Apple Inc. Apple Outsourcing in China: iSweatshop

Natalia Arteaga narteagae@hotmail.com

PUR4203 Ethics and Professional Responsibility in Public Relations

Dr. Mary Ann Ferguson December 12, 2016

2

Table of Contents

Biosketch of author ...................................................................................................................................... 3

Executive summary ...................................................................................................................................... 4

Overview ....................................................................................................................................................... 5

Events that led to this ethics case ............................................................................................................... 6

Apple’s Code of Ethics .................................................................................................................................. 7

Other Ethics cases ........................................................................................................................................ 7

Description of Current Corporate Social Responsibility Program .............................................................. 8

Proposed Corporate Social Responsibility Program Related To the Ethical Issue ................................... 10

In Conclusion .............................................................................................................................................. 12

References .................................................................................................................................................. 13

3

Biosketch of author

My name is Natalia Arteaga. Ever since I was 5 years old, growing up

in La Paz, Bolivia, I have been fascinated with the power that media has to

communicate messages and help break down geographic and cultural

barriers. My conviction to learn and become a barrier breaker is what has

driven me to move 3,000 miles away from my hometown to succeed in what I

love to do the most, communicate with people. I am now able to comprehend

and utilize the power of media to communicate with targeted audiences.

As a bilingual senior public relations major with a business administration concentration at the

University of Florida, I have developed a high understanding and ability to implement communication

campaigns. I worked as an events and communications assistant for the 4-H Youth Development Center.

I worked hand by hand with the communications manager. I created and edited multimedia content,

including videos and pictures, shared on diverse social media platforms. I also created and

communication tactics shared across the state of Florida. For instance, I drafted a letter and created

brochures distributed to over 20,000 individuals across the state of Florida.

As an intern for David Greenberg Communications, over summer 2016, I worked designing

different marketing campaigns. I implemented communication tactics to promote local businesses. I also

engaged in graphic design to create various promotional tools such as posters and flyers. I effectively

managed social media accounts, and promoted content through organic and paid reach. My efforts led

to an increase in reach, engagement and interactivity.

I am particularly good at working with teams. I am an account executive for Alpha PRoductions, a

student-run public relations firm that is part of the Public Relations Student Society of America (PRSSA). I

am in charge of a team that aims to staff and organize a three-day professional communications

conference called frank. I have to reach at least 200 volunteers through community involvement, social

media and newsletters. I also worked in team organizing and promoting events and fundraisers for the

UF Hispanic Communicators Association. I had a leadership position as the organization’s Director of

Public Relations, and later on as its Vice President. A key event I helped organize was a yearly magazine

launch party. I supervised a special events committee. I helped managing the venue, dining services, and

entertainment activities. The launch was a success, and we had the highest number of attendees in

comparison to previous years.

The skills I have strengthened as a public relations student have helped me grow as a bilingual

communicator. I am passionate about communicating and working for technology companies because I

know that the future is linked to technology. Please feel free to contact me at (818)636-1923 or at

narteagae@gmail.com.

4

Executive summary The following case study analyzes how suppliers can affect companies’ ethics. This case study

focuses on Apple and on a major supplier the company has called Hon Hai Precision Industry Co., better

known as Foxconn. This case is mostly related to unethical dilemmas dealing with labor abuse.

Apple is the world’s leading technology company. According to Interbrand, it is also the number

one brand of the world with a name worth billions of dollars. Apple created a Supplier Code of Conduct

back in 2005. The company stipulated that suppliers were to provide safe working conditions, treat

workers with dignity and respect, act fairly and ethically, and use environmentally responsible practices

when providing its products and services. However, in 2006, Foxconn broke Apple’s Supplier Code of

Conduct by mistreating thousands of its workers.

The lack of follow through to resolve this ethical issue led to other ethical issues. By mid-2010,

11 abused Foxconn employees had committed suicide, and others had attempted to commit suicide,

too. Foxconn’s initial reaction was to accuse reporters of defamation and ask its employees to sign a

letter claiming they would not commit suicide, or blame Foxconn for committing suicide. The company

also installed safety nets around its buildings so that employees would be less likely to succeed in their

endeavors to commit suicide.

Apple initially stepped away from the issue by claiming that the conditions that employees in

Foxconn endured were not as terrible as reports and suicides demonstrated. However, the company

would later focus on the well-being of its suppliers’ employees. Apple requested its suppliers to fulfill

specific standards. The company conducted various audits and would eventually joined the efforts of the

Fair Labor Association (FLA), an organization that aims to reduce labor abuses. However, it is important

to note that the last date the FLA released a document about Apple’s suppliers’ dates back to 2013. Ever

since the Foxconn labor abuses occurred, Apple has performed over 200 audits to its suppliers. Apple

has also released the information of its suppliers in 2012. Apple continues to perform audits, and it

reports the results of these audits on its website.

The corporate social responsibility (CSR) program recommended for Apple focuses on improving

the working conditions of Apple’s employees. The CSR program would provide training to employees in

order to inform them about their rights and duties. The program would aim to create information

sessions and support whistleblowers. The company is also advised to join another third-party

organization that could perform audits to Apple’s suppliers in order to ensure that all standards required

are followed. Doing so would also lead to higher transparency.

5

Overview Apple Inc. (Apple Inc., 2016) is a multinational technology company headquartered in

Cupertino, California. The company designs, develops and sells electronics, computer software

and online services to businesses and individuals. Apple provides a wide array of hardware

products such as the Mac personal computer, the iPod portable media player, the iPad tablet

computer, among others. Apple is the world’s largest information technology company by

revenue, and the world’s largest technology company by total assets (Lyan, 2015). The company

also operates the online Apple store, and iTunes Store. The iTunes store is the largest music

retailer in the world (Dillet, 2016). Apple is the largest technology company in the world by

revenue and assets. Apple’s worldwide revenue totaled $233 million for the fiscal year ending in

September 2015. Apple’s revenue counts for 1.25% of the total U.S. GDP. Graph 1 is a

representation of the distribution of Apple’s global sales of 233,715 million for the fiscal year

ending in September 2015 (Apple Inc., 2016).

Graph 1 based on Apple’s 2015 financial report (Apple Inc., 2016)

Apple is ranked as number five within the Fortune 1000 company list. According to

Interbrand’s Best Global Brands report, Apple has been the world’s most valuable brand for

three years in a row with a brand valued at $170.3 billion. The company employs 115,000 full-

time employees. It maintains 478 retail stores in seventeen countries. The company sold its first

computers, called Apple I, in July 1976. The company was incorporated in January 3, 1977. On

December 12, 1980 Apple went public at $22 per share (Apple Inc., 2016).

Apple’s stakeholders are comprised of customers, employees, investors, and employees

of its suppliers and distributors. Apple has a huge impact on all of its stakeholders. Apple

provides technology products to its customers. Apple’s profitability impacts its investors who

own the company’s stock. The company hires its employees from across the globe, and

0 20,000 40,000 60,000 80,000 100,000

Americas

Europe

Greater China

Japan

Rest of Asia Pacific

Apple's Global Sales for the fiscal year ending Sept. 2015 (in Millions)

RevenueSales sales

6

therefore it generates jobs across the globe. As a global company that outsources materials and

labor abroad, Apple also impacts the lives of thousands of individuals who work for companies

that supply Apple of labor and materials, among others.

Steve Dowling is Apple’s vice president of Communications. He reports directly to the

company’s CEO, Tim Cook. Dowling is responsible for Apple’s communications strategy, he has

lead Apple’s public relations and employee communications team the past 10 years (Apple Inc.,

2016).

Events that led to this ethics case Companies should be ethical and consider their stakeholders when providing their

services or products to customers. The duty that a company has to its stakeholders is also

extended to its suppliers. If a company is to outsource, it should bear in mind the values and

actions of its suppliers. Companies should consider that suppliers may not share the same ethical

values it does. Suppliers may perform unethically. This can have negative repercussions for the

company itself. Other stakeholders may believe that the company approves unethical behavior

performed by its suppliers. Apple dealt with serious ethical issues from its suppliers because it

failed to oversee its supplier’s actions, and ensure that the supplier’s actions and values reflected

Apple’s.

A factory named Hon Hai Precision Industry Co., better known as Foxconn, is an

important supplier for Apple. Foxconn manufactures and assembles many Apple products, such

as the iPod and iPhone. Foxconn faced strong scrutiny since 2006. On August 2006 the Daily Mail

published a story that reported that the company mistreated several of its 200,000 employees

by making them work 15 hours a day for as little as $50 a month (Daily Mail, 2006). Employees

lived with little privacy in single-sex dorms. More than 100 people lived in a single large room.

Security in the factory was also very strict. Workers were not allowed to bring any metals to

work, including watches and cellphones. Doors were observed and barbed wires were installed

across the facility. Workers were discouraged from talking to strangers to prevent espionage

(Webster, 2016).

Some employees worked seven days a week, forgoing many valuable aspects of their

lives, such as visiting their families. Families could not visit workers in the factories. Only workers

were allowed into the factory. Occasionally, workers had to stand for hours while doing the

same exact menial work. Those who did not obey were punished. Women would stand for

longer, and men would have to do push-ups. They were also forced to work overtime.

Additionally, workers were to complete each step in seven seconds or less, faster than machines

(Barboza, 2010).

7

Apple’s Code of Ethics The code of ethics the company had in 2006, stipulated that the company was to have

integrity, record and disclose information to all appropriate parties, protect intellectual property

and protect whistleblowers. On 2006, when the incident regarding the labor abuse took place,

the company had already established a Supplier Code of Conduct. The company’s suppliers had

to provide safe working conditions, treat workers with dignity and respect, act fairly and

ethically, and use environmentally responsible practices wherever they make products or

perform services for Apple. Apple focused on antidiscrimination laws, anti-harassment and abuse

laws, prevention of involuntary labor and human trafficking. They also focused on preventing

underage labor by requiring underage workers to return home. Apple promised to finance an

education of their choosing, and employ the worker once he or she became of age (Apple Inc.,

2006).

The ethical issue that took place in 2006, according to Apple, made it realize issues that

its suppliers had in complying with the company’s code of conduct. Apple found that Foxconn

violated core values that Apple had. The violations included three cases of underage workers

who worked for Foxconn; eight cases were employees had to pay special fees to be hired, which

is illegal in China; three cases were suppliers used non-certified vendors to dispose of hazardous

materials; and three cases were suppliers that provided false information during audits (AP,

2010).

As a result of this ethical dilemma, Apple decided to apply some changes to its Code of

Ethics and Suppliers Code of Conduct. The company’s code of ethics, as of 2016, specifies that

Apple will start requiring its suppliers to have more rigorous working condition requirements. For

example, the Apple Supplier Code of Conduct has been updated and now requires Apple’s

suppliers to create safer working conditions. Apple has decided to implement several audits to

its suppliers. Apple claims that it has zero tolerance to underage labor, involuntary labor,

document falsification, intimidation or retaliation against workers participating in audits, working

conditions that puts lives at risk, and significant environmental impacts (Apple Inc. 2016).

Other Ethics cases

Apple acted questionably by claiming that there was no evidence of forced-labor

conditions at Foxconn. Apple claimed that the workers could decline to work for the company, if

they so desired. However, the company did find that the limit on hours was exceeded 35% of the

time. (Markoff, 2006).

Another ethical issue the company faced was how Foxconn sued the Chinese journalists

who wrote a report denouncing Foxconn’s employee abuse. Foxconn sought 30 million yuan, or

$3.8 million, in damages (Li, Xu, 2006). The Chinese journalists’ assets, including their cars and

8

bank accounts, were frozen as a result of the lawsuit. The China Business News urged Foxconn to

remove the lawsuit, because the case tested the reporters’ rights and dignity (Coonan, C. 2006).

By September 4, 2006, Foxconn had decided to reduce its demand for damages to a token of

one yuan, or 16 cents of a dollar (Business, 2006).

The greatest ethical issue the company dealt with after 2006 showed a lack of

compromise and responsibility from Apple in supervising its suppliers. In July, 2009 an employer

working for Foxconn committed suicide. The employee, Sun Dayong, 25, had to send 16 phones,

but misplaced one of the phones. Foxconn believed he had stolen a prototype of the new

iPhone. Security staff from Foxconn went to his house to question him. Allegedly, Sun was

beaten during the interrogations. A couple days later, Sun jumped from a 12-story building to his

death (Macartney, 2009).

But Sun’s suicide would not be an isolated problem. By the end of 2010, 10 Foxconn

employees had committed suicide. Two other employees were injured in their attempts to

commit suicide. In order to prevent suicides, Foxconn created recreational facilities for its

employees. The company also installed safety nets to stop people from being able to commit

suicide by jumping off its buildings. However, critics argue that recreational facilities were only

useful if the employees have the time and energy to use them. Given the previous 15-hour work

periods it could be inferred that the employees had little to no time to enjoy the facilities (Wu,

2010).

Description of Current Corporate Social Responsibility Program Apple has been implementing some measurements in order improve the working

conditions of its suppliers’ workers. Starting 2007, Apple has been conducting audits on its

suppliers. The company has also been posting these audits on its own website. The annual Apple

audits have increased from 39 per year starting 2007, to 640 in 2015 (Apple Inc., 2016). If a

supplier does not meet Apple’s requirements, Apple requires its suppliers to submit a Corrective

Action Plan within two weeks of the audit. Apple verifies that issues has been addressed in 30, 60

and 90-day intervals. After 120 days, Apple claims that third-party auditors visit the facility to

ensure that the Corrective Action Plan has been implemented according to the company’s

standards. A second verification audit is scheduled within 30 days if measurements have not

been taken (Apple Inc. 2016). Noncompliant suppliers can lead to termination, and Apple has

ended contracts with 20 suppliers thus far.

Training

Since 2007, Apple requires its suppliers to implement management training in

communication and employee treatment. Apple has also required its suppliers to implement

worker protections and anti-harassment policies. Starting 2008, Apple has also offered its sup-

9

pliers a Supplier Employee Education and Development (SEED) program. The program offers

classes in management, software, technical skills, among others (Apple Inc. 2016).

Overtime

In 2011, Apple started tracking the number of hours suppliers’ employees worked. Apple

aims to limit work for suppliers to 60 hours a week with a mandatory rest once every seven days.

Apple claims that in 2015 the company was able to achieve a 97% compliance across all

workweeks, with full-time employee hours averaging 55 hours per week (Apple Inc., 2016).

Third-Party Oversight

Suppliers now have to abide by the requirements stipulated by the Fair Labor Association

(FLA). The FLA is a collaborative effort of universities, civil society organizations and socially

responsible organizations who are dedicated to protect the rights of workers around the world.

The organization creates solutions to abusive labor practices by offering tools and resources to

companies by delivering training to management and workers. They also conduct research and

compile reports in order to ensure that companies are following the standards required by the

association. However, the FLA has not released any documents including information about

Apple since 2013 (Fair Labor Association, 2016).

Since Tim Cook stepped up as Apple’s CEO, Apple has performed more than 40 audits to

Foxconn. FLA and Apple claim that the conditions that workers at Foxconn have to withstand

have improved. For instance, Foxconn reduced its working hours to under 60 per week, including

overtime. Foxconn also said they would strive to comply with China’s legal limit of 49 working

hours per week (Fair Labor Association, 2013). Foxconn has since hired counselors for a 24-hour

care center for its employers. Foxconn uses the center to support, train and monitor staff at the

care center.

However, the last report that was submitted by the FLA was made in 2013. Since then,

and due to the lack of reports presented on the company’s Supplier Responsibility Report, the

company has not proven to work with any other NGO to assure the well-being of its employees

(Apple Inc. 2016).

Other CSR Programs

Apple also pushes for more rigorous environmental standards and renewable energy

production. Their efforts have diverged 73,000 metric tons of waste away from landfills. Apple

implements a Clean Water Program that saved more than 3.8 billion gallons of freshwater. Their

energy efficiency has prevented more than 13,800 metric tons of carbon. They also launched a

10

program called Environment, Health and Safety (EHS) Academy that has hold more than 2,400

project since 2013 (Apple Inc., 2016). All of Apple’s stakeholders benefit from this CSR program.

Global warming and sustainability has been scientifically proven, and its effects affects the lives

of all of us.

Proposed Corporate Social Responsibility Program Related To the Ethical Issue I believe that a company that claims to be ethical should follow through and be

consistent. Although Apple has been able to implement rigorous methods to ensure the well-

being of its suppliers’ workers, most of the audits the company has been making have been

taking place under management from Apple since 2013, the year when the last FLA report came

out. This can be very problematic for the company because it can lead to a lack of transparency.

Additionally, stakeholders could believe not only that the company is not disclosing the

information it should, but that it is also supporting or ignoring abusive behavior from its suppliers

because it does not directly affect the company’s profit. I believe that, if the company has been

as successful as it claims, it should pair up with a specialized, more impartial organization that

would openly disclose whether Apple’s suppliers are complying with the company’s

requirements. Additionally, I find that the company should strive to establish a stronger

relationship between the company and its suppliers’ workers so that the workers are informed

of their rights.

The corporate social responsibility (CSR) program that I suggest to Apple is based on a

syncretic stewardship model. Within this model, which proposes that a company should

encourage feedback and information flow between the firm and all of its stakeholders, I would

suggest a relational approach to the engagement between employee engagement and CSR. This

method would allow Apple’s supplier workers’ to establish a stronger bond with the company by

enhancing the employees’ identity within the company as an integral part of the success that the

company has.

It is important to note that while this task is primordial to the company, it is also very

daunting. Apple’s counts with over 170 suppliers from all around the globe and over 1.5 million

workers (Freeman, 2015). Therefore, the main focus of the CSR program that I propose will be

based on implementing the following measurements in Foxconn. The program could later on be

expanded to be included to other suppliers.

Target audiences: Foxconn employees who develop products for Apple.

Goal: To increase Foxconn employees’ well-being by reducing labor abuse within

Foxconn.

11

a. First Objective: to increase awareness of supplier employees’ rights and duties by

15% by April 2017.

Strategy:

Suppliers’ employees should be aware of their rights and duties as workers for the company.

The company should train and mentor employees and managers so they are informed about their rights.

I believe that Foxconn could inform its employees in different ways. They could create interactive videos

shared to employees in mandatory informational sessions. Employees should not only be informed

about their rights, but the company should also monitor what the employees know about their rights in

order to make sure the message has been spread effectively. Perhaps Foxconn could administer written

and on-site examinations to ensure compliance.

b. Second Objective: to increase supplier employees’ well-being and sense of and

acceptance within the company by 5% by April 2017

Strategy: In order to achieve this objective, I think allowing more employees to be able to reach

human relations personnel would be beneficial so they can tell if they are being abused or have

witnessed abuse. I would recommend Apple to require its suppliers to hold meetings called “iCare” that

would be held at least once a month in order to foster a more caring appropriate work environment

where employees are encouraged to report possible abuses. I also recommend implementing higher

whistle-blower protection procurements. iCare sessions could take place in order to provide employees

with important information including their relevance to the company’s success. I also believe employees

should be offered short surveys to measure how effective the activities and workshops that are being

implemented are. These surveys should be completely anonymous and should guide each session.

c. Third objective: to establish mutually beneficial relationships with supplier

employees by joining or renewing endeavors of at least one third-party organization

by July 2017.

Strategy: I would encourage Apple to join efforts from organizations such as the Fair Labor

Association in order to ensure its suppliers are following the company’s supplier code of conduct.

Working with these third-party organizations can lead to a higher degree of transparency for Apple’s

suppliers. This is perhaps one of the main ways the company can make sure that its suppliers are

following through with what is required of them while creating a positive image for the company. I

believe that joining forces with nonprofit organizations that focus on reducing employee abuse can truly

show how dedicated Apple is to making its suppliers follow the company’s Supplier Code of Conduct.

12

In Conclusion

Ethically responsible companies should strive to establish and keep close relationships with its

stakeholders. Ignoring stakeholders can lead to several issues and scrutiny. This can lead to further

issues amongst all other stakeholders. For this reason, Apple should consider its suppliers’ employees

and closely monitor the performance of its suppliers in order to ensure that they follow the

requirements that Apple establishes.

13

References Apple admits labor violations at suppliers. (2010, March 2). The New Zealand Herald pp 42.

Apple Inc. (2016, September 26). 10 - K Earnings Statement [PDF]. Washington, D.C.: United

States Securities and Exchange Commission.

Apple Inc. (2016). Apple - Press Info - Apple Leadership - Steve Dowling. Retrieved September 19,

2016, from http://www.apple.com/pr/bios/steve-dowling.html

Chen, L. (May 11, 2015). "The World's Largest Tech Companies: Apple Beats Samsung, Microsoft,

Google". Forbes. Archived from the original on May 15, 2015. Retrieved December 30, 2015.

Coonan, C. (2006, August 31). Chinese reporters have assets frozen in libel case. The Irish

Times, pp. 12

Barboza, D. (May 21, 2010) String of suicides continues at electronics Supplier in China. New York

Times pp. 23.

Business (2006, September 4). Chinese defamation lawsuit withdrawn. MX (Australia)

Dillet, R. (March 21, 2016). "Apple's Tim Cook on iPhone unlocking case: "We will not shrink from

this responsibility"". TechCrunch. AOL. Retrieved March 21, 2016.

Duhigg, C., & Barboza, D. (2012, March 31). Apple supplier pledges better conditions. The

International Herald Tribune, pp. 14.

Feasley, A. (2016). Eliminating corporate exploitation: examining accountability regimes as

means to eradicate forced labor from supply chains. Journal of Human Trafficking, 2(1), 15-

31. doi:10.1080/23322705.2016.1137194

Freeman, B. (2015, May). GreenMoney Interview Series: The Apple interview. Green Money

Journal. Retrieved November 17, 2016, from http://www.greenmoneyjournal.com/may-

2015/apple/

Frost, S., & Burnett, M. (2007). Case study: The Apple iPod in China. Corporate social

responsibility and environmental management, 14(2), 103-113. doi:10.1002/csr.146

Interbrand. (2015). Creating and managing brand value™. Retrieved September, 2016, from

http://interbrand.com/best-brands/best-global-brands/2015/ranking/apple/

International, M. L., Kyodo News. (2006, August 31). iPod assembler eases defamation suit

against Chinese journalists. Kyodo News International.

14

Lucas, K., Kang, D., & Li, Z. (2013). Workplace dignity in a total institution: Examining the

experiences of Foxconn’s migrant workforce. Journal of business ethics, 114(1), 91-106.

Macartney, J. (2009, July 23). Apple suicide leap over lost secret iPhone; China. The Times, pp. 6.

Markoff, J. (2006, August 18). Apple finds no forced labor at iPod factory in south china. The New

York Times, pp. 3.

Nagesh, G. (2012, February 14). Apple opens its Chinese factories to labor audits. The Hill, pp. 17.

Saskatchewan, R. (2016, October 18). "Worker suicides worry Apple." The Leader-Post (Regina,

Saskatchewan). (February 16, 2011 Wednesday): 650 words.

Stanwick P. Stanwick. (2016) S. Apple outsourcing in China: ISweatshop? In Maggie Stanley,

Bennie Clark Allen (Ed.), Understanding Business Ethics (Third ed., pp. 421). United States

of America: SAGE Publications, Inc.

The Stark Reality of iPod's Chinese Factories. (2006, August 18). Retrieved November 13, 2016,

from http://www.dailymail.co.uk/news/article-401234/The-stark-reality-iPods-Chinese-

factories.html

Webster, N. (2006, June 14). Welcome to iPod city; the 'robot' workers on 15-hour days. The

Mirror, pp. 28.

Wu, D. (2010). Foxconn worker jumps to death in China, the 10th suicide this year at iPod maker.

(2010, May 25). Carleton Place, pp. 01.

Wu, K., & Li, W. (2013). An ethical stakeholder approach to crisis communication: A case study of

Foxconn’s 2010 employee suicide crisis. Journal of Business Ethics, 117(2), 371-386.

doi:10.1007/s10551-012-1522-0