In the past, Apple marketed that its products were made in the United States. In today’s global marketplace, that is no longer the case. Almost all the products sold by Apple are produced outside of the United States.

When President Barack Obama met Apple CEO Steve Jobs at a dinner in February 2011, Obama asked Jobs what it would take for those jobs now outsourced to return to the United States. Mr. Jobs’s response was “Those jobs aren’t coming back.” Apple employs 43,000 people in the United States and another 20,000 in other countries, and in 2011 yielded a profit that is equivalent to $400,000 per employee. An additional 700,000 people are outsourced to manufacturer Apple products around the world.1 An example of the dexterity of the outsourced workforce occurred when Apple had to redesign, at the last minute, its iPhone screen to be made of glass instead of plastic, which forced a significant readjustment in the assembly line. The new screens at the assembly plant started to arrive at midnight, and the supervisor woke up 8,000 workers, gave them a biscuit and a cup of tea, and then started a 12-hour shift with the redesigned screen. In response to the question why Apple does not employ more American workers, an executive stated that Apple sells iPhones to more than 100 countries and it is not Apple’s responsibility to solve the U.S. economic problems. Apple’s only obligation is to produce the best products available.2 Furthermore, there seems to be no pressures from stakeholders for Apple to change its approach.

When the New York Times did a survey in November 2011 asking the public their perceptions of Apple, a staggering 56% said they could not think of a single negative issue about Apple. Fourteen percent of the respondents stated that the worse thing they can say about Apple is that their products are too expensive to buy. A minuscule 2% of the respondents addressed the issue of labor practices related to Apple’s outsourcing overseas.

Apple uses a number of foreign manufacturers to outsource the production of their products. One of the dominant manufacturers is Hon Hai Precision Industry Co., which commonly goes by the name of Foxconn.

Foxconn is one of the largest manufacturers of electronic components in the world. Foxconn has two massive production facilities in Shenzhen, China, which are used to manufacture and assemble many of Apple’s products, including the iPod and iPhone. Hanging on the wall of the plants, a banner states Foxconn’s management philosophy: “Work hard on the job today or work hard to find a job tomorrow.”

The Working Conditions in the Chinese Plants in 2006

In August 2006, the Daily Mail published a story that described the horrendous working conditions at Chinese factories that manufacture iPods. In 2005, 22.5 million iPods were sold, which represents a daily production rate of 61,644. One Foxconn factory in Longhua, China, has a facility for 200,000 workers, both in work areas and in dorm rooms for sleeping. The dorm size is large because 20 people share a three-bedroom apartment. The accommodation is free but no one outside the plant is allowed to visit the workers in the dormitories. The typical workers receive less than $50 a month for their 15-hour days. The workers are required to stand still for hours and will be punished if they move. They are required to work overtime when ordered, and they are only allowed to go back to their dormitories when their boss gives them permission to do so. Labor costs for an iPod are less than $10 per unit, and the total manufacturing cost of an iPod Nano in 2006 was approximately $75, less than half of the retail price.

Apple claimed the investigation was an anomaly of plants but did admit that the factories did violate Apple’s conditions for suppliers, which included having the employees work no more than 60 hours a week 35% of the time or work more than 6 continuous days without a day off 25% of the time. In addition, Apple found that employees were housed in former factories or in open areas with little privacy or were sleeping on bunk beds that were three levels high.6 The Suicides Start The working conditions in the Chinese plants became an issue again in July 2009. A Foxconn employee committed suicide by jumping off a 12-story building. It was alleged that the employee had been stopped and questioned by a security guard before his death for suspicion of stealing a prototype of the next-generation iPhone. It was also alleged that the employee was beaten during the questioning.7 The allegations continued in March 2010 when Apple’s audit of its suppliers found 17 core violations of its policies including three cases in which a supplier hired underage workers as young as 15 years old. Apple describes core violations as actions such as employee abuse, employment of underage workers, involuntary labor, audit material that has been falsified, workers’ safety has been threatened, supervisor intimidation, supervisor retaliation, and significant environmental violations. The annual audit started in 2006 after the Daily Mail article highlighted the working conditions in the plant in 2006.8 Suicides of Foxconn employees continue to haunt Apple. From January to May 2010, six Foxconn employees committed suicide. An additional two employees were injured in their attempts to commit suicide. The company established a “Foxconn Employee Care Center” to help employees contemplating suicide. It addition, for the size of Foxconn, the number of suicides is not exceptional because the suicide rate in China in 1999 was approximately 14 per 100,000. However, exhausted employees who must work in oppressive and dangerous work environments may see suicide as a viable option.9 A spokesperson for Foxconn stated that most of the suicide victims were either severely depressed or had significant personal problems and rejected the hypothesis that the deaths were related to the working conditions in the plant. Foxconn stated that it had recently built modern dormitories, had improved the food at the dorms, and had included recreational facilities such as swimming pools to improve the standard of living of the employees. Critics say that recreational facilities are of no value if the employees do not have time to use them. For example, one worker stated that they are extremely tired and under continuous pressure and are required to complete each step in 7 seconds, which is faster than the machines. Less than a week later, another Foxconn employee committed suicide by jumping to his death. The response from Foxconn was that it was not a sweatshop and that the company was doing everything possible to prevent future suicides. In addition, Foxconn was starting to build safety nets at the dormitories to stop workers from killing themselves by jumping from the building.11 One Foxconn executive observed that there is a fine line between productivity and inhumane and strictly regimented treatment of the employees, and they “hope” that a company with $60 billion in sales treats its 800,000 employees with dignity and respect.12 In reaction to the negative image the suicides had brought to Foxconn, it announced on June 1, 2010, that worker pay would be raised 33% from $132 per month to $176. This translated to a total rate of $1.11. The decision was officially based on the rationale that the company had not increased wages in a while. Foxconn stated the benefit of the pay wage was that it would give the workers more leisure time and it would attract more qualified workers to join Foxconn. Steve Jobs responded by stating that the Foxconn plant is not a sweatshop; that “for a factory, it’s a pretty nice factory”; and that Apple is doing everything possible to understand what is happening to the Chinese workers.

A Worker at Foxconn

An interview of the sister of one of the employees who committed suicide, Ma Xiangqian, paints a bleak and depressing portrait of life as a Chinese factory worker. She said her brother hated his job. He had to work an 11-hour overnight shift 7 days a week. He hated the dust and fumes forging plastic and metal into different electronic parts. He hated that after he had a conflict with his supervisor, he was demoted to cleaning toilets.

For an equivalent of approximately $1 an hour, her brother had worked 286 hours in a month, which included 112 hours of overtime. That level of overtime is more than three times the legal limit of 36 hours in China. But his story is not unique because tens of thousands of employees quit Foxconn shortly after they are hired. The workers complained about the military culture at the plant and being constantly abused verbally by the superiors. In addition, they were forced to read their “self-criticisms” aloud and can be asked to work 13 days in a row during which they slept on the factory floor.

A week after the June 1, 2010, announcement of the 33% wage increase, Foxconn announced a major increase in wages. Foxconn stated that within 3 months, it would raise the wages of many of its 800,000 workers in China to almost $300 a month, which is almost double what the wage rate was going to be after the 33% increase announcement in the previous week.

In June 2010, Foxconn announced it was going to let a professional property management company control the dormitories in Shenzhen, China. The agreement with the property management company was to ensure Foxconn met the current and future needs of its employees.17 In February 2012, Foxconn announced that it would implement another pay increase for its employees. For many workers, the monthly wage will increase as much as 25% to produce a monthly wage rate of $400. Foxconn stated it would also reduce overtime hours at its facilities.

Questions

1. Do the outsourcing issues facing Apple really concern consumers? Explain.

2. Comment on the results disclosed in Apple’s supplier responsibility report. Should these be disconcerting to investors?

3. Since Steve Jobs’s death, it appears that Apple has become much more transparent in what officials publish about the company. Why do you think this has happened?

4. Should Apple have any responsibility for the events at Foxconn? Explain your position.