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Apple Has a Foxconn Problem

{complink 2125|Foxconn Electronics Inc.} and {complink 379|Apple Inc.} are joined at the hips. They've grown together over the last five years with Foxconn both piggybacking on and helping Apple achieve its enormous success in the PC and consumer electronics market. Today, Apple is the world's biggest electronics company by capitalization, and Foxconn is its No. 1 contract manufacturer.

As a result of their symbiotic relationship, however, whatever sullies the Taiwanese contract manufacturer's name is bound to muddy up the reputation of its consumer electronics and PC OEM customer. The latest Foxconn plant disaster could spell trouble for Apple.

News reports indicate three people are confirmed dead following an explosion last week at a Hon Hai (also known as Foxconn) facility in Chengdu, China, which makes the iPad 2 for Apple and other devices for Western OEMs, including Hewlett-Packard. Many other workers were injured in the tragedy, according to a report on Dow Jones Newswires.

Apple will be affected by the latest development in several ways. First, the Chengdu plant is a major center for iPad 2 production, and although the facility itself has not been closed, any disruption in activities will hurt shipment of the device. Even before the latest incident, Apple had been struggling to satisfy demand for the tablet device. The fire, which reportedly resulted from “ignition of aluminum dust by sparks from an electrical switch in a polishing and finishing workshop,” could further crimp supply.

The other, potentially more damaging, fallout from the Chengdu incident for Apple is the likelihood that investigators, customers, and investors could see a negative and troubling pattern with regard to Foxconn's management of worker safety issues at its facilities. In the last year, Foxconn has had to deal with worker suicide at its facilities, raise salaries to combat its image as a predatory employer, and institute steps to reassure human rights activists it respects international labor laws.

Partly in response to the Foxconn problems, Apple said it has similarly jacked up oversight of its contractors and increased supply chain audit at suppliers. (See: What Did Apple’s Supply Chain Audit Uncover? Part 1.) Apple reassured customers and shareholders that Foxconn was in compliance with labor laws but noted it would be even more closely involved in how suppliers and contractors treat employees.

Yet the criticisms of Foxconn have continued to pile up, indicating the company (and Apple) might not have completely grasped the severity of the situation. On May 6, barely two weeks before the latest disaster, a Hong Kong-based human rights organization issued a release titled “Foxconn and Apple Fail to Fulfill Promises: Predicaments of Workers after the Suicides,” which criticizes the two partners' handling of worker-safety issues.

The organization, Students and Scholars Against Corporate Misbehaviour (SACOM), made the following conclusion after visiting two Foxconn facilities, including the one involved in the Chengdu explosion:

    While Apple commends the measures taken by Foxconn to improve working conditions, SACOM finds predicaments of workers remain. Workers always have excessive and forced overtime in order to gain a higher wage. Workers are exposed to dust from construction site and shop floor without adequate protection.

    Occupational health and safety issues in Chengdu are alarming. In the milling machine department in Chengdu, some workers state they always breathe in the aluminum dust. Workers in the polishing department also complain that the department is full of aluminum dust. Some workers comment that ventilation on shop floor should be improved.

Initial investigations indicate the Chengdu explosion could have resulted from the build-up of aluminum dust at a polishing workshop. Foxconn has now shuttered all polishing workshops in China following the blast. The move, though commendable, has come too late for the three dead workers and their injured colleagues. Foxconn has not been charged with any labor violations, but incidents like these are damaging to the company — and may hurt Apple eventually.

10 comments on “Apple Has a Foxconn Problem

  1. SunitaT
    May 23, 2011

    “Foxconn has not been charged with any labor violations, but incidents like these are damaging to the company”

    Bolaji,

     I totally agree with you that incidents like these are damaging to the the company. Surprised to know that Foxconn has not been charged with any labor violations, is it because government is going soft on this issue ?

  2. seel225
    May 23, 2011

    It is very sad to hear that the explosion at a factory that produces iPads was caused by 'combustible dust'. It was not a major accident but it could have been more dangerous, atleast from now Foxconn and Apple has to make sure to improve the working conditions in China.If Apple wants to be the biggest brand in consumer electronics,they should also have extra more responsibility towards the working conditions for the workers in China. If this incident makes Ipad2 production little bit delay but no one can bring back the workers who lost their lives. 

  3. bolaji ojo
    May 23, 2011

    @Tirlapur, Foxconn is innocent unless proven guilty and investigations are continuing into this tragedy. In the past, the Chinese government did not hold Foxconn liable for disasters at its facilities, including the suicides of some employees. Perhaps there will be no criminal culpability for Foxconn but the company is getting a black eye from events like this and it needs to make sure this does not happen again. So does Apple.

  4. elctrnx_lyf
    May 23, 2011

    I don't think this will affect the image of Apple and their products till both Foxoconn and Apple together are found guilty by the external investigating authorities. But definitely this incident is more serious than the employee suicides and it should be investigated and stern action needs tabe taken against the Foxconn management.

  5. DataCrunch
    May 24, 2011

    At the moment, I don’t believe the current and past incidents at Foxconn will have an immediate effect on the demand for Apple’s products, but as more of these incidents of poor working conditions continue to arise at the Foxconn facilities, it may become problematic.  I haven’t noticed the competition using these incidents against Apple…yet.

  6. Anna Young
    May 24, 2011

    It is sad to hear about incidents of this nature. I hope Apple consider the potential implications of the incident and ensure it acts on its assurances to its customers and shareholders by getting”closely involved in how suppliers and contractors treat employees”.

  7. jbond
    May 24, 2011

    It is always sad to hear about accidents. This is a major problem that both Foxconn and Apple need to fix. They might not get their plants set up to U.S. standards, but they need to address the more serious ones to help prevent anymore loss of life. On top of these current issues, Apple is already seeing supply problems resulting from the Japanese fallout. If some of their production is shut down even for a couple of days, Apple's supply chain could get put further behind.

  8. Taimoor Zubar
    May 24, 2011

    I think an important aspect here may be the differences between labor laws amongst various countries. Foxconn, being a Chinese company, is required to adhere to labor laws in China. Obviously, the laws there are considerably less stricter than in countries like US. So, while incidents like the explosion in the factory might be a serious crime and violation of labor laws in US, Foxconn might get away with it as per Chinese laws.

  9. honkj
    May 25, 2011

    is there really a problem at foxconn?  or really a problem with media fanning ignorance on the subject?

    for instance,  Foxconn has always had a suicide rate that is 1/3 to 1/2 that of every single city and manufacture in the US… let alone everywhere else…

    how exactly are you classifying that as a problem?   should foxconn come “up” to the standards of the US and encourage a greater suicide rate???

    do you see how you misinterpreted the suicide “problem”????

    and accidents,  Foxconn has had two to three major accidents in the last 10 years….

    this rate is 1/2 that of every other manufacture in the US…   

    so should Foxconn come up to the standards of the US and encourage more accidents?

    do you see how far off you are in your typical media blindness?

     

  10. Mr. Roques
    May 28, 2011

    Apple has created a 'problem' in the sense that they are expected to release new products every couple of months (Mac experts predict the release dates to the day and week). 

    In that sense, falling behind because of supply issues is critical. 

    Should Apple try to get out of those cyclical release dates? 

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