Apple, Foxconn labor pact awaits industry reaction

March 30, 2012

The move by Apple and its supplier Foxconn, the world’s largest manufacturer of electronics, to overhaul working conditions in overseas factories is putting a spotlight on the labor practices of the U.S. technology industry and increasing pressure on Apple’s biggest rivals to respond in kind.

Some of these firms said Friday they were digesting the news that Foxconn would limit workers’ hours and raise their pay — costs that could be passed on to U.S. firms. But beyond the dollars and cents of Foxconn’s decision, some analysts say that leading technology firms will feel increased pressure to address global labor issues.

“Over time this is going to become an issue for other companies,” said Michael Gartenberg, an analyst with the Stamford, Conn., technology research firm Gartner. “We’re seeing what Apple is doing; what are you doing?”

When asked for comment, Amazon and Microsoft either did not respond or declined comment. Dell and Hewlett-Packard pledged their support for humane working conditions. All four firms use Foxconn to manufacture popular devices.

“We’re pleased that Foxconn is taking steps to improve working conditions with a wage increase for employees. We’ll continue to assist as the company makes this transition,” Dell spokesman David Frink said.

An HP spokesman said the company has been auditing its suppliers since 2004 and “takes seriously the challenge of raising social and environmental responsibility . . . in its supply chain.”

Foxconn’s change in policy was announced in a Fair Labor Association audit of conditions at three of its factories in China that produce iPhones, iPads and other Apple devices.

The report by the nonprofit association was commissioned by Apple after conditions at certain plants became the focus of labor activists and the news media. Foxconn investigated the three giant facilities and found that more than half of their workers exceeded the allowed limit of 60-hour workweeks. It also discovered hazardous conditions that could put workers’ lives at risk.

FLA President Auret van Heerden told Reuters on Friday that he believes the pledge by Foxconn and Apple will ripple across the industry.

“Apple and Foxconn are obviously the two biggest players in this sector, and since they’re teaming up to drive this change, I really do think they set the bar for the rest of the sector,” Heerden said. When asked whether the FLA would look at factories that manufacture products for other companies, he said: “We’re still planning that, so I can’t give you any exact names right now.”

Analysts were divided over how Foxconn’s labor policy change would affect other firms. In the near-term, contracts between electronics makers and Foxconn will likely prevent any uptick in costs or consumer prices. But Andy Cross, chief investment officer at the Motley Fool, sees Foxconn’s policy shift as a turning point.

“It’s an almost watershed moment for that industry and how that impacts the end user’s prices,” he said.

Most of these experts agreed that Apple, with its massive cash hoard and impressive profit margins on products such as the iPhone and iPad, is in the best position to endure higher labor costs overseas.

“Certainly a company that’s selling lots of stuff at a very, very high margin is going to be impacted less than a company selling fewer products at lower margins,” Gartenberg said.

The higher costs would be harder to absorb by computer makers, whose margins are very thin, or electronics makers selling tablets and smartphones at a loss or near cost, analysts said.

Other analysts said that unless the entire sector agrees to reform overseas working conditions, the change initiated by Foxconn may be ephemeral.

“This is a government-level problem, and even Apple doesn’t have the level of clout to really fix this,” said Rob Enderle, principal analyst for the Enderle Group. “The right fix is to actually go in and look across the ecosystem and set a standard that can be applied to everybody.”

Sarah Halzack is a reporter and Web editor for Capital Business. She covers the local job market and the business of talent and hiring. Previously, she was a Web producer for the Post's daily business and economic news section. She occasionally writes for other sections at the Post, most frequently in the form of dance reviews, dance features, book reviews and obituaries.
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