The Fair Labor Association has published the results of its inquiry into working conditions at Foxconn Electronics Inc. , the Taiwan-based contractor to major electronics companies, including Apple Inc. (Nasdaq: AAPL), which commissioned the investigation.
The inquiry "revealed serious and pressing noncompliances with FLA's Workplace Code of Conduct, as well as Chinese labor law" at some Foxconn facilities, and the contract manufacturer has pledged to address the problems within the next 18 months. It has also announced it would jack up wages at its China plants and bring overtime hours in line with Chinese law and Apple's requirements. Foxconn workers currently work more than 60 hours per week, in violation of Chinese law that caps the work week at 49 hours, including overtime.
I have excerpted below the violations unearthed by the FLA and its proposals for resolving these problems. Each alleged violation is followed by the FLA's "remedial action." The full report is available online: Independent Investigation of Apple Supplier, Foxconn.
Working hours:
During peak production, the average number of hours worked per week at Foxconn factories exceeded both the FLA Code standard and Chinese legal limits. Further, there were periods during which some employees worked more than seven days in a row without the required minimum 24-hour break.
Proposed remedy: Foxconn has agreed to achieve full legal compliance regarding work hours by July 1, 2013, while protecting workers' pay. In the next year, tens of thousands of extra workers will need to be recruited, trained and accommodated at the same time as hours worked are progressively reduced per worker.
Health and safety:
Our assessors identified numerous issues related to inconsistent policies, procedures and practices. The investigation revealed that a considerable number of workers felt generally insecure regarding their health and safety.
Proposed remedy: Foxconn has agreed to change the system by which accidents are recorded. In the past, only those accidents that caused work stoppage were recorded as accidents. Moving forward, all accidents that result in an injury will be recorded and addressed.
Industrial relations and worker integration:
Investigators found that workers were largely alienated, in fact or in perception, from factories’ safety and health committees and had little confidence in the management of health and safety issues.
Proposed remedy: Foxconn has agreed to ensure elections of worker representatives without management interference. All workers will receive a copy of the Collective Bargaining Agreement and new employees will receive information about union activities during their orientation process.
Compensation and social security insurance:
The assessors discovered that unscheduled overtime was only paid in 30-minute increments. This means, for example, that 29 minutes of overtime work results in no pay and 58 minutes results in only one unit of overtime pay. Across China, all workers must have health, accident, social security, unemployment, and maternity coverage, but the system is set up on a provincial and city basis. This means that workers who migrate from other cities or provinces can’t collect their insurance when they return home. Workers are further unmotivated to enroll because of a required co-pay into insurance programs from which they do not benefit.
Proposed remedy: Foxconn has agreed that the policy and practice relating to such situations warrants improvement; workers will be paid fairly for all overtime and work-related meetings that occur outside regular working hours. After extensive discussions, Foxconn will offer a two-track remedial strategy: to investigate alternative private options to provide unemployment insurance to migrant workers, and work with government agencies to expedite the transportability of benefits. FLA will conduct a cost of living study in Shenzhen and Chengdu to assist Foxconn in determining whether worker salaries meet FLA requirements for basic needs, as well as discretionary income.
@Ashish, Such a nice reception, thank you! I've been around, though we may have been concentrating on different posts. Nice point in the link, and a great phrase: " kleptocratic Keynesian fiat bubble ."
Its been ages since I heard anything from you-Longtime No see...
Yes,you are right-Personal Responsibility& Choice is always the Key.
There is only so much any Govt no matter how well-intentioned it is can do.
We have a choice, do we want an incompetent Nanny state(which controls everything) in charge or we do take charge ourselves and decide whats best for ourselves?
This is why the Foxconn decision to cut Paid Over-time drew so much flak amongst the workers.
Simon Black writes a very fascinating blog on this very issue here
You ask why. The simple answer is this: a failure of imagination.
The majority of leaders and managers in China manufacturing (including Chinese, Taiwanese, Hong Kong-ers, Koreans, westerners, etc. ) simply cannot imagine Chinese manufacturing done differently than it is done now. They can only imagine it as it is now, just getting "more expensive" and therefore "less productive". They respond to reduced productivity by simply doing more of the same, but trying to do it cheaper. And they tend to focus on the one cost driver they think is the most malleable: labor. Workers are getting more money, so speed up the conveyor to get 5% more pcs/hour. (And forget abut the 20% productivy improvement you could get by eliminating waste in your processes, by more creative vendor negotiations, etc. etc.)
It's difficult for them to imagine that labor rate does not equal labor costs (counting hidden costs takes too much imagination), and that labor productivity is not a zero-sum game, erroded by labor costs. Labor value counts too (but accessing the value of Chinese laborers also takes imagination). Factory managers and accountants usually have issues with this type of thinking.
djlevy, You are correct companies don't benefit at least in the long term by squeezing workers. Yet, many continue to do this and despite all denials, the reality is that Apple and the other OEMs manufacturing in China didn't by themselves decide to raise employee salaries and improve workplace conditions until activists got involved.
Your conclusion that the cost to these companies of improving labor conditions and the terms is minimal is also correct. So, why won't they simply do this?
Speaking as a manufacturing leader in China, I can tell you that many people fail to understand one important fact: that companies like Apple and Foxconn get little or no benefit from stressing their workers. Actually, I argue, the hidden cost of doing so ends up greater than the benefit of incrementally lowered labor costs.
This is why China, despite its rising labor costs, is still an a attractive manufacturing environment-- because those increased costs are not that significant in the first place, and also because those cost increases can be offset by implementing lean (not mean) supply-chain strategies.
@WaqasAltaf, You're correct, the role and power of the media is unparalleled. The bad publicity forced the hand of Apple to review its working relationship with Foxconn and highlighted the factory's working conditions, this is the effect of the changes we read in the report. It's good.
"I hope the working conditions in Foxconn improve because of this."
With Tim Cook, CEO of Apple, eyeing towards building strong relations with investors, he is more likely to make efforts to remove such problems for the future as if news like this one can make headlines, there may be several other weaknesses of Apple which may make headlines too and these cumulatively, may become a reason for divestment and revenue fall. Also, not to forget the role social media can play in the debacle.
" Despite all this damning revelation, it did little to deal a dent in Apple's sales margin"
@ Anna
This is something that might encourage more organizations to break laws as they wont have to fear revenue loss. However, with social media becoming more and more powerful, tables may be turned and revenue losses can force organizations to avoid activities that cause bad publicity.
By moving to the core of the industry and offerings services that keep the system humming, a group within the electronics market has rendered irrelevant the question of ownership and control of the supply chain.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
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Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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