VALUES AND THE VALUE CHAIN

Apple, Foxconn – and a new day for American consumers, Chinese manufacturers, and more besides.

Nigel M. de S. Cameron

The opening of Foxconn to an American TV crew marks, to use an old term apt here, an epoch in the several histories of CSR, outsourcing, Asian labor practices, the role of the consumer in the digital age – and, just perhaps, a seismic move toward the reshaping of the idea of value in western capitalism. Oh yes, and in the history of Apple post-Jobs. In brief: Post-Jobs Asian jobs; value, meet values.

We all know what makes Asian nations so interesting to innovative western manufacturers. 1. Highly skilled labor that is relatively cheap (though slowly equalizing with the developed world); and 2. Highly questionable labor practices. That’s why Apple Computer’s decision to sign on to the Fair Labor Association is both smart and risky. They work closely with Taiwanese giant Foxconn and the others in their supply chain, and the more innovative their products become, the faster models and devices change, the more wedded they will be. China, especially, has shown an extraordinary capacity to provide fast, reliable, manufacturing and assembly of the quality needed by the highest-quality consumer enterprise on the planet. The ridiculous levels of profit being reaped at the moment are drawing ever greater attention to its source, which is substantially the slice of the Chinese economy that assembles high skill, high quality, and low pay.

While Apple’s sign-on to Fair Labor may have been motivated entirely by moral conviction (Tim Cook just told his employees that he “cares about every worker in the supply chain”) and a generally eleemosynary disposition, it’s unlikely that was all it took to get to yes. According to a lengthy and important article in the New York Times, there are actually big disagreements among Apple execs on these issues (the Times piece is required reading). That suggests that the Fair Labor decision – and the release of a list of suppliers that preceded it – was the result of the classic alignment of interests that has tended to be necessary before major CSR-related choices are made by major corporations. That is, the do-gooders and the profit-maximizers sat down with the risk-managers and discovered that they all had reason to vote for the same motion. Yet this is very far from over. The Times quotes one inside as follows: “You can either manufacture in comfortable, worker-friendly factories, or you can reinvent the product every year, and make it better and faster and cheaper, which requires factories that seem harsh by American standards,” said a current Apple executive. . . .And right now, customers care more about a new iPhone than working conditions in China.” In a recent survey, only 2% of consumers mentioned concern about overseas labor conditions. Apple has yet to face the kind of consumer-interest tipping point faced by Nike, for example. Yet Nikes are worn by runners. Apple users are the most social-media conscious, connected beings of all. We can imagine the risk party pointing this out rather forcibly.

As the quote above suggests, not everyone is convinced. And the release of the list of suppliers (who account for 97% of Apple’s payments) is just a start. Back to the Times: “However, the company has not revealed the names of hundreds of other companies that do not directly contract with Apple, but supply the suppliers. The company’s supplier list does not disclose where factories are, and many are hard to find. And independent monitoring organizations say when they have tried to inspect Apple’s suppliers, they have been barred from entry — on Apple’s orders, they have been told.” Looks like Apple has opened the door just wide enough to need to discover they have to open it wide. Soon.

There’s a broader point here, which is why this is potentially very good news, both for Chinese labor (in developing and applying under public scrutiny model labor practices) and American business. The commitment to quality that has been core to Apple’s success is exactly the commitment needed to revolutionize the “wild west” of labor practice in a nation such as China. It will spread to other Chinese manufacturers who wish to be seen as working at the top end, and competing for western contracts; and also to other western companies – indeed, signing on to Fair Labor is now the industry standard.

It remains to be seen of course whether Apple will bring to this new, higher, and more public level of commitment to supervise the execution of its contracts the same diligence that has characterized its engagement with manufacturers in China and elsewhere, which has itself been a key to its remarkable success. Our brands are always on the line, but now our leading brand has chose to focus the super-trouper on the techno-sweatshops of the People’s Republic, and in especial of Foxconn. The kind of price squeeze that Walmart are famous for (which as we know has led to some sad supplier stories) is now entailed as a quality squeeze on hundreds of thousands of Chinese workers. I hope Apple has the people in place to make this work. And that fresh forces from the reserves of Chinese bloggers and western investigative journalists are rising to the challenge.

But the point is broader still. While many of us hope for a revival of American manufacturing as a component in our development of the next generation of innovative products, there’s no doubt that the next 10 years will see growing use of outsourced manufacturing a la Foxconn; perhaps, on some scenarios, a huge increase of it, if the United States continues to be chief global innovator.

And there are yet other benefits. Enlightened labor practices that are built into the pricing of outsourced products will both help U.S. and other western manufactures compete. And they will build a bridge of goodwill among the Chinese people.

(Revised version of a column originally written for the U.S. Chamber of Commerce BCLC)