IHS: Apple & Others Will Face Public Backlash Over Labor Issues

The electronics industry will face a public image backlash over its connection to labor issues among foreign contract manufacturers, according to an analysis by IHS. The research firm said that big electronic brands will find risk being associated with manufacturing concerns with labor concerns, much the same way that shoe brands and clothing lines had trouble in the closing decades of the 20th century.

Foxconn Contract ManufacturerImage via Shutterstock.

Last month’s revelation that accusations of worker mistreatment at Apple supplier Foxconn made by author and actor Mike Daisey were based on fabricated information was greeted with pleasure by media and consumers who supported Apple during its brief but intense moment in the spotlight of labor and human rights ire. 

However, a new examination, independent of Mr. Daisey, has since been conducted by the Fair Labor Association, of which Apple is now a member. The FLA audit revealed that “significant issues” remain at Apple’s Foxconn factories.

From the report:

The nearly month-long investigation found excessive overtime and problems with overtime compensation; several health and safety risks; and crucial communication gaps that have led to a widespread sense of unsafe working conditions among workers.

IHS suggested that, similar to the “sweatshop” manufacturing backlash faced by the clothing and shoe companies in the 1980s, the electronics industry’s own “day of reckoning” is upon us. 

Most of the industry focus has been on the increase in manufacturing costs associated with a rise in worker safety and compensation, and how those increased costs will lower industry profits or be passed on to the consumer. IHS argued that the greater worry for electronics companies should be their relationship with contract manufacturers, which topped $360 billion last year, and how a widespread consumer backlash could jeopardize the profits of both parties. 

“The real impact is on the overall relationship of electronic brands with contract manufacturers like Foxconn,” Thomas Dinges, senior principal analyst, electronics contract manufacturing for IHS, said in a statement. “Brands now realize that the biggest risk in dealing with contract manufacturers lies in the potential public relations disasters that can arise from worker’s rights issues.”

As contract manufacturing is a huge part of the electronics industry, accounting for over 20 percent of all manufacturing revenue in 2011, it is inconceivable that electronics brands like Apple, Samsung, and Sony will sever their ties to companies with labor issues. While these companies may attempt to seek alternative locations for manufacturing in an effort to distance themselves from frequent worker safety violators, IHS points out that the extensive supply chain and infrastructure already established in China means that the bulk of global electronics manufacturing will continue to take place there.

The result, therefore, is that these brands must take action now to improve working conditions at their contracted manufacturers and avoid the imminent public and moral backlash that is likely to occur if the situation fails to improve.

Apple has been proactive in trying to get ahead of the issue in its own supply chain. In addition to joining the FLA, as mentioned above, CEO Tim Cook has spoken publicly on the importance of worker well being. The company has also posted a Supplier Sustainability Report that includes ongoing and updated information about worker safety and conditions.