Running head: ETHICS BEHIND APPLE AND FOXCONN RELATIONSHIP

1

Ethics Behind Apple and Foxconn Relationship Maryana Didovych The College of Westchester

ETHICS BEHIND APPLE AND FOXCONN RELATIONSHIP

2

Abstract This paper examines Apple, Inc.’s relationship with one of its biggest suppliers, Foxconn Technology Group. Recent growth in suicide incidents at Foxconn factories again caught media’s attention. Whether Apple’s decision to stay in business with Foxconn despite these incidents is ethical or not is examined using Traditional 5-Question approach. Contradictory evidence is also examined. Based on the result of 5-Question approach and reviewed evidence it can be concluded that Apple’s decision may indeed be unethical. Recently published evidence suggests Apple and Foxconn are addressing several issues, but close monitoring of the improvement process is required to ensure success.

ETHICS BEHIND APPLE AND FOXCONN RELATIONSHIP

3

Ethics Behind Apple and Foxconn Relationship One of the biggest suppliers and manufacturers of Apple Inc’s (Apple) products recently has been involved in scandals concerning working conditions of its factory workers. This company is called Foxconn Technology Group (Foxconn). It operates in more than 40 research and development centers as well as manufacturing facilities in Asia, Russia, Europe and the Americas. According to Pratap, Radhakrishnan and Dutta (2012), Foxconn is “the world’s biggest contract electronics manufacturer, taking in over 50% of global electronics’ manufacturing and service industry revenue. Its accumulated revenues for January to September 2010 reached NT$1.95 trillion (US$60.82 billion), up nearly 63% from its previous year—larger than some of the companies for which it manufactures products such as Microsoft and Nokia, by the rankings of the Global 500 companies” (p. 32). The same source reports that Apple’s earnings have also been growing and reported an increase in revenues by 52% comparing to 2009, one year before Foxconn’s issue generated public attention. Despite the growth in earnings for both companies, ethical performance towards stakeholders is not rated positively. Foxconn has been under media spotlight since the beginning of 2010 (Pratap et al., 2012). Concerns over poor working and living conditions for employees were triggered by frequent and growing numbers of suicide incidents of factory workers. Pratap et al. (2012) reports that Foxconn workers from different locations articulated that they are being treated worse than machines. The reason for such treatment is the difference in replacement cost: a worker can be replaced by another one at no cost but a machine has to be paid for in order to be replaced (Pratap et al., 2012, p. 33). Workers complained and continue to complain about the poor, military-like treatment by supervising staff as well as long hours that they are forced to work. On average Foxconn workers are said to work 174 regular hours per month and 80-100 hours

ETHICS BEHIND APPLE AND FOXCONN RELATIONSHIP

4

overtime1 (Lee, 2011). Pratap et al. (2012) reports that workers are forced to work overtime as well as on weekends and are not able to use their paid days off benefits because of low salaries and threats of being fired. At Foxconn’s Indian factories, permanent status workers are often divided into grades, A, A+, B, C, or D, to save labor costs and divide employees among themselves even though everyone is capable of doing someone else’s job and often does. Employees in training or on temporary probation at these locations, before receiving regular employee status, often remain in the same beginner’s status for a long time, while receiving trainee or temporary probation worker’s salary (p. 33). Pratap et al. (2012) also reports that among issues voiced by workers was the issue of receiving less than adequate health care benefits and substandard medical care on factory premises. Additionally, employees reported that Foxconn does not publicize problems that arise in its factories (a fire in one of the factories was hushed up; gas poisoning was brushed off without providing proper care for employees) (p. 33). Poor living conditions are also the cause of workers’ unhappiness. Even though the factories’ living premises are reported to be well-equipped for living, complete with swimming pools, tennis courts, computers, TVs and interest clubs, workers are unable to enjoy these benefits because of long hours and poor maintenance of the premises (Moore, 2010). As alarming and even heartbreaking as these issues at Foxconn’s factories are, Apple does not seem to be too concerned with the situation. Its products keep coming out faster than the products of any other electronics’ company. To keep up the pretense of caring about what is happening at the factories where these products come from, Apple’s website contains reports and information on its current policies and regulations it enforces on its international suppliers– information that should help it maintain consumer loyalty and confidence in its products (Apple, Inc., 2012). For example, Apple’s Supplier Responsibility Report (Apple, Inc., 2012) indicates
1

Legal limit for overtime in China is 36 hours according to Global Compliance Workplace Network.

ETHICS BEHIND APPLE AND FOXCONN RELATIONSHIP

5

that any violations that it has detected in its suppliers’ performance are being addressed2. Information on Apple, Inc. (2012) states that it is actively educating its suppliers (about local laws and regulations applicable to suppliers’ factory locations and Apple Supplier’s Code of Conduct) and suppliers’ workers (about new technologies, languages and business). However, any information posted on Apple, Inc. regarding the way Apple handles wrongdoings of its suppliers may well be biased and unreliable. For example, Supplier Responsibility Reports (Apple, Inc., 2012) only indicate violations found in suppliers’ work. Names of violators are not listed anywhere in these reports. Apple’s responses to the alleged violations do not seem to be sufficient enough to allow the average consumer to arrive at a logical conclusion. It also seems strange that with everything Apple claims it does to make sure suppliers comply with local laws and regulations of its manufacturers’ facilities as well as its own, the scandal with Foxconn has been an ongoing issue that does not seem to have an end. Even though things were said to be improving for workers, the issue still persists (Pratap et al., 2012, p. 32). Foxconn is still a big part of Apple’s manufacturing process, which is clear from the fact that Apple’s new products still quickly emerge to the market. Foxconn continues to be listed as a supplier on Apple’s supplier list 3(Apple, Inc. 2012). Apple’s decision to continue business with Foxconn is questionable and to some may seem be unethical. Traditional 5-Question Approach to ethical decision making analysis may provide some guidance here: 1. Is the decision profitable? Yes. Considering the price of Apple products and what its suppliers’ workers outside of the USA are getting paid, Apple is making a significant profit on the sale of its products. In 2010 the average wage for a Foxconn worker was about 900 Yuan (currency conversion: $143 per month) (Moore, 2010). Apple’s newest

2 3

See Apple Supplier Responsibility Progress Reports (for any year) at www.apple.com for more details This list can be found on Apple’s website in Supplier Responsibility section

ETHICS BEHIND APPLE AND FOXCONN RELATIONSHIP

6

iPhone costs a minimum of $200 with a wireless company contract (Apple, Inc. 2012). It is convenient for Apple to continue its business with Foxconn as it is able profit from this relationship and not suffer losses. Apple proved to make smart decisions and grow quickly. The decision to stay in business with Foxconn is profitable for the company, but the cost of these profits—the maltreatment of workers, who are working hard on developing products that bring such profits to Apple—is too high. 2. Is the decision legal? The decision is not legal if Foxconn does not comply with Chinese (or any other host country’s) overtime limit laws as well as Apple’s Supplier Code of Conduct4 but forces workers to work longer hours than they should be working according to these laws and policies. Workers should be able to rest and take a day off when they need to without any threats. Workers are not machines and cannot be treated as such. 3. Is the decision fair? No, this decision is not fair because those who are actually making the product, by hand, are not paid enough for the work they do. Apple’s profit margin on products that are produced at these factories is huge, so it is only fair that those who contribute to Apple’s profits are reimbursed properly. Even if Foxconn charges Apple high costs but does not compensate their employees properly, Apple should stand up for those workers and change it. If Apple started manufacturing its products in USA, it would have to pay much a higher price for manufacturing. Outsourcing is cheaper, but it is not fair that people are treated with no respect for their hard work just because they are from another country or for any other reasons. 4. Is it right? By staying in business with Foxconn, Apple encourages this poor treatment of Foxconn’s workers. If more orders are coming in from Apple as new products are

4

See Apple Supplier Responsibility 2012 Progress Report- Labor and Human Rights section or Code of ConductLabor and Human Right section, for details

ETHICS BEHIND APPLE AND FOXCONN RELATIONSHIP

7

coming out, Foxconn needs employees to work to make product. In order to fulfill orders, workers might be required to work overtime, may not be able to take days off and suicide incidents may arise again. Therefore, this decision is not right. 5. Is the decision going to further sustainable development? If Foxconn does not improve the way it treats its workers and Apple continues working with Foxconn, this issue will become more publicized as it will be catching media’s attention more. Consumers are paying more and more attention to the way companies operate and how they act socially, not only what their profits are. Every time the issue comes up, it is harder to cover it up from media. Eventually consumers might realize that while they are being overcharged for their new Apple devices, those who made these devices with their own hands are paying much higher price for it-the price of their own well-being, and even the price of their lives. Thus, if Apple and Foxconn continue business as usual, then Apple’s decision might not further sustainable development as it might start losing its valuable customers due to the questionable conditions under which its products are being made. Based on this Traditional 5- Question approach to ethical decision making, Apple’s relationship with Foxconn may not be ethical no matter how profitable this relationship may be to both. Apple should re-examine its strategies involved in dealing with these situations and come up with a more proactive plan, one that will solve the issue once and for all, not make it go away for one year and come back again later. Despite the results of the Five-Question analysis, some analysts argue that Apple is not as guilty as it looks. Richard Karlgaard in his article “In Defense of Apple’s China Plants” in WSJ presents few arguments in defense of Apple and its relationship to the issues at Foxconn. Karlgaard (2012) theorizes that after the death of Steve Jobs, critics needed a reason to criticize

ETHICS BEHIND APPLE AND FOXCONN RELATIONSHIP

8

Apple now that an invincible “tyrant,” CEO Steve Jobs, is gone and vulnerable, Tim Cooks, is taking his place. Apple is fast-growing in profits and technological innovations. Steve Jobs built this company. However, Jobs’ fast-growing company with its innovations could not have made everyone’s life better and perfect as it seems. So from critics’ perspective, in the process of building this company and his innovations, he must have hurt some people. So why not bring this story up after his death if Jobs could not be defeated while alive? This argument is not plausible because the issue with Foxconn’s horrible working and living conditions started long before Steve Jobs was dead. If this issue would be made up and not important, it would be forgotten shortly after it first came up. However, it continues coming up and those actions that Apple indicated as actions against the wrongdoings of its suppliers, are not effective. Apple’s defense for continuing working with Foxconn is that “Foxconn’s cost efficiencies and ability to scale (grow fast) are not unmatched in the world. Mr. Cook points out that among Foxconn’s 700,000 workers devoted to making Apple products are 30,000 trained engineers. Such masses of engineers simply do not exist in the U.S. for any single company to hire” (Karlgaard. A13). Raising salaries for workers in 2010-2011 and suicide rates that are lower than American statistics of a city with the same population as the number of workers working on creating Apple products are used as supporting premises for this argument. However, not having as many skilled engineers or not enough people committing suicides for the same population does not give Apple a green light to ignore Foxconn’s issues. Maybe companies like Apple when outsourcing labor in other countries, are at fault for not employing workers here create this lack of specialists, and later present it as excuse for outsourcing. Maybe for the salary that Apple and other such companies are willing to pay for training and work on creating these products, no worker will be able to survive and take care of his/her family’s needs. If companies would invest

ETHICS BEHIND APPLE AND FOXCONN RELATIONSHIP

9

in their domestic workers instead of running for cheap labor to China, the U.S. would also have skilled workers and a lot less unemployed people. Raising salaries for workers, as Foxconn did, does not mean that people are being treated well. Plus, compared to the prices that Apple charges its customers for products and what is paid to workers who are making these products, the work of these people is not valued as much as it should be. A third argument in support of the Apple/Foxconn relationship is that their relationship is not perfect and cannot be argued as it is. Apple helps China on its way to modernization as people are employed and there is free enterprise and trade. But employing strict military-like managing styles and providing such terrible working conditions does not contribute to the modernization of the country. Foxconn’s issues might be actually preventing modernization in China in a way. Chinese people are smart. Even if Apple did not outsource to China, perhaps China would be ahead of USA and other countries in its modernization process. Recently new evidence was published about this Apple-Foxconn relationship that brings hope for a change for these poor workers. In a Wall Street Journal article, “Audit Faults Apple Supplier” Jessica Vascellaro reports that Fair Labor Association (FLA), upon Apple’s request, conducted an audit through the surveys of 35,500 workers of three Foxconn facilities where Apple products are made. This audit found at least 50 legal or code violations or policy gaps. Among found violations was the issue of overtime hours and compensation as well as poor health and safety issues. In response to this audit, Foxconn has agreed to limit weekly working hours to 40 hours per week and overtime to a maximum of 36 hours per month (currently overtime hours worked each month is 80) in order to stay within China’s legal limit. To execute this plan, more workers will need to be hired in order to keep its production at the same level (Vascellaro, March 30, 2012, p. B1). FLA group also reported that it will continue to monitor

ETHICS BEHIND APPLE AND FOXCONN RELATIONSHIP

10

Foxconn’s progress and update its findings regularly (Vascellaro, March 30, 2012, p. B2). Requesting this audit and bringing Foxconn to agreement to take some action to correct its wrongdoing are steps in the right direction for Apple, but close monitoring of the progress is necessary to ensure that Foxconn’s promises are being executed. In fear of losing customers as its products become more and more popular, Apple continues its business with Foxconn despite the fact that such behavior from both companies may be seen as unethical (as it was shown through 5-Question Analysis). Consumers, and the general public, should not and cannot assume that Apple is perfect and will have no issues with its suppliers or even within its own environment. However, nothing can justify supporting this terrible treatment of people by Foxconn, not even the amount of money that Apple makes selling products that these poor, mistreated workers made. Ignoring an ethically wrong situation for the sake of profits only encourages this inhuman treatment of workers. Arguments made in defense of Apple by Karlgaard (2012) also do not take the responsibility for such unethical behavior off of Apple. Recent evidence suggesting that Apple is working with Foxconn to correct issues at these factories after FLA audit suggest that Apple is taking more proactive actions towards Foxconn; however, close monitoring throughout the process is essential to success and real resolution of the problem.

ETHICS BEHIND APPLE AND FOXCONN RELATIONSHIP

11

References Apple Inc. (2012). “Supplier Responsibility Progress Report”. Supplier Responsibility. Retrieved from http://images.apple.com/supplierresponsibility/pdf/Apple_SR_2012_Progress_Report.pdf Apple Inc. (2012). “Code of Conduct. Labor and Human Rights”. Supplier Responsibility: Retrieved from http://www.apple.com/supplierresponsibility/code-of-conduct/labor-and-humanrights.html Apple Inc. (2012). “Buy iPhone”. Retrieved from http://store.apple.com/us/browse/home/shop_iphone/family/iphone/iphone4s Global Compliance Workplace Network. “ China: Overtime Work– Mandatory Rules and Internal System”. Web http://www.gwcnetwork.com/index.php?option=com_content&task=view&id=140&Item id=66 Karlgaard, R. (2012). "In Defense of Apple's China Plants." The Wall Street Journal. A13. Print. Lee, A. (2011) “Apple Manufacturer Foxconn Makes Employees Sign “No Suicide” Pact”, The Huffington Post. http://www.huffingtonpost.com/2011/05/06/apple-foxconn-suicide-pact_n_858504.html Moore, M. (2010). “Inside Foxconn’s Suicide Factory”, The Telegraph, May 27, 2010. http://www.telegraph.co.uk/finance/china-business/7773011/A-look-inside-the-Foxconnsuicide-factory.html Moore, M. (2012) “Mass suicide” Protest at Apple manufacturer Foxconn factory”, The

ETHICS BEHIND APPLE AND FOXCONN RELATIONSHIP

12

Telegraph. http://www.telegraph.co.uk/news/worldnews/asia/china/9006988/Masssuicide-protest-at-Apple-manufacturer-Foxconn-factory.html Pratap, S., Radhakrishnan,V., & Dutta, M. (2012). "Foxconn Workers Speak: We Are Treated Worse Than Machines." Asian Labour Update 78: p 32-36.Web. http://www.amrc.org.hk/system/files/ALU%2078%20v2.pdf#page=15 Vascellaro, J.E. (2012). “Audit Faults Apple Supplier”. The Wall Street Journal. pp. B1-B2. Print.