Is There an App for Ending Forced Labor?
Human rights observers applauded last week when Apple announced its most ambitious effort yet to stamp out labor abuses among its Asian suppliers. Recruitment agencies in Asia are no longer allowed to charge fees to factory workers who make Apple products, and Apple vowed to scrutinize its supply chain to ensure that its new rule is enforced.
All of this revolves around a practice that tech and electronics companies gently call "bonded servitude." Others call it "forced labor." Still others, like the State Department, call it for what, basically, it is: slavery.
Apple, like many of its counterparts -- and many companies that make just about anything in Asia -- have long relied on slave labor in Asia to make their products.
Workers in developing countries are usually forced to pay huge fees to recruiters to get jobs. Once workers take a job, the debt they incurred to pay recruiters essentially leaves them enslaved -- as the State Department notes in its latest human trafficking report.
Onerous recruitment fees are common wherever migrant workers are used. Factory managers often control workers by withholding their passports, which can lead to more abuse, as this Bloomberg Businessweek story from 2013 about Apple’s supply chain graphically illustrates.
Dan Viederman, chief executive of the labor rights organization Verite, says that bonded labor is common in Malaysia, Taiwan and Singapore, where poor migrants from the Philippines, Myanmar, Thailand and Bangladesh journey for temporary work. Because Apple quickly ramps up production of its new devices, factories in those countries must pull in hundreds of thousands of part-time workers to meet demand.
Apple’s laudable effort is similar to a pledge that Hewlett-Packard made last year to abolish recruitment fees, but Apple's move has a higher profile due to the company’s huge global footprint (it sold the equivalent of 34,000 iPhones an hour last quarter alone). As one of the largest hardware manufacturers in the world, Apple's decisions resonate broadly.
Viederman points out that all of the big electronics makers -- including Apple’s largest suppliers -- have publicly committed to jointly addressing the miseries of forced labor.
Samsung, for example, says that it and its suppliers follow local and global labor regulations. “We have put into place very strict policies that are designed to prevent and address issues including bonded labor,” said a Samsung spokeswoman. The company prohibits employment fees and audits suppliers to enforce standards.
But Viederman says that slave labor practices continue to thrive, largely because local regulations in Asia aren’t very strong or simply aren’t enforced. He singled out Malaysia and Taiwan as countries that prohibit grievance processes or community organizations that could be deployed to help workers. He also notes that many auditors don’t speak the same language as the workers they’re trying to protect, so they don’t always have clear pictures of what’s actually happening on factory floors.
Apple’s decision to more closely monitor its supply chain for abuses exemplifies the massive impact it potentially can have on workers across Asia. Apple forced suppliers to reimburse nearly $4 million in fees to over 4,500 foreign contractors in 2014. Apple also made sure that over 30,000 workers have been reimbursed nearly $21 million since it first started cracking down on bonded labor practices in 2008, according to the company’s latest supplier responsibility report.
But Apple's recent crackdown on recruitment fees has also generated discussion and debate among Asian manufacturers and suppliers who remain eager to acquire the prestige of working with Apple.
The iPhone maker is well-known for driving hard bargains with suppliers like Flextronics, Qualcomm and Samsung for components like chips and cameras, keeping these suppliers' profit margins razor thin. These component makers like the arrangement because they can make money on volume sales and their products and factories can become standard bearers for the larger industry. But they don’t haul in huge profits by working with Apple.
This reality forces Apple's suppliers to press their own subcontractors to source everything at the lowest cost possible. That includes what they're willing to pay for human labor.
Now Apple plans to force its suppliers to stop practices that have allowed slave-like conditions to flourish in Asia. That move will cut into suppliers' profit margins even further. But there is little evidence suggesting that Apple will be less aggressive about how it negotiates component pricing so its suppliers have the financial breathing room they might need to be more fair-minded about abusive labor practices.
“Apple has to have a conversation with its suppliers not only about how to ensure that they’ll adopt good labor practices, but that they can afford to do so,” says Arvind Ganesan, the business and human rights director at Human Rights Watch.
Apple certainly has the money to think differently about how it motivates its suppliers. It currently captures about 93 percent of all of the profits generated in the smartphone industry. If the company wants better labor practices up and down its supply chain, will it have to renegotiate deals to give its new labor decrees real teeth? And if it does so, would investors punish the company for spending real money on a human rights push?
My guess is that if Apple does anything to reduce margins, investors will be unduly harsh. This, in turn, will keep Apple in an uneasy relationship with the companies that provide the parts and labor that make our phones and tablets.
To that end, Apple’s biggest suppliers do have some leverage. The company makes so many devices and computers that it now has no choice but to use the largest suppliers in the business. (For example, it relies heavily on Samsung even though the two companies are fierce rivals.)
Because of this, Apple's power isn't unconstrained. It can’t make enough iPhones and laptops to meet demand if it drops a player like Flextronics altogether.
Apple is taking the first steps needed to address glaring labor abuses in Asia and for that it should be praised. If the company wants to press on for more substantive and long-lasting changes, it will have to decide how it will juggle the competing needs of Wall Street, its customers, and its suppliers.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
To contact the editor on this story:
Timothy L. O'Brien at email@example.com