Bloomberg reports in an article today
that Apple's margins have widened at the expense of its main supplier as
Foxconn Technology Group cuts prices to retain orders for the iPhone and iPad.
The profit spread at Hon Hai Precision
Industry, Foxconn's Taipei-listed flagship, has narrowed to 1.5 percent since
the debut of the iPhone in June 2007 as Apple's operating margin more than
doubled over the past five years, surpassing 30 percent.
Apparently, Foxconn as well as Pegatron
are willing to sacrifice profit margins in exchange for volume and scale.
Both companies have seen profit margins decline despite increase sales
due to rising salaries and lower sale prices to Apple Corp. on Ipads and
Iphones.
This process puts both companies under
increasing pressure to get more from workers for less. So if salaries go up it
becomes critical to increase worker productivity.
Maybe this has something to do with
repetitive motion disorders, stress disorders, suicides and explosions at
plants not ready for production but which are pressed into service nonethless
(see my previous blog).
For the third time in little over a year an explosion has rocked a factory that supplies parts in the manufacturing of various Apple devices. The explosion injured 61, and sent 23 to the hospital. Fortunately, there were no fatalities.
This particular plant (which supplies back panels needed in the manufacturing of IPads), according to Pegatron Chief Financial Officer Charles Lin, “…had not started operations yet. Part of the facility is still under pre-operation inspection and part is running trial production.” 1
Chinese suppliers are under tremendous pressure from Apple to increase supply to keep up with worldwide demand for IPhones and IPads. Manufacturing the aluminum shells is, admittedly, not without risk. The shells need to be polished and the powder used in this process is potentially explosive - requiring a factory environment with adequate ventilation. Still, providing such an environment is not rocket science.
It is not hard to see that under pressure to increase production companies are cutting corners. In this case, a plant which has not yet “started operations” has already experienced an explosion injuring 61 people.
Who is responsible for this (preventable) disaster? Is it the company which rushed, recklessly, into trial production a facility not yet ready for prime-time, the Chinese government with its lax supervision of various regulations (or perhaps no regulations at all), or is it Apple computer corporation which turns a blind eye to the practices of its suppliers so that they may sell a million or so more iPhones and IPads. Apple Corporation made $7.31 billion dollars in profits in their 3rd Qtr. 2011 financial year alone.
Perhaps there are others who deserve mention. Please share your take on this tragedy.
Peter Schnall
1 “Apple supplier Pegatron hit by China plant blast” By Clare Jim and Argin Chang, Reuters.
The name Disney is highly evocative for many Americans. Some think of their favorite childhood movies – Bambi, Pinocchio, Snow White, Lion King, etc., others call to mind one of Disney’s 14 worldwide theme parks and resorts. Disney has, over the last 70 years become a part of what many conceive as the American Dream.
Today, when someone wins a Publisher’s Clearing House award, or the Superbowl, what do they think to scream? Many things I’m sure but, “I’m going to Disneyland” has become a catch-phrase for people who, for whatever reason, have come into enough money or fame to finally elevate themselves into the class of people who can afford to have the magical experience of a Disneyland adventure.
But there’s a darker side to Disney Corporation, which has a long history of labor disputes. As reported by Steve Lopez of the LA Times on October 19th, something new and unwanted has made an appearance in the perfect world called Disneyland. Disney Corp. has begun a new chapter in electronic monitoring of some of its workforce in the form of large TV screen displays in the work area. Workers at Disney’s Paradise Pier Hotel in Anaheim have labeled the large flat-screen monitors in the laundry room the “electronic whip.” This screen, displayed for all to see, visually tracks worker progress by giving “efficiency” percentages in green - for those who are at or above expected productivity - and red for those below it. Not only does this cause anxiety for workers in general, it pits them against one another in a minute-by-minute race to be on top. Workers complain of putting off or missing toilet breaks in order to keep up.
If you look to the left on our blogsite you’ll see snippets from Charlie Chaplin’s movie Modern Times. After reading Lopez’s article on the electronic monitoring of Disney Hotel Workers, Charlie’s satire of the industrial production line appears, once again, prophetic.
This Disney tale is one example of “lean going mean.” Though the Foxconn plants (see earlier blogs re Foxconn) are many thousands of miles away, this speeding up of the workplace has become widespread. Known to be detrimental to worker health, the ever-increasing push to produce more and faster keeps workers locked in a social and biological struggle to meet inhuman demands under inhumane working conditions. But speed ups and social isolation created by competition between workers is just the tip of the iceberg. Workers at Disney not only complain about the pace, they also complain of low wages, job insecurity, lack of respect and the injustice of having to put on a “happy face” and give, even the most slovenly of guests, a “magical experience” when they themselves are looking at dwindling wages and increased health care costs (see psychosocial stressors blog #2).
Steve Jobs, the co-founder of Apple Computer Corporation died today October 6 2011 at the age of 56 from a rare form of cancer of the pancreas. His death has been accompanied by widespread expressions of admiration for the man and his accomplishments. These accomplishments include the creation of Apple Computer Corporation, apple computers, the iPod, iphone and ipad as well also NEXT computer corporations and Pixar animations including Toy Story. He overcame numerous adversities in his climb to success and fame including being fired from Apple Computer Corporation by a man he hired to manage the company for him while he focused his energies on developing new products. It is probably fair to say of Steve Jobs that he exemplifies much of what many Americans think is the best about America; opportunity to rise from nowhere to stardom, no silver spoon in his case but lots of hard work and a eye on the goal. I admired him. He seems like a good man, there are no terrible stories about him, his company is respected and he is idolized by many. The cofounder of Apple, Wozniak says, perhaps a bit tongue in cheek, that he'll "be remembered for the next hundred years as the best business leader of out time."
You may be wondering, “where’s the beef”? Those of you who have read my recent blogs will know that Steve Jobs is a pivotal figure in one of the most important aspects of globalization – the offshoring and outsourcing of production to the developing nations of the world. Just as Apple has grown in recent years so have the companies that supply apple with the parts and machines that make Apple a successful corporation. One company that supplies Apple is Foxconn a Chinese firm which now employs more than 1 million workers and is one of the fastest growing companies in the world. They manufacture Ipads and Iphones for Apple. If you have read my earlier blogs you realize that one focus has been on the terrible working conditions at Foxconn Corporation in China. Long work weeks – 12 hours a day x 6 days a week, military like working conditions, low wages, and low employee morale has led to more than 15 suicides in the past year. One might argue that Foxconn is not Apple. After all, Apple has a “code of practice and conduct” that they claim they hold each company to. Yet, there is little doubt that the pressures to produce products at Foxconn at competitive prices has contributed to these working conditions.
And now we return to Steve Jobs – the pioneer and great business man – and ask what role does he play in this process that leads to these desperate conditions for Foxconn employees and what responsibility does he have for the conditions that face working people at Foxconn and for that matter in China as a whole? This question is one that has troubled scholars. How much are individual’s (regardless of their position in society) responsible for the exploitation that occurs at the hands of a capitalist economy and how much are they mere “cogs in the wheel” whereby their hands are forced by the pragmatics of business, growth and accountability to shareholders. Some would say that a man with the power of Steve Jobs could have turned his attention and made a difference to the working conditions at Apple’s subcontracted companies. Why he didn’t consider encouraging Apple to pull its contracts with Foxconn is a story we may now never know.
Foxconn is planning to add one million robots to its workforce within the next three years. This is alarming news for those concerned about China’s working class citizens. Foxconn has been growing at an enormous pace, has doubled its workforce over the last few years and is now ranked third largest employer in the world. They are faced with rising labor costs which they have attempted to address through increased productivity of its workforce and also by expanding west to China’s Chengdu province - home to a still large population of poor agricultural workers and a new source of inexpensive, unorganized labor.
News reports have been appearing in the press for the past five years about Foxconn workers’ struggle for higher wages and better working conditions. Few gains were made by workers however until 2010, when Foxconn received a large amount of bad publicity due to the suicides of 11 of its workers. The sensationalism of the story was due in part to the collective and public nature of the suicides (which involved workers in similar fashion leaping to their death from the roof of Foxconn buildings), paired with the fact that Foxconn’s Shenzhen plant is the major manufacturing headquarters of the popular Apple iPhone and IPad.
Foxconn responded to the public outcry resulting from these deaths by raising the salary of its workers and installing netting around the roofs of its buildings to forestall further suicides. They also required workers to sign a “no suicide” clause in their work contract, which prevents their families from receiving a death benefit.
But Foxconns’ dilemma hasn’t been resolved. As its work force continues to swell so does the threat of organized worker activities. (Of course, Foxconn workers like all other workers in China are represented by an official Chinese Union answerable to the Chinese government and which fails to represent the interests of workers in almost every case. But the threat of organized resistance poses a serious problem for Foxconn: how to continue increasing productivity while lowering costs in a competitive economy.
With pressure to produce still more coming from Apple and other end users and the company complaining of low profit margins, Foxconn has now sought to increase its production processes by means of robotics. According to Terry Gou, the company’s founder and chairman, Foxconn already makes use of some 10,000 robots and sees many benefits in expanding its use of robots. Gou plans to use the new robots to perform tasks such as spraying, welding and assembling. He projects that utilizing up to 1 million robots will improve the working conditions at his plant for Foxconn workers by eliminating those parts of the production process which are repetitive and menial, effectively elevating it’s workforce into positions with increased skill-level and value.
But will the modernization of Foxconn’s plants into a futuristic, automated factory actually mean better working conditions for China’s workers, or just a loss of jobs? Gou’s argument seems to favor the hypothesis of Skill Biased Technological Change (SBTC), which purports to positively favor a shift from an un-skilled labor force to skilled workers. SBTC has, however, become the center of debate on the unequal distribution of power in the workplace (management vs. workers) and the increasing inequality of wealth between social classes in Capitalist societies.
How can Foxconn reduce costs if they hire robots unless their “employment” is accompanied by the layoff of workers (workers being the most expensive part of the production process)?
Despite Gou’s words to the contrary, workers at Foxconn’s plants remain skeptical. Tania Branigan of The Guardian reports that some workers question whether Gou’s announcement was sincere. "I am suspicious," said Liu Kaiming, of the Institute of Contemporary Observation, which supports workers in Guangdong, "Machines can do it, but think about the cost … overall, workers are still much cheaper. This is probably just for sensational effect, [to] put pressure on workers."
And it is difficult to imagine that the small and hard-won improvements workers have fought for at Foxconn are not under attack. In essence, how can workers complain of labor practices which cause them to feel like machines – enforced silence on the production line, short or non-existent breaks, etc – when the company can literally replace them with robots capable of working 24-hours a day without complaint?
In the long run, replacing humans with robots seems a dead-end process. After all, robots are unlikely candidates to purchase the products of their own labors. Without a well-paid labor force capitalism lacks a market for its goods. This problem is a flashback to the issues raised by Jeremy Rifkin in 1995 in his book “The End of Work: The decline of the Global Labor Force and the Dawn of the Post-Market Era” in which he argued that many jobs are never coming back and that we should prepare for a world without work. Of course, the emergence of China and the employment of millions there has been the major argument against his thesis. More on this in a later entry…
I reported on a union organizing effort at the Ikea’s Swedwood Danville Plant in Virginia. I am delighted to follow-up that blog and report that on August 6th, by a 221-69 vote, workers voted to unionize with the Machinists Union (IAM) overcoming strenuous anti-union efforts by Ikea’s subsidiary. As Tawanda Tarply, a worker at the plant, stated in an article at Labornotes.org “We were fed up with wages, safety concerns, overall communication. We wanted to be treated with respect”. Swedwood used a point system to penalize workers handing out points to a maximum of 9 (at which time workers were fired) for infractions including non-approved restroom breaks (1 pt.), as well as 1 point to a man who collapsed from heat exhaustion and was carried from the plant on a stretcher IAM has said previously that the Danville plant is the most dangerous furniture-manufacturing factory in the U.S., with 1,536 days lost from work due to injury since 2007. Check out their excellent video on Swedwood HERE. As you might expect, management is dragging their feet in agreeing to reach the bargaining table having put off till September a first meeting with the union and agreeing to only 2 days of available meeting time.
The Swedwood plant may be just the tip of the iceberg. Another Ikea affiliated subsidiary, the nearby EBI LLC plant, has been resisting a unionization attempt. Apparently the company has been successful as workers on Monday August 9, 2011 voted against representation by the United Steelworkers in an NLRB-supervised election by a vote of 281 (no) to 118 (yes). This defeat re-emphasizes how difficult it is to organize in “Right-to-work” states (see map taken from the National Right to Work Legal Defense Foundation website).
The U.S. affiliated plants are not the only ones complaining that Ikea is failing to live up to its own Code of Conduct. This summer’s meeting of the Congress of European retail unions saw a statement from the group criticizing Ikea’s failures. Workers in Spain, Turkey, and the U.S. have all been protesting working conditions at Ikea plants. But, perhaps we should not be too hard on Ikea, after all their failure is in part due to high expectations they themselves have set. The Ikea Code of Conduct was, after all, developed for its suppliers. IKEA was an early and high profile leader in openly addressing issues of social and environmental responsibility in the supply chain. IKEA's motto is "low prices, but not at any price."
A footnote about the organization that brings us the Right-to-work map above. The National Right to Work Legal Defense Foundation is a leading proponent of right to work laws supporting what they call “The Right to Work” principle--which asserts idea that every American should be able to work for a living without being compelled to belong to a union. Critics from organized labor have argued since the late 1970sthat while the National Right to Work Committee purports to engage in grass-roots lobbying on behalf of the "everyday worker", the National Right to Work Committee was formed by a group of southern businessmen with the express purpose of fighting unions, and that they "added a few workers for the purpose of public relations" (see Wikipedia http://en.wikipedia.org/wiki/Right-to-work_law).
I hope that the victory at Swedwood is symbolic of rising resistance of workers to the increasingly exploitative working conditions faced by all Americans today.
We begin herein a series of blogs looking at the relationship between the processes of globalization and the worldwide development of industrial production as they impact on work organization and affect the lives of working men and women. Central to this exploration will be an in depth look at Foxconn, one of China’s foremost companies, which we will use as an example of issues related to globalization. China has one of the fastest growing economies in the world and has become over the past several decades one of the most powerful countries in the world. While China has always been rich in natural resources, the secret to its success is not a product of its agricultural production or natural resources, but it’s immense population which provides a large, well-trained and inexpensive (relative to the Western world) workforce..
Of China’s many rapidly growing companies, one stands out from the rest; among the Fortune Global 500 with $102 billion in revenue in 2010 and now with almost 1 million workers, Foxconn and it’s parent company Hon Hai have set the standard which many other companies now follow. Founded in 1974 by Terry Gou (currently Chairman and President), the Taiwanese company set out to provide businesses with alternatives to more expensive electronics manufacturing. According to the Foxconn Global website, Foxconn has achieved remarkable sales and growth figures. Between 2009 and 2010 the company’s consolidated revenues grew 52.98% to NT$2.997 trillion (US$104.6 billion) (CNA English News).
Now the largest electronics manufacturing company in the world and the fifth largest company worldwide in number of employees after Walmart, China National Petroleum, State Grid, & the U.S. Postal Service – Foxconn supplies companies such as Apple, Dell, Hewlett-Packard and Sony with notebooks, desktop computers, monitors, smart phones, iPads and other popular products. “Foxconn has 13 mainland factories in nine cities in China. Planned factories include expanding sites at Chengdu in Sichuan province, Wuhan in Hubei province, and Zhengzhou in Henan province.” (Wikipedia) The first of these plants was its Shenzhen plant, which opened in 1988. Since then, it has become Foxconn’s largest plant, a walled city of more than 1.15 square miles including 15 factories, its own fire department, worker dormitories and a small city of restaurants and shops, all located on one property.
Although the plant is responsible for a large portion of the company’s overall success, it has also been the subject of repeated reports of worker mistreatment. It was in the news repeatedly last year after it experienced a number of suicides – 14 to date. Foxconn responded to the suicides by raising wages 66%, boosting its number of counselors, and making stress management programs available to workers. It also built safety netting around its factory to prevent further suicide attempts and, for a short while, asked its workers to sign an anti-suicide pact. Foxconn has also responded to the suicides at the plant with claims it’s number of suicides, per capita, are not much higher than China’s national average, implying the suicides are not really a problem.
Suicides and employee discontent at the Shenzhen plant are not the only problems facing Foxconn. Foxconn has also been accused of discrimination against main-land Chinese workers and the forcing of many rural farmers off their land to make way for the huge factory developments currently heading farther and farther inland. Foxconn’s Chengdu plant is one of these. You might have already heard of the Chengdu plant; it appeared in the news last month after three workers were killed in an explosion caused by inadequately ventilated combustible dust. Built in the rural southwestern province of Sichuan, Chengdu was rapidly converted into a facility to make iPads in response to high demand from Apple. Currently staffed by 80,000 workers, Foxconn is looking to add another 220,000 workers at the Chengdu facility in coming years.
The cluster of suicides, the explosion at Chengdu, and the long-standing complaints by workers raise serious questions for some. Why did this group of young workers commit suicide? Did Foxconn’s work environment and employee policies play a role in these deaths? What are the labor practices at Foxconn? Is there a connection between Foxconn’s rapid growth, its labor practices and the explosion at Chengdu? Many newspapers and watch-dog groups such as SACOM (Students and Scholars Against Corporate Misbehavior) have charged the company with “dangerous working environment, inadequate measures on work safety, excessive and forced overtime work, and that workers are deprived of a social life.” Can these accusations be substantiated and what is Foxconn’s defense?
In subsequent blogs we will look at these issues regarding Foxconn. And beyond Foxconn, we need to ask if these problems are limited to Foxconn or are these issues typical of China? Finally, we want to raise the question about the relationship between these working conditions in Chinese factories and the overall process of globalization? Stayed tuned for subsequent blogs, the first of which will examine what is publicly known about working conditions at the Shenzhen plant.
