Reference no: EM132209756

Apple is famous for its attractive and highly prized electronics, including iPhone and iTouch portable devices, iPod and iTunes for music, and iMac and iPad computers. However, Apple doesn’t actually make any of its products. Rather, it develops ideas, designs devices, and promotes the products and its brand. To put the devices together, Apple relies on a set of contractors. One key contractor is an electronics firm called Foxconn, based in Taiwan. With factories located in China, Foxconn has combined manufacturing expertise with low-cost labor to win deals to make computers and key components such as motherboards. As consumers have slowed their spending on laptop computers in favor of smaller devices such as the iPad tablet computer and smartphones, Foxconn has benefited. Until recently, it was the only company making Apple’s iPad and one of just two makers of Apple’s iPhone. Workers at Foxconn facilities also produce the Sony PlayStation 3, the Nintendo Wii, and Amazon’s Kindle Fire. It also produces TVs for Sony, Sharp, and Toshiba. In China alone, Foxconn employs almost 1.3 million workers, making it one of the largest employers in the world. Many of those workers live in on-site dormitories, eat in company-run dining halls, and relax in bookstores and gyms located right at their workplace. In recent years, Foxconn has been running into some tragic problems. In 2010, the company drew international media attention when it came to light that several workers at Foxconn’s plant in Shenzhen (a city in southern China) had committed suicide. Questions arose about whether working conditions were so horrible as to drive workers to kill themselves. Apple sent executives accompanied by suicide prevention experts to the plant to investigate. Although Apple requires its contract partners to meet specific standards in its code of conduct, and it visits over 100 facilities a year to ensure compliance, it had failed to uncover any problems at Foxconn before the suicides came to light. In the following year, Foxconn was again in the news about a tragedy when an explosion in its Chengdu, China, plant killed 3 workers and injured 15. Initial investigations suggested that the explosion was the result of a fairly basic manufacturing safety problem: because of improper ventilation, dust collected in the air of a metal-pollshlng shop, and the dust ignited. If such a problem occurred in the United States, regulators would quickly shut down the facility for violating safety requirements. Embarrassed by the media and pressured by important customers such as Apple, Foxconn acted to improve working conditions. At the Shenzhen plant, it brought in counselors, improved training of managers and the staff answering calls on the employee hotline, and launched a morale-boosting program called Care-Love, which sponsors employee outings. In the factories in Chengdu and elsewhere, the company took measures to improve ventilation. Along with these changes, Foxconn began giving out raises. In Shenzhen, workers’ wages more than doubled. Since Foxconn launched the effort to improve morale, employee turnover has fallen, and the suicides seem to have ended. Unfortunately, the payoff for the company is difficult to measure. Higher costs have erased profits, and Foxconn’s stock price has tumbled. So now the company is looking for lower-cost locations. It opened facilities in China’s interior cities, where wage rates are about one-third below those of Shenzhen. Making matters more challenging for Foxconn is the fact that Apple CEO Tim Cook has shifted some of the production of iPhones and iPad minis to Pegatron, another Taiwan-based electronics manufacturer. Pegatron also makes products for Microsoft, Dell, and Hewlett-Packard. DISCUSSION QUESTIONS What threats, opportunities, strengths, and weaknesses can you identify at Foxconn? How is it addressing these with its strategy? If Foxconn’s management hired you to offer advice on improving its ethical decision making and corporate social responsibility, what measures would you suggest? Why? Why do you think Tim Cook, after years of using Foxconn for most of Apple’s production needs, shifted some production to Pegatron?