Best Argument: No
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Final question (but it's huge)
If a U.S. smartphone maker manufactured in South Carolina is that enough to garner a receptive consumer base? Can a tech company with U.S. manufacturing compete? And how? All I'm asking is for you to fix all of our problems in 6 minutes. Go.
Give me a time machine and allow me to set it to 1949.
I think there is a definite market for genuine American-made products. That much is evident from the agricultural and food industry, as well as other specialized luxury goods such as spirits and other consumables. However, the idea that you can make a sophisticated piece of electronics like a smartphone in the United States is ludicrous because you could never source all the components domestically. Virtually all of that stuff, from the semiconductors to the display unit, to the battery are all made in Asia. So at best you're doing final assembly at an American plant. If it costs $100.00 more to do that, and you labelled it "Made in the USA" I'm not sure you'd get sufficient demand for the product to justify doing it in the first place. But if you could somehow keep costs down and make it competitive with products being produced in China, I could see people buying it. After all, various Japanese and German car companies have had some success doing final assembly in the United States, but they haven't been passed off as American products. It was simply more cost effective to do it here rather than ship entire completed cars overseas, in order to avoid US tariffs.
Well, certainly we want to see more manufacturing in all our states, and South Carolina could certainly use more jobs. But it's not just where the product is built that matters. What matters is if it's good enough, reliable enough, and appealing enough. I remember when I used to pass Apple plants in the Bay Area. Apple back then made a lot of money, its workers were paid very well, and it was mostly all done in the U.S. We need to do all we can to bring those jobs and those companies back home. In my opinion, and based on more than a year's research, mathematical modeling, and analysis, it is possible to rebuild America's manufacturing base. The problem is that we have to, eh, Think Different about how we think of jobs in America. I devoted 476 pages to that in my recent book, but the bottom line is we can't concentrate all our economic attention on the few large companies. We can innovate and compete by concentrating attention on the millions of smaller companies who add and provide value. That, and we have to fix our healthcare hostage crisis once and for all, otherwise American companies will be saddled with a COGS component that no non-US firm has to deal with. This is tough stuff, but it infuriates me that a great American company like Apple has created a situation where 960,000 jobs have been created, but outside the US. Those jobs should have been created here. It's not just companies like Apple that have dropped the ball, our politicians have completely deflated it, the unions have trampled it, and the consumers have chosen to not buy it. Bottom line, we can do this, but we have to adopt a whole new way of thinking.
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Getting ahead of the issue
If you're a tech company manufacturing goods in China how do you get ahead of concerns about working conditions?
Ultimately you must fully control the means of your production.
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. For example Motorola Mobility (soon to be fully-owned subsidiary of Google), 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 Motorola employees. Obviously, the cost to Motorola Mobility in order to have a corporate conscience is a high one. It is reflected in lower profit margins for their products which obviously hampers its ability to compete relative to companies like Apple. And if having a corporate conscience becomes the norm, these companies will have to pass these costs down to the consumer.
Competitive realities are part of the issue
Well, first off, let's be clear that there are many non-US companies using Chinese manufacturing facilities. So our companies have to be competitive with those to survive in the market. The good news is that American companies are exceptionally innovative and, as Jason says, controlling the entire supply chain is probably the way to ensure your employees are well-treated. That also means automation, and production innovation, and it's not quite as easy as outsourcing to cheap labor in a cheap labor country. Let's remember that quarterly reports often drive corporate actions, and those reports require profits, not just good citizenry. That said, again, if we look at bringing these facilities back to the US and look at how we can innovate to be competitive, we'll have the control without the PR nightmares. It's a tough battle, but if we have the will, it's doable. Apple is the ideal candidate for this sort of right-work battle.
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Domestic demand in China
Isn't it possible that the domestic market in China will make this moot? Even if costs go up domestic demand for Chinese goods is huge.
Not while the country's fortunes are highly dependent on exports.
Domestic demand for products in China is huge, but there's no question that if costs were to increase substantially, and the foreign demand for products decreased due to those costs being passed down to the consumer (as opposed to being absorbed by the manufacturer) it is going to make a lot of that spare manufacturing capability that it otherwise uses for foreign production idle, and it will hurt. China's economy is still highly dependent on exported goods -- durable goods which are arguably superior and more expensive than the goods that it produces for domestic consumption. The bottom line is that China can't live in isolation in a global economy, it's not the 1950's anymore. With continued growth and prosperity for its citizens, in 20 or 30 years China will almost certainly be in the same position that we are in today.
China is the Holy Grail in terms of consumer markets
Well, worker safety and well-being are never moot. Sure, the Chinese market is the Holy Grail of Holy Grails when it comes to consumer marketing. But as demand increases, cost generally decreases, so even if less Chinese workers are living on barely subsistence wages, and more middle-class Chinese get their own iPads and iPhones, there will still be a need to cost-reduce manufacturing, still a need to get the most profit out of every sale, and still a need for workers who cost as little as possible while still doing a quality job.
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Costs and U.S. manufacturing
Are costs the sole reason why the U.S. manufacturing base has been hollowed out?
Impossible to stay competitive if they did manufacturing business here.
I'm not running for office, but it would not be a ridiculous overstatement to say that over the last 30 years, oppressive taxes, unionized labor and ever encroaching government regulatory controls over our manufacturing base have contributed to the United States becoming an inhospitable environment for most companies to do manufacturing business. 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.
No, of course not
No, of course not. Healthcare is -- and will continue to be -- a huge issue. We are the only advanced nation where healthcare is still a major component of cost-of-goods-sold. All other advanced industrialized nations provide healthcare to their citizens and the corporations and manufacturers don't have to bear the brunt of that cost. On the other hand, for third-world nations, those manufacturers also don't have to pay the cost of healthcare (which, as you're recall, is -- itself -- more than 8 times more expensive than the full cost of many foreign workers). And then we come to regulation-related issues. Some of that is fair and necessary. The shipbreakers I mentioned earlier can only do their business by brutalizing their employees. We'd never permit such toxins in America, and so that business is performed in India instead. A third reason our manufacturing base has been so decimated is we've come to celebrate -- as a matter of wrong-headed federal competitive policy -- industries like insurance, banking, and even tech. Companies like Google are essentially nothing more than advertising engines. Real factories that produce real goods are not, and have not been, a priority in America and to our government for decades. Then, what Jason says about taxes, union labor costs, and other factors are also quite true as well. The U.S. makes it hard to be competitive on a manufacturing front, which is why we're arguing about worker care in China, rather than worker conditions in Bayonne.
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Pushing China aside
Will China ultimately be pushed aside for an even cheaper manufacturing locale?
Not so easily.
I'm not sure we can continue to hop from country to country in order to feed the world's appetite for consumer electronics. Starting in the 1960's, Japan was our first cheap but quality electronics supplier, and they built their own distinct brands which are iconic even today. But eventually even they could not compete with China or even Korea, as has been recently evidenced from Sony and Panasonic's declining profits when compared with products being produced by Apple's Chinese subcontractors and Samsung's powerful Korean industrial base. A number of Japanese firms are in the process of building new factories in China in order to continue to compete, which would have been absolutely unheard of ten years ago. China is unique in that it is developing very quickly and has a number of other characteristics that make it ideal for manufacturing durable and sophisticated electronic goods. The labor force is vast and cheap and the pool is educated and disciplined just enough to perform the complex work that is necessary to produce products like Apple's. You can't necessarily say the same for other countries in Asia or even developing countries in Latin America or Africa. Certainly Korea is "Cheaper" than Japan, and they can produce sophisticated, high-quality consumer electronics, but it's not as cheap as China. And Taiwan is simply outsourcing most of its work to the mainland.
Unlikely, but possible
It's unlikely, but possible. China has 1.3 billion people, India has 1.2 billion people, and the United States has a mere 313 million people. In other words, together China and India have about 8 1/2 times the number of people as the United States, and, according to the Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, they make up almost 40% of the world's total population. That said, both China and India are desperately trying to raise the standard of living of their citizens, seeing that as a major competitive advantage and as a way to stave off the national unrest of the 1970s-1990s. At some point, if enough of their billions of employees are making U.S.-style wages, their populace will also become consumers and (a) we'll be on a much more level playing field in terms of jobs, and (b) some other destitute country will be thrilled to offer this working opportunity to its citizens because many of these manufacturing jobs actually raise the standard of living, and make a huge positive difference in the lives of the very poor people of these very poor nations.
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Can boycotts influence large tech companies? What are the chances of it working?
Only if there is a strong sense of social responsibility among consumers.
This is really difficult to determine. As noted in Tom Foremski's peice this week, there will always be a portion of the consumer base that cares deeply about where their goods come from and how they were manufactured, as we have seen with Fair Trade efforts with Coffee, Chocolate and Clothing, and the organic/sustainable/local foods movement(s) which label their products as such, and there has been a considerable amount of success with that, although it only represents a small portion of those industries as a whole. Some people are definitely willing to pay a premium for these sorts of products and spend their money exclusively on them (a la Whole Foods) but not everyone is. I would really like to believe that American consumers have compassion and a conscience. If more and more concrete reports of workers being mistreated coming out of China actually result in people boycotting products from manufacturers that condone such practices, then I think it would be a huge step for our culture and renew a lot of faith in the moral compass of our society. I think we would all be better off for it. But I really can't say that if, before buying a tablet or smartphone that was made in China, a prospective consumer was forced to watch a video of exactly what conditions those workers that made that product had to endure or live under, that the consumer wouldn't still buy the product in question. After all, people still buy produce from Mexico and other parts of Latin America but few people really stop to think about the living and working conditions of the workers that harvested their lettuce or their strawberries. So why expect that from people buying iPads or iPhones? Boycotts only work if the consuming public itself can be organized and send very strong messages to companies that their labor practices in China are not acceptable. We've seen this work in prior decades with the petroleum industry such as with Exxon for their environmental transgressions with the [i]Valdez[/i] disaster in Alaska and also most recently with BP during their [i]Deepwater Horizon[/i] spill in the Gulf of Mexico. Large organizations will need to get involved in order to coordinate group efforts to make effective boycotts.
The question is whether consumers will bother voting with their dollars
Most consumers don't even care about the working conditions in America. In fact, most consumers don't even care enough to buy American goods, to keep fellow Americans employed. I drive an American car. Do you? So it's incredibly unlikely that we'll see a boycott of Apple, for example. Sure, people might choose to boycott, say, Asus, but since everyone is rabid for Apple, other than a few fringe elements, there's not enough will to have an effective boycott, so there's unlikely to be boycott-driven change that really accomplishes anything. After all, most Americans want their cheap consumer goods. Otherwise, for example, Walmart wouldn't be the powerhouse it has become. In response to Jason's comment about the oil spill, that was in our backyard and it's easy to get angry at oil companies. But will Americans give up their iPads because some foreign workers have tough lives, no way.
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Was Apple's move to partner with the Fair Labor Association just PR?
Public Relations, but also good business.
It was primarily a public relations move although it is clear, at least from internal communications that have been since made public, that executive management was incensed that the company could be perceived as uncaring. However it remains to be seen if Apple is more concerned about the perception itself or if it wants to demonstrate legitimate compassion for the people who manufacture its wares. ZDNet's own Tom Foremski noted this week that Apple cultivating a "Think Fair" image may also be good for business and give them a competitive advantage, given the fact that their streamlined supply chain and significantly higher margins may give them some leeway for creating Fair Trade electronics whereas their competitors may face significant challenges in doing the same.
Not just PR, but excellent PR
It wasn't "just" PR, it was excellent PR. It's actually a very smart move. No American company wants to be associated with worker abuse, whether here in America or in foreign lands. The problem is that these are pre-announced inspections and there's time to prepare for the inspectors. My colleague Wayne Rash (Washington Bureau Chief for eWEEK) spent years as a Navy inspector. He explains that in virtually all inspections the world over, the subjects would clean up their acts for the inspectors, and then everything would devolve right back to how it was once the inspectors leave. Until Apple stations full-time, permanent, American inspectors on-site (with their own oversight management as well), the situation at Foxconn and other firms won't get much better. Good PR move, though. Oh, and remember that the PR needed isn't just for customers, it's also for internal Apple employees to find a way to feel good about themselves. This gives them bragging points, as ultimately ineffective as it may be.
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A tech issue
So we should move beyond Apple and focus on the broader tech industry? What creates the most change?
Voting with your dollars, but also grassroots efforts.
Voting with one's dollars sends the ultimate message. However, social networking has been very effective in affecting change in governments, such as we have seen in recent power struggles in the Middle East, so it is not unreasonable assume that similar tactics used against large companies might be similarly effective. If there was a large concerted effort by citizens of western nations to campaign quite vocally using social networks against large companies which do not represent the conscience of its customers, it is possible that technology companies may have to respond to pressure by the sheer force of hundreds of thousands or millions of consumers voicing their displeasure.
Trust, but verify
Trust, but verify. Make sure you have eyes and ears on the ground to see what's happening. Establish standards of safety, but also standards of how many hours can be worked, and how many hours must be devoted to leisure. Worker happiness isn't just about a paycheck, it's about having a warm place to sleep, enough food, enough rest, and enough recreation to be able to do the job safely again the next day. Personally, I'd like to see American policy makers make home-grown manufacturing a priority again. I'd like to not only look at how we might help the Chinese workers, but how might we bring these mighty manufacturing facilities back to the U.S. so our own workers can get the care and attention they deserve.
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Do you think Apple has been singled out?
Singled out? More like the biggest and most egregious example.
The reason why Apple is being singled out is that they are the poster child for this problem, being the world's most successful consumer electronics company. Apple's current CEO, Tim Cook, was entirely responsible for shifting the companys 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. So it isn't so much as being "singled out" as sticking out like a sore thumb.
Yes, of course.
Of course. Apple's name generates ten times the attention and ten times the traffic of the next technology company. Readers and audiences are much more interested (some would say "rabid") about Apple, and that then drives us in the chattering class to talk about it more. Face it, saying something like "impoverished workers are making your iPhone" is much more powerful hyperbole than saying "impoverished workers are making your thermostat." But, if you're asking if Apple is doing anything worse than its competitors, other than being simply being the annoying Apple we've come to know and love, the answer is no. It's on a par with most other American firms and probably somewhat more responsible than its foreign competitors.
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Did Apple's move to allow third party plant audits change anything? Why or why not? How much power does Apple have as a leading indicator?
As you said yourself this week, it's a good start, but vigilance is key.
It's certainly a good start but it only matters if Apple is vigilant with continuous follow-ups by the third-party auditors, and if there are actual negative consequences for the non-compliant manufacturing subcontractors. And it remains to be seen if other major consumer electronics manufacturers who do business in China are going to be vigilant about auditing their subcontractors as well, now that the human element of Apple's manufacturing has been placed under the microscope. And we all know that any pre-arranged inspections are going to give Foxconn and other companies doing outsourced work considerable notice in order for the third party inspectors to see what they want to see, with no violations. There has to be unfettered access to the facilities for repeat inspections, without any notice in order for this process to be effective at all.
Probably, to a small degree.
Probably to a small degree. Anytime you can shine some light on worker welfare, you accomplish two things. First, you sometimes find egregious behaviors that you can put a stop to. Second, you send a signal to the people you're watching that you are, indeed, watching -- and that, too, can put a stop to egregious behavior. But there's a big difference between true worker abuse and workers who aren't paid as well as they should be, or aren't treated as well as they should be. Some of the horrid shipbreaking conditions in India, where women and children walk in bare feet through toxic waste and rusted shards, carrying parts of broken ships for destruction, certainly are worse than what we've seen in Foxconn City.
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Let's say we raise standards and wages in China...
Couldn't we become more efficient elsewhere in the supply chain to offset better working conditions?
As long as human beings are the majority part of the equation, no.
At the end of the day, as CBS News demonstrated in its investigative report "The Dark Side of Shiny Apple Products", these consumer electronics products are being manufactured by hand using human beings. As long as energy, raw materials and other component costs in the supply chain remain relatively expensive (and there's no indication that the prices of those things are going to plunge anytime soon) it will be difficult to offset costs as long as human beings continue to drive the means of production. In Japan, the country has experimented heavily with robotic assembly lines in the last 30 years (particularly in their automotive industry) because they wanted to find their way out of an energy crisis that began in the 1970s, in addition to eliminating monotonous jobs that nobody wanted to perform and improving overall output efficiency. But Japan's and China's culture and socioeconomics are very different. It's actually cheaper for final assembly in China to be done by human beings instead of robots because have such a huge supply of labor that is willing to work under such harsh conditions and for such low pay. Regardless of working conditions, working in electronics manufacturing is so much better than doing hard manual labor in China's infrastructure improvement projects or agricultural work, especially for the uneducated. And as good as today's industrial robots are, they still can't do the type of precision manufacturing work required to do final assembly for something like an iPhone or an iPad. Even in Japan or in Korea, which are far more modernized than China in their manufacturing practices, human beings still do some of the finer work. But even if robots are capable of doing all of the work, China's vast and cheap labor pool isn't going to disappear anytime soon, so there's little incentive to replace human beings with robots. Not unless the manufacturers themselves had compelling reasons to do it, which they don't.
Fingers for hire
Absolutely. It's what technology manufacturers do all the time. We often "innovate" the worker cost out of the system, usually through production line automation and robotics. While it's more likely that cheap workers will be supplied from even more poverty-stricken countries, it's also possible that we'll see fewer Chinese workers employed, who are paid more, have more skills, and who contribute more to the management of the process, rather than, essentially, fingers-for-hire.
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Our lens, their lens
Can you honestly compare the working conditions in China to what the U.S. has? Aren't we just viewing things through our lens?
What other lens other than the First World lens is there?
The vast majority of Chinese -- hundreds of millions of them -- not only work in conditions that most of us would consider barbaric but their living conditions make many of the people in our own country living in near poverty look like comparative luxury. While the big modern cities like Shenzen and Chengdu where Apple's products are being made are growing and new cities are popping up all the time, there are still many places in China still do not have electricity and clean running water. So everything is relative. But ultimately if you believe that all human beings should have the opportunity to live and eat well, and work under clean and healthy conditions and work reasonable hours, then the first world lens is the only frame of reference you can possibly have. This is the standard that you set, and you keep that standard in mind, but you also don't assume you can change things overnight. The ripple effect of increased prosperity positively affects the entire community. The rising tide lifts all boats, so to speak.
We live in very different worlds
There are almost five times as many Chinese and Indian citizens living on less than $2 a day than there are people living in the United States. According to Stanford University, the average person in India makes about $500 a year, and what they call the "composite urban" Chinese person makes about $828 a year. When you contrast these numbers to the United States median income of about $50,000 a year, you can begin to see why many American companies are so interested in the potential of outsourcing -- and why the governments of India and China are so interested in encouraging the practice. Now, let's look at healthcare. In China, a middle-class worker makes $2/day. In America, it costs about $2/hour just to provide basic health insurance for an unmarried employee. Just the health insurance load, alone, for a typical, unmarried American employee is eight times the cost of the total wages for a Chinese employee. The cost of insurance alone -- before even considering salary -- for one day for a married American worker with a family could employ a Chinese worker for an entire month. So, no. We live in very different worlds.
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Conditions vs. costs
Are better work conditions in China really linked to costs and ultimately the prices we pay?
Partially, but they are linked to other variables.
Better work conditions are only part of the variables linked to overall costs of the goods being produced, but they are definitely linked. Wages, benefits and and working hours factor into the overall picture, in addition to taxes and regulatory costs imposed by the Chinese government as well as the price of energy and other raw materials needed to produce durable goods in that country.
Taken to a fantasy extreme, sure.
Taken to a fantasy extreme, sure. But, in reality, no. Product prices certainly factor in cost, but the cost in most technology products is often disproportionately the upfront development cost and the cost of materials. The human production workers are a mere line-item in the overall cost analysis. Further, there is a vast difference between the average Chinese worker's income and what we'd consider an average income here in the U.S. There are 1.3 billion people living in China, 19% of the world's entire population. Many of these people are living below the subsistence level, living in huts with dirt floors, and without power or plumbing. In one Stanford study, people in China making $2 a day were considered their "middle class".
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Testing 1, 2, 3
Just checking the mikes
I'm ready, too.