Reference no: EM13842553

Case Study: Foxconn

Although some firms are reconsidering the value to their business of outsourcing for others, outsourcing makes clear business sense. Apple one of these companies. One reason for this is that today, the best electronics in the world are made most efficiently in Asia and one company in particular does it bigger and better than anyone else.

Foxconn (also known by its parent company's name, Hon Hai) is the world's largest contact manufacturer... across China, it employs 1.4m on 28 campuses... in the past decade it has gone from being one of many invisible firms in the electronics supply chain to the world champion of the flexible manufacturing. Barclays a bank forecast hat the company's revenue will exceed NT $3.9 Trillion ($134 billion) this year.

Apple had redesigned the iPhone screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the [Chinese] plant near midnight. A Forman immediately roused 8,000 workers inside the company's dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to the workstation and within an half, an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhone a day.

In spite of the remarkable economic value Apple receives from outsourcing much of its production to firms such as Foxconn, like Nike before it, Apple has also received some negative press for its extended supply chain in Asia. In particular, as its biggest supplier, condition at Foxconn's factories have drawn the greatest media attention and have covered a range of issues related to employees striking, rioting, committing suicide, being underage and underpaid, and being poisoned.

As a result of the press coverage and coinciding with the change in leadership from Steve Jobs to Tim Cook, Apple has moved to alter stakeholders perceptions of its commitment to an ethical supply chain by taking a number of steps to improve conditions at Foxconn's factories. First Apple released a report that comprehensively assessed working conditions in firms " that represent 97% of its materials, manufacturing and procurement spending" - the most detailed on its supply chain that Apple has released.

The result found 62% of supplies violated Apple's working hour's standards of 60 hours per week... Apple also said it found 112 facilities that weren't properly storing, moving, or handling hazardous chemicals... Nearly a third of its suppliers did not abide by Apple's standards on wages and benefits, the company said. The audits also found five facilities that employed under age workers.

Second, Foxconn announced that it will improve working conditions for all employees at its factories- increasing wages, reducing overtime, and generally improving employees working conditions. Third Apple announced a commitment to have all its supplier factories audited by the third party organization, the fair Labor association(FLA), along with a promise to stop working with those suppliers that do not measure up to its labor and human rights standards.

Finally, following the FLA's audit, Apple and Foxconn agree to implement the changes recommended - in particular in relation to pay and overtime. As Foxconn announced:

"We will continue to support Apple's initiatives to ensure that its business partners are in compliance with all relevant China laws and regulations and the FLA's Workplace Code of Conduct." The recommendations include reducing work hours to a maximum of 40 hours a week and limiting overtime to a maximum of 36 hours a month - the legal maximum in China.

Questions-

1. Explain why you do or do not think a firm is responsible for its supply chain. If your answer is that a firm is not responsible, discuss an organization that exemplifies this. If your answer is that a firm is responsible, how far down the supply chain does this extend-to immediate suppliers, the suppliers' suppliers, or beyond? Support your opinions with scholarly research.

2. Determine why Apple continues to source its production from overseas firms such as Foxconn? In your answer, consider what advantages and/or disadvantages this generates for the firm. Evaluate and assess what Apple could have done to avoid the threats you named. Overall, explain how or whether the benefits of Apple's decision outweigh the costs. Support your opinions with scholarly research.