Thoughts on Apple vendor labor problems in China

This post is an elaboration of comments which I left on the blog post by Adam Minter on his site Shanghai Scrap. This is a little late in the news cycle. But oh well. Just started getting into the blogging thing so I’m a little slow.

My primary study tool

Last week there was news about Apple’s vendors getting caught using child labor, and lots of other unsavory practices from the maker of the iPhone. I first read NYT’s article. Yesterday I read in a blog post by Adam Minter on Shanghai Scrap his irritation about Apple Fanboys defending the Marketing Giant. He linked to the UK Telegraph, which printed this story about Apple disclosing the bad labor practices of its suppliers.

I admit; I do not have factory audit experience. I do HR consulting for manufacturing customers. I used to be in the computer industry… in two different Taiwanese companies. And I live in Suzhou.

Some things to note:

I guess Apple should be congratulated by coming clean with their problems. It is very difficult to control vendor quality. But that’s not the whole story.

Apple is still using Foxconn and Wintek. Call me prejudiced. I admit it. But I think Taiwanese companies have the worst HR practices in China (well…ok…better than slave labor brick kiln factories). They have the worst reputations in China. They pay of the lowest salaries. They invest the least in protecting and developing their non-Taiwanese employees. I cannot give you quantitative data on this. Where I live, its common knowledge;

I have called on about 30 Taiwanese companies in this area. You can always tell if the company is Taiwanese in the Winter time when you walk in… they don’t turn on the heat (actually, Hong Kong companies never turn on the heat as well). They are not cheap because they hate non-Taiwanese (although many Taiwanese do hate mainland people). The problem is that the HQ of these companies do not want to invest in HR (training, EHS, competitive salaries, etc) outside of Taiwan. They don’t empower local Taiwanese managers (and the local management is ALWAYS from Taiwan because they do not trust Mainland-ers) to improve the labor relations. Furthermore, the management of Taiwanese companies quite often have little-to-no formal leadership training.

It IS very difficult to control quality in China, where there is a lot of incentive for corruption. I don’t know if the brands which have their own factories in China (ie. Nokia) do any better than Apple. That being said, low-cost manufacturers tend to hire less-trained managers, pay lower salaries, and therefore create an environment where corruption is more difficult to control. Among sales people I have talked to, many have said they give kickbacks at most of the clients… including every single brand-name Taiwanese manufacturer.

The problems listed in these articles are problems caused by corruption. Child labor exists in the companies because “Work Head” (工头）must have paid money to the HR Manager (or hiring specialist) at the factory to accept whatever workers he provides. Now a days, it is very difficult for companies to get cheap workers (see China Daily report, but you can read about this everywhere) ; the hiring specialist probably would take whatever worker she could get. It is quite possible that the hiring specialist was not trained to scan worker information or question the documentation she received. It is quite likely they don’t have procedures for this. Considering the scale of Apple’s supply chain, finding 15 child laborers is not such a big deal. I imagine today its happening everywhere because factories are now desperate to get workers. On the other hand… did Apple check its sub-sub contractors? Did they probe suppliers to their distributors? The Telegraph article did not make me feel confident about this.
So getting back to Apple and Foxconn. Foxconn is a huge volume contract manufacture which offers lowest rates by strictly controlling costs and offering economies of scale. This means… less likely to hire good local managers. Less likely to invest enough in safety equipment. Less likely to be motivated to look too closely at their vendors’ EHS compliance. This is the manufacturer which Apple choose. But NOT every phone maker manufactures in this way. Nokia, Samsung, Philips, HTC, Sony, have their own brand factories in China as well as outsource production to contractors…but only for their lowest end-phones. They control their vendors better because of this. I believe that Motorola either has their own factory or uses long-time SOE vendors… but anyway, Motorola – the inventor of Six Sigma – gives extensive training to its vendors.

Another thing to note from the Telegraph article.

“Apple said it had required the factories to “perform immediate inspections of their wastewater discharge systems” and hire an independent environmental consultant to prevent future violations.”

Maybe I’m being a little paranoid here, but…so Apple is not using their own inspectors to investigate. They are not paying this fee… they are requiring the vendors to hire their own inspector. That’s not how its supposed to work. The wastewater systems need to be certified by government approved inspectors. And since inspectors can (conceivably) be bribed, it should be Apple’s own Compliance Team which investigates.