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Analyst Insights iSuppli: Tech Needs to Clean House After Apple-Foxconn Fallout
Apr 10, 2012 – iSuppi News

Apple's public relations migraine over its suppliers’ labor practices in China may be just a headache now, but that doesn’t mean that other tech makers are off the hook for how their partners do business.

Apple-Foxconn Investigation Finds 'Serious' Violations Of Chinese Labor Laws
FLA's Report on Apple and Foxconn: Little Found and Even Less To Do

Saying the “moment of reckoning” has arrived for tech companies, just as it did for the apparel industry in the aftermath of stories about sweatshops in the 1990s, researcher IHS iSuppli said today that companies who spent about $360 billion last year on global manufacturing through partners like Foxconn need to be more proactive about labor practices and conditions at the facilities where their products are made.

While recent news has focused on Apple, the world’s most valuable company thanks to demand for the iPhones and iPads it has made in China, “the real impact is on the overall relationship of electronic brands with contract manufacturers like Foxconn,” IHS iSuppli said in a statement today. “Brands now realize that the biggest risk in dealing with contract manufacturers lies in the potential public relations disasters that can arise from worker’s rights issues.”

Contractors, like Foxconn, are now an “essential part” of the electronics industry and were responsible for about 20 percent of all manufacturing revenue last year. Here are the numbers:

The global electronics manufacturing business, consisting of electronics manufacturing services (EMS) and original design manufacturing (ODM) firms, generated an astounding $359.8 billion in revenue in 2011. As brands have increasingly outsourced production, the contract manufacturing industry has undergone enormous growth in recent years, with revenue rising from $264.0 billion in 2006. While revenue is expected to dip in 2012, the industry continue its expansion trajectory in the coming years, with revenue expanding to $426.1 billion in 2015.

The Fair Labor Association, which received funding from Apple, did inspections of facilities in China where  90 percent of Apple products are made. It reported on March 29 that workers there were working long hours without proper compensation for their overtime, among other things. The FLA says it spent more than 3,000 hours talking with 35,500 randomly selected workers inside three Foxconn’s factories (out of about  178,000 workers employed there). The entire report can be found here. Apple CEO Tim Cook, who visited China last month, has said the company will keep working to improve conditions for those laboring on its behalf.

But what about everyone else? While Dell, Hewlett-Packard, Microsoft and other tech companies compile supplier reports based on audits and post them on their website, this is one spotlight they’ve happily left on Apple, which started getting called out for the labor problems at Foxconn following a spate of suicides in 2010.

The time for being quiet and giving pat answers to questions about what’s going where their products are being made has passed, especially as China continues to dominate the market for such outsourced manufacturing services, says IHS iSuppli. “For electronics brands, the moment has arrived to ensure that the contract manufacturing partners of brands are in compliance with FLA rules. IHS expects more audits will take place that will uncover further issues.”

If this is really all about PR as IHS iSuppli suggests — rather than doing what’s right — here’s some advice to tech manufacturers debating what they should say/do about what’s going on in their partner’s factories: Take action now. Better to take a stand today rather than be criticized for inaction later. I can already see the headlines.



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