Relief for Apple as labour monitors recognise reforms at Foxconn

Apple fans can sleep a bit easier while they’re waiting on line this autumn to upgrade to the iPhone5.

The independent auditor of  Foxconn, the Apple supplier, says that the Chinese group that made headlines with a slew of worker suicides has cleaned up its act substantially, at least in some of its factories.

The Fair Labor Association, a US-based international monitoring group, says that Foxconn has fixed 284 of the 360 problems that the FLA had identified when it was brought it to audit Foxconn’s Apple-related facilities earlier this year.

Foxconn, together with its parent Hon Hai, not only met its commitments to improve its facilities, it also fixed some problems before the final deadline FLA had set for it.

Workers on excessive overtime and lacking adequate union represention were the biggest problems the FLA said it found. Foxconn is in the process of reducing excessive working hours, the FLA says:

The company has reduced hours to 60 per week (including overtime) with the goal of reaching full compliance with the Chinese legal limit of 40 hours per week plus an average of 9 hours of overtime per week while protecting worker pay.

That line — “while protecting worker pay” — is significant, as workers in the initial audit had expressed concern that their pay would fall because of the improvements.

A big question still hanging over the issue is who bears the cost for the audit and the additional labour costs Foxconn will incur as a result – Foxconn or Apple.

Apple’s profit margins are far higher than Foxconn’s (30 per cent versus 1.5 per cent, at the time when the companies agreed to the audit). The US company’s tight management of its supply chain is one reason why Foxconn and other suppliers control costs so fiercely. Foxconn/Honhai investors hope Apple pays something, but the exact breakdown is not yet clear. The Taiwan-based company previously has seen its costs rise after it raised wages.

Analysts at Bernstein estimate that Hon Hai’s total additional labour costs will be around T$40bn (US$1.3bn). But, they argue that between between Apple sharing the cost and Hon Hai passing along part of the rest to its other customers, Hon Hai will be left with just T$9bn of costs it cannot pass on.

One thing to note, also, is that the Fair Labor Association audited just three of Foxconn’s Chinese factories that make Apple products. Those factories, FLA  says, employ around 178,000 workers, out of Foxconn’s total workforce of over 1m.

A representative from another component company that works with multiple US tech companies said that groups like Apple and Dell keep an eye on conditions at all their factories, in part, presumably, because news reports of accidents do not always specify whose product was being made at the moment of, say, an explosion.

But it’s worth remembering that FLA’s detailed audit of Foxconn just looked at how some of its factories operate. It was not an audit of the company — which operates factories in China, Brazil, Vietnam and is considering starting soon in Indonesia — as a whole.