for the world.
Americans are busy garnerining support for the sanctions against Iran and continuing a very painful powwow with China.Looking at what China is doing to its teeming millions and its neighbours, Iranians should appear as apostles.

It seems I can't read an article discussing China without having to contend with professional Chinese bloggers. Guys, look, China has kept its currency low to make sure manufacturers go to China. And it works. So every company wants to build in China. This is good for China's people, no doubt. Standards are higher in the US for companies, maybe unreasonably so. It is SO hard to fire an employee, they will cry racism, sexism, disability, ect. But lets just call a spade a spade: Manufacturing in China is a different thing altogether. They likely violate most charters that western companies have. So, what should happen is that, like Apple did, Apple found out and (amybe reluctantly), said 'hey, we need to all to operate at a higher standard'. The push for better standards is good for China, although I am sure that often companies turn a blind eye so they can make a better profit. But stop making this a 'China vs. The West' thing. China is admirable in attempting to exceedingly quickly become industrialized and super-powerful, something it took western countries 200 or so years to do. Along with that come a learning curve. I just think that one dosn't have to assume that it is China bashing every time an article discusses the slow process of engagement between the East and the West. No doubt in XinHua there are often articles which detail what Xinhua sees as problems in our system. And that is fine, China has good points to listen to. By the way, I am taking my time to do this, not getting paid by anyone to support any government.

@devils advocate
Hell, I'm still surprised no one in the SEC get in trouble for the whole Madoff affair.

I don't believe that Apple can be held entirely responsible for the working conditions in its foreign factories. After all, the direct management doesn't work in the US.
To this extent, I would not necessarily equate Apple's profit-seeking behavior with greed anymore than I would for another company looking to cut costs; that is normal.
If you want to be blunt about it, greed is what makes the world economy go 'round.

"China’s reluctance to grant visas to foreign reporters and its censorship of the press does allow factories to elude the kind of scrutiny that would be routine elsewhere."
And foreign reporters will report? Anything come out of the Olympics when foreign reporters flooded in? Oh they were in Tiananmen square telling us people around them were secret police, in Tibet, in Sinkiang. Really? Which manufacturer scrutiny has been started with foreign reporters?

> OpenYourMindQuaid wrote: Mar 4th 2010 10:25 GMT

It is laughable to hear comment like this, a typical west mentality, do you want to know the break down of the cost for selling each iPhone… check it out below, and read the Apple’s quarterly earning report, you will understand that it is not laughable matter if you are serious about the labor abusing issue of this article

It is laughable to hear comment like this, a typical west mentality, do you want to know the break down of the cost for selling each iPhone… check it out below, and read the Apple’s quarterly earning report, you will understand that it is not laughable matter if you are serious about the labor abusing issue of this article

http://blogs.zdnet.com/hardware/?p=4792

I'm glad at least some companies try and do the right thing. Make no mistake, economics drive the manufacturing to China and cost is a big factor. However, you don't see many of these western clients demand audits, Apple does.

Why does this subject make otherwise rationalist people turn into frothing colonialists? The basic premise of your article is that Western firms should take on themselves the responsibilities of the local police in enforcing labour laws. If the local labour laws are not to your taste, Western companies should impose stricter ones. Why stop at labour laws? I'm sure there are lots of other laws you would like to see better enforced in the developing world. Should Western firms enforce those as well? Perhaps we should bring clone the East India Company and just annex whatever countries figure in our supply chains?
Instead of blaming Western companies, next time you report on poor labour standards in China or India or wherever, name and shame the local police. That is, after all, where the blame lies.

The statement "China’s reluctance to grant visas to foreign reporters and its censorship of the press does allow factories to elude the kind of scrutiny that would be routine elsewhere." is mistaken.
China's industry is heavily inspected not by foreign reporters, but by professional quality inspectors from countries all around the world, who are employed by foreign customers.
China's investment in engineering plant, training and education is making it the natural workshop of the world for affordable quality manufacturing. Without third party inspection, auditing and vigilance of an agreed quality system, it is true that most Chinese factories will cut corners. However, they are learning from the foreign inspection regime, and improvements in their own systems are evident.
As one who earns his living doing this quality auditing inside China, I can see that China is improving the living standards of its workers whilst whilst dealing with competition from Indonesia, Thailand, Vietnam and the Philippines. China is actually going upmarket in engineering, following Japan, Taiwan and South Korea.

Per my wickedly long post earlier:

If we (Americans, I mean) are concerned about lead paint in toys from China or the dire state of work conditions in developing countries, then the solution is quite simple: quit voting in a government that is "business-friendly" which lets corporations run amok, not only in our own countries, but around the globe, for ways to make more profit (in the name of "freedom" no less)! And when a leader that is not necessarily "business-friendly" comes into power, we have to stop complaining why the economy isn't growing at blistering rates (like they had in second half of the last decade - look at where that led us) in the short term and have the peace of mind that it's all in the name of human decency. Yes, I am a Republican hater...beware of people like Mitt Romney.

Based on Maoist credo, the Capitalist roaders have usurped political power in China.

Nowadays not only most local governments fail to protect the basic rights of farmers and migrant workers, the emphasis is on profits and their own promotion. Thus they have failed to supervise the poor conducts of local and foreign investors.