Apple’s China Problems

The New York Times traces the human element of Apple’s supply chain in a lengthy report on conditions at the Chinese factories that make its wildly popular devices:

Some former Apple executives say there is an unresolved tension within the company: executives want to improve conditions within factories, but that dedication falters when it conflicts with crucial supplier relationships or the fast delivery of new products. On Tuesday, Apple reported one of the most profitable quarters of any corporation in history, at $13.06 billion, on $46.3 billion in sales. Its sales would have been even higher, executives said, if overseas factories had been able to produce more.

Executives at other corporations report similar internal pressures. This system may not be pretty, they argue, but a radical overhaul would slow innovation. Customers want amazing new electronics delivered every year.

“We’ve known about labor abuses in some factories for four years, and they’re still going on,” said one former Apple executive who, like others, spoke on the condition of anonymity because of confidentiality agreements. “Why? Because the system works for us. Suppliers would change everything tomorrow if Apple told them they didn’t have another choice.”

“If half of iPhones were malfunctioning, do you think Apple would let it go on for four years?” the executive asked.

The New York Times also partnered with China’s Caixin to publish the article in Chinese, and has collected numerous comments about the article from Chinese netizens:

Below are some of the hundreds of comments about the Chinese article that were posted on Caixin’s Web site and on Weibo.com, a Chinese microblogging Web site, and other Chinese social media platforms. These comments were collected and translated by Wang Qidi and Cathy Cheng.

I read this story and I’m saddened. It’s not only Apple that should be blamed, but also the system that tolerates its existence. Made-in-China should not be synonymous with the blood and sacrifice of young lives. — Evita

When local governments are trying to attract new investments to their regions, they always emphasize the low-cost labor in their areas. How pathetic! — Jiangsu

By the way, construction workers and farmers are also living a harsh life in China, shall we also boycott housing and grains? — Zhou Zhimei

Focus has recently shifted to the human costs of Apple’s supply chain, including conditions at the much-maligned Foxconn factories in southern China, after Apple also came under fire in 2011 as concerns grew over the environmental costs of its products. The tech giant released a list of its major suppliers earlier this month as part of a Supplier Responsibility Progress Report on its web site.

Apple may now have another China problem on its hands, according to The Financial Times – How to meet the staggering demand for its products by consumers in China, where a frenzy outside one of its Beijing stores earlier this month prompted the suspension of all iPhone models:

What should it have done? Theoretically, it could have raised prices – introducing a premium for day-one sales. But this could have courted a different kind of public relations disaster, with Chinese customers complaining they were being ripped off for buying what is already a high-priced product.

Apple should probably have concentrated more stock in the Beijing and Shanghai flagship stores, given their importance in China – and within Apple. The customers would have waited patiently if they had been confident of buying phones – as they have all over the world. There have been stories of scalpers causing trouble in Apple queues, but if the company can manage crowds in other countries, why not China?

These are the customers that Apple needs to keep happy – not just because they are loyal but because they are concentrated at two of the highest-profile outlets on the globe. If necessary, the company should have raided the online sales depots – and transferred stock. The online customers would have been unhappy with delays and even cancellations, but their complaints could be more easily managed. Nor have they queued up overnight in the cold. In the worst case, where would they have thrown their eggs?