After controversy about removing apps from its Chinese App Store, Apple is facing further issues in China, this time connected to its Chinese supply chain and the labour practices of its main supplier.
In the past, Apple has been heavily criticised for conditions at the Foxconn plant which makes iPhones. Foxconn is the largest electronics manufacturer in the world and it employs 1.2 million workers in China. However, in recent years its factories have suffered a rash of worker suicides, a plant explosion and riots by workers. Apple and Foxconn have jointly been criticised for hiring underage workers and encouraging excessive overtime.
This led to greater surveillance by Apple and the company has also tried to counter negative publicity by issuing a yearly review of its supply chain.
Students working more than 11 hours each day
The latest news is therefore a setback for the company’s governance and compliance efforts. It appears that a group of students at Apple’s Chinese manufacturing plant, operated by Foxconn, was found to be working overtime, in violation of the local labour laws. The students, aged between 17 and 19, were apparently working more than 11 hours daily, on a “voluntary” basis. They were paid and given benefits but the issue is that they should not have been working overtime in the first place.
So what were the students doing at the factory? It seems that they were there as participants in a school internship programme. The Financial Times reported some of the students as saying that they had no choice but to do the internship, in order to graduate from their study programme.
Foxconn and Apple admit a breach of policy
Foxconn stepped up with a statement saying that its policies didn’t allow interns to work more than 40 hours a week – in other words, no overtime. It admitted that some parts of its “campuses” hadn’t adhered to the policy and emphasised that the number of students involved was small.
Apple issued a statement saying that it had sent staff to the plant to investigate the problem. The company says that since 2012, it has reduced the total number of under age workers in its end to end supply chain, right from the start of the chain, which is the meaning of the rare earth minerals used in smartphones. Many Apple investors are made uncomfortable by reports of poor working conditions, although they rarely make a dent in the share price.
To some extent, Apple is unfortunate in bearing the brunt of the criticism. Foxconn makes electronic products for Sony, Amazon, Shar, Toshiba, Nokia, Motorola and others. It assembles PCs for Dell, Acer, Hewlett Packard and others, and makes networking equipment for Cisco. So why does Apple attract the bulk of the criticism for poor working conditions at Foxconn?
Is Apple unduly targeted?
In part, this is due to Apple’s size. It is Foxconn’s biggest client and it supplies at least 40% of Foxconn’s revenue. It is also a very high profile Western company, with an enormous market capitalisation, and labour organisers may feel it’s therefore more productive to target Apple, than a number of smaller companies. It has to be said however, that Apple competitor Samsung, has also come under scrutiny.
Not helpful when the iPhone X is launching
This story couldn’t have surfaced at a more inopportune moment for Apple. It has just started shipping the iPhone X and finds its coverage in the West being dominated by the interns and overtime story. The fact that the factory is making the iPhone X simply makes it a more newsworthy story as far as the Western media is concerned.
In China however, the story is unlikely to gather anything like the same publicity. Apple has had problems with its Chinese iPhone sales in the past few quarters, losing market share to Chinese smartphone makers.
However, the one bright aspect for Apple, is that advance orders for the iPhone X are apparently strong in China and Korea. With one third of iPhone users being Chinese, this is a market they must win over if the new phone is to be successful.