Apple Supplier Labor Changes Shifts Focus to Microsoft

Microsoft Corp. and Samsung Electronics Co. may face greater scrutiny of their labor practices as Apple Inc.’s biggest supplier improves conditions at its Chinese plants after protests by rights activists.

Foxconn Technology Group, the world’s biggest assembler of electronics products for other companies, has cut working hours and enhanced safety, the Fair Labor Association said in its first report following an audit of three of the manufacturer’s facilities. Taipei-based Foxconn is ahead of schedule in its 15-month plan to improve working conditions, the association said.

Apple turned to the Washington-based labor monitoring group after suicides of Foxconn workers and an explosion at another supplier soiled public perceptions of the world’s most valuable company. Foxconn pledged to cut hours to 49 a week by July 2013, raise wages and give employees more say in management, measures that are shifting activists’ focus to rival companies.

“The pressure is definitely going to be on other companies, including Samsung and other U.S. brand names,” said Alberto Moel, a Hong Kong-based analyst at Sanford C. Bernstein. “Samsung may be resistant, while companies such as Microsoft are likely to be more pragmatic and proactive in opening up.”

At least 50 violations of Chinese regulations were found when the FLA inspected Foxconn campuses at Chengdu, Guanlan and Longhua in February and March. The company more than doubled wages after protests from rights groups including China Labor Watch and Students & Scholars Against Corporate Misbehavior.

Progress Logged

The FLA logged 284 changes made by Foxconn this year, 89 more than it was required to complete, the group said in a report released today. Foxconn, which has about 178,000 workers making Apple devices in China, reduced the number of working hours per week to 60, including overtime; redesigned equipment to protect employees; and is working with authorities to get migrant workers unemployment insurance.

Chief Executive Officer Tim Cook brought Apple into the FLA in January after suicides by at least 10 Foxconn employees in 2010 highlighted conditions at the supplier. Three people died and more than 70 were hurt last year in blasts at two iPad facilities, one of which was owned by Foxconn.

Apple is the first electronics company to join the FLA, which was set up in 1999 in an initiative by former President Bill Clinton after Nike Inc. was accused of rights abuses at factories in Asia. Nike, the world’s largest sportswear maker, Puma SE, Hennes & Mauritz AB and Juicy Couture owner Liz Claiborne Inc. are among 35 participating companies that submit to random FLA inspections of their suppliers.

FLA Model

“With globalization, the types of labor issues found in the apparel and sporting-goods supply chains are prevalent across all manufacturing supply chains,” said Kerstin Neuber, a spokeswoman at Herzogenaurach, Germany-based Puma. The FLA’s experience can be exported to other industries, she said.

Foxconn hopes its efforts “will also serve as a model for other companies,” Louis Woo, a spokesman, said in a statement.

Labor groups have already focused on Suwon, South Korea-based Samsung, the maker of Galaxy smartphones and an Apple supplier.

China Labor Watch, a New York-based group headed by activist Li Qiang, earlier this month accused a Samsung assembler in China of hiring child workers and having conditions “well below” those at other Apple suppliers.

‘Ripple Effect’

Samsung, which sent a team to HEG Electronics (Huizhou) Co. to examine the claims, is still investigating, spokesman James Chung said by phone Aug. 20. The company is “in full compliance with international and local industry standards,” Nam Ki Yung, another spokesman, said in an e-mailed statement.

“We hope that there can be a ripple effect in the industry,” said Debby Chan, project officer of Students & Scholars Against Corporate Misbehavior, a Hong Kong-based labor group. “Many other brands also deserve attention.”

In 2010, Microsoft supplier KYE Systems Corp. was accused by the National Labor Committee of harsh working conditions that included long hours, child labor and strict quotas for making computer mice for the Redmond, Washington-based company.

“Microsoft’s hardware suppliers are required, under terms of our contract, to provide Microsoft and third-party auditors on-site access to each facility,” the company said in an e-mailed response to questions today.

The company currently works with the FLA on a project basis while “a deeper engagement with the organization has not been considered.”

Labor Watch

The pressure hasn’t entirely lifted from Apple. China Labor Watch said that while hours at Foxconn have been reduced to 60 or fewer per week, employees are required to complete the same amount of work as before.

Employees “have to work much harder and they are not satisfied,” Li said in an e-mailed statement.

Foxconn employees continue working excessive overtime, with a reduction of hours likely to be the biggest stumbling block in the coming year, the FLA said. Foxconn has committed to meeting the Chinese legal limit of 40 working hours a week plus an average nine hours of overtime, while still “protecting worker pay,” the group said.

The inspection at Foxconn, whose shares trade in Taiwan under its flagship Hon Hai Precision Industry Co., means audits may begin at other Apple suppliers, including Samsung, Quanta Computer Inc. and Pegatron Technology Corp., Van Heerden said.

Supply Chain

“We’ve been making steady progress in reducing excessive work hours throughout our supply chain,” Steve Dowling, a spokesman for Cupertino, California-based Apple, said in an interview.

The company has achieved 97 percent compliance with its mandate of a 60-hour maximum work week for more than 700,000 people who work on its products.

Having already opened up its supply chain to outside inspectors, Apple could have made it easier for other technology firms to ensure conditions meet stricter standards. The company in January named 156 suppliers, many of which also sell to its rivals.

Quanta, the world’s largest custom maker of laptops, also counts Hewlett-Packard Co. and Dell Inc. among its clients. Pegatron’s customers include Asustek Computer Inc. and Microsoft.

Pegatron, the Taipei-based second-biggest supplier of iPhones, has upgraded its dormitories, added more recreation facilities and increased wages, Chief Financial Officer Charles Lin told Bloomberg News on Aug. 16. An explosion at an affiliate last year prompted the company to buy new equipment and amend its production process to boost safety, he said.

“Attention is inevitably going to shift to the competitors,” Auret van Heerden, president and chief executive officer of the FLA, said in an interview. “People are going to be saying: If Foxconn’s doing it, why can’t you?”