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In China, Apple faces its 'Nike moment'?

In China, Apple faces its 'Nike moment'?

By Reuters | Updated: 5 June 2012 17:15 IST

Highlights

Nike was battered because its suppliers in Asia forced employees to work long hours without breaks - Apple's facing similar bad press.

As Apple Inc, the world's most valuable listed company, braces itself for a report into alleged poor working conditions among its army of low-cost suppliers in China, it could heed the lessons from another big-brand retailer that faced similar issues two decades ago.

"Apple is facing its 'Nike moment'," said Teresa Cheng, international campaign coordinator for United Students Against Sweatshops (USAS), referring to accusations in the 1990s that suppliers to sportswear retailer Nike Inc mistreated workers.

Such is the California-based iPad and iPhone maker's dominance of the technology sector that its response to the non-profit Fair Labor Association's (FLA) report - expected this week - could affect conditions across China's vast electronics supply chain.

Nike was battered in the media and by public opinion because its suppliers in Asia forced employees to work long hours without breaks, and paid them a pittance without benefits.

The company's response - and what some say are the mistakes it made - could offer a roadmap for Apple, which has faced similar bad press following deaths and reports of suicides at its China supply firms.

Three workers at Foxconn Technology Co Ltd died in a blast last year when dust from polishing iPads ignited, and labour rights groups have said 18 workers at Foxconn sites killed themselves, or tried to, in 2010.

The vast majority of Foxconn's 1.2 million employees are involved in assembling Apple products, according to media reports.

Apple hired teams from the FLA to interview 35,000 workers at three of Foxconn's sprawling factories, which put together iPads and iPhones as well as gadgets for other well-known brands.

The FLA's interim report into Apple's suppliers based on those anonymous interviews over the past three weeks could mirror a number of the issues that Nike faced.

"Trouble in your supply chain can really hurt your reputation globally, extremely rapidly," said Kenneth Lieberthal, director of the Brookings Institution's China center and author of 'Managing the China Challenge: How to Achieve Corporate Success in the People's Republic.'.

"The wisdom in the industry from that (Nike) experience is that you have to do a lot of work to be sure you understand what is happening in your supply chain."

In the early 1990s, when media and activists began reporting on conditions at Nike's suppliers in Asia and central America, the company brought in wide-ranging reforms designed to eradicate worker maltreatment, and later opened those operations to inspection.

It wrote a code of conduct for contractors, requiring them to provide workplaces free of harassment and abuse. Contractors cannot employ underage workers, must pay at least the minimum wage, and provide a clear accounting in writing for every pay period, with no deductions for disciplinary infractions. Rules also govern overtime and days off.

Nike also engaged its critics.

"The most significant shift for Nike was when we began to sit down with the very people who had been critical of us and started to engage not in a denial conversation but in a conversation on how to solve the problems," said Hannah Jones, Nike's vice president of sustainable business and innovation.

But some problems, and criticism, persist.

Last year, one of Nike's contractors in Indonesia agreed to pay more than 4,400 workers $1 million after complaints they were forced to work overtime without payment.

When problems are identified, they are addressed, said Jones. Some problems, however, can slip through.

"We don't have loopholes in our processes, but you're talking about 1,000 or so factories just for Nike, in 52 countries with about 1 million workers in them," Jones said in an interview this week.

TAKING A PAGE FROM NIKE
By hiring the FLA to inspect its factories, Apple is taking a leaf from Nike's book.

Such monitoring, however, should only be a first step, said Richard Locke, head of the political science department at the Massachusetts Institute of Technology, who has researched the supply chains of Nike and Apple rival Hewlett-Packard .

"(Auditing) assumes the problem is (that) there are bad managers who need to be policed more frequently," which is generally not the case, said Locke. Instead, the problem is staff insufficiently trained to run complex operations, and brands and retailers making unreasonable demands of suppliers.

"Where you see suppliers ... working with the brands, you see both improvements on the business side and improvements on the labour side," he said.

"Suddenly, you don't need excess overtime because you're running a good operation. Your margins are higher, and you can afford to pay people a little better."

Foxconn has said it was raising salaries by 16-25 percent, and last month was advertising a basic monthly wage, not including overtime, of 1,800 yuan in Shenzhen, Guangdong province - where the monthly minimum wage is 1,500 yuan.

Apple stresses its partners are required to adhere to strict global standards.

"We insist our suppliers provide safe working conditions, (and) treat workers with dignity and respect," said spokeswoman Carolyn Wu. "Our suppliers must live up to these requirements if they want to keep doing business with Apple."

But if Nike's experience is any guide, Apple can expect close scrutiny for years to come.

"Unless we hold Apple's feet to the fire, they're going to get away with profiting off the same sweatshop conditions and driving a global race to the bottom while fooling the public and making it look like they're getting better, just like Nike did," Cheng at USAS said in emailed comments.

"The Nike and Apple experiences, although in two different industries, are one and the same."

Copyright Thomson Reuters 2012

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