An ‘Ethical’ iPhone by Summer? Not Going to Happen

A human rights watchdog agency has called for Apple Inc. to produce its first “ethical” iPhone — the iPhone 5 — by this summer. Apple has recently come under fire for the labor practices, deemed abusive by Western standards, at one of its largest manufacturing partners, {complink 2125|Foxconn Electronics Inc.} More than a dozen workers at Foxconn have committed suicide, allegedly due to working conditions, and an explosion at one factory has been linked to unsafe levels of flammable dust.

An ethical iPhone 5 is clearly not going to happen. Apple, Dell, Hewlett-Packard, and dozens of other top-tier electronics manufacturers have outsourced their manufacturing operations to EMS companies. These companies, such as Foxconn, have migrated to areas where labor — one of the lesser components of an electronics product's total cost — is a fraction of rates in the Americas and Europe.

Charlie Barnhart, principal of EMS consultancy Charlie Barnhart & Associates, provided the following information in an email to EBN about how long it usually takes for an OEM to engage with an EMS provider — and how long it takes to end the relationship.

On average, it takes a little over five quarters for the typical OEM to implement a new outsourcing supply solution (initial internal discussion to first products delivery). Obviously, there is a big range around this average depending on the scale, approach, and complexity of the project and the experiential level of the OEM (I've seen engagements launched as quickly as three to four quarters and other stretch on for as long as seven to eight quarters). On average, it takes a little less time for an OEM to disengage from an existing outsourcing supply solution, i.e. typically three quarters. Obviously, there is a range on this data point as well, but that number is extremely hard to pin-down as it's much more complicated to determine when the “initial internal discussion” (re: the disengagement) actually took place. Plus many of the failed cases we study drag on for several years due to material liability issues, legal proceedings, warranty related claims, etc. Therefore, when I'm modeling an outsourcing initiative with a client who is “changing solutions,” I use an eight-quarter timeline in the project plan.

At the rate of release for any typical consumer product — let's say six months for an updated or upgraded version — an OEM would have to start disengaging with a non-compliant EMS partner two years before the product's release date, while ramping up with a new partner at the same time. The result would be an unprecedented amount of redundancy — a big no-no in the supply chain — as the OEM transfers its designs, bill-of-material, contracts, etc., to the new partner.

Given Foxconn's size — Barnhart counts Foxconn among the “Goliath fringe” of EMS companies — a seamless transition to another EMS is impossible. Apple, Dell, and others would have to divide their business among Foxconn's nearest competitors. According to IHS iSuppli, the combined revenue of the next nine companies in the EMS hierarchy is half of Foxconn's.

As much as many of us would like to stand on principle, just do the math. Bringing Chinese wages up to Western levels would increase the cost of a typical i-product by 35 percent. And that won't improve working conditions.

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20 comments on “An ‘Ethical’ iPhone by Summer? Not Going to Happen

  1. Nemos
    February 2, 2012

    “Bringing Chinese wages up to Western levels would increase the cost of a typical i-product by 35 percent. And that won't improve working conditions.”

    The situation is very complicated and  n't exist an easy and quick way solution to the problem. For the moment, I think it will not help this instantly increment to the wages, and it needs a long way (maximum 10-15 years) plan to achieve that smoothly.

    {At least the government must try to have the average cost of living in extremely low rate. }



  2. _hm
    February 2, 2012

    Apple should market to all products with two options –

    So called ethical and 

    perceived non-ethical.

    They should do little survey and find out how many purchases ethical product from them at say 15% additional cost.

    Most advocate of humane rigths and ethicla product will opt for low cost not so ethical Apple product.


  3. Daniel
    February 3, 2012

    _hm, how many of peoples are interested to pay more for ethical products. I don't think more than 1%, the other 99% peoples are not bothered about either its ethical or not. At the same time they are looking for the same product for a lesser price tag.

    For ethical products, I think Apple has to manufacture all the components in US itself and the cost may shoot up to double or more. This is only by a simple comparison of wages in US and China.

  4. DataCrunch
    February 3, 2012

    Besides moving manufacturing plants from the coastal areas to more inland provinces to fend off rising employee costs, last year, Terry Gou, who heads up Foxconn, announced 1 million robots will be in place over the next 3 years to replace workers performing routines assembly, welding, and painting tasks.  Here is a link to one of many articles with the announcement: Robots to replace Foxconn workers; Chinese cities take notice.

  5. Houngbo_Hospice
    February 3, 2012

    Instead of hoping that Apple would end its partnership with   Foxconn Electronics Inc , why not rather send the message to Foxconn  and ask them to improve their employees's working conditions. The main issues is not to know if Apple would be ethical, but rather if its parteners would learn the ethical lesson as well.

    February 3, 2012

    I simply cannot see how an ethical movement will take hold unless it is mandated at the govt level. Customers in Best Buy look at three things only…..price, price and yep….you guessed it. 

  7. Barbara Jorgensen
    February 3, 2012

    @hospice–I agree, but the deadline of this summer is impossible. It will be a long, drawn out process for Foxconn to change–I think 5 years would be an optimistic estimate.

    @Flyingscot: there's that, or the formation of unions…

  8. chipmonk
    February 3, 2012

    the arguments forwarded here are contrived and diversionery, perhaps motivated by a desire to defend Apple. 

    the most obvious way for Apple to build the so – called “ethical” iPhone would be to NOT replace Foxconn altogether and take 8 months in the process as suggested here ( a ” red herring” if there ever was one ), but to pay Foxconn / Hon – Hai enough ( say 50 % over just the 5 % of total the assembly of an iPhone is supposed to cost – almost “noise” considering Apple's margin ) to cut work hours / hire more workers, even slow their lines down / build a few more. 

    slavery could not have flourished in America for 3 centuries w/o its direct beneficiaries and paid defenders / shills.

    the same seems to be true even today 4+ decades after Civil Rights – only its being practiced out of sight in China by CEOs pretending to be Zen Buddhists – and being defended in the name of journalism.

  9. chipmonk
    February 3, 2012

    one more desperate “red herring” in the blog defending Apple :

    ” Bringing Chinese wages up to Western levels would increase the cost of a typical i-product by 35 percent. “

    a ” strawman ” proposal if there ever was one !

    I seriously doubt if the group demanding ” ethical iPhones” is asking to level the 10:1 wage difference between the US and China in one fell swoop.

    Even a 50 % raise and 30 % reduction in work hours / push rate would ease the pain of the Hon Hai workers.

    The additional cost would be merely a blip in Apple's cost as at present assembly costs them < 7 % and their after sales margins are > 40 %.

  10. Taimoor Zubar
    February 5, 2012

    Apart from the hassle and associated costs of moving from one OEM to another, there's also the risk that the move might prove to be very costly for Apple. The new OEM may not have the desired level of quality and efficiency to work with Apple. Foxconn had been there since Apple launched the iPhone and has grown along with Apple to reach this stage.

  11. Daniel
    February 6, 2012

    I think EBN/UBM can raise the voices in public on behalf of the community. Somebody has to raise the voices against such things; otherwise most of the companies are considering it as grant for success.

  12. mfbertozzi
    February 6, 2012

    It could be an approach HH; but I would like to put on the table a question. Right now, major focus is continuously on Apple and labor condition for OEM outsourced people. Are we really convinced labour conditions for other major players in the sector are different? Has anybody heard about?

  13. elctrnx_lyf
    February 6, 2012

    every one talk about apple because they are the biggest customers of Foxconn. Otherwise there are many other companies engaged in EMS services with Foxconn. I hope the working condition will improve once there is a common body to certify the EMS companies.

  14. mfbertozzi
    February 6, 2012

    I see electrn_lyf, it is a good point you have outlined. In my opinion, it sounds as another step forward to do, because certification process needs to be recognized abroad in line with political rules of each one country that decides to achieve it.

  15. Barbara Jorgensen
    February 6, 2012

    A couple of good points from readers: Apple is by no means the only OEM working with Foxconn. Dell has acknowledged it in their CSR reports, and news reports say that IBM, HP and a number of Asian companies all use the EMS. The conditions we are hearing about are directly influenced by Apple's size and visibility, but a cohesive effort by all the major OEMs would go a long way toward improving conditions in foreign factories. Another point–we don't know that Foxconn is the only manufacturer operating below par–they are just the biggest.

  16. Houngbo_Hospice
    February 6, 2012

    That is right, summer is around the corner and we cannot expect a drastic change in this short time. BTW, Do you notice any sign from Apple that they have been listening to people concerns about how their contractors treat their employees? I wish what that did not fall in deaf ears.

  17. Barbara Jorgensen
    February 6, 2012

    Tim Cook wrote an internal memo to employees about the bad publicity Apple is getting (see Bolaji'g blog on the response) but nothing has been said publicly that I am aware of. Apple rarely speaks to the press unless it can control the message. I think this time it is a bad move for Apple to not publicly respond to criticism.

     Then again, this is the company that when users complained the iPhone didn't work when you held it a certain way the response was “then don't hold it that way.” In other words, the problem is us, not them.

  18. saranyatil
    February 7, 2012

    It s very difficult for one single certification to exists it s very difficult to convince everyone and follow on the same stand.

  19. mfbertozzi
    February 7, 2012

    I really agree with the comment, it is not so easy. I am wondering why for istance, in technical fields, common or shared position among several members have been usually achieved, but for topics really important as per discussed within Barbara editorial, difficulties are still there since a long ago.

  20. Barbara Jorgensen
    February 7, 2012

    I think the issue is even more fundamental than “can we change?” The question is “should we?” I am personally torn between two points of view: limiting a business relationship to a straight demand-supply agreement, versus businesses as a moral compass. I continue to struggle with this one…

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