Is Apple About to Bottom Out in China?

Thursday, January 26, 2012 1:03

Apple is committed to driving the highest standards for social responsibility throughout our supply base. We require that our suppliers provide safe working conditions, treat workers with dignity and respect, and use environmentally responsible manufacturing processes wherever Apple products are made.

This is the FIRST paragraph for the 2012 Apple Supplier Responsibility report (download here) .

A report released after not one, but TWO, iPad factories blew up due to aluminum dust clouds igniting in the factories.

Now, as many long time readers will know, Apple’s supply chain failures have been somewhat a passion of mine. My first post goes back nearly five years, and over the course of that time I have been trying to make the case that if Apple did not address these issues, it was going to become a problem for their bottom line.

Today, just a couple of days after Apple reported that they make a BILLION USD a day, I believe we are near the tipping point.

In the last week alone the NY times has come out with two pieces on Apple, one of which (Apple’s iPad and the Human Costs for Workers in China) is perhaps the best account of just how bad the situation is within Apple’s supply chain.. and the negligence of Apple’s executives in addressing the problems:

“We’ve known about labor abuses in some factories for four years, and they’re still going on,” said one former Apple executive who, like others, spoke on the condition of anonymity because of confidentiality agreements. “Why? Because the system works for us. Suppliers would change everything tomorrow if Apple told them they didn’t have another choice.”

This report follows others from a collaboration of China’s leading environmental NGOs, Jon Stewart’s Fear Factory, the regular play of Mike Daisey’s observations of Apple, and even follows the very public closure of one of their key Macbook suppliers, who were in violation of Chinese environmental standards.

Which leads me to my final point.  There have been more than a few references to the fact that Apple’s supply chain conditions, while perhaps illegal in the U.S., are acceptable here. But, nothing could be farther from the truth. Throughout its supply chain Apple suppliers are regularly violating labor and environmental laws, and in a way that exposes the firm (and APPLE investors) to risk.

Risk that they cannot meet market demand when a factory is shut down (until emissions meet SEPA standards), risk that they cannot meet market demand when a factory explosion (or two) takes production capacity offline, or more importantly, that ultimately they risk the China market.

That while Chinese consumers have so far shown no interest in group action against Apple, with China now Apple’s #2 market (was “other income” 3 years ago), Apple could lose its biggest cash cow ever.

With that, I will leave you with the words of Apple’s APAC PR Director Carolyn Wu “Apple is committed to driving the highest standards of social responsibility throughout our supply base”

… like a warm blanket from the dryer. Denial makes everything feel better for an instant.

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