Reference no: EM133106021

CASE: Worker Exploitation at Foxconn/Hon Hai

Foxconn/Hon Hai Precision Ind. Co. Ltd. is a key China-based supplier to several U.S. high-tech companies like Apple, Dell, and HP. Manufacturers have a vested interest in the quality of products from their suppliers and their labor practices. Low-cost labor and a nearly endless supply of employees lead many U.S. companies to deal with suppliers in China. As more U.S. corporations strive for social responsibility, it was only a matter of time before production overseas saw the ripple effect of those decisions. Labor laws in China provide limited protection for workers and therefore the U.S. companies faced an ethical dilemma. Should they monitor labor practices at Foxconn/Hon Hai to ensure that workers were treated respectfully, or should they accept that if Foxconn followed Chinese labor laws it was not their concern?

Hon Hai, the world's largest electronics contract manufacturer, employs over 800,000 workers, who produce parts for iPads, iPhones, and other devices. Workers are housed in a campus with dormitories, a hospital, a bookstore, swimming pools, free bus transportation, and other services. Many of the workers migrated from farm communities to the industrial hubs where Hon Hai's operations are located. Their jobs at Hon Hai's factories are often the first assembly-line jobs they have ever held and they are frequently living far from home and family. Working conditions at Hon Hai's factories complied with Chinese labor laws but frequently led to what is considered in the U.S. as worker abuse. Workers routinely worked in excess of 40 hours, with most workers averaging 120 hours of overtime per month.

That calculates to an average workweek of 70 hours. Many machines were not properly equipped with safety devices leading to injuries. Underage workers were employed. At least 10 employees at the company committed suicide in 2010, which brought labor conditions under great public scrutiny. The company's response was to install safety nets around the dormitories to prevent additional casualties. The uproar from customers and the independent worker-advocacy agency, the Fair Labor Association, led to serious review of working conditions. Apple had previously questioned labor conditions at Hon Hai. The company sent a team to investigate reports of excessive overtime and other "sweatshop" conditions. After the rash of suicides 'Apple sent a team of executives to China to inspect the factories and meet with Foxconn's CEO. Apple continues to monitor conditions at the supplier that were so bad that the U.S. company could no longer ignore the abhorrent labor practices. Because of the sheer size of Hon Hai and its importance in the supply chain to electronics manufacturers, discontinuing the relationship would be a very difficult and costly alternative for Apple and others. Hon Hai has implemented a number of improvements for workers that should satisfy its customers and keep its employees safe and healthy. Employees at Hon Hai's factories will now work fewer hours and receive higher pay. For example, there is now a maximum 40- hour work week for each employee, with the option of working up to a maximum of 36 hours of overtime each week. The probation period for entry-level workers was cut in half from six months to three months. The company instituted an Employee Assistance Plan to assist employees with mental health concerns.

Questions

1. What obligation does a company like Apple or HP have to insure that suppliers follow the local labor laws? What should Apple do if it discovers that the supplier is not in compliance with those laws?

2. How should a multinational company like Apple reconcile the differences in labor laws around the world? For example, workers in the United States are provided substantial protection from discrimination and unfair treatment. This is not the case in all nations. If a company like Apple is doing business with suppliers around the world, what standard should be used to evaluate labor practices?

3. As someone who might purchase devices made by Apple, Dell, or HP, how does this treatment of workers at a supplier influence your opinion of Apple and other U.S. companies that deal with such suppliers? Does Apple bear any responsibility for these labor problems because of its quest for ever lower costs?