Companies doing business internationally deal with complex
sourcing and supply chain issues. Unfortunately, many multinational
corporations have failed to include CSR practices in their global operations.
Due to a number of international human rights disasters resulting from lack of
supply chain auditing, corporations are rapidly becoming more transparent and
are adopting globally accepted codes of conduct.
Read the following case of Apple and Foxconn (page 273 of Strategic Coporate Social Responsibilty. Author: David Chandler):
Apple
Although some firms
are reconsidering the value to their business of outsourcing, for others,
outsourcing makes clear business sense. Apple is one of these companies, and
the iPhone is one of those products—it has a highly complex supply chain:
Apple’s iPhone is one
of the most successful consumer products in history and one of the most
globalized. The iPhone 7’s camera is Japanese, its memory South Korean, its
power management chip British, its wireless circuits Taiwanese, its
user-interface processor Dutch and the radio-frequency transceiver American.
One reason why
outsourcing makes sense for Apple is that today, the best consumer electronics
goods are made in Asia (components) and assembled in China. One company in
particular does this bigger and better than anyone else—Foxconn (also known as
Hon Hai). It is “the world’s largest contract manufacturer . . . the world
champion of flexible manufacturing.”60 In contrast, it is estimated that
“assembling an iPhone entirely in the U.S. out of U.S.-made components would
add up to $100 to its cost.”61 As such, Apple, along with many other major
consumer electronics firms, relies on Foxconn. According to some reports,
“about half of all consumer electronics sold in the world today are produced at
[Foxconn’s] mammoth factory campus in Shenzhen, China,”62 including a large
percentage of Apple’s iPhones and iPads (Foxconn factories have been recorded
as churning out “137,000 iPhones a day, or around 90 a minute”).63 Not only is
Foxconn able to make those products well, but it is also able to make them
extremely efficiently:
Apple had redesigned
the iPhone’s screen at the last minute, forcing an assembly-line overhaul. New
screens began arriving at the [Chinese] plant near midnight. A foreman
immediately roused 8,000 workers inside the company’s dormitories. . . . Each
employee was given a biscuit and a cup of tea, guided to a workstation and
within half an hour started a 12-hour shift.
In spite of the
remarkable economic value that Foxconn delivers, like Nike before it, Apple has
received some negative press for its supply chain in Asia.65 In particular, as
one of Apple’s most important suppliers, Foxconn has drawn great media
attention regarding conditions at its factories,66 covering employee issues as
varied as striking,67 rioting,68 committing suicide,69 being underage and
underpaid,70 and being poisoned.71 In response, Apple under Tim Cook has moved
to alter stakeholder perceptions of its commitment to an ethical supply chain
by working to improve Foxconn’s factories.72 First, Apple released a
comprehensive report on working conditions at firms representing “97% of its
materials, manufacturing and procurement spending”—the most detailed report on
its supply chain Apple has released. Second, Foxconn announced it would
increase wages, reduce overtime, and generally improve conditions for all
employees.73 Third, Apple agreed to have all its supplier factories audited by
the Fair Labor Association (FLA), along with a promise to stop working with
those suppliers that “do not measure up to its labor and human rights
standards.”74 Finally, following the FLA’s audit, Apple and Foxconn agreed to
implement all recommendations, in particular regarding pay and
overtime—“reducing work hours to a maximum of 40 hours a week and limiting
overtime to a maximum of 36 hours a month—the legal maximum in China.
In spite of the
negative media coverage of Foxconn’s factory conditions, two points are worth
noting. First is the effect these stories have had on perceptions of
Apple—arguably, “they have not impacted Apple’s reputation one jot,”which
suggests they are not an issue for most of the firm’s stakeholders. Second is
the position of Foxconn’s employees, many of whom moved to China’s big cities
in pursuit of economic progress. In response to Foxconn’s commitment to bring
its overtime rules in line with Chinese laws, “allowing workers to work no more
than nine hours of overtime a week,” and improve health and safety conditions
(which some fear will reduce margins and threaten jobs), some employees pushed
back. Interviews at Foxconn’s Shenzhen campus revealed that “a majority” of
employees “work 10 to 15 overtime hours and would prefer more, having left
their distant homes to make money in this southern Chinese boomtown.”
In acting to protect
its reputation, Apple is merely the latest firm to learn from the trial and
error of earlier supply chain pioneers, such as Nike. For these firms, their
reputations and the values around which their brands are built are core strategic
assets that need to be protected. And in some respects, the supply chain is
more of a strategic issue for Apple, given that supplier contracts are usually
longer in the consumer electronics industry than “the three-month terms common
in the apparel business.” This necessarily “gives Apple a much bigger stake in
the long-term success of Foxconn as a supplier, and makes it less attractive to
cut and run to a cheaper option.”78 In general, factory audits conducted by
independent third parties provide some protection against these reputation
threats, allowing multinationals to operate in low-cost environments, local
employees to benefit from their presence, and NGOs to receive some assurance
that the local employees are not being abused. Best practice, pushed by firms
such as Nike,79 Intel,80 and Levi’s81 (and now Apple), dictates that firm should
work with contractors as partners, improving conditions when violations occur
and severing ties only in persistent cases.82
In a well-written paper, respond to the following issues:
·
Explain why a firm is
responsible for its supply chain. If the answer is that a firm is not
responsible, discuss an organization that exemplifies this. If the answer is
that the firm is responsible, then how far down the supply chain does this
extent (i.e., to immediate suppliers, the suppliers’ suppliers, or beyond)?
·
Why does Apple
continue to source its production to overseas firms such as Foxconn? What
advantages, if any, does this generate for Apple? What are the disadvantages,
if any, that result from this relationship? How could Apple have avoided the
threats identified? Overall, do the benefits of Apple’s decision outweigh the
costs?