Apple, Foxconn to revamp China work conditions

SAN FRANCISCO, USA: Apple Inc and its China manufacturing partner, Foxconn, agreed to improve wages and working conditions at factories accused of being sweatshops, a move that could set a new higher-cost benchmark for other Western users of Chinese labor.

Under Thursday's landmark agreement, Foxconn, which makes Apple devices from the iPhone to the iPad, will hire tens of thousands of new workers, eliminate illegal overtime, improve safety protocols and upgrade worker housing and other amenities.

It is a response to one of the largest investigations ever conducted of a U.S. company's operations abroad. Apple had agreed to the probe by the independent Fair Labor Association (FLA) in response to a crescendo of criticism that its products were built on the backs of mistreated Chinese workers.

The association, in disclosing its findings from a survey of three Foxconn plants and over 35,000 workers, said it had unearthed multiple violations of labor law, including extreme hours and unpaid overtime.

Apple, the world's most valuable corporation, and Foxconn, China's biggest private-sector employer and Apple's main contract manufacturer, are so dominant in the global technology industry that their newly forged accord will likely have a substantial ripple effect across the sector.

The agreement is a sign of the increasing power of Chinese workers to command higher wages given climbing prices in China in recent years for everything from food to housing and medical care, and an aging workforce that has led to labor shortages.

Working conditions at many Chinese manufacturers that supply Western companies are considerably inferior to those at Foxconn, experts say.

"Apple and Foxconn are obviously the two biggest players in this sector and since they're teaming up to drive this change, I really do think they set the bar for the rest of the sector," FLA President Auret van Heerden told Reuters in an interview.

The Apple-Foxconn agreement may also raise costs for other manufacturers who contract with the Taiwanese company, including Dell Inc, Hewlett-Packard, Amazon.com Inc, Motorola Mobility Holdings, Nokia Oyj and Sony Corp.

It could also mean more work for cheaper contract manufacturers.

"If Foxconn tries to increase prices, Amazon could go to other major contract manufacturers like Quanta, Wistron, Pegatron or Inventec to see what they could do for the company," said Mark Gerber, director of technology research at brokerage Detwiler Fenton.

The agreement could result in higher prices for consumers, though the impact will be limited because labor costs are only a small fraction of the total cost for most high-tech devices.

"If Foxconn's labor cost goes up ... that will be an industry-wide phenomenon and then we have to decide how much do we pass on to our customers versus how much cost do we absorb," HP Chief Executive Meg Whitman told Reuters in February.

Foxconn said it would reduce working hours to 49 per week, including overtime, while keeping total compensation for workers at its current level. The FLA audit had found that during peak production times, workers in the three factories put in more than 60 hours per week on average.

To compensate for the reduced hours, Foxconn will hire tens of thousands of additional workers. It also said it would build more housing and canteens to accommodate that influx.

Apple CEO Tim Cook, who company critics hoped would usher in a more open, transparent era at Apple after he took over from the late co-founder Steve Jobs last year, has shown a willingness to tackle the global criticism head-on.

"We appreciate the work the FLA has done to assess conditions at Foxconn and we fully support their recommendations," an Apple spokesman said.

"We share the FLA's goal of improving lives and raising the bar for manufacturing companies everywhere."

But New York-based labor advocacy group China Labor Watch said the report failed to address the workers' primary concerns.

"Until Apple shares a larger proportion of its profits with its supplier factories, workers will receive the same pittance for a salary while working around the clock," Li Qiang, the director of China Labor Watch, said in an emailed statement.

"For the factories, the demand for astronomically high production rates at an extremely low price pushes them to exploit workers, since it is the only way to meet Apple's production requirements and make their owners a profit at the same time."