Apple, Tech Brands Rattled by Foxconn

What price technology? As Apple unveils its next wave of products at its worldwide developers conference today, one of its key tech suppliers is in the spotlight and under fire.

The allegations that Foxconn, headquartered in Taiwan with production in southern China, is a tech sweatshop and a human rights flouter, are having such an effect on Apple's brand that CEO Steve Jobs was forced to address the situation at last week's D8 conference in Silicon Valley. In the clip above, he called the rash of employee suicides at Foxconn " very troubling" and reassured Apple-watchers, "we're all over this."

Jobs also said that Foxconn's manufacturing facility "is not a sweatshop," and that "for a factory, it's a pretty nice factory," citing its on-site hospitals, restaurants, movie theaters and swimming pools. That appears to be part of the problem for workers who live there 24/7 and never get away from Foxconn.

Apple, which relies on Foxconn for production of products including the Mac mini, iPod, iPad, and iPhone, isn't the only mega-tech brand to rely on the supplier.

Foxconn also produces Intel-branded motherboards for Intel; a variety of components for Dell and HP; motherboards for UK’s Zoostorm; PlayStation 2 and 3 for Sony; Wii for Nintendo; Xbox 360 for Microsoft; cell phones for Motorola; Amazon’s Kindle, and Cisco equipment.

Foxconn CEO Terry Gou, who founded what is now the world's largest manufacturer of electronics and computer components, told reporters at a press conference to address the crisis that he was baffled: "From a logical, scientific standpoint, I don't have a grasp on that." No wonder its corporate newsroom makes no mention of the crisis or the company's response.

Foxconn has become a manufacturing juggernaut with the world's top tech brands by offering lower prices than competitors for higher quality products. In one telling example, it won the Apple contract for the iPhone after Gou mandated making the component parts for zero profit. As a result, Foxconn’s net income increased last year some 37%, to $2.3 billion.

Employing a small city, its 800,000 workers live on two Foxconn campuses in Shenzhen, where they live and sleep in dormitories—about eight to ten per room, reports the New York Times. The monthly turnover rate is 5%, with 20,000 workers leaving each month.

At Foxconn’s Shenzhen complex, one anonymous worker outlined conditions that make its worker bees into drones: no conversation while working; supervisors routinely yell at employees; bathroom breaks of 10 minutes are permitted only every two hours.

The Foxconn facility provides resident counselors, according to a supervisor: "For many of the young people who are here, this is the first time they've been away from home. Without their families, they're left without direction. We try to provide them with direction and help."

As China's middle-class swells and workers gain increasing marketplace clout in the booming Chinese economy, the demand for better working conditions and higher wages is increasingly paramount – both in China and abroad – where western consumers and companies have benefited for decades on the toil and sweat of underpaid Chinese workers.

Concerned about any potential loss of revenue, Foxconn has installed netting around outdoor stairwells of all dormitories to prevent workers from jumping. It's also giving workers a 30% raise over their average 2,000 yuan monthly pay – about $293 - and a 66% performance-based raise. Minimum wage in southern China is $125/month.

The bigger question: As companies commit to corporate social responsibility but continue to pursue high-quality goods made at rock-bottom prices, where to draw the line in the sand between ethics and cost savings?