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Apple, Dell, and HP: Shocked, Shocked at Foxconn Suicides

Back in February, I wondered whether outsourced labor problems would make Apple (AAPL) the next Nike and noted that many high tech companies were vulnerable to the practices of their overseas partners. Well, it didn't take long. Since the first of the year, nine employees have committed suicide and two more have tried at a single facility of Foxcomm, a trade name owned bythe Chinese conglomerate Hon Hai. Foxcomm customers Apple, HP (HPQ), and Dell (DELL) say they will investigate the situation. A question remains: Why didn't these companies, or the many others that use Foxconn, take action before?

Labor costs have been the pet peeve of American corporations for ages. This becomes an enormous irony in high tech, because, over the years, manufacturing experts have told me over that labor costs in technology products generally represent only a few percent of an item's cost price tag. There's plenty of other areas -- like corporate overhead or marketing -- that probably represent a bigger strain on profit. However, it's far easier to blame labor and for managers to seem as though they're making great strides by shopping their manufacturing around the world.

Yet everything comes at a cost, including executive peace of mind. Forget for a moment the more important issues of integrity and ethics. From a strictly pragmatic perspective, the willingness to turn a blind eye when possible to issues so long as more money stays in the bank is a precarious tactic. When things blow up, they get messy.

Have no doubt that the eyes of high tech leaders haven't been willingly blind. Look at the following that AP reported:

"We are saddened and upset by the recent suicides at Foxconn," Apple spokesman Steve Dowling said. "Apple is deeply committed to ensuring that conditions throughout our supply chain are safe and workers are treated with respect and dignity.""A team from Apple is independently evaluating the steps they are taking to address these tragic events, and we will continue our ongoing inspections of the facilities where our products are made," he said.
Compare that to Apple's own supplier responsibility 2010 progress report. The company audits "all final assembly manufacturers every year." Here's a table showing the overall results of all facilities, including those making only sub-assemblies:

Compare that to the following table, which shows its examination of final assembly manufacturers and their progress over three years:

Is one of these six the Foxconn facility in question, which certainly performs final assembly for some Apple products? Exactly what does a company have to do to comply? Not much, apparently. Foxconn has hung nets to catch plunging workers and required employees to sign pledges that they won't kill themselves. At least on company time, I presume.

Apple has local teams investigating conditions, so either it has a sense of what the places are like, or it's so loose about warning the manufacturers about upcoming inspections that the facilities have a chance to temporarily make things look good. Whichever the case, it's a nod and wink, particularly when there have been public reports of one suicide after another at a facility.

For all its shortcomings, however, Apple still appears to take worker conditions more seriously than HP, Dell, or the host of other companies that use Foxconn. Do these companies think that bad labor news can be ignored in a day when photos and reports get plastered over the Web in a matter of minutes? Many big tech industry players are enduring a public battering on such issues as privacy and trustworthiness. Why risk the additional reputation damage from labor issues?

Still keeping ethics to the side, a strictly business view of the situation and the current domestic political climate would suggest that there is an enormous marketing opportunity for one or more of these companies. A vendor could, for instance:

  • Bring manufacturing to the U.S.
  • Hire American workers.
  • Pay a reasonable wage and raise prices slightly.
  • Obtain an embarrassing amount of fawning press.
  • Trot out the "Made in the U.S.A." label as the center of an advertising campaign.
  • Grab market share -- all at a good margin.
If doing right isn't a good enough argument, maybe executives should consider the possibility of doing well.


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