If Apple ordered up a batch of its iPad computers to meet surging market demand and an explosion in the workshop killed three workers and injured 15 others, an army of regulators, cops and plaintiffs lawyers would descend on the company to demand an accounting.
On May 20, that’s exactly what happened—minus the descending and the accounting. The workshop, it turns out, wasn’t in Cupertino, Calif., home to Apple’s campus. It was a legal arm’s length away in Chengdu, China, run by a goliath called Hon Hai Precision Industry, a Taiwanese company that’s become one of the world’s biggest employers and contract manufacturers.
In this, Apple is joined by an A-list of electronics companies – Hewlett-Packard,Dell,Sonyand others. All in some form operate at arm’s length from the assembly of many of their products in countries such as China, where labor is cheap. These vast production lines—Hon Hai employs close to a million workers in China—are fueled by U.S. consumers seeking rock-bottom prices, shareholders demanding solid profit margins, national governments keen to boost employment, and local workers eager to move up the economic ladder. It’s a world long on secrecy and fuzzy on accountability.
Two weeks after the explosion, there are only preliminary reports of what happened. Apple doesn’t even publicly acknowledge the iPad is made in Chengdu. What is known is that one of the more primitive of industrial problems sparked the explosion: A metal polishing shop was improperly ventilated or cleaned, dust collected in the air or on surfaces, and then, in a moment of considerable violence, the dust ignited.
Hon Hai, which uses the trade name Foxconn, says it’s still investigating the accident and has resumed operations at its polishing workshops after improving ventilation and other safety-related practices. Apple says it is “working closely with Foxconn to understand” what happened. And the Chinese government, barely raising an eyebrow, has chided Hon Hai for not paying enough attention to safety. In China, where industrial accidents are frequent by-products of headlong, government-led development, this was a notable moment of the pot calling the kettle black.
Hon Hai is a colossus because its founder, Terry Gou, early and adroitly capitalized on labor and supply chains in China, building economies of scale competitors couldn’t easily match. His factories include dorms, dining halls, book stores and recreation facilities. And they are versatile: In meetings with visitors, Mr. Gou is given to leaping from his chair to outline his next idea for integrating production on a large pad of paper.
Compared with conditions at factories when the West industrialized, Hon Hai may not look half bad. But labor groups complain about low morale, subsistence wages, overcrowding, and excessive hours on Foxconn production lines. Before the recent dust explosion, an advocacy group in Hong Kong pummeled the company for what it said were dirty and dangerous conditions at the Chengdu plant. In the last 18 months, there have been a spate of highly publicized suicides at Hon Hai facilities.
The company has defended its treatment of workers and last year announced big wage increases to address employee discontent. It says that worker safety is its top priority and it will fix any problems at its factories. A spokesman says Hon Hai is “applying the highest possible safety practices.”
It’s a tricky dance between first-world brands and third-world production. Customers like Apple can’t afford the hit to their reputation that dust explosions and worker suicides tend to produce. Hon Hai can’t afford to alienate customers as big as Apple.
So the electronics companies have created their own oversight. Apple audits Hon Hai’s facilities and requires its suppliers to agree to a “Supplier Code of Conduct” that sets expectations for worker protections and factory conditions. It also produces an annual “Supplier Responsibility” report, detailing efforts to assure safety, fairness in hiring, and attention to pollution control, among other things.
Dell conducts on-site reviews and has a code of conduct for suppliers. “Earlier this year, our team reviewed Foxconn’s proposed procedures to improve working conditions and employee morale,” David Frink, a Dell spokesman says. Then Dell went back and walked the line at Hon Hai’s plant in Shenzhen to see if the initiatives were working.
H-P and other companies use similar measures and codes of conduct.
Absent civil institutions that provide oversight in the public interest, self-regulation may be the next best thing. But history—and China—shows it’s usually a distant next best thing, painfully vulnerable to the vagaries of self interest.
In the U.S., where nearly 150 people have been killed and more than 850 injured since 1980 in dust explosions similar to Chengdu’s, businesses have been shut down for violating safety rules. In 2007, the Occupational Safety and Health Administration launched a national inspection program that targeted facilities that handle combustible dusts, and it has since held open meetings with companies to discuss solutions.
This sort of national standard-setting is rare in places like China, where foreign companies would likely welcome it. The accident in Chengdu was tragic, but Apple may have gotten off easy this time. If the body count had been 103 instead of three, global public opinion would have been more mightily stirred. And in that instance, an arm’s length would have proved little protection for the company and its brand.
The Wall Street Journal