Happy Chinese workers spell the end of affordable tech

Happy Chinese workers spell the end of affordable tech

Summary: Human and worker rights reforms in China would have serious negative consequences for the efficiency and cost of the gadget supply chain.

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TOPICS: CXO, IT Employment
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Recent coverage in the media over worker conditions in the Chinese factories which manufacture Apple's products have "exposed" much of what all of us in the technology industry already knew but were unwilling to accept -- that China is the most powerful engine of production for the technology industry, and that the blood, sweat and tears of Chinese workers is what fuels that hungry engine, at a tremendous cost to human rights.

Also See: The dark side of shiny Apple products (CBS News)

I really don't want to focus on the Apple side of this problem because the concern is an industry-wide problem. Apple was targeted because they are the largest and most powerful consumer electronics company in the world, but their situation is not unique.

The outsourced manufacturing subcontractors that Apple uses such as Hon Hai Precision Industry (Foxconn) are used industry-wide, by some of the largest players in technology.

Foxconn's client list reads like a celebrity tech roster that includes Hewlett-Packard, Dell, Intel, Lenovo, IBM, Cisco/Linksys, Netgear, Microsoft, Sharp, Sony, Motorola, Asus, Acer and Vizio.

And to Foxconn's celebrity clientele list I will also include the second and third place tablet runners and e-reader champions Amazon and Barnes & Noble. Yes, your Kindles and Nooks are also made by the very same companies with the same awful working conditions that make products for Apple.

As much as I think the Android crowd would love to claim moral superiority to Apple as it relates to the production of their toys, it can't.

So we should cut to the chase that Apple is absolutely not unique in having products made by workers which are paid far below that of Americans, that work unbelievably long hours in sweatshops using child labor under conditions that rival that of the worst factories during the industrial revolution in America and Europe of the late nineteenth century.

The reason why Apple is being singled out is that they are the poster child for this problem. Apple's current CEO, Tim Cook, was entirely responsible for shifting the company's production to China during his tenure under Steve Jobs as Chief Operating Officer, and is credited as the genius behind the company's manipulation of the Asian supply chain.

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The bottom line why all of these manufacturers, Apple included, outsource much of their manufacturing to China is that the labor is cheap, in addition to escaping American taxes and regulatory issues which lower the costs of production.

It would be nearly impossible for these companies to stay competitive if they produced electronics in the United States because you would have to pay these workers decent salaries and decent benefits, you would have to conform to American labor laws which significantly reduce the number of hours these people could work, and you could never legally employ child workers.

So the sad truth is that in order to feed the world's thirst for the latest and greatest in inexpensive smartphones, tablets, computers and other consumer electronics, a vast number of human beings in China need to suffer.

One has to wonder how long China as one of the world's most quickly developing economies is truly going to be able to sustain this model.

As Chinese citizens accumulate wealth, and as China as a country becomes more of a participant on the world economic stage and as a member of the larger community of nations, and as its citizens gain more and more access to information about the world around them, its people will inevitably demand better working conditions, increased wages and increased rights overall.

None of these things are going to happen necessarily within five years or perhaps even ten. But it would be naive to say that China can sustain the quid pro quo of having the trappings of a despotic neo-communist nation and all of the worst aspects of modern capitalism indefinitely.

Companies like Foxconn or even the Chinese government may not bring about change on their own. It's possible that as a result of this public outcry over mistreated Chinese workers, the foreign technology companies investing in China themselves may start having to build their own factories in that country and control their own means of production to ensure their own labor compliance directives.

This is already happening. In eWeek, writer Wayne Rash recently wrote a piece entitled "Making Smartphones Without Condoning Poor Work Conditions." In it he writes about how Motorola Mobility, which has a firm commitment to corporate responsibility has invested a tremendous amount of money building its own factories in China and conducts and discloses regular audits of working conditions.

And Motorola's workers in China are in fact their own employees.

Obviously, the cost to Motorola Mobility in order to have a corporate conscience is high. It is reflected in lower profit margins for their products which obviously hampers its ability to compete.

Motorola's competitors which do not display an equally strong corporate conscience (such as Apple) need not concern themselves with these moral ambiguities. And they can use this lack of corporate conscience to their advantage with increased profit margins.

Profit margins that ultimately please Wall Street in terms of their yearly earnings statements.

But one day in the future for the nations which consume Chinese manufactured technology, and for all of the companies that have to do business in China like Apple, the party will be over. Any incremental cost of improving the lives of the Chinese workers will inevitably result in in increased costs in components and manufacturing outsourcing, which will be passed down to you, the consumer.

How much more expensive is anyone's guess. It could be as low as 20 percent or as high as double the cost.

I had a conversation about this with my ZDNet colleague Ed Bott, and the expression he used was that America and other Chinese consuming technology nations would turn into "techno-Cubas".
The reference he was making was that Americans and other nations might end up trying to keep their technology running much longer than they were designed for, in the same way Cubans have kept 1950's and 1960's automobiles running for decades due to the trade embargoes against their nation.

That is obviously a nightmare scenario, and as an industry we cannot allow that to happen because the consequences would be disastrous for driving technology consumption.

It's certainly possible that Apple, with its growing war chest of over $90B, facing international pressure to improve the conditions of its workers, may eventually have to use that money to build its own factories in China or in other countries such as South Korea, which have an ample supply of skilled workers and also have far better working conditions as well as a superior reputation for upholding human rights.

In fact, such a transition for technology manufacturing to Korea may actually accelerate the need for a re-unification of that nation. With a combined population of over 73 million people, a unified North and South Korea could create an economic and manufacturing powerhouse not unlike what happened during the German reunification of the 1990's.

Will international concerns over working conditions in China's technology industry eventually result in increased costs for manufacturing and ultimately, the prices of consumer electronics and other technology products? Talk Back and Let Me Know.

Topics: CXO, IT Employment

About

Jason Perlow, Sr. Technology Editor at ZDNet, is a technologist with over two decades of experience integrating large heterogeneous multi-vendor computing environments in Fortune 500 companies. Jason is currently a Partner Technology Strategist with Microsoft Corp. His expressed views do not necessarily represent those of his employer.

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115 comments
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  • No, as the government of China won't allow it.

    Don't forget, China is not a democracy.
    William Farrel
    • RE: Happy Chinese workers spell the end of affordable tech

      @William Farrel
      can you name a country that is?....hint it is not USA.
      The Linux Geek
      • Democracy is just another term for mob rule.

        @The Linux Geek

        Monaco is one of the few countries in the world, with a population of only 30K, that could even begin to think of being run a pure democracy where every adult votes on every single decision in governmental politics.

        For the most part, however, democracy is just another word for mob rule where the majority gets the say and there are no checks in place to look out for the "little guy". Under a true democracy, the First Amendment would make little sense if the majority wanted a state religion, then there would be one.
        Bruizer
      • RE: Happy Chinese workers spell the end of affordable tech

        @The Linux Geek
        Some people claim India..... :)
        rhonin
      • RE: Happy Chinese workers spell the end of affordable tech

        @The Linux Geek<br>The USA is a REPUBLIC, it says so in the PLEDGE OF ALLEGIANCE, but no one recites that, or cares anymore. It seems to have disappeared along with prayer and faith.
        partman1969@...
      • RE: Happy Chinese workers spell the end of affordable tech

        @The Linux Geek

        Technically, the US is a representitive democracy, if you were attempting to distinguish that from a pure democracy.
        Biotechguy
      • RE: Happy Chinese workers spell the end of affordable tech

        @The Linux Geek

        Don't know why your post was flagged, you're right, America is not a Democracy, it's a Republic. To those Americans who think this country is a democracy, you should recite the Pledge of Allegience. Four words tell you everything you need to know: "...and to the republic..."

        This lesson brought to you buy someone who actually paid attention in school during history, social studies and civics rather than listen to the talking heads who would have us all believe incorrectly.
        PollyProteus
      • Never had faith, never prayed...... Stopped saying the

        @partman1969@... pledge as a matter of principle. Basically cause they demanded I do so in school. One day I said no... Was sent to the principals office and made to listen to a whole host of threats as well as a call to my parents. To which I smiled and said "Go ahead... I can take them" Eventually I won out and the ironic thing was if they had only "asked" me to do the pledge I would have been fine and done it as long as it was clear it was my choice not my obligation. Funny that. As for faith I see no "reason" to have said. Reason being the key word there are a host of emotional issues that could cause one to choose faith but I have no well thought out reason to think any faith I've yet heard about is actually true.

        Pagan jim
        James Quinn
    • A point in history past...the U.S.S.R. and McD's

      @William Farrel

      On January 1st McDonald's opened the first McDonald's in Russia, in Moscow. This was almost purely a McDonald's Canada project as McDonald's Canada is the most successful region in the world per store and was deemed to be the organization that could field the project the best.

      The dissolution of the U.S.S.R. was not until December 1991, almost a full 2 years later. McDonald's Moscow was, from the moment the doors opened in January of 1990 THE MOST successful and profitable McDonald's in the world.

      http://www.waymarking.com/waymarks/WM7T5_1st_McDonalds_in_Moscow

      With a little bit of internet searching you can find out many things about this bizarre historic event. Like the fact that McDonald's originally tried hard to work with many Soviet supply chains to supply a restaurant that they knew full well would outstrip the sales volume of any restaurant in the Soviet Union, it proved to be impossible, so McDonald's Canada plugged about 50 million dollars into the Soviet system to get the rights to construct their own factories and supply chains to supply the beast of a Moscow store virtually endless volumes of product they would need to keep the operation going nonstop.

      You can also pretty easily find out about the line of 3000 people waiting outside from opening day morning, for weeks afterward. You can also find pretty easily about the fact that a Big Mac Meal cost what would be an average workers couple days wages to pay for. But the customers still came in droves.

      What???s not as easy to find out about, but may well still be out on the web someplace is the fact that employees who worked a simple counter position that barely garners minimum wage in North America were literally as much as a Soviet era doctor. McDonalds employee uniforms, that are sent home with employees in North America to be washed at their homes before the next shift (obviously cost effective) were being taken by McDonalds Moscow employees and not being washed for the next shift but being sold on the streets for several days pay, and not the lowly Soviet doctors pay but the McDonald???s McDonalds employee pay. This was expensive for McDonalds Moscow because not one of their employees could really afford to pay for new uniforms once they said they lost or accidently destroyed a uniform, (actually sold on the streets ) and McDonalds policy has always been free uniforms so McDonalds had to say, no taking them home, and they opened up their own laundry matt that serviced the uniform cleaning for what came to be nearly 800 employees by time the Soviet Union fell.

      You also will find it harder to find out about that despite the incredible sales the store was doing, the garbage???s were only filling to a small percentage of what was expected in such a massive sales volume store. What was up with that? What was happening was the customers were taking home all the wax cups, Styrofoam packaging and often the bags and other packaging items many Soviets seen as reusable free products at the time.

      What you will also find hard to find is the personal stories of many of the dozens of Canadians who worked there for ages to ensure the start up went as planned, how they talked to the customers and how they seen the impact in the news of just the simple fact of them being there. How doctors complained for the first time ever about their wages and how the very fact a most capitalist of enterprises was having a massive public impact that grew month by month in a communist country.

      Make no mistake, despite all the money spent and the deals made, there was eventually some pressure brought to bear on the operation but it was rebuffed, and it came too late in the day, so to speak, because the U.S.S.R. was already starting to flail and the Soviet government was already facing big trouble around the country and was in no position to find good reason to spend a lot of time and resources to do some corporate warfare with McDonalds when they were losing their grip on the country as a whole, and rapidly.

      Much of the lesser spread information I have mentioned came directly from the mouths of many of those Canadians who worked there to my ear. And just to let you know it wasn???t after a few beer around a campfire if you catch my drift.

      The point being, never ever underestimate the impact of the capitalist system when its put in a true front and center way right in the middle of any political system. There are two general choices; try and use a third world style economy , often communist in kind, to your capitalist advantage, or simply find a way, some way somehow to just take the capitalist system right to them. McDonalds did it the latter way.

      There are now approximately 300 McDonalds stores in Russia and the vast majority are doing exceptionally well . And unlike the McDonalds employees of North America, their pay is still comparatively good to many other workers. Amazing???isn???t it.
      Cayble
      • RE: Happy Chinese workers spell the end of affordable tech

        @Cayble , thanks for the story. Having immigrated from Russia (Leningrad) to US in 1991, I was delighted to read it.
        I would like to add several points to this story.
        - For the last couple centuries, Russians were looking West. They have for a very long time wanted to be a western nation, but never managed to accopmish it. So the success of McDonalds not only attributes to the communist/capitalist issue, but also to a very specific Russian mentality.
        - Moscow is a very rich city, and has always been. Check the per capita amount of Mercedies, or a cost of real estate. I think Moscow is about third priciest city in the world in terms of the cost of a sq ft of real estate. Why? Russia is an oil rich country, and all this money first show up in Moscow. So, lots of people can actually afford to pay for an extremely expensive meal. It like a trip to the Moon - unbelievable, unheard of experience that is worth all the money.
        - I hear of stories about people in US trying to invest in Russia. It is very hard, because there are just too many people you need to bribe to get things going. My assumption is that it is equally hard to build your own factories in any third world country, and this contributes to Western companies subcontructing, rather than building their on factories.
        ForeverSPb
  • RE: Happy Chinese workers spell the end of affordable tech

    Apple needs to buy Foxconn and make it a factory just for Apple componets, kick everyeone else to the curb... that would create demand in other areas and new factories.
    Hasam1991
    • RE: Happy Chinese workers spell the end of affordable tech

      @Hasam1991

      Doubt that they would be allowed. Not sure that China allows foreign ownership of its companies. We went through this where I work - we ended up in a mutual partnership with the company we thought we could buy.
      benched42
      • RE: Happy Chinese workers spell the end of affordable tech

        @benched42

        "Not sure that China allows foreign ownership of its companies."

        It doesn't. Everything in China is owned by the state.
        CobraA1
      • Further then that....

        @benched42 <br><br>Its obvious that Hasam1991 has no idea just how massive Foxconn is. I'm not saying that Apple couldn't pull the funds together to do it, but its an absolutely monstrous operation that has a capacity far beyond anything Apple alone needs. They have factories all over the world and their largest location in China, often referred to as Foxconn city, I have heard may employ as many as three or four hundred thousand workers and is a massive facility comprising 15 factories on the one site alone.<br><br>Just reading this article should have given Hasam1991 an instant heads up that Foxconn supplies far more then just Apple. Apple has no need for manufacturing facilities of this scope. This is a monstrous operation that needs about half a dozen major players in IT commercial/retail world just to keep it busy.<br><br>Even if Apple just bought part of Foxconn, consider the headache of trying to operate such an integral operation in China. We know there are plenty of things that go wrong at Foxconn, and thats because in China the way to maintain profitability in the IT manufacturing industry is not to worry about details like workers rights, humane conditions or fair pay but instead ensure employee compliance by harsh crackdowns on those who get fed up with lousy conditions. As an American company how does Apple go over to operate a company in China that has maintained profitability in these kinds of ways? If Apple willingly played that game there would be hell to pay back home when the word got out.<br><br>So forget about the fact that China doesn't sell their homeland operations to companies from other nations. The plain simple truth is that all of these North American companies want to keep things as they are right now because its the only feasible way they can get new product on shore at a cheap price without taking any significant hassle for the harsh circumstances of how these massive factory cities in China are operated in order to be so profitable while producing such cheap product.
        Cayble
      • not everything is owned by the State.

        @benched42
        China does not allow majority foreign ownership in its state run enterprises. Biggest example of these are the auto companies (Beijing Jeep)

        COntrary to what @cobraA1 states, not everything in China is owned by the state. There are plenty of privately run businesses and manufacturing concerns that USED to be state run enterprises.

        And of course, There are also plenty of foreign companies doing business in China that own their own factories.

        From what I understand, Foxconn (which produces stuff for all kinds of electronics manuf. not just Apple) is a Taiwanese company, not a "Chinese" (PRC) company.

        Although it would be great for Apple to buy Foxconn and instill more "socially responsible" (according to who's standard by the way? The West? Or Asian?) standards, it would give more ammo to the Apple Haters. I can already hear people complaining about how Apple controls the supply chain, etc. etc..

        Don't forget. Once manuf. costs start rising in China, the jobs will move to the emerging SE Asian nations. It's already starting to happening now.

        D
        dwcfastrice
      • RE: Happy Chinese workers spell the end of affordable tech

        @benched42

        Of course it IS ALLOWED! Not even allowed and you can enjoy tax break, incentives Chinese companies cannot get!
        Techsean
      • RE: Happy Chinese workers spell the end of affordable tech

        @benched42 <br>Only joint ventures allowed by foreign companies with Chinese majority ownership under the watchful eye of the PRC
        preferred user
    • RE: Happy Chinese workers spell the end of affordable tech

      @Hasam1991 <br>Plus apple has already gouged their prices to reflect the eventual cost of paying the labor that will eventually come.<br><br>Luckily for them, they did a great job of marketing their stuff to tree huggers and world savers to get people believe that they cared as a company about those folks that they banked a nice piece, got you used to their crack at the higher price, and now when their cost rise they can explain it away that raising YOUR price is better human rights treatment.<br><br>Their R&D team does great work, but since ~2003, their media arm should get better rating that the Pope!<br><br>No offense intended to AF, this is about the company, not the product.
      QAonCall
      • RE: Happy Chinese workers spell the end of affordable tech

        @QAonCall

        You have a choice to buy Apple or not.

        Will you apply the same standard to other companies about gouging.

        Every company needs to make money to survive in this dog eat dog world you can ask Kodak this and no one owes you a living.

        Have you gone for 5 days without food and experience that and you know why people are queuing up at Foxconn factory of a job.

        Btw having to pay the lowest costs doesn't ensure that a company can survive if people are not willing to buy their products - you can ask RIM this.

        Many are dreaming but reality bites and they are too simple minded to realise the problem or their ihate clouds their common sense.
        AdanC
      • Ya. Theres always a choice. But its hardly the point.

        @AdanC

        Lets cut to the chase.

        You can look at a country for example and say, "they cut the heads off of criminally accused people there without a fair trial, its YOUR CHOICE if you want to holiday there or not, but hey, every country needs a legal system and things are pretty tough there."

        The point being, sometimes its not nearly enough to simply say, if you find some particular practices of a business, country or organization abhorrent you can hit them in the pocket book if you want to protest their practices.

        For example, in places like Libya, Iraq or Afghanistan you might start out that way in a vain attempt to get them to comply with what is considered to be rational behavior, but if what they are doing is truly not right and its their intention to carry on despite the "economic" sanctions, one truly has to ask themselves if the old "you have a choice" argument in relation to finances is good enough.

        I guess as a society has we all have the right to "choose" if we want to associate in any way with all kinds and sorts of people engaged in unsavory and criminal activity. Thieves, killers, child molesters etc. we could just say hey, if you don't like what they are doing, don't be their friend, don't give them a job, don't let them in your store. Maybe even say some harsh things to them. But we all know thats not good enough.

        To say the Chinese workers willingly take the jobs and thats fine because they would otherwise be starving in many situations is hardly any kind of tolerable explanation for why we should tolerate North American companies being part of such a debacle. Is it tolerable that for example a child abuser is allowed to adopt difficult to place children because they would otherwise have no parent at all? We always have the choice of course after the fact to associate with the abuser or not. In other words if we don't like what hes doing we can refuse him a job for example. And of course that somehow is in line with our theory that having him as an out of work abusing parent is better then no parent?

        AdanC, of course every company has to make make money in the long run to stay in business. And there are a whole lot of different ways to make that happen...or not. I always thought that in advanced western democracies we decided some time ago that the ways NOT to make a profit was by employment practices like those used in Foxconn. Its hardly right for big business to skirt those little difficulties by outsourcing to counties who think its just fine.
        Cayble