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Case Assignment: Apple, Inc. International Business Dilemma

Stacey Troup

Management Ethics/MGT-304

November 23, 2016

Dr. Kathleen Hargiss

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Case Assignment: Apple, Inc. International Business DilemmaIn this Week 4 Case Assignment, I will review the ethical dilemmas that were unearthed

during the foreign production of products for Apple, Inc. Additionally, I will address the role of

senior management at Apple Inc. as well as their social responsibility policy changes following

this supply chain controversy and what they did in order to ensure their manufacturer lived up to

their agreements within that policy. Finally, I will review what Apple Inc. did in order to try to

regain an ethical standard in their supply chain within China and what they could have done to

further those attempts for the safety and standards of the employees who help them achieve such

financial success in the U.S.

International Business Issues

When deciding to expand a business internationally, several factors need to be considered

before those plans are executed. Ethical dilemmas such as labor conditions, pay scales, and

cultural differences play a key role in the “down side” of international expansions.

Using China as a point of reference for the remainder of this paper, I examined the

average pay and hours from the manufacturing aspect of Chinese manufacturer Foxconn. On

average, the manufacturing workers in this plant are paid an average of $1.12 (U.S. equivalent)

per hour to work on the lines. In addition to this low wage, they are worked an average of 60

hours a week (often without proper overtime pay) and are often in violation of local labor laws

by employing children under 16 years of age (Working Conditions in Foxconn Factories in

China, N.D.). Because of the excessive working hours and the commute time for many workers,

they are able to pay for a cot to sleep on and a meal which is considered a benefit by the

company standards. However, the allowance rate of 210 CNY which is provided by the

company, is less than what is needed to eat daily from the canteen provided (Students & Scholars

Against Corporate Misbehaviour, 2010).

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In addition to the obvious problems with labor relations when dealing with international

supply chains, companies are also found to use chemicals which are considered hazardous to

employees and often refuse to change this problem, much to the detriment of their workers

(Students & Scholars Against Corporate Misbehaviour, 2010).

While many in the United States may see this as a negative issue to production, compared

to average Chinese factory workers pay, Foxconn pays an average of 20% higher wages to its

employees and is one of the largest manufacturers of electronics in China (Students & Scholars

Against Corporate Misbehaviour, 2010). This view of the ethical dilemma of international

business expansion based on societal “norms” is a major issue within the decision to expand into

markets such as that of China.

Apple’s Supply Chain Controversy

Understanding that business abroad comes with its own challenges, Apple has always

provided visibility of its suppliers and the expected business practices of same through its

Supplier Responsibility Reports.

This report, often called a “Social Responsibility Report” by other companies, outlines

the expectations of vendors who produce products for Apple, Inc. in terms of labor laws,

workplace safety, environmental and health standards. These standards are part of their supplier

agreements which are contractually obligated, legally enforced and compliatory audits are

executed to ensure the compliance of these standards (Apple 2011 Supplier Responsibility,

2011).

Coming under fire in 2010 for conditions at one of its IPad manufacturing facilities in

China, Apple attempted to immediately address the unfair labor practices, safety hazards and pay

issues through emergency audits. Foxconn, one of the Chinese manufacturing arms of Apple’s

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IPad devices, ignored its sanctions with Apple and violated several contractual obligations

relating to labor conditions. Several news outlets reported video conditions at these facilities and

shed a very disturbing light on the average wages, working conditions, labor violations and other

hazards present at the plant (CBS News, 2012).

Several attempts by Apple’s management team to correct these issues included a

multitude of audits and corrective action planning consisting of educational initiatives, age

verification controls, employee rights initiatives, and the identification of hazardous materials

used in the production of its devices over the course of three years (Apple 2011 Supplier

Responsibility, 2011).

After attempting, without success, to force Foxconn into complying with its contractual

obligations relating to safety and pay of its employees according to the supplier contract that was

in place, Apple’s executive team made the decision to shift manufacturing away from Foxconn

in 2013 (Dou, 2013).

Apple’s Ethical Response to Sweatshop Labor Practices

Because Apple strives to maintain its ethical standards regardless of where it does

business or establishes a supply chain, it has inreaed its audits from 39 in 2007 to an astounding

640 audits in 2015 in the hopes to resolve sweatshop labor issues and maintain safety for its

workers (Accountability, n.d.). Through these audits, they have been able to identify core issues

with their international supply chain, provide corrective actions the facilities must take in order

to remain a subcontractor of Apple and when they found their supply chain to be unresponsive to

the contractual obligations, Apple decided that ethically a change in suppliers was needed (Dou,

2013).

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Throughout their attempts to rectify supply chain ethical dilemmas, Apple came under

heavy fire from people who felt they did not do enough fast enough to ensure the safety and well

being of their supply chain employees (Reed, 2014). This criticism followed the report that 14

people had committed suicide at the Foxconn plant and that Foxconn management erected

suicide nets along its building exterior to prevent further suicides, rather than address the larger

issue of employee safety and working conditions (Reed, 2014).

Realizing that corrective actions take time, Apple was ethical in its attempts to save those

workers from “sweatshop” conditions by taking corrective actions and steps to resolve these

issues even though they were unsuccessful throughout the years by ultimately shifting their

supplier away from Foxconn in the end.

Repairing The Damage

Througout this paper I outlined how Apple conducted audits in order to identify and

correct unethical practices by its supplier Foxconn. In addition to the outlined corrective actions,

I believe that Apple took aggressive measures to ensure the health and safety of the employees

under their supplier’s care.

These corrective actions were done through requiring non compliant suppliers to submit a

corrective action plan within two weeks of infraction, which will come with check ups a the 30,

60 and 90 day intervals until the solution is permanently resolved. Further, Apple partnered with

the International Organization for Migration (IOM) in an attempt to educate workers on their

rights before they leave home to accept a position with a company (Labor & Human Rights,

N.D.). One of the final steps they took to ensure workers can thrive and not just barely survive

was to create an educational program to allow for the employees growth and advancement which

has helped 1.4M people in these factories to date (Empowering Workers, N.D.).

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While many felt that this was “too little, too late”, the international business model they

have established with their supply chain provivded for immediate response with corrective

action, opportunities for additional chances to resolve the supplier issues and when found

unwilling to maintain the ethical standards which Apple puts forth, the business was pulled from

those suppliers in favor of more internationally ethical suppliers for the health and well being of

the workers. I do not believe they could have done anything more to resolve these issues in a

more timely manner as their actions prove that they want to ensure ethical behavior in the host

country regardless of local customs which may be contrary to empoyee health and safety.

Conclusion

When conducting international business, maintaining ones own ethical standards can

become a great challenge, particularly when dealing in a host country who have ethical standards

which are substandard to your cultural norms.

Apple, Inc. maintains its ethical standards regardless of host country substandard

practices and strives for its high ethical standards to be maintained by its suppliers. They have

continually proved that when a situation arises, they will take every step necessary to resolve

these issues to ensure the safety of the employees producing its products and when that cannot be

accomplished through audits, checks, rechecks and corrective action plans, the business is pulled

from substandard suppliers in favor of more ethically based ones. Their unwavering desire to

improve the lives of their supply chain employees and create a more liveable environment for

same just reaffirms the strength in Apple’s ethical standards and its unwillingness to allow the

sweatshop labor to continue while producing its products.

More companies producing products in places like China should take note of these

standards and adhere to the core standards of the Supplier Code of Conduct that Apple put forth.

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Imagine your own children or family members working in these conditions and consider what

you would do in order to correct these actions so that they could escape this situation and find

stability and encouragement in their work. We demand a liveable wage here in the U.S. that is

far in excess of what is made in China and have shifted a bulk of our production out of the

country and into these sweatshop facilities to keep our prices low.

When we stand up and say we will no longer accept these sweatshop products and deal

more in the Fair Trade environment, we guarantee that our products maintain our strict ethical

standards of health, treatment and safety of employees we engage. We as a culture need to stop

seeking the cheapest price and consider at what cost does our “deal” come to others.

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References

Accountability. (n.d.). Retrieved from Apple.com: http://www.apple.com/supplier-responsibility/accountability/

Apple 2011 Supplier Responsibility. (2011). Retrieved from Apple.Com: http://images.apple.com/supplier-responsibility/pdf/Apple_SR_2011_Progress_Report.pdf

CBS News. (2012, March 16). The Dark Side of Shiny Apple Products. Retrieved from CBS News: http://www.cbsnews.com/news/the-dark-side-of-shiny-apple-products/

Dou, E. (2013, 05 29). Apple Shifts Supply Chain Away From Foxconn to Pegatron. Retrieved from Wall Street Journal: http://www.wsj.com/articles/SB10001424127887323855804578511122734340726

Empowering Workers. (N.D.). Retrieved from Apple.com: http://www.apple.com/supplier-responsibility/empowering-workers/

Labor & Human Rights. (N.D.). Retrieved from Apple.com: http://www.apple.com/supplier-responsibility/labor-and-human-rights/

Reed, B. (2014, 12 09). Apple China Factory Conditions was Totally Tone Deaf. Retrieved from BGR.com: http://bgr.com/2014/12/19/apple-china-factory-conditions-response/

Students & Scholars Against Corporate Misbehaviour. (2010, 10 20). Workers as Machines: Military Management in Foxconn. Retrieved from Germanwatch.org: http://germanwatch.org/corp/makeitfair-upd1010rep.pdf

Working Conditions in Foxconn Factories in China. (N.D.). Retrieved from Facing-Finance.org: http://www.facing-finance.org/en/database/cases/working-conditions-in-foxconn-factories-in-china/