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Apple's China supply chain exposed
Participants dressed up to represent Foxconn workers take part in a protest in mainland China. Manufacturing Apple’s iPod and other products in China has cost some workers their lives.
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Kai Ryssdal: If you were asked to pick the iconic American company right now, right at the top of most lists would be Apple. Once a fringe, cultish computer company -- now maker of things that everybody wants.
It got that way with great design, an eye for perfection, and a whole lot of Chinese factory workers. Charles Duhigg has been writing about the economics of Apple's supply chain in the New York Times this week. In a story that went up online yesterday, he told the story of a 22-year-old man name Lai Xiaodong and the job Mr. Lai got at FoxConn, one of Apple's biggest suppliers.
Charles Duhigg: He was assigned to a room where they were sanding, polishing the iPad cases. As aluminum dust built up in the air from the polishing, it eventually got to a critical point where it exploded. Mr. Lai was killed along with three others, and dozens were injured.
Ryssdal: And the official response from Apple and from Foxconn on this was what?
Duhigg: Both of them said that they opened up investigations, although neither company has revealed any of the documents or any of the findings from when they sent folks in. Conditions in Chinese factories are harsh. They're much harsher than they are in, for instance, the United States or any Western nation. And when I talk to former Apple employees, what they say is that if Apple and Amazon and Dell and Hewlett-Packard, if they all came in and they insisted that conditions be improved to where there are no safety hazards, Chinese manufacturers would have to comply. But the problem is that right now there's not a lot of reward for doing so -- particularly when insisting upon changes would probably slow down the pace of innovation significantly and would very likely raise costs for a number of those companies.
Ryssdal: Let me explore that pace of innovation point because that is at the core of the article that came out yesterday and the one that came out over the weekend as well. And that is how quickly companies expect manufacturers to be able to turn to get what consumers want. And you tell a great story about the glass in the iPhone and when Steve Jobs said 'I want a glass screen, make it happen.'
Duhigg: Absolutely. And they were able to turn that around, overhaul their manufacturing process, and within 48 hours get these glass screens into workers' hands and start producing finished iPhones because there's this enormous flexibility. These factories can hire 3,000 people overnight. It's an amazing scale.
Ryssdal: Well here comes the look-in-the-mirror question because there is demand issue that's helping drive this whole thing.
Duhigg: Oh, there's huge demand. Right? We did a national poll as part of this story and we asked people, first of all, where do you think Apple products are made? Most people who responded didn't know that they were made overseas primarily or how much of them was made overseas. And then we asked: What's the worst thing that you know Apple? 57 percent of people couldn't think of anything negative about the company.
Ryssdal: Wow.
Duhigg: The No. 1 response at 14 percent was that their products are too expensive. Two percent of respondents mentioned overseas labor conditions.
Ryssdal: Play this out for me, then. If change is going to come, where is change going to come from?
Duhigg: Where change has to come from is it has to come from consumers starting to say, 'Listen, I really care about where my product comes from. I'm willing to pay more for it if it's built in a factory I can feel good about.' And more importantly, 'I'm willing to wait longer for a new version.' We live in a time when there's a brand-new device, it seems like, every couple of months. And they're amazing and wonderful -- but there's a price to that.
Ryssdal: Charles Duhigg writing in the New York Times with David Barboza about Apple and the iEconomy. Charles, thanks a lot.
Duhigg: Kai, thanks so much for having me.
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I wrote a couple other comments on this article because it is a subject for which I have a lot of passion. I agree that the consumer is the one who has the most responsibility to affect change and it saddens me as I also believe these same people are the least likely to make the kind of selfless decisions that would drive change.
Regarding where products are made and the fact that people are seemingly ignorant of the country of manufacture of the products they buy, I would like to see a story that compares the relative hysteria of the 70's and 80's over Japanese inroads in America versus how we've given over our country to China with no complaints.
From an ideological perspective, neither the Japanese government nor their people ever posed a great threat to America. They simply did not have the resources to do great harm to the US but they certainly could and would have achieved a sizable foothold as they ultimately did in the automotive industry. In the meantime, they demonstrated some very good lessons about the treatment of workers and how to challenge the status quo in coming up with creative consumer products. Japan had been for some time a supporter of the US on the international stage and was a working democracy with respect for human rights (though don't get me started on how they treat whales and dolphins).
Conversely, the Chinese government is a totalitarian state that opposes the US on nearly every global political front, supports hostile nations such as North Korea and Iran, has zero protections for intellectual property rights, and no consideration for the rights of workers and the conditions under which they toil. China fuels black market enterprises around the world. A recent capture of a submarine being built by drug traffickers in South America was found to include engines made in China. No surprise there. They also have nearly unlimited resources. What is the costliest resource when it comes to manufacturing? It isn't the oil, electricity and gas to run your factories nor is it the raw materials and supply chain. It's people, and there are over 1.1 billion people in China, so they can outperform the US by nearly four-fold.
Unlike the Japanese who had to re-invent themselves after WWII from making cheap, unreliable products to making innovative and well-engineered products, the Chinese have not had to overcome this hurdle. This is because US companies have dismantled their domestic factories and basically airlifted them to China. Or for that matter, China has simply purchased the companies outright (IBM's desktop and laptop business became "Lenovo").
So, why did Americans panic at the possibility of a friendly nation making inroads in our markets but have had no problem handing over our entire middle class infrastructure and manufacturing to a hostile government that now has the capability to crush us economically any day they choose?
This take over was done in disguise. Instead of companies named Toyota, Honda, et al coming into our markets, the names are all familiar to us. They are "Apple," "GE," "Lionel" (the Great American Railroad), "Waring" (or name any kitchen appliance maker) and on and on a list of so many name brand American products or even no-name products on our shelves. When it isn't an American company, the name is indeterminate (again, "Lenovo").
Product labels are designed to hide this. When the brand is an American name, most consumers aren't hunting around the box to find the words "Made in China" on the bottom or some obscure location. Worse, it might say instead, "Made in PRC." (People's Republic of China, anyone?) I'm not expecting most people to successfully decipher that one even if they bothered to look. Another popular method today is to say "Engineered in the USA -- Made in China" or some such way to give the impression that there is a strong USA component to the product, never mind that the job of manufacturing has been given to the Chinese. And there is the one I really don't like, you'll often see symbols resembling the US flag (but likely not the exact US flag) emblazoned on packaging.
I believe that is a strong component of how this was done, with the complete participation of the US government who provided tax incentives to companies to move manufacturing to China and of course with US companies who were only too happy to do so in order to fatten their coffers. Consider that a high-end New Balance shoe made in the US costs no more than a high-end Nike shoe made in China. If both shoes sell for about $140 here, what do you think the difference is? The difference is in the incredible profit that Nike is pocketing on their shoe. The myth of Chinese made products is that they are cheaper to the US consumer because they are made there and could not be competitively manufactured and sold here. Kitchen Aid makes a belgian waffle maker that sells for around $300. It's made in China. I would consider buying it if it were made here as it is something I want and appears to be of good quality, but I have no interest in rewarding K A for making their products in China.
I'll close by pointing out that all this movement of manufacturing to China has created a great deal of wealth for China. With that wealth, China has become a large creditor to the US. US cities go to China to court their investment. Failing US companies (e.g. Hummer) look for China to be their white knight. With all this economic leverage, China could bring the US to its knees financially in a single day if they chose to do so. The only thing that would stop them is that we're their best customer. However, consider that because of this, we have no real leverage in asking them to be a stabilizing influence in the world or opposing their policies when it comes to human rights issues or their treatment of Tibet, or even their future plans for expansion. We dare not confront a country that has this much leverage.
Isn't it ironic that we pumped billions and billions into defense (and still do) to shield ourselves from the threat of the USSR and conversely have literally handed over to the Chinese all the power they ever needed without even realizing it?
We Americans behave in strange ways and I'm not sure that it is too late to change, but the consumerism culture we have here makes no connection between our desire for goods and the connection that behavior has to national security, human rights or even the prospects of the next generations of Americans to have decent job prospects as part of a strong middle class.
One interesting comparison is telling:
I've never yet met an executive or manager in any company in the U.S. that rejoices at any of his/her employees being injured on the job. There may be arguments about the amount of Worker's Compensation Insurance premiums, but there is no argument about the need for helping people injured on the job.
It may well be cheaper to produce items overseas, because they do not have OSHA requirements or any requirement to have any sort of worker's compensation insurance in place. But it raises the question of why any American manager or executive would want to put workers it pays for, even indirectly, at risk while working for one, when one would not do the same thing in our own country.
It's not up to China to fix the problem. It is up to management of companies, (and if they won't do it, to stockholders) to insist that their foreign contractors abide by the same requirements to provide the same level of Worker's Compensation Insurance Coverage required in the state where the company's headquarters is located. Even more, it has to be contracted through an American insurance company, so that levels of usage can be monitored.
We have a moral responsibility to make sure that we offer to any employees of American companies, the same level of Worker's Compensation Insurance coverage for foreign workers that we gladly provide for American workers.
And gee, if that meant that it raised the cost of production overseas so it was cheaper to produce the same product in the US, who is going to complain?
Charles Duhigg wrote a great article about Apple and the harsh Chinese labor condition in the Foxconn, he may win the Pulitzer for this. However there is still one piece missing in his articles: the reason why those Chinese workers still choose to work there. The reputation of the Foxconn factories in the China is not good, the serials of workers commit suicide are well known in China, but why don’t those workers quit? Foxconn is not a force labor camp; it is a private own Taiwanese company, Chinese workers hired by Foxconn have the right to quit their job, if no one wants to work for Foxconn, then they would have no choice but to improve working condition. I believe the key to solve this issue is to find out why so many Chinese workers kept working for this company for years and this company has no problem to hire large amount of new workers in a short notice despite its bad reputation in China. I wish we can find the answer in his forthcoming article.
I don't think you can fault Apple for wanting to turn a profit, but when companies say we are not responsible for America’s problems we are in deep trouble, especially when the Supreme Court ruled that corporations as having the same rights as US citizens.
If China can demand that any company wanting to do business there has to produce a certain percentage in China, why can't we do the same??
Some smart marketing people should figure out how to make "Made in the USA", just a chic’ as "Organically Grown", "Cage Free", "Not tested on animals" etc. Then there would be resurgence in American manufacturing.
I hope you can read Chinese, so you can go directly to so source:
http://www.chinanews.com/it/2012/01-20/3618492.shtml
In short, while Apple has its record profit and profit margin, Foxconn sees its margin decline from 5.9% (2006) to 2%. It now earns .5% from sales of iPhones and 2% from the IPads, while Apple has a profit margin of 58.5% and 30% on these products.
If you look at this fact and accept it as what it is, then you will understand that the nature of the problem is not where Apple has its product assembled, or who have cheaper, more productive labor force. Apple, and companies alike will make the cheap labor even cheaper... the downward spiral cannot be stop from within. If we allow these companies to do whatever they please to earn whatever profit they can get to without hold them accountable for all externalities, then there will be not end of tragedy. And this is not going to be good for anyone either live in developed or developing world - there is always "more competitive source" of production that will force you to settle for less - less space, less entertainment, less time, less food, less freedom, less dignity... The only way out from it is holding them accountable for all the social cause of their business strategies - the externalities. But unfortunately, the current market system and regulatory system have a very poor track record on this, and that is exactly why the companies and their managements get so rich, and hardworking people everywhere gets poorer and poorer.
Now, I am fully aware that my common is not constructive in its nature, and may even sound pessimistic. But I believe that great wisdom can only be driven when you face with the truth. And if there is only hope…
After hearing Mike Daisey's "The Agony and the Ecstasy of Steve Jobs" at Washington, DC's Woolly Mammoth theater company last year, I wanted a computer that was -- to whatever degree I could manage - made in the US. I found a company called Systemax that builds their computers in Ohio and bought a nice little laptop from them. I don't know what I'll do if I ever have to replace my iPod.
Hello Kai
I will like to comment on yesterday report about "Apple's China supply chain exposed” with Charles Duhigg. I disagree with Charles on the consumer needs to start asking Companies where there products are manufacture and what are the conditions of those workers. I don’t care where the product is manufacture; i only care about the quality and price. The workers that make those products are the ones that must force their employer to have better conditions to perform the job. And the Governments need to enforce the willing of the people.
In other words, the factory workers at FoxConn need to protest more and more until their voice is heard. And the Chinese Government need to enforce FoxConn to improve on the safety of their workers.
Thanks,
Harold Blanco
If you've been paying attention at all, you might have noticed that China is a totalitarian state that doesn't take kindly to protesters. The government is on the side of the company and doesn't care about the rights of individual workers. It is absolutely the responsibility of the consumer to tell companies that they care about how and where their products are made because it is the purchasing public that has the leverage to influence a company's business practices.
What is clear from your posting is that you have no empathy for the plight of workers who are essentially slave laborers so long as you get what you want.
The Author is so twisted, he think the problem is consumers need to pay more for worker's rights in China. Yes, pay more to a company that is so rich and have a profit margin of 40+%. Stop blaming consumers for lack of ethic of the big companies, already! It's government's and regulation agencies' responsibility to stop this insane practice of corporations, for the sack of humanity. I mean, free market clearly cannot solve the problem, and they clearly have zero ability of introspection - god kill their cult leader Jobs with cancer, and they still don't learn!
This story echoes a recent piece on Ira Glass's "This American Life", called "Mr. Daisey and the Apple Factory", which is also about Apple products and the FoxCon factory and others like it. That story really blew me away. FoxCon factory sounds like something out of 1984, or worse. This monstrosity holds 400,000 workers & for a while there was an epidemic of suicides - so the plant just put up nets to catch the poor souls throwing themselves off the tops of the huge plant buildings every day! They also talked about worker dorms that are 12x12 & hold 14 coffin-like bunks stacked up to the ceiling. No wonder they were committing suicide! This story is still available for a free listen or download on thisamericanlife.org if anyone is interested. I would definitely recommend it - but be prepared to be shaken up.
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