You Cannot Build a Brand on a Foundation of an Abusive Supply Chain

Thursday, May 27, 2010 3:09
Posted in category From the Factory Floor

For long time readers of All Roads, you will know that one of the topics i have follows has been related to the systemic issues apple has faced within its supply chain. it is a topic that in the last few days has come to a head with the near daily suicides occurring on Foxconn’s various campuses, but this has been a long time coming.

Historically the issued faced by apple, through its suppliers, were really no different than anyone else. failed wags payments, unpaid overtime, and poor dormitory conditions. issues that could have been addressed easily, but often required line workers to go on strike before the supplier acted.. And apple ‘investigated’.

Over the last year this has changed. earlier this year reports of a strike at the Suzhou Wintek facility highlighted that overtime and wage payments had still gone unaddressed, but worse, it was at this time that the rumors of chemical exposure began to circulate. rumors that were later confirmed as cctv reported up to 100 line workers were being treated in local hospitals for n hexane exposure. A substance not legal in china. An incident that perhaps has left some employees paralyzed, and for me is probably the real story that should be followed, but with Foxconn’s campuses now stringing up net to prevent more suicides in the news it is easy to see how the focus has shifted.

So, where does this leave Apple now? in a word… Exposed.

3 years ago apple’s issues at Wintek largely flew under the radar in China and the announcement of an internal investigation ended the international coverage. It was a situation that I warned could have an impact IF Apple did not get a handle on it, and at the story pretty much died there as everything appeared to be “under control”. But time went on, the issues piled up, and now the recent suicides at Foxconn facilities have left Apple with two huge problems: one supply chain, and one brand

Both with I cover in my recent Supply Chain Asia article Coming to Terms with the True Costs of Outsourcing (download here), but in short, I will leave it with the following line from the article:

While developing the case for an offshore or outsourced production model, firms traditionally only looked at bottom line cost savings and will have to take a much more mature approach to making these decisions going forward so as to ensure their place and success in the market.

Firms are no longer simply outsourcing their products, they are trusting partners to safeguard their brand and the availability and safety of the product.

Apple’s supply chain is rotten, Foxconn is toxic, and action must be taken by Apple to rectify the systemic errors that exist.

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24 Responses to “You Cannot Build a Brand on a Foundation of an Abusive Supply Chain”

  1. Foxconn Suicides: Common Narratives Are Uncertain Causes | china/divide says:

    May 27th, 2010 at 6:42 am

    […] doesn’t care about its pub­lic image, it may care about what its client Apple thinks, and Apple should care about its pub­lic image. Remem­ber Nike?The prob­lem with this nar­ra­tive is that we don’t actu­ally know to what […]

  2. lark says:

    May 27th, 2010 at 9:01 am

    Your download link is broken.

  3. Rich says:

    May 27th, 2010 at 9:04 am

    Thanks lark

    fixed

  4. uk visa says:

    May 27th, 2010 at 9:24 am

    Hi Richard
    Yes, I think you’re right – Apple does have a greater responsibility to it’s (outsourced) workers and to its shareholders to maintain the integrity of the brand.
    I had no idea about the n hexane exposure incident; being cynical for a moment one could see the suicides as something of a convenience for Foxconn – have an attention grabbing problem – with questionable liability – drawing news away from the other incident – for which Foxconn is unquestioningly liable.

  5. Rich says:

    May 27th, 2010 at 11:22 am

    UK

    I don’t think you need to be cynical at all. their stringing up nets is almost humorous, and the forms they tried to get new employees to sign was laughable.

    R

  6. Sarahplusone says:

    May 27th, 2010 at 7:22 pm

    A question that has been bothering me, and has not been answered anywhere that I have read so far, is why this Foxconn plant tied to Apple has become/remained such a horrible place for its employees? Foxconn builds for Dell, Nokia, others as well. Do the same conditions exist at other facilities? Does the Foxconn plant in question really only build for Apple or is it just the brand that’s taking the heat for a much more wide spread and significant problem in China’s outsourcing industry? Something tells me there is more to this.

  7. Paul Denlinger says:

    May 27th, 2010 at 7:28 pm

    Rich, in your opinion, what would a fair and equitable long-term solution look like?

  8. gregorylent says:

    May 27th, 2010 at 8:08 pm

    addiction to secrecy, control, all things anal … lead to hyped-up security, including guards, my guess at the point of application of suicide-inducing pressures

  9. Paul Denlinger says:

    May 27th, 2010 at 8:30 pm

    Tom Foremski of Silicon Valley Watcher has a good article on this subject:
    http://www.siliconvalleywatcher.com/mt/archives/2010/05/foxconn_suicide.php

  10. Paul Denlinger says:

    May 27th, 2010 at 8:54 pm

    My conclusion is that globalization and consumerism are fueled by 21st century industrial manufacturing concentration camps.

  11. Rich says:

    May 27th, 2010 at 10:23 pm

    Sarah

    Good questions, and in short I would argue that the media has done a poor job of properly putting this recent issue into the right context.

    First, Foxconn does supply all the firms you mentioned, and more, and I have seen no report that suggested it was 10 APPLE line workers who had committed suicide.

    Second, as far as I can tell, these jumps are happening at MULTIPLE locations, not a single location, which would make identifying the lines (as an external) even more complicated.

    Lastly, the reason I myself have focused on Apple is that, beyond Foxconn, they have had MULTIPLE supply chain labor issues in the last 3 years within Foxconn, Wintek, and others that I feel make them particularly vulnerable.. and exposed.

    So, you are right to ask about the tieup, and who is at fault, and what I would say to you is that (given the above) there are two areas of focus. Foxconn’s internal operations, and the conditions that are resulting in multiple suicides in a short time frame, and Apple’s wider supply chain problems that include Foxconn, Wintek, and many others that are not non compliant with local laws .. or Apple’s “standards”.

  12. Rich says:

    May 27th, 2010 at 10:33 pm

    Paul

    3 years ago, when Apple first started having problems and I began writing about the risks, Apple had a TON of options. They could have dropped Foxconn altogether at that point if they had really wanted.

    But, that was another time, and the folks at Apple fell into the all to common trap that exists in China. they put all their eggs in one basket. Foxconn’s basket.

    What I would expect at this point, and keeping this within the context of the recent suicides at Foxconn, the power equation needs to change. Through many of the conversations I have had about Foxconn, it is clear that they are the WalMart of the electronics industry. they hold a lot of power because firms like Apple give them everything, and are in a poor position to pull out. So, Foxconn can be a bit pushy on issues… should they choose to.

    This is where I would focus. Were I an executive at one of the client firms (HP, Dell, Moto, Apple, etc), I would put out a call to my peers and create a united front. Foxconn either complies, or they all walk, and to make sure they comply, these peers must begin standardizing their labor requirements.. and sharing inspection data.

    Next, were I a firm that had trusted Foxconn with everything, I would quickly begin looking at alternative sources. Sources that would provide balance, and safety, in production, as there is a very real risk of further incidents at Foxconn occurring in manner that halts production (government action, strikes, consumer actions, etc).

    Finally, and this is getting a bit more long term, I am going to be interested to see how firms that were planning to shut down facilities in China to outsource to Foxconn will proceed. Without naming brands, I know of two firms who were well down this path.. and these recent issues may force them to reconsider outsourcing to Foxconn… outsourcing at all.

    R

  13. Rich says:

    May 27th, 2010 at 10:41 pm

    Paul

    you ever seen Manufactured Landscapes? If not, pick it up. It’s a brilliant piece on society, consumerism, and manufacturing.

    R

  14. Paul Denlinger says:

    May 28th, 2010 at 1:32 am

    This morning I was thinking about something I had read about the Nazi concentration camps. Many of the Germans who ran the death factories were obsessed with measuring everything, including how many calories each prisoner would consume, how much labor each could perform, and how long they would be useful before they were executed. Even how much their hair and gold teeth could be sold for after execution was counted. Everything was measured and quantified according to the best standards of cost accounting of the day.

    Throughout the whole process, they had forgotten the basic inhumanity and evil of their actions.

    Then it occurred to me that this was exactly what the Foxconn management was doing. Of course, they have not gone as far as executing their hapless employees, but there are a few who feel unfortunate enough to want to take their own lives.

    Like the Nazi death camp administrators, there is an obsession with measuring and quantifying value and return on investment from employees, which is why each employee must perform their actions in three seconds, must not speak to each other or they will have their salary docked, etc.

    I must say, I have no respect for the Taiwanese contract manufacturers AT ALL. They fail in business, and they fail as human beings.

    Steve Jobs calls himself a Buddhist. Buddhists believe in moderation, and treating all living beings with dignity and respect. Where is his Buddhism when it comes to Foxconn employees?

    Or is he just another hypocrite pursuing profits for his shareholders and Wall St, and who uses Foxconn to compartmentalize that which he doesn’t want to deal with?

  15. crystal says:

    May 28th, 2010 at 6:32 am

    The abusive labor practices by Taiwanese-owned companies have been pervasive in China for a long time. Apple and other U.S. companies know it very well but choose to ignore because they believe that things will not go wrong. Why? It’s the special status or privilege accorded to the Taiwanese companies by the Chinese government, which virtually shields them from any legal consequence or liability for their violation of Chinese labor law. That’s why Apple continues to use Foxconn and other Taiwanese companies. But Apple has underestimated the power of Chinese netcitizens.

  16. andeli says:

    May 29th, 2010 at 8:09 am

    I know this is not going to be popular, but how many in this forum are willing to pay more for their consumer goods?

    I know that the first thing to pop up in my mind when I see an ipod or iphone is not if the poor person who made it had good work conditions or not – It more like what does this thing cost?

    Now I know that the product supply chain is not what really pushes the price up, but still good due diligence/check ups/foreign (Western inspired)supervision/creating a new supply chain cost money and who is going to pay the extra fee? The consumer? or will the nice people at Apple take a pay cut?

    You can make Adorno/Horkheimer like critiques of the system, but in the end are we putting our money where our mouths are?

    And a united front between HP,Appple, Dell etc.. I like the idea, but it as unlikely as consumers going after anything but design and price. Ps The buddhist build 614 kg gold stupas for their leaders. Talk about focusing on this world and not the next one.

    Don’t get me wrong I will support this by trying not to buy Apple stuff, but its the same old problem how much is on the company and how much is on the consumer?

  17. Paul Denlinger says:

    May 29th, 2010 at 8:55 am

    This article from the Fake Steve blog written by Dan Lyons is just too good:
    http://www.fakesteve.net/2010/05/our-new-spin-on-the-foxconn-suicide-epidemic.html

    Tom Foremski has an interesting take on Silicon Valley Watcher with the need for a first “fair trade” tech company:
    http://www.siliconvalleywatcher.com/mt/archives/2010/05/who_will_be_the_1.php

    andeli:
    I’m well-known as an Apple fan; I like the products. But since Apple is the only maker and distributor of Apple products, I really can’t make comparisons with other companys’ products. So the rules of comparison shopping don’t apply. If Apple said that they were going to mark up prices 10% to support fair trade and manufacturing practices, I have a hunch that their sales would go up instead of down. People who gravitate to the Apple brand tend to have those kinds of values, along with higher incomes. Plus they don’t buy commodity products, they’re buying brand products.

  18. Eric Olander says:

    May 31st, 2010 at 7:26 am

    While I would like to think that these suicides leave Apple’s brand exposed to criticism, the reality is far different. You have to understand that stories like this get little to no air time outside of the China or supply chain related blogosphere. You ask pretty much anyone on the streets of the US or here in Europe if they are aware of these suicides and they will no doubt look at you with puzzlement. Furthermore, even when they do know of the problems, the average Apple consumer does not make the connection between their purchase and the problems in the supply chain. It is just too abstract.

    Moreover, it should be noted that human rights violations almost never factor into consumers’ buying decisions (no matter how much we wish otherwise). Take the US food supply, for example. It is widely known that illegal immigrant labor, largely Latino, work under terrible conditions to insure our food is cheap. It has been a long time since Cesar Chavez and all the research indicates that price is a far more important determinant than labor in influencing buying decisions.

    It is wishful thinking among liberal elites in coastal US cities that think the Foxconn suicides will have even the slightest effect on the Apple brand. People who do not purchase an iPhone or an iPad based on the Foxconn issue were most likely on the fence anyway. Moreover, there is a certain degree of hypocrisy on the part of people who take a stand on the iPad yet do not do sufficient research on the other products they consume which are also invariably produced under sub-standard labor conditions. To live in the developed world is to consume such products. There is just no way to avoid it.

  19. Rich says:

    May 31st, 2010 at 8:16 am

    Crystal.

    I would agree that TW firms have had a reputation for poor labor practices, and it is largely why they were the ones that had the most trouble a couple years back when there was a labor shortage. People just don’t like working for them if there is a choice.

    R

  20. Rich says:

    May 31st, 2010 at 8:20 am

    Andeli

    you ask some big questions, and ones that I am sure many would prefer not to have to answer.

    Me – while I would love to have the new iPhone or iPad,I will not be purchasing one for myself. there are some who say that buying any electronics, and you will have the same delimma… which is of course true on some level… but Apple’s problems are far wider than the recent Foxconn incidents (i.e. Wintek), and their supplier responsibility report is a slap in the face to anyone who is in the business of corporate responsibility.

    So.. I for one will no longer be supporting Apple. I have a 3 year old iPhone that serves as an iPod now, and when that dies, I will do my best to find someone who will recycle it

    R

  21. Rich says:

    May 31st, 2010 at 8:22 am

    Eric.

    I would largely agree with you that the average European or American is probably unaware of the issues, but that was not my primary focus. My focus is, and always has been, the fact that Apple’s biggest market is going to be China (25 stores planned over next 18 months), and that it is the Chinese who are going to care.

    Which will impact the stock

    Which might actually wake a few people up

    R

  22. ian channing says:

    June 3rd, 2010 at 11:34 pm

    Am I alone in finding this whole string-of-suicides story a bit strange? If I am unhappy in a job, I leave the job. I don’t kill myself. Last month when I visited north China there were help-wanted posters out everywhere, offering wages at least 25% higher than two years ago even for the lowliest jobs. So alternative employment seems to be available.

  23. Rich says:

    June 4th, 2010 at 1:51 am

    Ian.

    Question is not about whether or not you would quit and go get another job, but whether or not you feel you could. How many times have you seen a restaurant staff hauled out on the sidewalk so that they can be motivated by management? for me, that is something I would not tolerat, but for others it is not so simple.

    That being said, your comment brings to mind two questions:
    1) How long had they been employed by Foxconn, and was Foxconn withholding money from them to make the economic costs of moving to another job too expensive to think about

    2) Was there something else that was going on beyond the 10 – 12 hour shift that we are not being told? It is highly possible that there are catalysts that occurred before they took their life that may or may not have anything to do with Foxconn (or its management) that pushed them over the line.

    So.. I would agree that there is something strange going on.. part of that being 10 ppl have taken their lives in a single company in a short span of time, while another being the real lack of information surrounding the suicides.

    R

  24. ian channing says:

    June 6th, 2010 at 11:18 pm

    I guess at some level this parallels Japan’s karoshi problem (same characters as guolaosi in Mandarin). But even in Japan, which “invented” it, karoshi, or death by overwork, remains controversial and courts are often unwilling to recognise it when it comes to legal action, saying other personal issues were involved.

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