There has been a lot of Internet web site uptake regarding this week’s news reports indicating that Apple and its prime contract manufacturer, Foxconn, have made progress for improved working and worker safety conditions at Foxconn facilities.  Our readers will recall that significant labor and working conditions at Foxconn came to light in 2010 with a number of worker suicide incidents.

In January of this year, as a result of this situation, Apple became the first high profile high-tech industry player to engage with the Fair Labor Association (FLA), a supplier social responsibility auditing organization. The FLA then launched, what was reported by Reuters and others, as one of the largest investigations ever conducted of an American company’s operations outside the U.S.. After surveying and selectively interviewing over 35,000 workers, in late March the FLA reported multiple instances of average worker labor hours exceeding 60 hours per week while some workers were not being fairly compensated for their time. Additional safety concerns were further identified.  In early April, Supply Chain Matters commented on the various high profile business and general media reaction and ongoing visibility that were being focused on Apple as a result of reported working conditions at Foxconn.

According to the August 2012 Foxconn Verification Status Report, the ongoing FLA assessments led in late March to the publishing of “detailed reports on each of the three (Foxconn) factories along with recommendations for improving conditions for workers, and a complete remediation plan prepared by Apple and Foxconn to address each issue identified during the FLA assessment.” The action plans were reported to be stretch over a period of 15 months, from April 2012 through July 2013, with deadlines for many of the action items set for the first three months. The latest assessment stems from the return visits among the three factories which were conducted from June 25 to July 6 to verify remedial action items. It is important to point out that the report notes that: “Foxconn management provided full cooperation and unrestricted access to the facilities throughout the verification process.” A summary the current findings in the August report indicates that Foxconn completed 195 of the total number of 360 remedial actions that were due to be completed by May 31. An additional 89 action items due by July 2013 are reported as ahead of schedule, while 76 remaining action items remain open to be completed by July 1, 2013. The FLA has made detailed tracking charts available at the following web link.

Some of the remaining action items include the implementation of commitments related to worker representation, union elections and compliance with Chinese labor laws regarding hours of work. The progress report notes that Foxconn helped to advocate for extending unemployment insurance coverage for migrant workers effective January 1, 2013, which impacts other workers as well.

Regarding the broader picture and implications to other supply chains, the CEO of FLA has acknowledged that these efforts will lead to a challenge for managing worker expectations.  Noted are the realities that certain workers sign on with high volume factories such as those operated by Foxconn to make as much money as possible, with overtime compensation important to that expectation. There are new fears that workers will leave if there are limited expectations for overtime.  Obviously, the counter argument stems from quality of life issues, assuring worker safety and improved pay for existing work.  Rising labor rates across China have been a recent trend and will most likely continue in the wake of the continuing responsive efforts of Apple and Foxconn. As Richard Waters noted in a February 2012 Inside Business opinion piece published in the Financial Times, the system is being tested to the extreme and Apple’s handling of supply chain labor issues will be a central concern and have implications for the industry at large.

The other elephant in the room is the growing reality that new automation of tasks will have to be introduced.  Both Foxconn and Apple have provided indications toward new investments in factory automation and robotics, and as Foxconn goes, so does the remainder of the electronics industry. Thus, one of the original business motivators for sourcing production in China, that being compelling direct labor savings, will be subsumed by other factors related to process innovation, access to China’s and Asia’s vast consumer markets, or other value-chain factors.

As the number one rated supply chain, Apple has stepped-up its corporate responsibilities toward fair labor practices and worker rights for world populations, and its brand will certainly benefit in future sales. The open question now shifts to how other brands will deal with the new realities of low-cost manufacturing.

Bob Ferrari

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