Chapter 11: Ethics and Social Responsibility

Chapter 11: Ethics and social responsibility

This case study, focusing on workplace conditions in outsourced manufacturing, originally appeared on p. 424 of the 3rd edition. Here is the original case study:

Shining a spotlight on working conditions at China’s Foxconn

On 28th May, 2010, just as Apple was anticipating a surge in publicity for its launch of the new iPad, it found itself at the centre of publicity of the unwanted variety. Foxconn, the company which makes iPads and iPhones in China was the focus of adverse reports of working conditions following the suicides of a number of young factory workers on its assembly lines. Two Chinese reporters broke the story, and Foxconn swiftly brought a legal case against them for defamation, following which they received large fines. However, their case was taken up by Reporters without Borders, an NGO which promotes press freedom. Foxconn Technology, a subsidiary of Hon Hai of Taiwan, has become a major contract manufacturer for electronics companies, also manufacturing Dell computers, Sony Playstations and Amazon Kindle readers. However, Apple is its biggest customer. Foxconn’s complex in Shenzhen employs 400,000 people, mostly migrant workers who live in dormitories provided by the company. The complex has been held up as a model of modern Chinese manufacturing prowess. Modern buildings, tree-lined avenues and facilities such as swimming pools for workers give the complex a campus appearance. Although the number of suicides is no higher than in the Chinese population as a whole, working conditions have been seen as a factor in the worrying incidence of suicides, which numbered 12 in the first 6 months of 2010.

Ma Xiangqian, aged 19, came from a poor village 800 miles to the west of Shenzhen. Like other migrant workers, he would be sending remittances back to his family. He started work for Foxconn in Novermber, 2009, on its production lines, moulding metal and plastics. After a flareup with his supervisor, he was put onto cleaning toilets in December. He took his life on 23 January, 2010, by jumping from one of the high-rise dormitories. Records showed that he had worked 286 hours in the month before he died, 112 of them overtime, which is three times the legal limit of 36 hours a month. His pay, including overtime payment, was $1 an hour. His case was seen as typical. Among complaints which emerged after his death were the military-style regime (in which workers were forbidden to speak to one another on the production line, which would result in a deduction from pay), verbal abuse by supervisors, humiliation and excessive overtime. For a large order for a customer, workers were known to work 13 consecutive days, getting sleep on the factory floor between shifts. For young migrant workers, living 8-10 in a dormitory room, there was little time or energy for any activity besides work. One worker reports that she shares a dormitory room with 12 others, with whom she cannot communicate as they all speak different dialects from her own. It is suspected that company policy is to disperse people from the same province, who might group together to complain or organize a strike.

Foxconn responded quickly to global publicity over its working conditions. It raised pay dramatically, from $132 a month to $294 a month. It draped large nets around its buildings, and brought in trained counsellors to speak to workers. Terry Gou, Foxconn’s billionaire chairman, denies that the company runs a sweatshop, in countering allegations similar to those which were targeted at Nike some years ago. Foxconn wishes its customers such as Apple to bear some of the increased labour costs, but such requests are not being favourably received. In an agreement with Apple, it moved some of its production away from Shenzhen to its factories in north and central China, where labour costs are lower. But new contracts with global brand owners face some tense negotiations.

Industrialization has long been associated with grim factory conditions, as the history of early industrial production in Britain and the US show. But China’s young, factory workers today were mostly born in the 1990s, when their country was already witnessing industrialization and rising prosperity. They are better educated than their forebears, and aspire to more fulfilling careers than a stifling, regimented life which resembles a military regime more than a work environment. A leading academic of China’s changing economy, Professor Huang Yasheng, says that China needs to find a new economic model based on innovation: ‘The problem, though, is that those kinds of companies don’t create a lot of opportunities for young, migrant workers’ (Barbazoa, 2010). One team leader at Foxconn, who has worked for the company for six years, is leaving to set up a business with his brother – making candles for export.

Sources: Wong, S., Liu, J. and Culpan, T. (2010) ‘Why Apple and others are nervous about Foxconn’, Business Week, 3 June, at Barbazoa, D. (2010) ‘After suicides, scrutiny of China’s grim factories’, New York Times, 6 June; The Economist (2010) ‘Socialist workers’, 10 June; Shenzhen Post (2010) ‘Foxconn suicides’, 27 May, at Hille, K, and Kwong, R. (2010) ‘Foxconn wants clients to share wages burden’, Financial Times, 8 June; Hille, K. (2010) ‘Foxconn to move some of Apple production’, Financial Times, 29 June.

Questions for discussion:

What can Foxconn do to improve employee relations?
In what ways is the dependence on young migrant workers becoming unsustainable in China?
To what extent, if any, should Apple, Sony and other brand owners whose products are manufactured by Foxconn, be held responsible for the inhumane conditions in the factories?

2016 update:

In 2012, there were continuing reports of problems in working conditions the Foxconn’s factories in China where Apple products are made. Worrying conditions were among those that featured in the original case study. They included excessive overtime, the denial of a rest day to workers, poor adherence to safety standards and unpaid overtime. Tim Cook, Apple’s CEO, toured one of the factories. As it had done previously, Apple promised to improve standards and comply with Chinese employment law. At the time, Foxconn, Apple’s largest contract manufacturer, was employing 1.2 million workers in China producing Apple products.

Foxconn saw profits rise 13% in 2013, largely because of the success of Apple’s products, which account for about 40% of its total revenues. However, Foxconn’s CEO has been aware that there are risks in becoming too dependent on Apple, and he has looked to diversify into other areas such as mobile software. In 2015, Foxconn expanded into healthcare, producing sensors and batteries that are used in medical devices. This is a growing sector globally. Contract manufacturing of medical devices is expected to grow more rapidly than the manufacturing of consumer electronics. Moreover, margins are continually squeezed in the manufacturing of consumer electronics because of the growing number of companies competing for the contracts. For Foxconn, medical devices present opportunities. Its assembly plants for making smartphones can be adapted without great difficulty to making medical devices. In 2015, Foxconn launched a bid to take over the struggling Japanese electronics company, Sharp. Sharp is a long-established technology company, with a distinguished record in R&D. For Foxconn, this takeover would represent a move towards more investment in innovative capacity.