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James DeBenedetti's Avatar Picture James DeBenedetti – February 10, 2012 06:04PM Reply Quote
The empire Tim Cook built.

James DeBenedetti – February 10, 2012 06:10PM Reply Quote
This story ain't gonna die, Tim…

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Apple’s formula for mammoth profits, which topped $13 billion last quarter, starts with a highly flexible workforce. Foxconn wields military-style discipline to turn workers into flesh-and-blood robots... Workers are driven to crank out more computers in less time at lower costs because they are disposable. Of 420,000 employees at “Foxconn City” in Shenzhen, which abuts Hong Kong, half had less than six months service…

SACOM and others report that schools teaching journalism, hotel management and nursing threatened students with failure if they did not take a factory position. The Chinese government-owned Global Times noted that “automotive majors at a vocational school in Zhengzhou, capital of Henan, were also forced to serve as interns for Foxconn before they were given their diplomas.”

One study found in some Foxconn factories, which employ 1.3 million people in China, up to 50 percent of the workforce were students. Foxconn probably prefers it that way because it does not have to sign contracts with the students… In 2010, noted SACOM, “Foxconn ceased to recruit new workers in Shenzhen. Instead, a high number of vacancies were filled by tens of thousands of student interns.”

Not just students are shipped off to Foxconn, says Chan, “teachers have to come to manage them in the factories.” SACOM found that near one facility nearly all the rooms in a seven-story hotel had been rented by vocational teachers accompanying students. Government authorities apparently charge teachers with recruiting students and tech colleges have quotas for interns to be sent to Foxconn, according to a student paper from China Europe International Business School...

According to the report, “Wintek pays the students’ salaries in accordance with law, but the lion’s share goes to the schools directly.” Over the course of a year, 500 students could net a school more than a million U.S. dollars in income.

The China Labor Bulletin found schools stealing wages to be common: “The key issue in forced internships appears to be the entrenched relationship between schools and businesses, a relationship actively encouraged by the Chinese government.” They added that “it was not unusual for schools to deduct a ‘commission’ from the interns’ salary or get paid directly by factories for providing cheap labor,” despite the illegality of the practice. As for redress for abuses, “students have little or no legal recourse when they are cheated out of their pay or forced to work long hours in hazardous conditions.”

In other cases, the state education bureau will withhold funds reserved for vocational schools if they fail to meet quotas for interns.

The use of hundreds of thousands of students is one way in which China’s state regulates labor in the interests of Foxconn and Apple. Other measures include banning independent unions and enforcing a household registration system that denies migrants social services and many political rights once they leave their home region, ensuring they can be easily exploited. In Shenzhen about 85 percent of the 14 million residents are migrants.

tliet – February 10, 2012 07:21PM Reply Quote
Let me just say it; how much of Steve Jobs' personality has rubbed off on the company and its business ethics?

This is going to be a great test for the ethics of the west or rather the Anglo Saxon way of doing business, with shareholder value being the only metric that really counts. How will Tim Cook be able to fix this without getting beheaded by Wall Street?



Edited 1 time(s). Last edit at 02/10/2012 07:23PM by tliet.

James DeBenedetti – February 10, 2012 08:05PM Reply Quote
What makes you think Tim wants to fix the current system? He's the person who closed Apple's factories and put the system in place to begin with. Whitewashing (see Apple's Supplier Responsibility Report) is the typical CEO response to past mistakes, not mea culpas and operational overhauls. With the half-billion dollar man's stock options not vesting for another decade, it will be a long time (if ever) before we see substantive change from Apple.

John Willoughby – February 10, 2012 08:25PM Reply Quote
Save us, Lord, from the furries of the Norsemen!
Again, given that this way of doing business is pervasive in China (and probably much of East Asia), how does Apple fix it? Apple can't just switch supply chains. Even if there were another company with the capacity to make 10 million iPhones a month, they'd be using the same (or worse) business practices. If Apple just writes a big check to Foxconn to correct abuses, cosmetic changes will be made, and Foxconn will have a bigger profit. I think that, if nothing else, Apple realizes that this is an enormous PR vulnerability and will do what it can. And it's not just Foxconn, there's a huge web of companies supplying components to them. I imagine that some are contracted directly by Apple, and can be influenced as well (or as poorly) as Foxconn. Some are probably sub-contractors of Foxconn and will be even harder to influence.

Apple can work for change, but Apple cannot right the wrongs of the world by itself. What would be required is changes to Chinese law and active, corruption-free enforcement of those laws. If all Chinese corporations face the same regulations, then standards will rise across the board, without penalizing the profitability of companies choosing a more moral path, relative to their Chinese competitors. Of course, if this were to happen, assembly plants would move to Indonesia, or Malaysia, or Thailand, and we could have this same discussion again.

James DeBenedetti – February 10, 2012 08:50PM Reply Quote
Apple could aways lobby in favor of significant tariffs on imports from any country that routinely violates international labor standards. That would maintain Apple's competitive postition vs. other companies, force China to either shape up or lose business, prevent manufacturers from simply moving to a worse country, create US jobs, and reduce the Federal deficit. It would require putting ethical behavior ahead of profits though, so don't expect it anytime soon.

John Willoughby – February 10, 2012 10:43PM Reply Quote
Save us, Lord, from the furries of the Norsemen!
Tariffs get us into world trade issues. China would see it as a jingoistic attempt to favor US industries, and would call on the WTO to penalize the US. I suspect they'd either win, or levy tariffs against US goods. I can't see our government initiating a trade war to protect Chinese workers.

And are there official international labor standards? I was not aware of them. What are they?

James DeBenedetti – February 11, 2012 06:46AM Reply Quote
The WTO recognizes the International Labor Organization as the source of international labor standards, but the West has been too gutless to require most of them.

If China wants to get in a trade war with us over labor standards, I say bring it on! That's a $300 billion trade deficit (read: $300 billion worth of jobs and taxable income) that would return to us, while China (a country that dedicates a historically unprecedented 65% of its GDP to investment) would slam into a wall of idle factories and joblessness if it had to rely on its domestic market (35% of GDP).

John Willoughby – February 11, 2012 10:11AM Reply Quote
Save us, Lord, from the furries of the Norsemen!
Some of those labor standards are actually illegal in China (e.g. collective bargaining). That's not a problem with Apple, or Foxconn, but with the government of the PRC. Again, not within Apple's ability to change. Please do not delude yourself that, if China were to stop trading with the US, the jobs would return to the US. They'd go, again, to Indonesia, Malaysia, Thailand, the Phillipines, etc. And many of the components Apple needs are made in China, so a massive interruption of Apple product shipments would take place (months, at least) while new factories elsewhere tooled up (buying equipment from China, no doubt).

On top of which, the US would be in direct confrontation with China. The issue would not be labor rights, it would be what China would see as US interference in internal Chinese affairs and jingoistic protectionism... at a time when the US is ill-prepared for a showdown. Chinese goods would be much more expensive and, whatever you may think of Wal*Mart, an increasing percentage of our population can only afford to buy their (imported) manufactured goods there.

IMHO, your approach suggests that the way for Apple to substantially improve working conditions for its workers in China is for Apple to manipulate the US government into a trade war with China. A struggle that would have massive consequences for the world, and some significant negatives for Americans, and almost no positives for Americans OR Chinese workers (since the jobs would leave China).

I feel that the only ways that will really improve conditions is for China to change its laws or for Apple to continue as it has been: trying to ensure that its contractors adhere to Apple's rules. But one has to accept that Apple does not have control over these contractors, and that it is not their custom or desire to treat their workers as we would like.

James DeBenedetti – February 11, 2012 11:10AM Reply Quote
I'm sorry, but China is not going to launch a trade war over US insistence that its laborers be treated humanely if they want to export goods to our market. Nor will alternate countries be an issue if they are held to the same standard. This is a process that would take years to unfold regardless, not something that arrives out of the blue, requiring overhauls of entire industries within a 30 day period.

I also don't buy your argument that Americans can only afford to live by having their needs met by people working in conditions approaching slavery. Continuing what Apple has done so far will accomplish nothing more than what it has already - entrench a corrupt coalition between government and industry to squeeze labor costs in both America and China.

John Willoughby – February 11, 2012 11:42AM Reply Quote
Save us, Lord, from the furries of the Norsemen!
China already says that its workers ARE being treated humanely. Obviously, their definition is different than ours. You are the one who said that Apple should lobby the US government to make China change its policies, implementing tariffs. If you don't think that China would react strongly and negatively to that, then we see the world very differently and there is no point to continuing the discussion. Countries have started trade wars over very trivial things and you are talking about protectionist tariffs in the name of improving working conditions in a country that styles itself as being the champion of the workers. And if we were to suddenly embargo Chinese goods entirely, it would be about sixty seconds until we were importing exactly the same goods from the Philippines, purchased by Philippine middle men from... China. That's where the money is, that's where the technology is, and that's where the workers (currently) are.

You are demanding that Apple enact massive social and political change in China, using the US government and its policy as a tool. It is my contention that, however worthy the desired goal is, this is beyond the scope of what a corporation should be involved in. I don't want ANY corporation trying to effect governmental change, ESPECIALLY using my government to do it. Policy by politicians, not corporations. I continue to believe that any such effort would have massive, far-reaching effects, many of which would be negative.

>I also don't buy your argument that Americans can only afford to live by having their needs met by people working in conditions approaching slavery

A lot of American families are barely getting by now, with goods made under just such circumstances. Are you suggesting that when the costs of more expensive labor are added to the costs of the goods that the situation of poor Americans will improve?

One can't condone the conditions in Chinese factories. But one must have viable alternatives before demanding change.

James DeBenedetti – February 11, 2012 03:35PM Reply Quote
Sigh, I never said any of those things. What I said is:

1. Apple's outsourcing policies prove it cares more about profits than people or ethical behavior.

2. I am not demanding that Apple enact massive social and political change in China. I am saying it is time for the most profitable company in the world to claim responsiblity for its own actions, instead of claiming the choices it makes are beyond its control. If China and its firms don't want to behave in an ethical manner, there are plenty of other suppliers that can and will.

3. The tariff is an option I offered because of your contention that Apple can't compete if it moves production outside China - something which I don't believe; which you have provided no evidence to substantiate; and which is proven false by Foxconn's investment of $12 billion in Brazilian factories to evade that country's 60% import tariff. Note that this tariff has spawned no trade wars, had no impact on Brazil's membership in the WTO, and resulted in Apple moving iPhone / iPad manufacturing jobs to Brazil, not the Philippines.

4. You repeatedly claim that people cannot afford products made in America - something which I don't believe. Please provide some evidence for your claim (other than "I couldn't find any in the store I just visited"). Here's mine.

John Willoughby – February 11, 2012 05:31PM Reply Quote
Save us, Lord, from the furries of the Norsemen!
>1. Apple's outsourcing policies prove it cares more about profits than people or ethical behavior.

Apple's outsourcing policies [PDF LINK] show me that it cares more about people and ethical behavior than any other corporation I know of.

>2. I am not demanding that Apple enact massive social and political change in China. I am saying it is time for the most profitable company in the world to claim responsiblity for its own actions, instead of claiming the choices it makes are beyond its control.

I was asserting that many of the conditions in China ARE beyond its control based, I admit, purely on my understanding of the situation. I tried to set forth my reasoning, apparently I wasn't convincing. Please convince me that these conditions are within Apple's ability to correct.

>If China and its firms don't want to behave in an ethical manner, there are plenty of other suppliers that can and will.

Please identify for me suppliers willing and able to produce 10 million iPhones, 5 million iPads, and 2 million Macs a month. Make sure that they don't use any components manufactured anywhere labor laws aren't up to your standards. So RAM, disk drives, displays, 3G chips, all from countries with fair labor standards. Make sure that Apple doesn't destroy its business with the delays that will be caused by building a mirror image of an existing supply chain in a completely different location. Make sure that lawsuits for any patents on processes owned by the current manufacturers are taken care of. And make sure that Apple can continue to succeed in the market with products priced significantly higher than they are now.

>which is proven false by Foxconn's investment of $12 billion in Brazilian factories to evade that country's 60% import tariff.

The Foxconn plants in Brazil are, at least initially, only for assembly, not manufacture. And labor costs will be twice as high as in China. And we have yet to establish that conditions for Brazilian workers will differ markedly from conditions in China. Foxconn's investment in Brazil does not prove that Apple can compete with factories out of China... it won't prove that until it has a history of success. But I didn't argue this. I said that if we blocked trade with China any one or more of a group of countries would step in to fill the gap, probably purchasing equipment from China. I argued that the jobs aren't coming back to the US. As to a trade war, Brazil has always had high tariffs and did not explicitly impose one to attack China on the condition of its workers that it (unjustly) prides itself on. And closing the Brazilian market to Chinese manufactured goods (of which I suspect there are few, given the tariff) would not have nearly the impact on China (and the US) that closing the US market would.

By the way, the "proof" that you cited for people not being able to afford products made in America included this nugget:

Wage and benefit increases of 15 to 20 percent per year at the average Chinese factory will slash China’s labor-cost advantage over low-cost states in the U.S.

Which is it? Are the Chinese enjoying 15-20% per annum wage and benefit increases, that will make the US competitive or are they iSlaves whose situation can't improve and which make the US non-competitive.

I find the article's belief that most of the jobs that leave China will come to the US naive and unlikely. There are plenty of high tech-capable countries in the region. Hell, we already know Thailand has/had a big chunk of the disk drive market. I would love to see a tech rennaisance in Detroit, and I hope it happens, but I don't think it will.

James DeBenedetti – February 11, 2012 06:45PM Reply Quote
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John Willoughby
Apple's outsourcing policies [PDF LINK] show me that it cares more about people and ethical behavior than any other corporation I know of.

Apple's outsourcing policies are routinely ignored by Apple (see my links from the APPL.O thread).

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John Willoughby
Please convince me that these conditions are within Apple's ability to correct.

I'm not saying it's within Apple's ability to correct these conditions with its current suppliers. I'm saying it's within Apple's ability to change suppliers if they don't.

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John Willoughby
Please identify for me suppliers willing and able to produce 10 million iPhones, 5 million iPads, and 2 million Macs a month. Make sure that they don't use any components manufactured anywhere labor laws aren't up to your standards. So RAM, disk drives, displays, 3G chips, all from countries with fair labor standards. Make sure that Apple doesn't destroy its business with the delays that will be caused by building a mirror image of an existing supply chain in a completely different location. Make sure that lawsuits for any patents on processes owned by the current manufacturers are taken care of. And make sure that Apple can continue to succeed in the market with products priced significantly higher than they are now.

Apple went from no retail presence in 2001 to having more company owned retail store sales in America (2010) than Taco Bell/Pizza Hut/KFC, Subway, Staples, Ace Hardware, 7-Eleven, Burger King, and Starbucks. This in a cutthroat, low-margin, labor intensive industry. It did so with the highest prices/profit-margins in the industry, and without alienating existing retail partners.

A significant portion of the equipment used in Apple's supplier factories is actually owned and paid for by Apple. For example, these lasers weren't paid for, and aren't owned by, Foxconn.

If China's labor advantage truly is insurmountable (and I don't believe it is), there is nothing keeping Apple from opening its own factories in China, and following its stated outsourcing policies in fact rather than fiction.

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John Willoughby
Wage and benefit increases of 15 to 20 percent per year at the average Chinese factory will slash China’s labor-cost advantage over low-cost states in the U.S.

Which is it? Are the Chinese enjoying 15-20% per annum wage and benefit increases, that will make the US competitive or are they iSlaves whose situation can't improve and which make the US non-competitive.

As illustrated in my link several posts back, one of the problems with Apple's suppliers is the way that "wages" don't filter down to actual employees.

John Willoughby – February 11, 2012 07:10PM Reply Quote
Save us, Lord, from the furries of the Norsemen!
>there is nothing keeping Apple from opening its own factories in China, and following its stated outsourcing policies in fact rather than fiction.

I would strongly support this. You may have cut the Gordian knot of my arguments with this. I don't know if the Chinese government would allow it, but this would be ideal from my point of view.

tliet – February 11, 2012 07:52PM Reply Quote
That's possibly the main problem when it comes to dealing with China. Not knowing the finer details, but then again I'm sure 99% of the population doesn't, but outright ownership of foreign companies may or may not be allowed in China. Which may be a problem if you want to build your own factory.

After all, we are still talking about a communist country with a non elected government. As can be read in this article, nothing is apparently set in stone as the Chinese government can at any time change the rules. The comments on that article are woth reading also.



Edited 1 time(s). Last edit at 02/11/2012 07:53PM by tliet.

ARL (Moderator) – February 11, 2012 09:29PM Reply Quote
I whinge therefore I am!
(Not saying this makes it alright, but)

Question: Has any major competitor of Apple's come out with a comprehensive outline of how they, unlike Apple, avoid all these exploitative third-world practices practiced by Apple?

Didn't think so...

ARL (Moderator) – February 11, 2012 09:36PM Reply Quote
I whinge therefore I am!
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John Willoughby
>there is nothing keeping Apple from opening its own factories in China, and following its stated outsourcing policies in fact rather than fiction.

I would strongly support this. You may have cut the Gordian knot of my arguments with this. I don't know if the Chinese government would allow it, but this would be ideal from my point of view.

80% of corporations in China have govt ties of some sort. Some modicum of independent enterprise is allowed but it's apparently a hard slog for a lot of them. I imagine it would be fairly tricky for Apple to just set up it's own shop in China.

El Jeffe – February 12, 2012 03:37AM Reply Quote
What a journey.
Why doesn't Apple BUY all their suppliers? (random thought of passerby, who does not really want to dip toe in.... runs away....panic sets in)

bahamut – February 12, 2012 01:39PM Reply Quote
I think deB is 100% right on this. And yes, if Tim Cook shuttered the US and Irish factories and brought us Foxconn, he could be our next Sculley, or Spindler, or Amelio rolled into one. This problem will NOT go away. Saying that it's normal for China or that other corporations do it too doesn't cut it. Apple is the world's biggest company now. They WILL be more and more of a target. And hey, it's not like there are plenty of jobs in the US, Ireland, and etc, ok? So they have a major problem on their hands. I don't think it'll knock them way way down, but it's an obstacle.

Strategies wanted.

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