news analysis There may be a market for more ethically sourced and produced electronics driven by the increased public scrutiny and awareness over labor issues and related concerns over the sector, say industry observers. However, some express reservations over the feasibility of implementing a fair trade model in the industry.
The electronics manufacturing industry came under the spotlight following a series of suicides involving Foxconn workers in a Chinese factory, which manufactures devices for major brands such as Apple, Hewlett-Packard and Samsung. This brought up allegations of poor workplace conditions, where employees were overworked and underpaid.
There has also been growing concerns over whether materials used in the sector have been ethically sourced.
Non-governmental organization (NGO) Enough Project, for one, explained that armed groups in eastern Congo earned hundreds of millions of dollars every year through trading what has been dubbed "conflict minerals". "These minerals are in all our electronics devices. Government troops and militias fight to control the mines, murdering and raping civilians to fracture the structure of society," the NGO said in its Web site.
"Money earned from the sale of conflict minerals is used for personal profit and to further violent causes," it added.
Demand from consumers
According to Scott Nova, executive director of the Worker Rights Consortium (WRC), consumers are increasingly demanding for companies to be more responsible. "If one or more brands do the right thing, then as long as the distinction is made clear to the public through some credible mechanism, I believe many consumers will reward those brands while simultaneously punishing their competitors," he said.
In order to earn a fair trade label, a company will need to ensure equitable trade practices at every level of the supply chain. So far this model has been successfully implemented for goods such as coffee, fruits and apparel, but observers believe it will be more complicated applying it to the IT sector.
Nova pointed out that while fair trade has worked relatively well as a means to ensure fair compensation for small agricultural producers, attempts to apply the model to products that are made in factories, or grown on large plantations, where there is an employer-employee relationship, have been problematic.
Willing to pay more?"As a price-sensitive consumer, I will want the lowest price."
- Kelvin Chow
"I don't mind paying 10 percent more if it's fair trade."
- Sebastian Koh
"Ethics don't mean a **** if the product doesn't work."
- Cordelia Goh
"In order for the model to work in that context, you need buyers that are willing to take genuine responsibility for their suppliers’ labor practices and are willing to pay prices, and accept delivery schedules, that are consistent with good labor practices. It is generally not enough for the brand to just pay a small fair trade premium--greater expense and responsibility are required," he said.
According to Ang Kai Hsiang, an associate with Baker & McKenzie.Wong & Leow, companies could consider requiring their suppliers to actively comply with a code of conduct as part of their corporate social responsibility (CSR) practices. "To ensure compliance, it will also be necessary to build in a right [in contracts] for the IT company to audit its suppliers. Of course, whilst it is legally possible to incorporate such terms in IT contracts, it is unclear as to how they will be received by suppliers," he noted.
"Such commitments will certainly drive up the cost of business. It is also not clear whether such CSR practices will be well received by consumers, It appears that consumer purchasing habits, especially in relation to IT products, are largely price-driven," Ang added.
Systems already in place
Most major electronics companies are already part of a grouping called the Electronic Industry Citizenship Coalition (EICC), which encourages its members to adopt its code of conduct covering various areas from labor to ethics.
According to Wendy Dittmer, director of strategic communications at EICC, the voluntary industry group was founded in 2004 to help the industry improve practices in the global supply chain. "One portion of the EICC membership application process requires potential companies to submit an executive acknowledgement indicating the firm has adopted the EICC Code of Conduct as operating principles for their business. Additionally members are required to cascade the EICC Code to their first-tier suppliers for implementation."
EICC added that it did not bar or audit its members, but "required them to demonstrate their progress toward code compliance at defined intervals" through the year.
Another industry group, the Fair Labor Association (FLA), has more stringent participation requirements as members have to pay to join the group, as well as disclose their suppliers and allow for unannounced inspections. Apple became the first IT company to join the FLA this year but, so far, no other technology firm has followed in its footsteps and there appears to be little motivation for them to do so.
Nova doubted whether such organizations were effective, in light of how labor rights issues still persisted. "By the standard of genuinely independent labor rights monitoring, the FLA lacks teeth. EICC doesn't even have gums," he said.
Bryan Tan, director at Singapore-based Keystone Law, believes a company's decision to participate will have a lot to do with public pressure, noting that the industry comprised of industrial and consumer segments.
"With the consumer sector, the pressure of public opinion could be significant enough to force fair trade conditions, he said. "However, with the industrial sector, the bottomline pressure without the public opinion pressure may result in driving costs down without much regard for fair trade practices."
Tan did qualify his observations, saying it was only speculative and based on the fact that most products that have encountered such pressure are consumer ones such as coffee, sneakers, Apple's iPhones and diamonds.
Companies stand by existing practices
Companies such as Chinese PC maker Lenovo believe their current internal practices are robust enough, and have no plans to follow Apple's footsteps to join the FLA for now. "We are committed to compliance with the EICC Code of Conduct and compliance within our supply chain, while maintaining strong cost-competitiveness in the PC industry," said Koh Kong Meng, general manager and executive director at Lenovo Asean.
"We are currently assessing the benefits of membership in [FLA] but do not have a specific plan to join and will continue to evaluate," he added.
LG Electronics also said it motivates its business partners to comply with its code of conduct for suppliers, and "encourages them to analyze and improve their weak points through CSR risk management", while networking vendor Cisco pointed out that its own internal audit covered areas for improvement across its supply chain, which it highlights in its annual report.
Room for improvement
A key obstacle toward further improvement, according to the WRC, was the resolve of corporations and not the fact that labor rights issues were technically hard to fix.
"The electronics companies don't, in truth, actually want to solve these problems. Electronics brands, including Apple, are not innocent bystanders with respect to labor rights abuses by their suppliers. It is the ultralow prices and extremely fast turnaround times that brands demand of suppliers that are the primary reason why suppliers abuse their workers in the first place," Nova added.
He pointed to an example of how Foxconn dragged 8,000 workers out of bed in the middle of the night to rush work for the first batch of iPhones, according to a New York Times report in January.
With regard to conflict minerals, U.S. laws require companies to trace and audit their supply chains in order to ensure their products are not financing atrocities occurring in eastern Congo. However, it does not require companies to stop using them, and there no penalties involved.
In order to help consumers make more informed choices, the Enough Project is pushing for a certification process. "Just like buying organic produce, fair trade coffee, or not buying blood diamonds, consumers should be able to shop for conflict free electronics," it said.
Nova noted that a label could help but it had to be part of a wider movement. "Fair trade labeling could possibly play a role in this, but only if rewards for companies that meet a high standard are combined with strong pressure on those that fail to do so," he said.
The WRC director pointed out that fair trade for electronics would not work if it was "just some niche market where the most socially conscious consumers can spend more and feel better", while business continued as usual elsewhere. "It is good to have models of responsible production, but unless there is a plan to turn those models into the norm, then you hit a dead end," he added.
"The other complication with fair trade is that using this model effectively forces you to treat compliance with what should be minimum standards as if it were a special achievement," Nova added.