Apple, Foxconn improve plants in China; more left to do: audit

SAN FRANCISCO Wed Aug 22, 2012 3:13am IST

Workers walk out of the entrance to a Foxconn factory in Chengdu, Sichuan province July 4, 2012. REUTERS/Stringer

Workers walk out of the entrance to a Foxconn factory in Chengdu, Sichuan province July 4, 2012.

Credit: Reuters/Stringer

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SAN FRANCISCO (Reuters) - Apple Inc and Foxconn have improved work and safety conditions at the Chinese factories that make most of the world's iPads and iPhones, but the auditors they enlisted to monitor the process warned that the toughest tasks lay ahead.

The Fair Labor Association said on Tuesday that the companies must reduce hours by almost a third for the hundreds of thousands working in Foxconn plants across Southern China to comply with local labor laws by 2013.

Earlier this year, the association -- of which Apple is a member -- found multiple violations of labor law including extreme hours after launching one of the largest investigations ever conducted of a U.S. company's operations outside America.

Apple, the world's most valuable company, and Foxconn -- whose clients also include Dell Inc, Sony Corp, and Hewlett-Packard Co -- agreed to slash overtime, improve safety, hire new workers and upgrade dormitories.

In a report tracking the progress of those commitments, the FLA said it had verified that agreed-upon changes had been instituted and that Apple was trying to hold its partner, the world's largest contract manufacturer, accountable.

"One of the sheer engineering challenges is being able to shorten the production cycle, so that they can get it all done in 49 hours instead of 60 hours. And the other part of the challenge then is workers' expectations," Auret van Heerden, president and CEO of the FLA, said in an interview.

Global protests against Apple swelled after reports spread in 2010 of a string of suicides at Foxconn plants, blamed on harsh working conditions and alienation felt by migrant laborers, often from impoverished provinces, in a bustling metropolis like Shenzhen, home to two of the three factories the FLA inspected.

Apple has tried to counter criticism that its products and profits are built on the backs of mistreated Chinese workers. The FLA's progress report comes a day after Apple's market value climbed past $623 billion, surpassing the record set by Microsoft Corp during the heyday of technology stocks in 1999.

Protesters in the past year have kept up a small but regular presence at Apple events from iPad launches to shareholder meetings, holding up placards urging the $620 billion corporation to make "ethical" devices.

OVERTIME HOURS

The latest report card on Apple-Foxconn comes after first findings and a timeline for improvements were announced in March, though some industry observers said it was not entirely independent because of close ties with corporate members. Since that March audit, rights groups including China Labor Watch have conducted their own studies.

Some factory workers at Foxconn - an affiliate of Taiwan's Hon Hai Precision Industry - have also protested potential lost wages as hours get cut. Both the FLA and Foxconn have tried to help employees through the transition.

"A lot of workers have clearly come to Shenzhen to make as much money as they can in as short a period as they can, and overtime hours are very important in that calculation," Van Heerden said.

"We are picking up concerns now on the microblogs about what's likely to happen as hours gets changed, and whether their incomes will be shaved as well," he added.

Given a severe shortage of labor in China, it is likely that Foxconn would ensure that workers are happy with their compensation and avoid the risk of them leaving, he said.

Apart from healthy and safety enhancements, Foxconn is offering up little enhancements to employee morale. For instance, Van Heerden said it is increasingly giving workers a choice of accommodation, such as by providing an allowance for housing and food if the workers choose to live off-campus.

"If you reduce overtime significantly, you work that idea through with workers," he said.

Foreign companies have long grappled with working conditions in China, dubbed the world's factory because of its low wages and efficient coastal transport and shipping infrastructure. In the 1990s, investigations targeted shoe and apparel maker Nike Inc, which eventually agreed to institute changes.

The FLA's audit could have wider implications for foreign multinationals that enlist Chinese manufacturers. Foxconn alone is estimated to make half the world's consumer electronics.

Apple CEO Tim Cook, who took over from the late co-founder Steve Jobs last year, has shown a willingness to tackle the criticism head-on.

"We've been making steady progress in reducing excessive work hours throughout our supply chain. We track working hours weekly for over 700,000 workers and currently have 97 percent compliance with the 60-hour maximum workweek specified in our code of conduct," spokesman Steve Dowling said in a statement.

(Editing by Edwin Chan, Matthew Lewis and David Gregorio)