Apple Bites!

Apple has recently been the focus of some unflattering investigative reporting, in the New York Times, on NPR, and on TV news.  The themes are: how globalized high tech industry has contributed to vanishing middle-class jobs in the US; how some of the manufacturing practices of the suppliers, mostly in developing countries such as China, are suspect; and the overall contrast between developed and developing economies.  Though there aren’t attempts to explicitly compare the different cultures in which some of the philosophies operate, the implicit comparison is glaring.  I have a few reactions myself which may seem to be social commentary, but how can organizations not be affected by social issues, and vice versa?

I often advocate observing boundary, like in the last issue about charity and politics, so in this space I am not rooting for corporate social responsibility – though a strong case may be made.  But it behooves all organizations to be keenly aware of the various larger systems in which they function; you need awareness of the larger landscape to define boundary.

As of 2003, Apple still manufactured their products in the States; in fact, the plant was fairly close to their HQ in Palo Alto, California.  But, like many other high-tech companies, Apple eventually discovered that not only is overseas labor cheaper, but equally important if not more so, overseas labor force is more flexible.  Remember how the US once was like that?  People worked long hours and all hours?  Of course, the majority of us feel that we still do, but the conditions under which we are willing to do so are vastly different from what they used to be, and from China’s labor force’s current working conditions.  When Steve Jobs was asked by President Obama if and how Apple might bring manufacturing jobs back to the States, Jobs answered, “those jobs aren’t coming back;” other executives, at other points, further drove home the point that Apple’s allegiance isn’t with the American society at large but with Apple employees.  At least, they do seem to care about their employees.  I wouldn’t know how to argue against this point, given that as a global company, in addition to their home base, their presence is everywhere.

The key reasons for Apple to rely on China for production are what the labor force there can offer:  skills, diligence, flexibility, scale, and government infrastructure.  Before one of the major supplier companies in China even got Apple’s bid for business, the manufacturer, with government backing (imagine doing that here in the US!) built a huge plant so that if they won the bid, production could begin immediately.  In addition, US is lacking in providing mid-level engineering skills which China has in abundance.  The manufacturing plants in China all have dormitories built next to the plant so that the labor force can turn on a dime at a minute’s notice, which was exactly what happened.

Before iPhone began its production earnestly, Jobs recognized the flaw of the plastic cover: it scratched easily.  In Jobs’ usual style, he demanded immediately changing to glass covers for better quality and construction, only weeks before the phones were to go on sale.  No companies in the US could have met such demand; the manufacturers in China convincingly demonstrated their capability and agility.  As a for-profit company, what do you do?!  Granted, one wouldn’t like to emulate the labor practices in China, often borderline or downright abusive depending on one’s perspectives (whether you come from a comfortable living style of developed countries or from a starving developing country), but they certainly do deliver.  In the case of making glass covers for iPhones, the workers were roused in the middle of the night, fed with tea and biscuits, and walked next door and started working, in 12-hour shifts.  They produced 10,000 iPhones in 96 hours!

Would the US manufacture workers ever be comfortable living in dormitories? Let alone being woken in the middle of the night to work?  Of course, there are professions here that work at all odd hours, but not en mass Chinese style.  And many of these manufacturing sites are little satellite cities, with all the basic provisions covered.  These are company towns, with the companies as the paternalistic overlords.  Can it ever happen (again) in the US?

But to some extend, this comparison isn’t fair.  China is still developing; their workers are hungry (for higher wages, better living, more opportunities…all at different economic developmental points than where US is); they are more willing and more tolerant, to the point of accepting abuse.  The follow-up news report in Times provided some gut-wrenching illustrations of unsavory practices that got people killed, for example by explosion from aluminum dust for which an easy fix could have been found in better ventilation.  Why didn’t they? Till tragedies happened?  Ignorance and costs of installation.  No one with right mind would go back to those times in our own history.

Yet we still would like to have these manufacturing jobs “back?!”  Of course, our working conditions, after years of battling against corporations, are indeed much better.  But I wonder if those are the jobs we should focus on getting back.  There is still a range of jobs involved in manufacturing.  I wonder if we, collectively, were to let go of the notion of reclaiming the traditional jobs and instead focus on the innovative end of manufacturing, would we regain some ground in creating jobs and social mobility.  However, it is clear that we can do so only if we learn to accept a certain amount of risks that are inherent in any innovative, exploratory work.  If we insist on a perfect, or even close to perfect, safe and secure working environment, then, we may as well cede what remains of our innovation leadership to others; our obsession with safety and security measure is already choking off a lot of our creative flow.  Six Sigma might have helped our safety record, but it is antithetical to exploratory research and innovative endeavors, and yet, many R&D organizations continue to apply Six Sigma indiscriminately.

But back to Apple.  I’ve heard some compare the criticism of Apple’s letting profit blind their oversight regarding their suppliers’ abusive practices to Nikke’s similar problem years ago.  Not quite.  Nikke’s products were easily replaceable; Apple’s products, though similar to those of competitors, still command huge following.  Equally important is the price structure; when consumers spend hundreds or thousands of dollars on products that aren’t totally interchangeable with others, their priorities shift.  This doesn’t absolve Apple of its negligence regarding its suppliers’ dubious operations, but it does mean that it’d be harder to motivate consumers to mobilize a boycott.

The two major obstacles for Apple to really leverage for better suppliers’ practices are (1) profit margin, and (2) transparency/secrecy.  Apple is well know for driving a hard bargain on prices with suppliers, and thereby leaving the suppliers little room to make their own profit, which in turn “forces” the suppliers to cut corners with their labor force and equipment.  Apple is also well known, or I should say, Steve Jobs was well known, for keeping product information secret.  Secrecy offers advantages in marketing and promotion, but it also enables behaviors that would not withstand public scrutiny or inquiry.  This is why even though Apple does perform annual audits, and quite a few, in China, it does not make a profound dent in suppliers’ unsavory practices.

So, right now Apple is on top of the food chain.  But how long would it last if it continues to let the wider picture stray out of focus?  It’s that system of rabbits and lynxes again.  For you and me, please

Staying Sane and Charging Ahead.

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