Tuesday, 13 May 2014

The High Cost of Cheap Labor: Workers’ Rights Abuses Plaguing the Electronics Industry in China

In the past decades, China has risen as a giant of manufacturing as more and more foreign businesses moved their factories in favor of more relaxed labor laws. As a result, many ethical issues have come to light as an increasing number of reports highlighting the deplorable working conditions in the factories of China.

Attention has been especially drawn in the past couple of years to the labor rights violations of electronics and technology companies who have committed some especially egregious abuses such as dangerous working conditions, inadequate pay, and multiple hours of uncompensated overtime. The primary culprits: Apple, Samsung, IBM, Dell, and other household names.

The High Cost of Cheap Labor

Approaching the Boiling Point

In the early months of 2014 alone, the number of protests and strikes has risen by 31% when compared to the previous year. This amounts to approximately 202 incidents of protest or strike in the past four months. The strikes are almost exclusively concentrated in the southeast region of the country with the industrial city of Guangdong alone accounting for a full 55%  of the incidents occurring this year.

While each company is dealing with the growing number of strikes and protests in its own way, it is becoming increasingly apparent that the Chinese populace is no longer willing to be exploited as a source of cheap labor. These companies will have to start addressing worker grievances in a meaningful way or risk scandal and loss of business.

Apple and the Most Recent Claims against this Repeat Offender

Apple has come under scrutiny a few times in the past as factory working conditions and employee contracts continue to be reported as unhealthy or inhumane. In the most recent case, undercover investigations by a New York based NGO advocacy group for Chinese workers known as China Labor Watch resulted in allegations of at least $8.3 million in unpaid working hours per year among other violations.

These unpaid hours consist primarily of overtime work which is not paid at the legal overtime rate. The report also uncovered regular incidences of fraud regarding the under reporting of employee’s working hours. Furthermore, overtime hours are made mandatory and often exceed 100 hours of overtime per month—a number which exceeds both Apple’s own regulations as well as China’s national labor policies.

While Apple spends a fairly hefty amount on the actual parts necessary to build the iPhone (at least $191 per unit), it pays just $8 per phone for labor bringing the total production cost to just under $200. If the company were to hypothetically move manufacturing to the United States—where they would be under more pressure to pay fair wages and provide fair working conditions—they would only have to spend an additional $4 per phone for labor.

Of course, a major deterrent to manufacturing in the United States is the corporate income tax which would amount to substantially more (approximately $3.6 billion per year) than the increased labor costs. But with these figures in mind, it becomes clear that Apple could easily afford to offer its Chinese workers fair wages and better working conditions without substantially affecting its profit margins. A cost increase from $200 to $204 on a product which retails for well over $500 is not that dramatic. Furthermore, Apple’s customer base would likely be more than willing to absorb the additional $4 per unit for the assurance that the device they are using was not manufactured in inhumane conditions should Apple be wholly unwilling to see its profit margins changed.

The Human Cost of Producing Consumer Electronics

As Apple is the most publicized case of human and labor rights abuses in China, it’s profit-driven,exploitative practices are the most thoroughly analyzed. With manufacturing costs representing just 2% of the total production cost of an iPhone and profit margins at 51% per device, it is easy to imagine a scenario where Apple doubles the wages of its factory employees without suffering any substantial loss to profit.

Similarly, for Samsung, manufacturing costs (which includes labor costs as well as electricity and other essentials to processing) amount to 3% of the total cost to produce the phone. After production costs are accounted for, Samsung pulls in about $394 in profit per phone which translates to a profit margin of more than 60%. Doubling wages for its factory workers, then, would do almost nothing to its ability to compete in the marketplace.

A breakdown of profits and labor costs is more difficult to find for companies like IBM and Dell which rarely come into the spotlight for their labor rights violations and, therefore, are less susceptible to close analysis of their finances.

While the companies respective responses to the allegations of labor violations vary (with some being far more proactive and concerned than others), it is clear that the electronic industry as a whole should be held to stricter standards by the Chinese government as well as by the private sector itself.

The recent surge in strikes and protests among Chinese factory workers will hopefully result in meaningful policy changes within each company as well as at the national level.

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