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Sumaya Shakir

Sumaya.shakir@gmail.com 9/15/2012

Analysis of the main ongoing nonmarket Issues – Hewlett Packard

Introduction HP is one of the major global corporations of the world offering hardware and software products with over 349,600 employees and in business for over 73 years.

HP’s Struggles HP has been struggling in the last decade with numerous CEO scandals and has been subject of ridicule in Silicon Valley circles and elsewhere. It has failed to demonstrate leadership in the recent years that has impacted its position as a global leader. Its failed market strategies, failed products combined with its failed leadership has thrown it into a spiral of non recovery. A recent article posted in Mercury news describes HP’s trouble as ‘the problem runs deeper: HP is not really a company. It is a patchwork of people and products thrown together by a succession of leaders. The company has no clear identity, no unifying purpose -- and a demoralized and battered workforce”. For HP to emerge back into its market, its needs to define its identity and landscape, boost its employee morale and portray itself as a brand that stands for offering value that the world can admire and relate to. The issue of failed leadership is a critical issue that lies both in the market and non market environment. While HP’s major focus is building back its market it should not fail to include its non market challenges. Its current non-market challenges are not big compared to its current market challenges but nevertheless significant enough for HP to pay close attention to.

Labor Complaints in China Foxconn is famous for being Apple’s number one outsourced manufacturer of iPhones and other Apple devices in China. But it also assembles parts for companies like Dell, Amazon, Sony, IBM and HP. Foxconn makes circuit boards and mother boards for numerous HP devices. Foxconn was found in violation for poor working conditions, long working hours, strict treatment, unfair wages and unsafe work environment that triggered suicides of its workers. It recently came under scrutiny for forcing students between the ages of 16 to 18 to work in its Chinese factories as part of vocational training and a requirement for graduating. Some of the students wanted to leave but are forced by their school to work at Foxconn as part of its agreement with Foxconn. Similarly Samsung is also under scrutiny for violating child labor laws in China. The various Interest Groups are China Labor Watch (CLW), Fair Labor Association (FLA), Chinese Workers, China Labour Bulletin (CLB), Students and Scholars Against Corporate Misbehavior (SACOM) and consumers of products made in China in general. These various non government organizations listed above were formed to protect the rights and treatment of Chinese labors. The Students and Scholars Against Corporate Misbehavior (SACOM) has compiled a 10 page report titled "New iPhone, old abuses" as conditions have not yet improved for the students in Foxconn’s facilities in Zhengzhou, China. SACOM is outraged at Apple although the violations are concerning Foxconn since it believes it is Apple’s responsibility to monitor labor practices of the goods that is part of its supply chain.

The issue of failed leadership is a critical issue that lies both in the market and non market environment. While HP is building back its market it should not fail to include its non market challenges.

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Who are the institutions and what to they do ?

The various institutions that are involved in the legislation of this issue are the

Chinese Government and the International Labor Organization (ILO). The

Chinese Government has a Labor law in place for a long time to protect worker’s

rights and interests but it does not fully follow it to the word but in this case it is

very angry at Foxconn and has vowed to crack down the violation of its labor

laws. The International Labour Organization (ILO) is an important United

Nations entity that deals with international labor issue and standards. Although

the ILO registers complaints violating labour laws, it does not impose sanctions

on governments.

The government and ILO are actively investigating and in process of passing a few key regulations. In order to meet high demands of consumer products, workers and students are unfairly forced to work in Chinese factories without much safety or fair compensation. The cheap labor in China is factored in selling products with a big margin for the US companies. The allegations against Foxconn and Samsung surfaced in 2010 when workers committed suicide due to working conditions and the China Labor Watch, a labor watchdog group immediately jumped in to investigate. It had found Foxconn with over 50 violations and Samsung with over 250 violations. While Foxconn quickly defended its position and increased the salaries of its workers from 16 to 25 percent, the media has been quick to publicize the issues as it involves one of the world’s biggest companies Apple. The story was originally published by Shanghai Post and was quickly picked up and translated into English by every news media and publication. The issue at present is getting full blown coverage by media portraying the inhumane working plight of Chinese workers at the cost of fulfilling global demand. In the wake of the new iPhone 5 release, the media will cover the story with more details and condemn Apple of the issue. The issue has passed the stage of issue formations with the issues clearly identified as unfair working conditions and violation of Chinese labor laws. The issue is in later stages of interest groups formation and initial legislative stage. HP is directly tied into this issue as Foxconn supplies many circuit boards for HP, it definitely falls under its non market environment as to how it will be pick its supply chain based on ethical labor practices. For now HP is not just free rider since it joins Apple and partnered with Fair Labor Association to investigate Foxconn Student internship programs to check for violations. If the violations are serious then there will serious impact to many companies in the US that outsource their manufacturing to China to ensure humane and ethical labor practices are followed. Are US companies and US demand contributing to unsafe labor practices and it is clear what Apple’s stance is on unfair labor laws but will the US companies led by Apple form a coalition to enforce its suppliers safe labor practices and offset some of the cost on itself is the question that will unfold in the coming months. Companies like HP and Apple are set to lose their brand reputation if they ignore their supplier’s labor practices. Companies in the US bear a moral and social responsibility as part of their Global Citizenship policies. Although HP has global supply chain ethics code defined and published, it is time to see if it is being implemented. The legislation is primarily

Definitely this is the end of cheap China but it is also the Rise of Fair Chinese Labor Rights.

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in the hands of the Chinese government and the Fair Labor Association. The issue has a full potential to develop to a large magnitude depending on how Foxconn handles and if any new allegations arise. It is yet to determine the outcome if Foxconn is found guilty, will it be subject to humiliation, huge fines and loose its license to operate? What specific role will Apple, HP and other companies play? How will this impact the public image of companies back in US? Definitely this is the end of cheap China but it is also the Rise of Fair Chinese Labor Rights. HP has proactively put together code of ethics for all the entities in its supply chain. Now it needs to enforce it to its vendors and suppliers and put audits/controls in place. Time for Fair Trade Labor Certification of IT Products.

Issue Fair Working conditions for Laborers in China

Interest Groups Students and Scholars Against Corporate Misbehavior (SACOM)

China Labor Watch (CLW)

Fair Labor Association (FLA)

China Labour Bulletin (CLB)

Institutions Chinese Government

International Labor Organization

Information Poor unethical Labor treatment and violation of labor law in Chinese factories that make products for US companies

Students being exploited at Foxconn factories to make iphones

Issue Life Cycle Issue is in late interest group formation and early legislative phase

Media Attention This is going to be fully blown and will be covered by various media both in China and rest of the world.

What’s next ? Issue will receive more widespread media attention and will eventually call for better working conditions for labor in China and will require companies to mandate the code of labor ethics to its vendors/suppliers. The Chinese Government and various labor groups will pass a few labor legislations and put audits in place.

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Cloud Computing Security Risks

Background and key information: It finally seems like the Feds are catching up with the Cloud era boom. The US government has released its stand on the data security on cloud technologies at the Security in Government 2012 conference. Important concerns regarding the jurisdictional issues of data storage were raised. The Federal Financial Institutions Examination Council(FFIEC) issued a press release with cloud computing risks and issued guidelines in its FFIEC IT Examination Handbook. The department will be coming up with new cloud guidelines. Separately in Europe, the European Network and Information Security Agency (ENISA) and the Cloud Security Alliance (CSA) have come up with their own assessment of how to addresses cloud risk guidelines. The European commission and European data protection council has issued statements indicating firms offering cloud solutions should offer legal clarity and clear privacy policies. The UK Government Digital Service is formulating its policies to maximize on the potential benefits to the UK economy. The CSA is also working on standards for cloud interface.

HP has partnered with VMware in providing cloud platform solutions. The partnership aims at providing infrastructure with strong security and converged cloud solutions to the PCI industry. The companies are selling their solutions that goes beyond addressing the security guidelines put forth by various councils; it will be interesting to see how HP-VMware partnership will fair against various commission guidelines. In another initiative HP has partnered with Microsoft for cloud integration. HP has signed new contracts with various government organizations to provide both hardware and software solutions. HP has made new investments in cloud computing in China. Following its China five-year growth plan, HP opened a brand new center called HP Cloud Executive Briefing Center in Tianjin and expanded its R & D in China. In addition, HP has started other big investments in China. With so many countries and their respective Governments on the bandwagon trying to form their own policies and drawing the blueprint of how the cloud infrastructure should look like, the result will be a set of conflicting laws and regulations between borders and countries. To add to the complexity, some governments are leery of working with China. And China’s stand on how these services will impact its own industry and Government is a question that is yet to be raised.

While HP is ahead of the game, it may be missing some key mandates from the Cloud Security Alliance and the various Government policies that could prove as a costly mistake. Moreover setting up a cloud hub in China could be security threat to businesses and organization in the US including the US government especially in the wake of latest allegations in regards to spying from two big Chinese firms ZTE Corp. and Huawei Technologies. Given the sensitive nature of government and payment data, this can soon become an unmanageable nightmare and lead to unimaginable vulnerabilities for the United States or for the western European nations. The issue is in the late formation phase and early interest group formation. The issues are skirting around the cloud circles and in the various CSA congress presentations and has yet to be identified as a full blown threat. The story has been picked up by a few freelance technology journalists. For example, the author for http://www.businesscloud9.com/content/policy-blueprint-cloud-computing-market/11476 has provided enough validation to show the issues surrounding a global cloud dilemma. The main interest groups for this issue will be the consumers and enterprises across the globe that will use the cloud services technology irrespective of geographical boundaries. There is no doubt that the Governments across the globe have to take an active role in formulating the compliance and security protocols and HP being a key leader of cloud services will be impacted by this and needs to be more involved with the formation of any cloud law legislation that will give it a competitive

While HP is ahead of the game, it may be missing some key mandates from the Cloud Security Alliance and the various Government policies that could prove as a costly mistake.

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advantage in the non market arena. Summary:

Issue Security vulnerabilities in Cloud Computing

Interest Groups Cloud Security Alliance

Consumer and Enterprise Business using Cloud Services

Banks, Payments Card Industry(PCI)

Government Organizations like US Military

Institutions UK Government Digital Service,

Federal Financial Institutions Examination Council ( FFIEC),

European Network and Information Security Agency (ENISA)

Information Jurisdictional issues of data storage

Cloud Computing conflicting laws and regulations between borders and countries needs to be resolved

Safety of hosting cloud services from China

Issue Life Cycle Late issue identification, early interest group formation

Media Attention Currently the story is published by a few technology magazines. Main stream media is yet to pick up the story but eventually in the next few months, this issue will be a hot topic.

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HP Free Trade Market Access HP is a true global company with operations in over 170 countries. HP relies on outside market for 60% of its sales. Free trade across borders will enable HP to take its IT product and services offerings to its customers anywhere in the world. Even in this globalization era, there are several national and international trade agreements in negotiation that will impact HP’s international opportunities. Most of these trade agreements are owned by the World Trade Organization(WTO) and the US federal government. The main issues are around elimination of tariffs on IT products, elimination of non trade barriers like customs processes and certifications and trade liberalization for IT products and services. Certain embargoes and quotas, price limitations, licensing, border taxes, other embargoes and levies impact free trade. The most popular trade agreement that has been in talks since 2001 is the Doha Trade Agreement or Doha Development Agenda (DDA). Its main intent was to increase global trade by removing the several trade barriers. It applied to all kinds of products from agricultural to industrial to intellectual items like patents. As of 2012, agreement still couldn’t be reached due to differences between developed nations like US, Europe and developing nations like India, China, Brazil, etc. This trade agreement will open a lot of opportunities to HP. Another tariff cutting agreement called the Information Technology Agreement (ITA) enforced by the WTO was specifically eliminates tariffs on specified IT products. This agreement was in place since 1997 to eliminate tariffs on Information technology products. However, it does not cover all IT products and in turn many companies including HP ends up paying duties on IT products not listed on this agreement which in turn impacts HP’s costs and business. Some of the other US Free Trade Agreements (FTA) that impacts HP is the South Korea Trade Agreement, Columbia FTA and Panama agreements FTA. Other significant agreements like NAFTA, Singapore FTA, and EFTA will all enable HP to save significant amount otherwise lost to trade tariffs. It will also increase trade opportunities for HP. The trade restrictions cause HP a significant amount of money due to requirements of redundant testing and certification, misclassification of products and special tariffs on computer peripherals and hardware. There are numerous other smaller trader agreements that the WTO overlooks that will enable free trade across nations. There are several benefits to free trade and HP fully stands to support the benefits of free trade like improved labor standards, universal human rights, social and environmental responsibility, liberalization of IT trade and fair procurement. HP has already taken initiatives to show how it will be committed in supporting those standards by developing an international industry code of conduct and a supplier code of conduct. HP advocates free trade policies and is involved in negotiations with several of the trade agreements in order to benefit from a positive outcome. It supports a positive outcome of the Doha agreement and has urged the WTO members to reach a common consensus for IT liberalization. HP is also working with various governments and associations/trade groups to end tariffs on IT products and provide a duty free environment for IT goods and services. The issue is currently at various legislative stages as there are several different trade agreements. Latest Developments: Although the Doha agreements talks have been for more than a decade and almost deemed as a failure, there are fresh and new developments

HP is a true global company with operations in over 170 countries. HP relies on outside market for 60% of its sales. Free trade across borders will enable HP to take its IT product and services offerings to its customers anywhere in the world.

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especially a big push from U.S. Trade to keep the talks alive as the prospects of economic growth is depended on free trade. The U.S. coalition members including the European Union are now actively building and strategizing the case for an International Service Agreement and launch an open ground for successful talks. Emerging countries have shown positive signs to the proposal. There is enough pressure now to go ahead and the goal is to come to a pact in 12 months. All involved countries have expressed interest for a speedy agreement. The 20 countries are planning to meet in Geneva in October 2013. The goal is to set high-standard of market openness such that trade commitments will be "multilateralized" among all WTO members. The talks will cover all service sectors and will aim to liberalize the sectors from trade limitations. More details and latest information can be found at http://www.reuters.com/article/2012/09/19/wto-services-idUSL1E8KJ8Q520120919 HP is fully onboard and ready to support liberalization of free IT trade. HP has already been working and stating its position on free trade through various channels and an entire department ‘Office of Global Government Affairs’ that addesses concerns like Free Trade . This is still a top priority issue for HP. HP has dedicated organizational

resources, making video and films on advocating its stand on eliminating of barriers of free trade. HP has dedicated a permanent home on its website addressing this and has made this one of the more important agendas of HP's global citizenship report. HP is also forming coalition with other companies and senators to make this a priority. More details can be found at http://www.hp.com/hpinfo/abouthp/government/us/trade.html and http://www.hp.com/hpinfo/abouthp/government/ww/gib_marketaccess.html

HP has published a comprehensive report in May 2011 called ‘HP in Global Capitals” about its initiatives as it works with stakeholders involved with Government Affairs. Page 4 of the reports the latest development around recent global on trade agreements and HP’s involvement. This report can be by accessed by clicking http://www.hp.com/hpinfo/abouthp/government/HP_Newsletter_May2011.pdf Summary:

Issue Free Trade Limitations on IT companies

Interest Groups U.S. Trade Commission

Canadian Trade Union

South Korean Trade

EU Trade

New Zealand Trade

Institutions World Trade Organization

Governments of developed and developing nations

Information Tariffs and other unnecessary costs for certifications on companies due to strict trade policies

Issue Life Cycle Late Legislative Phase, early administration and will be entering into Enforcement in one year if the talks go positive.

Media Attention Full media coverage during key summits and talks

Next Steps Meeting in October 2013 by key countries in Geneva to discuss and finalize the International Service Agreement pact.

Countries are hoping this pact will seal the deal for IT products free trade.

HP ready to