(Title photo jdnx / CC Flickr)
When I read the story of the Foxconn suicides, my first thought was that this would be an opportunity. An opportunity to make a statement, to counter a trend that has been troubling the developed world.
Lara Smallman’s article in the wake of the suicides is a good example of the Western consumer response: “I do not want to buy a device made in this manner.” The opportunity, then, is to bring manufacturing jobs back home. Back to a place where trade unions and the self-respect of qualified workers would demand far higher ethical standards.
This could not happen with just any company. But Foxconn is the world’s largest manufacturer of electronics, and while its headquarters are in free, democratic Taiwan, its factories in mainland China produce devices for just about any company you care to name.
Imagine that a major consumer brand announces that it will no longer sell any devices manufactured abroad. This would have to be a company-wide move, because the marketing depends on a distinctive identity: people will want to buy this brand’s products so that they can take them out in a coffee shop, and show everyone around them how ethical they’re being. I’m thinking that in the US, it could be a brand like Alienware (a niche subsidiary of Dell that sells very high-end computers with distinctive styling); in Europe, it could be Archos announcing that all their electronics would be assembled at unionized factories in the EU. Yes, it would be more expensive – but a lot of people would gladly pay a premium for the benefit of being demonstrably ethical. There is even an environmentally conscious component to it: local manufacturing means no transport costs, no burning of fossil fuels in container ships bringing your smartphone over from Shenzhen.
Is it all so ethical, though? Western labourers may have the ability to enforce humane working conditions, but how ethical is it to withhold manufacturing jobs from the developing world? In the wake of the Foxconn scandal and the associated wage increases, I’ve seen predictions that the electronics industry will move away from China and on to places like Vietnam. But Foxconn employs roughly 800,000 people in China, almost half of that at a single enormous factory. Even more people depend on the spending of those factory workers. If Apple decides to move its assembly back to California (or South Dakota, for the cheaper labour and local-government concessions), we won’t be talking about eleven suicides. The resulting human misery will be on par with a small war or medium-sized natural disaster.
Of course, that won’t actually happen. As the Financial Times reports, “Foxconn’s demands to pass on some higher labour costs had not been met favourably by Apple.” Instead of paying twice as much for your iPad if it’s made locally – or just a little more if it’s made at the newly caring and pleasant mega-factory – consumer demand for low prices is driving production out of Shenzhen. China is big; there are still plenty of places where labour costs are ridiculously low, and the people are ridiculously motivated. Don’t feel sorry for the “old” manufacturing regions, either: Foxconn’s mega-factory has been hiring recently, and there is still enough business to go around.
So in a very creaky, roundabout, less-than-efficient way, globalization is working. Chinese labourers, having established the skillset needed to produce (if not design) some of the world’s most desirable goods, are finding themselves in a position of successfully negotiating for better pay and better conditions. (And as people mentioned in the comments to Lara’s article, the Foxconn factory has a lower suicide rate than the Chinese average. At least some of the suicides were apparently motivated by the significant compensation paid by Foxconn to the deceased’s family – which is no longer being issued.) The enormous country has had such a good time, economically, that the government is even relaxing the grip on the value of the yuan, which for decades has been kept low to make exports more competitive.
If the choice was there, which would you prefer? Take back the jobs and know that nobody was abused in the manufacture of your expensive new toy, or keep the products cheap and know that you are contributing to the development of an economy?
Bonus: How expensive would it get?
I’m not a production engineer, but here’s a few quick calculations. According to research firm iSuppli, the hardware inside a brand new iPhone 4 costs Apple a total of $188. This is before assembling the device in the Foxconn factory and shipping it to customers, it does not account for the costs of running the Apple store network, marketing & promotion, software licenses, or the all-important development of the device itself. However, iSuppli also estimates that Apple’s gross profit margin on an iPhone sale is 50% (with competitors usually having margins of 20-40%). Since we’re talking only about manufacturing labour costs right now, and not R&D or software development, let’s assume that the hardware cost of a finished iPhone in a box is $300. (iSuppli lists the average sale price of an iPhone as $600. In Europe, an unlocked phone that is not subsidized by the mobile carrier sells for 600 Euro, or $733 at today’s exchange rate.)
According to Reuters, Foxconn employees previously received $132 per month, up to $293 with all the recent raises. Let’s use the latter figure (since the $132 is probably without the mandatory overtime). According to the Estonian Department of Statistics, the average net wage for an industrial worker was $750 per month. At a very rough estimate, this makes manufacturing 2,5 times as expensive in the EU as it is in China.
If we keep to a very simplistic calculation, that would make the hardware cost of an EU-built iPhone $750 instead of $300 for a Chinese-built one. In reality, I don’t believe the difference would be that stark – there is an electronics assembly industry in the EU, and there is a factory in Tallinn that assembles mobile phones and other consumer products, and I don’t think that would be the case if the costs were so massively different. If you’ve got better numbers or a more accurate calculation, please go ahead and post it in the comments.
Meanwhile, the difference is $450, or 370 Euro. Would you pay 1,5 times the current price for an iPhone whose entire supply chain was subject to EU regulations?