Should Apple, Microsoft Stop Foxconn's Working Conditions?

Joel Anderson |

AAPL, HNHPF, AMZN, INTC, IBM, MSFT, Foxconn, suicides, working conditions, China, iPad, iPhone, XBox 360, worker suicidesPeople who buy Apple (AAPL) products are very often attracted to their sleek design. Apple gives the image of a company that is sparkling clean and free of any blemishes, running smoothly in the most effortless fashion imaginable. It had better if it wants to charge $300 for a phone. However, it's sometimes shocking, then, when the seedier underbelly of Apple's business practices is exposed. Turns out, Apple's not really as different from any other company as its image attempts to cultivate. Greenpeace rates Apple as the least green tech company in the world last year, something that seems to run against its clean image.

However, the scandal that has more recently rocked the world of Apple surrounds the Hon Hai Precision Industry Co. (HNHPF), which trades as Foxconn. Foxconn is a manufacturer of computer parts and microchips that employs hundreds of thousands of workers in China, making it one of the nation's biggest single employers. It's also a primary supplier of parts Apple uses in its iPhones and iPads.

The company has recently received a great deal of negative publicity surrounding the dire working conditions in its plants. Between January and November of 2010, 18 employees in Foxconn plants attempted suicide with 14 being successful. As a result, 20 Chinese Universities compiled a report on working conditions there and decried the plants as labor camps. Then, in January, 150 Foxconn workers threatened a mass suicide after the company refused to pay a promised compensation after they opted to quit when they did not receive a raise.

Are American Companies to Blame?

It's not really fair for Apple to completely shoulder the blame for poor working conditions in China as Foxconn's clients include Amazon (AMZN), Intel (INTC), IBM (IBM), Microsoft (MSFT), and many others, and the plant where 150 workers threatened mass suicide was making Microsoft's XBox 360s, but Apple recently took the top spot as the world's most valuable company and heavy is the head that wears the crown as the lion's share of public attention has been directed at the Cupertino, CA company. Buried in this debate is whether or not major American companies like Microsoft and Apple have any real obligation to ensure that their products be produced in a humane fashion.

On the one hand, customers like Amazon and Apple are big enough that it's possible that demanding an improvement in working conditions could force a reaction from Foxconn. While this might earn any companies engaging in a boycott some serious PR points, it's not as clear that it would matter as much to the bottom line as the affect on production costs that could come with finding different suppliers. Increased costs mean either decreasing margins, and subsequently profits, or passing the new costs onto already cash-strapped consumers.

Consumer Boycotts the Answer?

Changing the behavior at a company like Apple is going to be difficult as long as profits continue to soar, but a growing number of voices is calling for consumer boycotts to force action by major American companies. Dan Lyons, a writer for The Daily Beast and Newsweek recently wrote that  "ultimately the blame lies not with Apple and other electronics companies -- but with us, the consumers. And ultimately we are the ones who must demand change." The cry was echoed by Peter Cohan on Forbes.com as he pointed out the human toll related to the production of iPads and iPhone.

Apple CEO Tim Cook recently responded to the scandal in an internal e-mail, stating that "Any suggestion that we don't care is patently false and offensive to us. As you know better than anyone, accusations like these are contrary to our values." However, it's also possible that the trend towards using cheap Chinese labor in manufacturing electronics is simply an irreversible macroeconomic trend that Apple, Microsoft, and even the US government is powerful to stop. At a Silicone Valley fundraiser a year earlier, President Barrack Obama confronted the late Steve Jobs of the migration of Apple's manufacturing jobs overseas, with the President reportedly asking Jobs "Why can't that work come home?"

According to sources present at the dinner, Jobs responded that, "Those jobs aren't coming back."

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
AAPL Apple Inc. 112.98 0.80 0.72 18,439,386
AMZN Amazon.com Inc. 838.72 9.67 1.17 2,143,627
IBM International Business Machines Corp 159.45 1.34 0.85 1,281,757
INTC Intel Corporation 37.82 0.50 1.33 10,367,273
MSFT Microsoft Corporation 57.59 0.19 0.32 9,747,519

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