The Apple-Foxconn saga continues. Yesterday, the two companies announced that they will share the initial cost of improving labour conditions at Foxconn’s Chinese factories which have been under scrutiny for its poor working conditions in recent months.
Foxonn chief executive Terry Gou did not disclose the figure for the costs but emphasised: “We’ve discovered that this (improving working conditions) is not a cost. It is a competitive strength.”
Just last month Foxconn workers at the Wuhan plant threatened with suicide in a protest over wages, an incident similar to the protest organised in January of this year. And this is not to mention the spate of actual suicides that occurred over the past two year.
In March, the US Fair Labor Association (FLA), a renowned third-party inspector, reported “significant issues” at three of Foxconn’s factories where it conducted inspections. These included excessive overtime, problems with overtime compensation and health and safety issues.
In response to these findings, Foxconn announced wage increases between 16% and 25% and even reached an agreement with Apple to hire tens of thousands new workers to reduce overtime work.
But arguably, these improvements do come with a price tag of some sort. For instance, analysts have attributed weaker-than-expected first-quarter results at Foxconn’s listed unit Hon Hai Precision Industry mainly to rising salary costs.
The Apple-Foxconn saga is probably just the opening act to what is going to happen to the supplier-buyer dynamics in low-cost country destinations going forward. If we think that this is a one-off media stir-up, or specific to the electronics industry only, we might be up for a surprise.
As far as I’m concerned, I’m curious to track developments such as these, and more importantly, how they will impact procurement organisations in the long run. Will the price we pay for damaging our reputational value eventually have a stronger weighting than squeezing prices from our suppliers?