Chinese workers who often spend more than 60 hours per week assembling iPhones and iPads will have their overtime hours curbed and their pay increased after a labor auditor hired by Apple inspected their factories.
The Fair Labor Association says Hon Hai Precision Industry Co., the Taiwanese company that runs the factories in China, is committing to a reduction of weekly work time to 49 hours, the legal Chinese maximum.
That limit is routinely ignored in factories throughout China. Auret van Heerden, the CEO of the FLA, said Hon Hai, also known as Foxconn, is the first company to commit to following the legal standard.
Apple’s and FLA’s own guidelines call for work weeks of 60 hours or less.
Foxconn’s moves are likely to have an impact across the global technology industry. The company employs 1.2 million workers in China to assemble products not just for Apple, but for Microsoft, Hewlett-Packard and other technology companies.
Foxconn’s factories are the last step in the process of manufacturing iPhones and other Apple devices, most of which have hundreds of components. Research firm IHS iSuppli estimates that Apple pays $8 for the assembly of a 16-gigabyte iPhone 4S and $188 for its components. It sells the phone wholesale for about $600 to phone companies, which then subsidize it to be able to sell it for $200 with a two-year service contract.
Ricardo Ernst, a professor at Georgetown University’s McDonough School of Business, said companies play a risky game when they raise their manufacturing costs. U.S. consumers have shown little inclination to pay more for products that are made in the U.S. as opposed to China.
But iSuppli’s figures suggest that if Apple were to absorb a Foxconn wage increase that keeps salaries level while cutting average working hours from 60 to 49 per week, it would pay less than $2 extra to have an iPhone made.
Other electronics companies, particularly PC makers such as Dell and HP, earn less profit on what they sell and could see a deeper impact.
Thomas Dinges, an analyst at iSuppli, said Apple’s competitors will probably have to accept the price increase too, since it’s framed as a moral issue.
“At this point, it’s politics. It’s not really economics,” he said, adding that there are few alternatives to Chinese factories for most of these products.
The FLA auditors visited three Foxconn complexes in February and March: Guanlan and Longhua near the coastal manufacturing hub of Shenzhen, and Chengdu in the inland province of Sichuan. They employ a total of 178,000 workers, with an average age of 23.
Average monthly salaries at the factories ranged from $360 to $455. Foxconn recently raised salaries by up to 25 percent in the second major salary hike in less than two years.
Apple’s enormous profits — $13 billion in October-to-December quarter — have made it the world’s most valuable company, worth more than $570 billion. It’s also put the spotlight on the way its products are made.
Apple has kept a close watch on its suppliers for years, and in January took the further step of joining the FLA. The organization has audited overseas suppliers for clothing manufacturers, but Apple was the first electronics company to join. It also commissioned the FLA to produce a special audit of Foxconn’s factories.
Apple CEO Tim Cook visited a Foxconn factory in Zhengzhou, China, on Wednesday.
The Washington-based FLA has its roots in a 1996 meeting of multinational companies and nonprofits convened by President Bill Clinton, who challenged industry to improve conditions for garment and shoe workers. Its 19-member board is composed equally of representatives from member companies, universities and nonprofits like the Global Fairness Initiative. The organization is funded by participating companies.
The auditors examined one years’ worth of payroll and time records at each factory, conducted interviews with some workers and had 35,000 of them fill out anonymous surveys.