One of my favorite reporters from Business Week interviewed me Tuesday about the 13 (so far) suicides by employees at Foxconn / Hon Hai. I explained that moving production away from manufacturing suppliers (EMS, ODM) is tough, but that OEMs should set exit strategies in case a full or partial withdrawal becomes necessary for business or ethical reasons.
From the reporter’s questions about business repercussions from worker-rights violations, I got a sinking feeling: Will the raging sales of Apple’s iPad dip perceptibly based on the now widely known string of suicides at their manufacturing supplier, Foxconn? Or will there be no business impact at all? In other words, are name-brand (OEM) companies’ sales less impacted when egregious violations of employee rights occur at their contract manufacturers as opposed to at their own sites?
(As for the underlying reasons for the suicides, see an upcoming article by TFI Shanghai-based Analyst Fanny Lee and me in SMT magazine.)
Certainly Nike shoes were boycotted years ago after the Vietnam-based employee treatment was made public. And Kathie Lee Gifford worked to counter sweat-shop abuses after a human rights group reported in 1996 sweatshop labor conditions in Honduras where Gifford’s line of clothing was made. Today, some drivers are at least thinking about choice of gas / petrol stations in light of the BP oil spill.
But is knowledge of worker rapes (as was brought out a few years ago in Mexican contract manufacturers), suicides, illegal overtime, and age violations at contract manufacturers — which granted are seen as one step removed from the name brand company — spurring corporate and consumer customers to make different choices in name brand purchases? And if not, why not?
I’d like to hear your thoughts. Please reply at the bottom of the blog.
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It is interesting that just yesterday I brought up the Cathy lee Gifford situation to a large OEM customer with plants in China. Fortunately or unfortunately I cannot see Apple sales being affected by this. Gifford was vilified by the sweatshop allegations yet most American’s homes are filled with products produced by labor subjected to much harsher conditions than the sweatshops. Even if Apple moves production to another CM, the same conditions will exist at the new EMS facility. Unfortunately, this is the downside of low cost goods in America and Europe. Exploitation of labor has always occurred in the world and will always exist. However, it is important to note that the ill informed will fail to understand the cultural/living condition differences in underdeveloped countries. The standard of living in many of these countries has actually improved as a result of foreign investment in these production facilities
We have seen EMS business move from USA to Venture in China for a $1 cost savings. That’s right, $1 savings on a $117 product with resale of $650. Why, you ask the customer.
Pamela,
If it is difficult to move production away from EMS/ODM, will EMS/ODM be able to pass along a large part, if not all, of the wage increases to OEMs?
Jian Chen asks an important question. On June 8th while being interviewed on Bloomberg TV I was asked whether prices for electronic products will increase in response to the wage increases. I believe that eventually OEMs will indeed raise prices. I told the TV reporter that consumer electronics products’ prices have been artificially low based on supply-chain practices that defray costs to society in terms of worker rights violations and wasted environmental resources. Also, check out my colleague Mark Natkin’s latest piece on Foxconn’s Shenzhen facility: http://www.marbridgeconsulting.com/marbridgedaily/2010-06-28/article/37033/rumor_foxconn_to_abandon_shenzhen.
As evidenced by recent comments from Hon Hai (Foxconn) CEO and Founder, Terry Gou and Steve Jobs, the strategy is deny and deflect. Deny that they run sweatshops, deflect the suicides to a root-cause of personal problems and the $14k Life Insurance that went to the suicide victims families (now Hon Hai has removed that benefit, real humane!) This goes beyond mere wages and working conditions. The attitude displayed towards Chinese workers from Taiwanese management is one of contempt and exploitation. The military-like management is particularly cruel. These workers (most are peasants from rural areas) are helpless to deflect or change that. Now, Foxconn has announced that they will hire independent dormitory managers. How about changing your policies and management style instead? Not likely to happen since Gou abuses his VP-corp routinely…flows downhill, as they say…