Apple, Foxconn agree to set new standard for workers in China

Written by Reuters | San Francisco | Updated: Mar 31 2012, 05:37am hrs
Apple and its main contract manufacturing Foxconn agreed to tackle violations of conditions among the 1.2 million workers assembling iPhones and iPads in a landmark decision that could change the way Western companies do business in China.

Taiwans Foxconn Technology Group, whose subsidiary Hon Hai Precision Industry assembles Apple devices in factories in China, will hire tens of thousands of new workers, eliminate illegal overtime, improve safety protocols and upgrade workers housing and other amenities.

It is a response to one of the largest investigations ever conducted of a US companys operations outside of America. Apple had agreed to the probe by the independent Fair Labor Association (FLA) to stem a crescendo of criticism that its products were built on the backs of mistreated Chinese workers.

The association, in disclosing its findings from a survey of three Foxconn plants and over 35,000 workers, said it had unearthed multiple violations of labour law, including extreme hours and unpaid overtime. FLA president Auret van Heerden expects the agreement between Apple, the worlds most valuable listed company, and Foxconn, which supplies 50% of the worlds consumer electronics, to have far reaching affects.

Apple and Foxconn are obviously the two biggest players in this sector, he said. Since theyre teaming up to drive this change, I really do think they set the bar for the rest of the sector.

That could affect brand names that have contracts with the Taiwanese company, including Dell, Hewlett-Packard, Amazon.com, Motorola Mobility Holdings, Nokia Oyj and Sony.

The agreement is a sign of the increasing power of Chinese workers to command higher wages given increasing prices in China, and an ageing workforce that has led to labour shortages.

Foxconn is proposing this better deal, said van Heerden. Their competitors will be obliged to offer a similar package just in order to get enough workers.

Working conditions at many Chinese factories supplying Western brands are considerably inferior to those at Foxconn, experts say. Still, labour costs are a fraction of the total cost of most high-tech devices, so consumers might not see higher prices.

If Foxconns labour cost goes up ... that will be an industry-wide phenomenon and then we have to decide how much do we pass on to our customers versus how much cost do we absorb, HP chief executive Meg Whitman said in February.

Under the agreement, Foxconn said it will reduce working hours to 49 per week, including overtime, while keeping total compensation for workers at its current level. The FLA audit found workers in the three factories put in more than 60 hours per week on average during peak production periods.

To keep up with demand, Foxconn will hire tens of thousands of additional workers and build more housing and canteens.

Apple CEO Tim Cook has shown a willingness to tackle the criticism head-on.

We fully support their recommendations, an Apple spokesman said. We share the FLAs goal of improving lives and raising the bar for manufacturing companies everywhere.

But New York-based labour advocacy group China Labor Watch said the report failed to address the workers primary concerns. Until Apple shares a larger proportion of its profits with its supplier factories, workers will receive the same pittance for a salary while working around the clock, Li Qiang, director of China Labor Watch, said.

The agreement has not gone down well with some Foxconn workers, either.