What do Apple, Sony, and Nokia have in common and why should you care? Well, they all work with Foxconn, a Chinese manufacturer that actually produces over forty percent of the world’s electronics. In view of not-so-recent Apple-Foxconn scandal and its consequences you are about to start paying more for your electronics whether you are based in Doha, Dubai or Moscow.
Companies involved in the technology space have been directly affected by the media outrage reproaching Apple and Foxconn for unfair labor practices. So what specific effect has this scandal caused for companies engaging in business in China? At a first glance, these effects are complex and not easy to address. Companies like HP, Dell and Sony recognize that this scandal has highlighted the potential of putting them in the same limelight and scrutiny that Apple has gone through in the past few years. When Nike sweatshops were making headlines a decade ago, the company eventually moved to improve working conditions in its factories, and its rivals in the garment industry all but tripped over each other to follow suit.
Technology companies have grasped that improvements in working conditions for the laborers will probably mean an increase in costs of their respective supply chains. These companies need to make the delicate decision of either passing on the costs to the consumers or staying content with lower profit margins. While Apple’s net margin is a healthy 24 percent, and doesn’t affect the giant too much, the same conditions would have huge consequences for companies like Dell and Amazon that are only at 5.6 and 1.3 percent respectively.
IT manufacturers may want to take the decision to move production to areas where labor laws are more positively acknowledged, as well as meet the low cost element of production. Moving production away from China to cheaper markets may be an attractive option. However, this is not an easy decision to make or implement. From a public relations perspective, companies will still risk developing a reputation of not caring about workers’ conditions. Moreover, supply chain management is an ecosystem that resembles a well-oiled machine, and recreating it in a different geography is not straightforward or effortless – competence, quality and ‘know-how’ especially in the technology industry is equally as important as lower costs. In the long-term, transition away from China is possible, but it will need to happen gradually and requires a patient understanding that castles are not built overnight.
A recent Economist article, already warns that the days of cheap China may be ending. Costs are increasing in every sector – land prices, environmental and safety regulations, taxes, and the biggest factor of all – labor are all trending upwards. While some manufacturing companies will find it easier to move businesses such as toy production to Vietnam or Thailand as processes and equipment are not complex to build, others may not and will suffer the anguish. Companies providing manufacturing services should also be concerned as they also may have to resort to cheaper locations, develop more efficient processes and commit to better working practices.
Despite negative press allegations and NGO criticisms of Apple’s CSR practices, the company continues to rank highly among the minds of consumers. A survey conducted by Boston College Center and Reputation Institute, consumers in the U.S. ranked Apple as the company with the sixth highest rating in perceptions for social responsibility. Moreover, the study showed that Apple’s strong and visible leaders helped position the company as “visionary”. These emotional bonds with consumers is Apple’s primary branding strategy, attained through creating outstanding products, and not necessarily through creating meaningful social impact. While consumers may generally care about sustainability, it doesn’t prevent them from buying from companies that are far from being perfect.
What are your thoughts on this? Would you continue buying electronics from a company that doesn’t have fair labor practices?
Are you concerned the prices of electronics might go up?