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With the world watching, change begins at China's factories

With the world watching, change begins at China's factories

By Keith Bradsher and Charles Duhigg, The New York Times | Updated: 28 December 2012 15:33 IST

One day last summer, Pu Xiaolan was halfway through a shift inspecting iPad cases when she received a beige wooden chair with white stripes and a high, sturdy back.

At first, Ms. Pu wondered if someone had made a mistake. But when her bosses walked by, they just nodded curtly. So Ms. Pu gently sat down and leaned back. Her body relaxed.

The rumors were true.

When Ms. Pu was hired at this Foxconn plant a year earlier, she received a short, green plastic stool that left her unsupported back so sore that she could barely sleep at night. Eventually, she was promoted to a wooden chair, but the backrest was much too small to lean against. The managers of this 164,000-employee factory, she surmised, believed that comfort encouraged sloth.

But in March, unbeknown to Ms. Pu, a critical meeting had occurred between Foxconn's top executives and a high-ranking Apple official. The companies had committed themselves to a series of wide-ranging reforms. Foxconn, China's largest private employer, pledged to sharply curtail workers' hours and significantly increase wages reforms that, if fully carried out next year as planned, could create a ripple effect that benefits tens of millions of workers across the electronics industry, employment experts say.

Other reforms were more personal. Protective foam sprouted on low stairwell ceilings inside factories. Automatic shut-off devices appeared on whirring machines. Ms. Pu got her chair. This autumn, she even heard that some workers had received cushioned seats.

The changes also extend to California, where Apple is based. Apple, the electronics industry's behemoth, in the last year has tripled its corporate social responsibility staff, has re-evaluated how it works with manufacturers, has asked competitors to help curb excessive overtime in China and has reached out to advocacy groups it once rebuffed.

Executives at companies like Hewlett-Packard and Intel say those shifts have convinced many electronics companies that they must also overhaul how they interact with foreign plants and workers - often at a cost to their bottom lines, though, analysts say, probably not so much as to affect consumer prices. As Apple and Foxconn became fodder for "Saturday Night Live" and questions during presidential debates, device designers and manufacturers concluded the industry's reputation was at risk.

"The days of easy globalization are done," said an Apple executive who, like many people interviewed for this article, requested anonymity because of confidentiality agreements. "We know that we have to get into the muck now."

Even with these reforms, chronic problems remain. Many laborers still work illegal overtime and some employees' safety remains at risk, according to interviews and reports published by advocacy organizations.

But the shifts under way in China may prove as transformative to global manufacturing as the iPhone was to consumer technology, say officials at over a dozen electronics companies, worker advocates and even longtime factory critics.

"This is on the front burner for everyone now," said Gary Niekerk, a director of corporate social responsibility at Intel, which manufactures semiconductors in China. No one inside Intel "wants to end up in a factory that treats people badly, that ends up on the front page."

The durability of many transformations, however, depends on where Apple, Foxconn and overseas workers go from here. Interviews with more than 70 Foxconn employees in multiple cities indicate a shift among the people on iPad and iPhone assembly lines. The once-anonymous millions assembling the world's devices are drawing lessons from the changes occurring around them.

As summer turned to autumn and then winter, Ms. Pu began to sign up for Foxconn's newly offered courses in knitting and sketching. At 25 and unmarried, she already felt old. But she decided that she should view her high-backed chair as a sign. China's migrant workers are, in a sense, the nation's boldest risk-takers, transforming entire industries by leaving their villages for far-off factories to power a manufacturing engine that spans the globe.

Ms. Pu had always felt brave, and as this year progressed and conditions inside her factory improved, she became convinced that a better life was within reach. Her parents had told her that she was free to choose any husband, as long as he was from Sichuan. Then she found someone who seemed ideal, except that he came from another province.

Reclining in her new seat, she decided to ignore her family's demands, she said. The couple are seeing each other.

"There was a change this year," she said. "I'm realizing my value."

An inspector's push
"This is a disgrace!" shouted Terry Gou, founder and chairman of Foxconn, the world's largest electronics manufacturer and Apple's most important industrial partner.

It was March of this year and Mr. Gou - seen by activists as a longtime obstacle to improving conditions inside his factories - was meeting with his top deputies in Shenzhen, China. In 2011, The New York Times began sending Apple and Foxconn extensive questions about working conditions in factories manufacturing Apple products. The resulting articles in late January detailed problems ranging from excessive overtime and under-age workers to sometimes deadly hazards, such as workers' using a poisonous chemical to clean iPhone screens at another manufacturer, and an explosion in Ms. Pu's Foxconn plant that killed four workers.

In January, Apple publicly released the names of many of its suppliers for the first time. Additionally, the company made the unusual move of joining the Fair Labor Association, one of the largest workplace monitoring groups. Auditors from that association were soon inspecting Apple's partners in China, starting with Foxconn.

Now, Mr. Gou was learning the results of those examinations. Foxconn was still failing to stop illegal overtime, the association's lead inspector told Mr. Gou and his lieutenants, according to multiple people with knowledge of the meeting. The company was failing to keep student interns off night shifts. Foxconn had not put sufficient safety policies into practice and had exposed potentially hundreds of thousands of workers to at least 43 violations of Chinese laws and regulations.

"The world is watching!" Mr. Gou yelled, according to multiple people. "We are going to fix this, right here!"

But the inspector was not done.

He turned to the only Apple executive in the room, the senior vice president for operations, Jeff Williams. Apple needed to change as well, the inspector said. Apple, to its credit, had been working for years to improve conditions in overseas factories, but the company was treating such problems too much like engineering puzzles, the inspector said.

"Long-term solutions require a messier, more human approach," that inspector, Auret van Heerden of the Fair Labor Association, told Mr. Williams. Instead of concentrating on writing more policies, Apple needed to listen better to workers' complaints and advocacy groups' recommendations.

Some of those suggestions surprised Mr. Williams, say people who worked with him. Since 2007, Apple had built one of the most extensive auditing programs in the electronics industry, inspecting over 800 facilities. It was a point of pride for both Mr. Williams and the company's top leadership.

When Mr. Williams, who declined to comment for this article, returned from that March meeting to California, changes began. Among them, say people with firsthand knowledge, was the hiring of roughly 30 professionals into Apple's social responsibility unit in the last year, which tripled the size of that division and brought high-profile corporate activists into the company. Two widely respected former Apple executives - Jacky Haynes and Bob Bainbridge - were recruited back to help lead the unit, reporting ultimately to Mr. Williams and the chief executive, Timothy D. Cook.

"Everyone knows Bob and Jacky," said a former Apple executive. "It sends a message that Jeff and Tim expect everyone to get on board."

Moreover, the company has reached out to advocates it once rebuffed. In late April, Apple allowed the first in a series of pollution audits by Ma Jun, a Chinese environmental advocate who works closely with dozens of other multinationals but whom Apple had refused to speak with until last year, according to Mr. Ma. In September, the company joined the Sustainable Trade Initiative, an advocacy group based in the Netherlands.

"They know now if they don't participate, it is the same as saying nothing," Mr. Ma said.

Foxconn has also shifted. After the meeting with the Fair Labor Association, Foxconn announced that by July 2013, no employee would be allowed to work more than an average of 49 hours a week - the limit set by Chinese law. Previously, some Foxconn employees worked schedules that approached 100 hours a week. No other major manufacturer has pledged to abide by China's work-hour laws in such a public manner. Foxconn, which is based in Taiwan, also promised to increase wages, so employees' total pay would not decline despite fewer hours - the equivalent of a 50 percent raise for many workers, analysts say.

With 1.4 million employees in China - the most of any private company Foxconn is setting a bar that all manufacturers will be judged against, say executives at other companies.

"When the largest company raises wages and cuts hours, it forces every other factory to do the same thing whether they want to or not," said Tony Prophet, a senior vice president at Hewlett-Packard. "A firestorm has started, and these companies are in the glare now. They have to improve to compete. It's a huge change from just 18 months ago."

Foxconn, in a statement, said that it was "committed to ensuring that we provide a safe and healthy working environment for all our employees," and that the company had regularly increased wages over the last three years.

Secrecy and transparency
Despite those reforms, however, worker advocates inside Apple and with outside groups say the electronics industry's problems will not genuinely diminish until Apple - the world's most valuable company starts filling a public leadership role similar to that of companies in other industries with overseas problems, like Nike in footwear manufacturing and Patagonia in apparel.

Such public leadership and transparency can run counter to a culture of secrecy that pervades Apple. Employees often don't know what their lunch companions or next-door office mates are working on. This secrecy has helped Apple stay ahead of competitors, but has been a problem when it spills into the broader corporate culture, say past executives.

"It's remarkable how the paranoia in Silicon Valley prevents companies from cooperating, even on something like corporate social responsibility," said Mr. van Heerden of the Fair Labor Association, who added that his work with Apple, Foxconn and other companies was confidential.

While Apple is the only electronics company to join Mr. van Heerden's monitoring group, it has not opened up in some other ways. Apple has declined to release audit reports on the hundreds of facilities the company has inspected. After two factory explosions last year, Apple did not share investigative reports with other companies so they might avoid similar accidents. Apple does not, in general, publicly identify terminated suppliers or factories that have violated Apple's supplier code of conduct.

Moreover, Apple's growing team of safety and corporate responsibility experts are typically prohibited from sharing their findings at conferences, in academic journals or other forums where their insights could be absorbed by other companies, according to former members of that team.

"Apple is scared that if we open the kimono too wide, it will ruin what has made Apple special," said one former company official. "But that's the only way to really improve things. If you don't share what you know, then no one else gets a chance to learn from your mistakes and discoveries."

Apple declined requests for interviews. In a statement, it said the company embraced its "unique position to lead" and had taken working conditions very seriously for a long time. "No one in our industry is doing as much as we are, in as many places, touching as many people as we do. Through years of hard work and steadfast commitment, we have set workplace, dormitory and safety standards, sought help from the world's leading experts, and established groundbreaking educational programs for workers."

"We have been upfront about the challenges we face and are attacking issues aggressively," the statement continues. "We believe deeply in transparency and have demonstrated this through reporting our shortcomings and exposing violations."

At a conference in May, Mr. Cook, the chief executive, said that the company was "going to double down on secrecy on products."

He added, however, that "there's going to be other things that we do that we're going to be the most transparent company in the world on. Like social change. Supplier responsibility. On what we're doing for the environment. We're going to be the most transparent, because we think that transparency is so important in these areas, and that if we are, other people will copy what we're doing."

This year, Apple began publishing monthly summaries of suppliers' compliance with overtime standards. In October, Apple hosted other technology companies for a private discussion on responses to excessive work hours overseas. While Apple's annual supplier responsibility reports do not contain details on specific factories, they are still among the most thorough in the electronics business.

But Apple has not sought the high-profile leadership opportunities that have set off transformations in other industries. Nike, for instance, has convened public meetings of labor, human rights, environmental and business leaders to discuss how to improve overseas factories. The clothing retailer Gap Inc. has invited outside organizations to critique its purchasing practices and publish their findings. Patagonia shares its factory audits with competitors and has been a vocal supporter of a centralized audit report clearinghouse that lets companies share information.

"That's the standard Apple has to meet," said a former Apple executive. "That's how a leader transforms an industry."

A more human touch
Almost 200 miles southeast of the factory where Ms. Pu received her new chair is another plant that is experimenting with improving workers' quality of life - and shows the trade-offs of such gains.

The factory, in Chongqing, makes computers for Hewlett-Packard, a company with little of Apple's glamour. It is operated by Quanta, a little-known Taiwanese manufacturer.

Inside the plant, amid thousands of workers in bright white uniforms, are occasional flashes of pink worn by people like Zhang Xuemei, a bubbly 19-year-old with glinting earrings whose sole job is to chat with co-workers.

For eight hours a day, Ms. Zhang collects complaints about the factory's free meals and dorms. She listens to workers who are divorcing, homesick or arguing with managers. When she finds someone suffering, she refers them to the company's full-time doctor or professional counselors.

Quanta's 10-story dormitories feel like a college campus. There is a free movie theater, television rooms, a large martial arts gym, two spacious karaoke bars, a huge cafeteria and an aerobics hall playing a Chinese remix of "Gangnam Style."

Neither Quanta nor Hewlett-Packard claims it has solved every labor woe. And the amenities are partly selfish: one of the biggest problems for Chinese factories is that workers are constantly leaving. Hewlett-Packard hopes that by improving living conditions, turnover and training costs will fall.

"You can tweak the line and get one second out of the process, but if the people turn over every three months, think what that does to your quality," said Mr. Prophet, the Hewlett-Packard executive.

Last year, a worker advocacy group criticized another Quanta plant, in Shanghai, for harsh working conditions found at many factories, including extensive overtime and poor food. In Chongqing, Hewlett-Packard has agreed to pay slightly higher prices initially so that Quanta can offer workers a better quality of life. Such payments are the price all companies should bear for more humane factories, say Hewlett-Packard executives.

There are costs for workers, too. Quanta's employees earn slightly less than their peers at Foxconn. What's more, Quanta's emphasis on hours that are easier on employees means they are prohibited from overtime shifts that advocates say are abusive, but which some workers insist they want.

Zhang Jiang, a slim 21-year-old, previously assembled laptop computers at another company in Shanghai. Each week, he sent the bulk of his pay home so his younger brother could stay in school. Overtime was like a blessing, he said.

But last summer, fed up with the 25-hour train trip to see his family, Mr. Zhang moved to Chongqing and joined Quanta. He enjoys the better facilities and dorms. He frequently visits his parents' home. But his take-home pay has fallen by nearly a third and the thought that his brother may have to drop out of school so he can help the family gnaws at Mr. Zhang. Instead of working in the factory each night, he spends hours playing an online game, Dungeon Fighter.

"I'd like to work 80 hours a week," he said.

Change is hard
Hewlett-Packard also makes products at Foxconn factories, as does almost every major electronics firm. Foxconn, more than any other company, has proved that Chinese plants can deliver obsessive attention to quality. The company has helped make China into a manufacturing juggernaut through strict discipline that is visible everywhere, even in the salutes managers give visiting executives.

That discipline, say former Apple executives, is one reason every iPhone is put together so well.

It is also one reason the reforms enjoyed by employees like Ms. Pu - who received the new chair - have not spread quickly. Though Foxconn has trained managers to treat employees more gently, foremen still use profanity and intimidation, workers say.

"The managers speak in a manner that often feels like a threat," said Mou Kezhang, who works in iPad quality assurance at the Foxconn factory in Chengdu.

Foxconn, in a statement, said it had "always been among the fastest to adopt change and reform." Its policy, the company said, is "to treat employees with respect and if we find any transgressions, they are immediately investigated and addressed."

In the last two years, Hewlett-Packard has increasingly moved its manufacturing to Quanta. Foxconn has not fought particularly hard to win that business back, according to Hewlett-Packard officials. Often, the quality-of-life improvements requested by Western electronics executives come at the cost of a supplier's bottom line. Even within Apple, tensions erupt because executives often believe improvements should be financed by suppliers, whereas suppliers say changes are not feasible unless Apple pays more.

And ultimately, some workers themselves resist reforms. In March, when Foxconn announced that workers' hours would be reduced to China's legal limits, employees began complaining. "Absolutely I'd like to do overtime to work more than 60 hours, but now there's a ceiling on it," said Ma Changqiao, a 23-year-old at Foxconn's Chongqing factory.

Change is hard, say officials at multiple companies. Reforming labor conditions in a country as large as China will probably take decades, and labor abuses are an ever-evolving problem without just one right answer.

In September, six months after Foxconn agreed to a Fair Labor Association request for new internship rules, two worker advocacy groups found that students in nonmanufacturing courses were being improperly forced to work at a Foxconn plant in north central China. One student studying preschool education said she was prohibited from quitting her internship and was compelled to work night shifts. Afterward, Mr. Gou of Foxconn issued apologies to wronged interns and the responsible official was fired.

Today, Foxconn's internship program continues a testament, executives say, to Foxconn's commitment to a program that can benefit thousands of students, even when making improvements is hard and stumbles are inevitable. Changing the company's culture is slow going. But the needed reforms, executives at Apple and Foxconn hope and believe, are falling into place.

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