ELECTRONICSAny committed foodie will wax lyrical about the value of provenance—the integrity of the food, the care and craft behind creating it. How long, then, before this middle-class preoccupation with quality, traceability and plain goodness of the things we buy extends into technology? We suspend our ethics when Apple launches a new phone. That unboxing is a virgin moment, as if the phone morphed inside the box from the tiny sparkling seed implanted by Jonathan Ive. Slide your finger through the Designed In California seal and your phone takes its first breath.
—Jemima Kiss, “The Real Price of an iPhone 5” (2012)
IN EARLY 2012 THE NEW YORK TIMES RAN THE FIRST OF A SERIES OF articles outlining health, safety, and working conditions in Apple’s Asian supply chain (Duhigg and Barboza 2012).1 This was not the first time poor conditions at Apple’s partners were reported. Labor rights and student groups in the United States and Hong Kong had been publicizing exploitation in the electronics industry for nearly a decade, and a string of suicides in 2010 by employees of Foxconn, a key Apple supplier in China, captured international attention (e.g., Dean and Tsai 2010). But the Times coverage was by far the most extensive exposé of Apple’s supply chain.
At the time, Apple had the largest stock market capitalization in the world, $550 billion. Under the previous reign of CEO and cofounder Steve Jobs, Apple had mostly avoided responding to complaints of poor working conditions. Jobs had commented in 2010, “I actually think Apple does one of the best jobs of any companies in our industry, and maybe in any industry, of understanding the working conditions in our supply chain” (qtd. in Duhigg and Barboza 2012). Yet the Times article highlighted repeated instances of employees at Apple’s suppliers working twelve-hour days, six days per week, being ordered to use poisonous chemicals to clean iPad surfaces, or living with twenty people in a three-room apartment. A deadly explosion inside a factory in Chengdu, China, in 2011 seemed less idiosyncratic as the Times unearthed recurrent problems in worker health and safety.
While the series focused on Apple, it did not leave other global electronics giants, such as Hewlett-Packard (HP), IBM, Nokia, and Sony, unscathed. The Times’ findings, while perhaps not surprising to scholars and activists (Ferus-Comelo 2008; Smith, Sonnenfeld, and Pellow 2006), increased public attention to the ethically precarious foundations of an industry that is adored almost universally—by consumers for its technological innovation, by investors for its high profitability, and by policy makers in developing countries for fueling economic development and technology transfer.
The electronics industry is very dynamic, on almost every dimension more so than the other industries discussed in this book.2 It is large, global, and rapidly expanding. Manufacturers of consumer electronics and information and communications technology (ICT) had revenues of more than $3.6 trillion in 2012, a figure that is projected to grow even more with the burgeoning “Internet of Things” market (that is, the network of connected devices) (MacGillivray, Turner, and Lund 2013). The industry’s leading companies have strong management, well-capitalized balance sheets, substantial cash flows, and deep technological and innovative capacities.
Why, then, have these companies struggled with accusations of exploitation in their supply chains? If they can introduce complex new products to diverse global markets every four to six months, why can they not manage to ensure fair conditions of production? Furthermore, the challenges in electronics extend beyond working conditions to environmental hazards and the use of “conflict minerals.” Certainly the problem cannot be constrained resources, a justification broadly seen in industries with low profit margins and strong pressures for price reduction (like many parts of the apparel industry, as analyzed in chapter 5). Moreover, while most electronics production occurs in newly industrializing Asian economies such as China and Thailand, these are not weak states incapable of enforcing standards. They actively manage complex economic agendas and volatile political environments. While lower-technology industries (e.g., apparel) can threaten to exit a country if labor costs and regulations increase, electronics manufacturers have relatively high fixed capital investments, which makes relocation costly. Why, then, do these states not enforce their own labor laws, particularly in an industry that is well resourced enough to meet them and not itching to leave?
In this chapter we consider why working conditions in the electronics industry have been so difficult to improve. The answer, we argue, has much to do with the structure of consumption and production. Consumers’ seemingly insatiable desires for the latest technology have supported a system of production that can deliver on these demands but does so by demanding an extreme degree of flexibility by production workers. Given the interest of newly industrializing countries in development and technology transfer, the organization of work and its lack of regulation have also been shaped by the policies of governments. Electronics manufacturers have developed some rules for themselves, in the form of company-specific codes of conduct and the Electronic Industry Citizenship Coalition. As we show, these standards are not especially stringent and are often watered down in the auditing process. However, the fundamental problem is not in these self-regulatory standards, but rather in a system of production that pushes directly against what these standards call for.
As the case of Apple illustrates, major electronics brands are being pushed to take labor standards more seriously, but the results are quite ambiguous. After years of downplaying their responsibilities, Apple responded to the New York Times series by asking the Fair Labor Association to audit its suppliers (Duhigg and Wingfield 2012). Labor groups protested that the FLA is biased to brands—as discussed in the previous chapter—but Apple’s turn to an outside organization is certainly notable for a company that has long relished its privacy. Apple’s decision may have been influenced by fears of a diminishing corporate reputation, but one thing is certain: it was not driven, directly at least, by the phenomenon that motivates this book—conscientious consumption. The electronics industry has faced few organized boycotts and until very recently almost no efforts to offer “alternative,” ethically made products. Observers have often wondered if Apple will be the “new Nike,” referring to the extended anti-sweatshop pressure against that company. Yet as an Apple executive told the New York Times, “You can either manufacture in comfortable, worker-friendly factories, or you can reinvent the product every year, and make it better and faster and cheaper, which requires factories that seem harsh by American standards. . . . And right now, customers care more about a new iPhone than working conditions in China” (Duhigg and Barboza 2012). What is it about the electronics industry, with all of its distinct characteristics—technology, innovation, profitability, size—that subjects it to the same intractable problems that observers thought belong only to lower-technology, labor-intensive industries such as footwear and apparel?
Like many other industries discussed in this book, the electronics industry is composed of a complex, disaggregated global network of companies for manufacturing and a relatively small number of dominant national retailers for distribution. Yet consumption and production are tightly linked through a fascinating system of information gathering, “pull-based” ordering, and rapid assembly. In the following section we describe this architecture, how it came to be, and how governments have sought to harness it for economic development.
Beginning in the late 1980s retail markets in the United States and Europe underwent rapid consolidation, especially with the rise of “big box” retailers such as Best Buy and Walmart in the United States and Dixon’s and Media Markt in Europe. By the mid-2000s the market share of the four largest retailers in the United States and most European countries was well above 50 percent. Even with an oligopolistic retail structure, the electronics industry has continued to evolve rapidly. Amazon.com has become the fourth-largest retailer of consumer electronics in the United States (Smith and Wolf 2011). Adoption rates for consumer technology and e-commerce have soared over the past decade. The smartphone has now outpaced all previous technological innovations in the speed of achieving mainstream use (DeGusta 2012). In developing countries, globalization and market liberalization have opened up substantial new markets, creating hundreds of millions of new electronics consumers and hundreds of new competitors to established American and European brands.
In this highly dynamic context, electronics brands introduce new models to remain differentiated. This is especially important in fiercely competitive and “winner take all” markets such as those for smartphone operating systems (Schilling 2002). Apple has shortened the average time between new iPhone/iPad rollouts from more than a year in 2008 to just four months in 2012. Samsung reduced its new product rollout time to just ninety-one days in 2013 (Marketwatch 2013). The leading firms, including IBM, Nokia, Motorola, Apple, and HP, have been able to accomplish these shorter cycles by shifting from vertically integrated production structures to outsourced manufacturing, concentrating their own competencies on nonproduction activities (e.g., design, marketing, and research and development) (Gereffi, Humphrey, and Sturgeon 2005; Sturgeon 2002; Sturgeon and Lester 2002). Beginning in the 1990s and accelerating into the 2000s, these firms divested their manufacturing and production facilities to leading contract manufacturers, including Taiwanese companies such as Hon Hai Precision Industries (better known as Foxconn) and Quanta and US-based companies such as Flextronics and Jabil.
This shift from vertical integration to horizontal global value chains was hastened by three factors. Globalization facilitated cross-border production, and “financialization” encouraged large firms to shed manufacturing to focus on their “core competencies” (Davis 2009). But it was the third factor—rapid technological advance—that most facilitated the remaking of the industry’s production architecture and accelerated its growth. Earlier generations of computing equipment were sold as integrated products with closed systems. IBM historically delivered mainframe computers that used proprietary software and hardware. Minicomputer makers such as Digital Equipment Corporation (DEC) and Wang followed a similar path, using proprietary operating systems and peripherals that locked customers into the same manufacturer’s product family for many years. Manufacturers privileged reliability over new technologies given their hold on customers, and companies chose to be vertically integrated in order to ensure their systems remained stable. Most leading firms in the 1970s maintained their own “wafer fabs” (semiconductor wafer fabrication factories), while almost no computer companies do so today.
IBM’s decision in 1982 to enter the personal computer (PC) market ended this era. It introduced standardized product architectures and interfaces by breaking the PC into a series of tasks that could be easily codified into distinct modules. Because of this, components and subsystems could be designed independently but expected to function as part of the larger product (Baldwin and Clark 2009). Transparent product standards allowed component and peripheral manufacturers to develop new products, such as hard disk drives and monitors, without having to rely on the larger companies for product integration. Perhaps most importantly, this “modularity” enabled new entrants into product markets. Cisco and other startups never had to build manufacturing plants. Instead they were able to rely upon this nascent group of contract manufacturers for all of their production needs. If a company such as Dell chose to assemble its own product, it still completely outsourced all component manufacturing.
Modularity allowed electronics companies to introduce new products faster and more broadly, but they soon learned that this was a double-edged sword, since new products hastily came into competition and sometimes failed. By integrating modular components into novel products, firms could reduce costs and increase selection, but so could their competitors. Product markets quickly became “commoditized”—that is, markets in which products were almost indistinguishable—as competitors imitated one another’s innovations. A common operating system reduced switching costs for consumers, driving retail prices down and pushing manufacturers to reduce costs.
In addition to lower profit margins, electronics firms faced the challenge of managing “network effects”—in other words, the need to have many users before the benefits of a technology can be fully realized. Electronics equipment often requires a period of gestation before an accumulation of users begins to make further purchases almost inevitable. For consumers, network effects mean there are incentives to join with a rapidly expanding set of users, which in turn increases the network’s power and utility, creating a virtuous circle (Katz and Shapiro 1994). VCRs, fax machines, and, more recently, location-based smartphone applications have all grown via network effects.
For electronics companies, building a technology platform that enables network effects is highly rewarding but also increasingly challenging. On one hand, once consumers experience the benefits of a network, they become resistant to switching product families. On the other hand, the potentially cascading gain or loss of customers due to network effects means companies constantly develop new products out of fear that competitors will steal their current users. As Annabelle Gawer and Michael Cusumano (2002) put it, “The balance of power among component providers is tenuous because continuous innovation on components can alter the drivers of demand. As a result, positions of leadership, whether technical or market-share leadership, are in a constant state of challenge” (3). Research in Motion’s Blackberry network moved quickly toward obsolescence as the company struggled to match Apple’s iPhone, despite repeated new product offerings. Rapid advances in technology compound the threat of obsolescence. According to one Dell executive, “Inventory has the shelf life of lettuce” (qtd. in Catholic Agency for Overseas Development 2004). Companies must be extremely careful to minimize inventory of finished products, because as Tim Cook, the current CEO of Apple, is fond of saying, “Nobody wants to buy sour milk” (Satariano and Burrows 2011).
Electronics companies divide their innovative and productive labor to meet this challenge. Research and development (R&D) expenditures amount to 8–10 percent of revenues, higher than any other global industry (Jaruzelski, Loehr, and Holman 2013). Electronics brands focus on R&D, design, and marketing, leaving manufacturing and industrial engineering to their component suppliers and contract manufacturers. Given this new division of labor, contract manufacturers have grown rapidly. By 2008 the leading contract manufacturers had plants in dozens of countries. Most manufacturing takes place in Asia, with significant activity in Mexico and Eastern Europe as well (New Venture Research Corporation 2009). We estimate that roughly 70 percent of global electronics manufacturing currently takes place in East and Southeast Asia, much of it in China. Apple may promote the “Designed in California” tagline, but “Made in China” is commonly in the fine print.
A small number of international buyers and suppliers control much of the electronics market. Since consumer-facing brands still control the industry’s product definition, design, and innovation trajectories, they are able to capture most of the profits from new technologies and high-end markets (Sturgeon 2002). Breaking down the production and sale of Apple products, Kenneth Kraemer and his colleagues (2011) found that Apple captures close to 60 percent of an iPhone’s retail price. Material, component, and labor costs constitute roughly 27 percent of the price, leaving just 15 percent for every other participant in this global value chain. For some products Apple’s share is even higher (Clark, Kraemer, and Dedrick 2009).
There is evidence that large contract manufacturers such as Foxconn and Flextronics may be catching up with lead firms such as Apple, Dell, and HP in terms of revenue and employment. Moreover, some large and diverse contract manufacturers (e.g., Acer, which had revenues of $14.7 billion in 2012) have successfully established their own computer hardware brands. Yet much of the profit continues to be captured by branded lead firms rather than the contract manufacturers responsible for production. In 2009, a year after the financial crash, the electronics industry’s top five contract manufacturers lost a total of $4.4 billion. This may not seem surprising, except that the large brands had the opposite result. That same year, the total net income for the five largest lead firms was $37.8 billion.3
The new division of labor in the electronics industry has been greatly facilitated by the success of electronics companies in Japan and South Korea, with support from the state, in the 1980s and 1990s. Newly industrializing countries, particularly in Asian countries such as China, Thailand, Malaysia, and the Philippines, have sought to reproduce that success by aggressively courting electronics companies. Their idea is that “developmental states” can help firms with low capabilities (e.g., assemblers) to eventually “move up the value chain,” where profits and technological capacities are much higher. Drawing on the success of the Korean developmental state (see Amsden 1989), policy makers have repeatedly sought to construct the right set of conditions for firms to adopt imported technology and then advance it while absorbing unemployed or displaced workers. As scholars of “industrial upgrading” have argued, firms may start on the bottom rung of technological tasks and then work their way up to increasingly complex activities, gaining experience, higher profitability, and diversification as they go (Gereffi, Humphrey, and Sturgeon 2005). For governments of developing countries, electronics production also brings the potential spillover benefits in the form of R&D and management training.
Policy makers often point to the Korean company Samsung as proof that mastering a technology platform allows firms to embark on new, higher-value activities in other industries. Samsung shifted from consumer electronics assembly to very large-scale integrated-circuit (VLSI) manufacturing (Kim 1997), helping it to eventually become a major electronics brand. Thus, by subsidizing electronics suppliers, policy makers expect local firms to move from absorption of foreign technology, to mastery, and finally on to product definition and design (Ohno 2009).
Governments in Southeast Asia and China aggressively courted contract manufacturers, offering tax holidays, building ports, and setting up free-trade zones that eliminated import duties on intermediates. Firms were also attracted by abundant labor, low wages, and perhaps most importantly, flexible labor markets, which governments constructed or maintained. Foreign firms were typically sorted by common language, ethnic networks, or both: American semiconductor manufacturers set up operations in English-speaking Malaysia in the late 1970s, and Taiwanese firms moved into south China ten years later. By 2009 exports of consumer electronics and information technology (IT) equipment were exceeding 30 percent of total exports in some countries (World Bank 2009). Given its importance in economic development plans, the industry typically maintains very strong relations with the state.
Leading electronics brands have been quite effective at standardizing technologies and assembly practices (Lüthje 2002; Sturgeon 2002), but managing labor standards has been more problematic. As contract manufacturing expanded, NGOs exposed low pay for production workers, deductions for performance and discipline, and exposure to hazardous materials (Catholic Agency for Overseas Development 2004; Good Electronics 2009; Schipper and de Haan 2007). Scholars followed with detailed research on working conditions in electronics plants, pollution from electronics manufacturing, and the problem of toxic e-waste (i.e., toxic substances like mercury, cadmium, and arsenic in discarded or recycled electronics) (Smith, Sonnenfeld, and Pellow 2006). As has become especially clear in China, the rapid growth of export-oriented manufacturing has left serious environmental scars (see Streets et al. 2006).
Workers in electronics assembly factories are typically in-country or foreign migrants who have been subject to high recruitment fees they must pay to the labor agencies that matched them with their jobs (Catholic Agency for Overseas Development 2004; Chan and Peyer 2008). Often, these agents would hold the workers’ passports until the fees—sometimes amounting to a year’s worth of base pay—were paid. As production quantities have increased, contract manufacturers have drawn on greater numbers of contingent workers. This not only limits the payment of benefits, but as we will see, it is also crucial in allowing companies to hire and fire employees rapidly in response to volatility in demand. Intentionally or not, reliance on contingent workers also pushed migrant workers into the informal economy, where immigration enforcement was weak and contract agencies could maintain a reserve supply of abundant and flexible labor (Locke and Samel 2012).
This combination of intermittent low-skilled assembly work and large numbers of contingent or migrant workers exacerbated existing problems, including excess working hours, no benefits, and negligent safety practices. A wave of suicides at Foxconn’s onsite dormitories in 2010 brought the plight of migrant workers in the electronics industry to international attention (Interfaith Center on Corporate Responsibility 2010). The suicides may be linked in several ways to the organization of work in the electronics industry. The first suicide, in July 2009, was committed by an employee accused of facilitating a leak of secret design information. A Foxconn human resources (HR) manager described what happened:
When Sun Danyong, 25 years old, was held responsible for losing one of the iPhone 4 prototypes, he jumped from the 12th floor to his death. Not only the short delivery deadline but also Apple’s secretive culture and business approach, centered on creating great surprise in the market and thereby adding sales value to its products, have sent extreme pressure all the way down to its Chinese suppliers and workers. (qtd. in Chan, Pun, and Selden 2013, 107)
Second, as a wave of suicides unfolded in 2010, many observers saw this as reflecting the high pressure, dehumanizing work hours, and tight discipline imposed on ordinary production workers (Chan, Pun, and Selden 2013).
Of course, many migrant workers in China and elsewhere seek to maximize their earnings by working large numbers of overtime hours. Because overtime pay is often calculated only on the sixth and seventh days of work, a preference for working through the weekend is not uncommon. Managers and migrant workers may have their interests aligned when it comes to long hours of work, but this position is in tension with the arguments of NGOs, scholars, and other employees that hours must be restricted in order to prevent work from being dehumanizing. The hope of limiting working hours as a way to promote decent work in the electronics industry has repeatedly crashed against a system of production that demands the flexibility to work very long (or short) hours.
In addition to problems in the manufacturing process, electronics brands have been forced to consider the sources of the minerals that are used in components. NGOs such as Global Witness and the Enough Project have publicized the use of “conflict minerals” in the production of smartphones and other electronics (Khan 2013; Lezhnev and Hellmuth 2012). Referred to as 3TG, conflict minerals are tantalum, tin, tungsten, and gold. Tantalum is used in capacitors, which store energy; tungsten is used in wires; tin is used for soldering; and gold is used for component connections. These minerals are frequently mined through forced labor in zones of extreme conflict in central Africa, then smuggled out of the country to Asian smelters for refinement, generating significant revenues for local armed militias. In the Democratic Republic of the Congo (DRC) and Central African Republic, powerful militias have been able to force children into dangerous mines, buy arms with mineral proceeds, and then force the same children into battle zones (Banco 2011).
The United Nations has joined NGOs in calling on the electronics industry to end the trade in conflict minerals, and there does appear to be some change afoot in this part of the industry’s operations. Electronics brands have begun to audit 3TG smelters to trace their sources, and the Electronics Industry Citizenship Coalition has called on its members to mandate that only approved suppliers are used. Because alternative sources of the 3TG are available, public concern has had some impact in delinking electronics from violent conflicts in Central Africa. In 2012 the Enough Project reported that a sufficient number of leading electronics companies had made enough progress in identifying their sources of 3TG that the amount earned by militias since 2010 had shrunk by 65 percent (Lezhnev and Hellmuth 2012). Furthermore, a little-known provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was passed in 2010, requires publicly traded companies to trace and disclose the sources of 3TG in their products (KPMG 2011). Still, identifying the origin of minerals and stopping their transshipment is difficult, since the companies that are subject to this law and to public pressure buy ready-made components. In addition, minerals from conflict zones may be blended with ore from other countries before shipment.4
Might the steps that have been taken on conflict minerals bode well for reform of labor conditions in the global electronics industry? To answer this question we turn to our analysis of the origins and effects of rule-making projects for fair labor in electronics production. As we will see, electronics brands have struggled to comply with the very standards they have created for themselves.
While consumers in the United States and Europe began hearing about sweatshops in apparel and footwear manufacturing in the mid-1990s, most remained blissfully unaware of the hidden costs of computing. By the early 2000s NGOs were publicizing poor working conditions in electronics, and electronics companies soon began to adopt standards for their supply chains. But neither the activism nor the corporate responses generated the kind of public debates that have surrounded the other products examined in this book. Rule-making projects in the global electronics industry have been limited in their interaction with nonindustry stakeholders and in their impacts at the point of production.
A 2004 report from the Catholic Agency for Overseas Development (CAFOD), titled “Clean Up Your Computer,” was among the first to highlight labor rights abuses in the global electronics industry. Building on “naming and shaming” campaigns in the apparel and footwear industry, the report focused on the supply chains of HP, IBM, and Dell. It documented discrimination against pregnant women, abusive management styles, subminimum wages, and health hazards in the electronics factories of Mexico and China (Catholic Agency for Overseas Development 2004; Raj-Reichert 2011). The Dutch NGO Stichting Onderzoek Multinationale Ondernemingen (SOMO) has since become a major player in highlighting labor rights abuses in the electronics industry. It coordinates the “Make IT Fair” campaign to inform European consumers about the conditions under which their mobile phones and laptops are manufactured, and it hosts the Good Electronics network, which provides research to socially responsible investors. Closer to the point of production, Hong Kong—based SACOM (Students and Scholars Against Corporate Misbehavior) and other groups have used undercover investigations to document overwork, underpayment, and serious safety hazards (including dangerous exposure to benzene, hexane, and aluminum dust) (see, e.g., Chan and Peyer 2008).
Some socially responsible investors have pushed electronics companies to change. For instance, the Interfaith Center on Corporate Responsibility (ICCR) successfully lobbied Apple to adopt a code of conduct, eventually leading it to join the Electronic Industry Citizenship Coalition as well.5 The most significant outcome of NGOs’ and investors’ efforts has been increased transparency in some parts of the industry. Apple and HP now publish lists of their top suppliers, making it easier for researchers and activists to assess improvements in their supply chains. Still, unlike the anti-sweatshop movement in the apparel industry, there have been few sustained social movement campaigns targeting electronics brands, and it was not until the New York Times flexed its investigative muscle and broad distribution that Apple felt significant pressure. Even as conscientious consumption has become popular, consumers have mainly focused on product features and quality when selecting electronics.
Very soon after the CAFOD report, HP, IBM, and Dell joined together with five contract manufacturers (Celestica, Flextronics, Jabil, Sanmina SCI, and Solectron) to form the Electronic Industry Citizenship Coalition (EICC). While voluntary initiatives in other industries have often been organized at least in part by NGOs, the EICC was created by the industry for the industry, without outside help. By the end of 2008 the initiative had grown to forty-five member companies, including most well-known brands (e.g., Apple, Intel, Lenovo, Microsoft, Sony, Samsung), a key retailer (Best Buy), and additional contract manufacturers (e.g., Foxconn, Pegatron/Asus) (EICC 2009). By 2012 the organization had grown to seventy-eight member companies, representing $1.7 trillion in revenue. In perhaps a measure of the industry’s power, no other stakeholders have taken on roles in the EICC since the organization’s founding. As Luc Fransen and Thomas Conzelmann (forthcoming) show, concerns about electronic waste and environmental damage eventually led the EICC to propose that NGOs might join in an advisory-only role, but NGOs have declined to accept this marginal, token position.
The EICC developed an industry-wide code of conduct, which currently focuses on five dimensions: (1) labor (e.g., banning forced labor and child labor, limiting working hours), (2) health and safety (e.g., controlling workers’ exposure to hazardous materials, promoting emergency preparedness), (3) environment (e.g., pollution reduction, monitoring of emissions, acquisition of necessary permits), (4) ethics (e.g., against bribery and for intellectual property rights), and (5) management systems (e.g., to systematize risk assessment, training, and corporate social responsibility).6 Consistent with the lack of involvement of nonindustry groups, the EICC code covers a wide terrain but is not as demanding as the codes of “multi-stakeholder” initiatives in other industries. As Fransen and Conzelmann (forthcoming) put it, “Compared to labor standards in clothing, the social part of EICC’s standards is arguably lax. There is neither reference to ILO standards nor to living wage requirements, and soft language on rights of association” (17). The content of the EICC code is consistent with our claim in the introduction that industry-initiated programs tend to promote “best practices” rather than alternative production practices. As we will see, the dynamics of the electronics industry have often frustrated even the achievement of best practices.
In addition to its code, the EICC has sought to facilitate efficient auditing of labor and environmental conditions in electronics supply chains. In partnership with GeSi, a European group of ICT companies interested in sustainability, EICC developed a self-assessment questionnaire for suppliers that serves as the basis for auditing and evaluation of improvement. Critics have questioned this “non-rigorous process of self-regulation,” since, as one NGO representative noted, “managers can lie on the forms” (interview with Good Electronics Network member, qtd. in Raj-Reichert 2012). Unlike most initiatives discussed elsewhere in this book, the EICC has relied largely on member companies themselves to conduct or arrange factory auditing. The coalition also asks brands’ first-tier suppliers (e.g., Foxconn or Flextronics) to be responsible for training and auditing second-tier suppliers (i.e., factories making processor chips and other inputs) (Raj-Reichert 2011).
There have been some shifts toward external auditing, however. Since 2010 EICC has added a “Validated Audit Process” by which key suppliers are audited by providers that have been approved by the International Register of Certificated Auditors (IRCA), an oversight body for management systems auditing. These audit results are intended to be sharable among EICC members, in hope that pooling information can further enhance the efficiency of industry compliance efforts. In addition, while most EICC members have relied heavily on their own internal compliance programs (Satariano and Burrows 2012), Apple’s recent turn to the FLA and HP’s recent participation in Social Accountability International suggest that the electronics industry may be inching toward broader engagement with nonindustry actors and the kinds of initiatives discussed in chapter 5.
Global rule making for electronics, then, has been accomplished largely by companies themselves, although they have drawn on existing management system standards for occupational health and safety (i.e., OHSAS 18001) and have been nudged by NGO pressure and media attention to seek greater credibility for their self-regulatory program. The early results of EICC’s own assessments also illustrated that there was much room for improvement. A 2008 survey of EICC companies found that 90 percent saw long working hours—in excess of sixty hours per week—as a continuing challenge. Most (59 percent) also mentioned concerns about wages and benefits, such as withholding or deductions from pay for disciplinary punishment. Fewer were concerned about occupational safety and hazardous substances (33 percent and 30 percent respectively), but 60 percent saw emergency preparedness as a problem (EICC 2009). In the sections below, we go further in assessing the auditing done by EICC member companies and the extent to which progress has been made.
To understand the implementation of rules for fair and sustainable electronics manufacturing, one of us (Samel) and a fellow group of researchers from the Massachusetts Institute of Technology (MIT) studied a company that has both reasons and resources to comply with standards, Hewlett-Packard.7 This study of HP’s global supply chain is one of very few that have had access to audit results and corporate practices over time, and it has offered a number of insights into how rules are interpreted and implemented on the ground.
At the time of the study (2009), HP ranked ninth on the Fortune 500 list of the United States’ top firms by revenue and thirty-second globally, having surpassed the industry’s long-time leader, IBM. The company has a large and complex supply chain, which allowed it to ship more than forty-eight million PCs and fifty-two million printers that year (Ward et al., 2010). HP also has a strong corporate culture, reflected in a set of norms known as “The HP Way.” Handed down from the firm’s founders, “The HP Way” stresses not only factors such as technical contributions, corporate performance, and trust but also the question of “Are the communities in which we operate stronger and the lives of our employees better than they would be without us?” (Collins and Packard 2005, iv). HP has been lauded by various ranking systems: Newsweek ranked HP first in its Green Rankings in 2009; Corporate Responsibility magazine rated it the best corporate citizen in 2010, and Fortune has named it first in social responsibility in the computer industry. HP publishes an annual CSR report and has a board-level committee to oversee the company’s global citizenship.
Consistent with this culture, HP employees became early advocates for labor standards. Well before the public exposure of poor working conditions and the formation of the EICC, HP engineers who were supervising the shift of company-owned printer-manufacturing facilities from the United States to overseas were struck by the lack of labor standards on their visits. During one trip they took multiple photographs surreptitiously, which they assembled into an album and distributed internally to provoke a reaction.8 In response, the company developed its first supplier code of conduct in 2002. As noted above, it was a founder of the EICC and one of the few electronics companies to publicly disclose a list of suppliers. HP has its own internal department to monitor compliance with its code of conduct and group of in-region auditors with engineering backgrounds to oversee audits and work with suppliers. Given HP’s resources and commitments, one might expect it to effectively monitor and improve conditions in its supply chain. However, the pitfalls have been substantial.
HP’s social auditors are not full-time auditors but rather members of the company’s Global Procurement Services division, based in regional offices around the world. Yet unlike auditors in other industries, they have industrial engineering backgrounds, extensive plant experience, and broad understandings of process engineering. First-time supplier audits usually take two days and make broad use of document reviews, manager interviews, worker interviews, and production line observation. All audits are scheduled in advance, which may give suppliers time to prepare their facilities and coach their employees. Yet this is just one reason why auditing is not as clear-cut as it may initially seem.
Another challenge is that significant violations to one auditor may not seem as egregious to another. Production practices that violate the EICC code are scored as either major or minor violations/nonconformances. Major nonconformances represent systemic issues, including “significant failure in the management system” and “failure of an organization to verify its compliance to applicable laws and regulations.”9 Such major violations may include the employment of underage workers, forced labor, excessive working hours, and safety hazards that pose immediate or serious danger. In contrast, a minor violation is “typically an isolated or random incident” (Locke et al. 2012). Yet consistent with other observations in this book (see especially chapter 3), in practice the line between major and minor violations can be fuzzy and unreliable. Interviews with auditors revealed that they often struggle with the decision between major and minor violations. Furthermore, the MIT team’s examination of audit reports found that some violations that were categorized as minor reflected much larger systemic problems in basic working conditions.10
For example, one audit report stated that “a tour of the site found that the emergency exits in the manufacturing area are locked.”11 In another factory the auditors noted wage problems: “the performance bonus is [below standards] and the transportation allowance is zero, resulting in a total less than the basic wage requirement . . . and is inconsistent with the information HR management provided to HP auditor.”12 Despite signifying fundamental problems, both of these observations were noted as minor violations. This suggests that the auditing process is biased toward minor violations and assurances of compliance rather than findings of noncompliance.
In addition, auditors rely heavily on documentation of management processes, increasing the chances of finding compliance when there may still be behavioral violations. For instance, HP’s audits reveal significant improvement in eliminating discrimination in hiring. The rate of compliance increased by 25 percent from the initial to final audit.13 Yet with no measure for assessing discriminatory practices, auditors relied on whether there were explicit, discriminatory statements in hiring advertisements. Initially they found such statements. As one audit reported, “Upon review of [the facility’s] recruitment advertisement, it was discovered that it specified age (17–23), height (female: +1.53m; male: +1.65m), vision requirements and colorblind is prohibited.”14 Indeed, gender, age, and height requirements are commonly used in Chinese labor markets (Kuhn and Shen 2013). Yet in a subsequent audit the facility was judged to be compliant with nondiscrimination rules because “the facility has a nondiscrimination policy in place and no discriminatory requirement was found in the recruitment advertisements.”15 But, of course, removing discriminatory language from recruitment materials is different from stopping discrimination. Factories may still discriminate in favor of young women and against older workers or those who are expected to be less docile. One HR manager explained her preference for female workers by explaining that “twenty-year-old men are mischievous.”16 In the factory found to be in compliance, 90 percent of workers were women, which the company claimed was “due to the major production lines needing to have detailed work done by hand.”17 These observations suggest that auditors have difficulty assessing employment discrimination through document review or worker interviews.18
Notwithstanding significant efforts by HP and the EICC, analysis of HP’s audit reports from 2004 to 2008 reveals persistent problems. At the end of this period nearly 60 percent of audited facilities, including those with follow-up or periodic audits, had routine workweeks longer than sixty hours per week. In 40 percent of the plants, emergency planning, training, and evacuation procedures were poor or nonexistent. Finally, 32.5 percent of audited firms had some troubles with their management of hazardous materials, and 30.2 percent had wage and benefit problems, such as failing to meet the legal minimum or failing to pay the required premium for overtime work.
When these top four violations are examined by year of audit, a clearer picture of improvement (or the lack thereof) begins to emerge. If “best practices” are being promoted by HP and EICC, then we would expect factories to demonstrate improvement over time. However, the rate of audit failure in these four areas tended to increase over time (from 2004 to 2008), with some improvements in wage and benefit requirements occurring more recently. In addition, as factories are subject to more auditing, we might expect to see improvements, whether because of policing, learning, or both. But here too, except when it came to wages and benefits, violations increased. Violations of working-hour limits became especially problematic, occurring at nearly twice the rate of the next most common violation, emergency preparedness (67 percent vs. 35 percent).
It has become clear to many scholars and practitioners that factory auditing mainly generates superficial attempts to “pass” auditors’ checklists (as described in the apparel industry in chapter 5). In response, many have argued that lead firms can and should help their suppliers gain deeper capabilities to make their operations both more ethical and more productive (Locke, Amengual, and Mangla 2009; Locke et al. 2007; Sabel 2007). Such capabilities include technical know-how, effective management systems, and interviewing/communication skills. Electronics firms, including HP, have initiated “capability-building” programs to enhance their management skills and remedy whatever organizational deficiencies might be causing poor working conditions. HP has not only led such initiatives; it has also trained its first-tier suppliers to provide auditing and training deeper into the supply chain.
One of HP’s capability-building programs, the Focused Improvement Supplier Initiative (FISI), trained hundreds of participants from two electronics-producing regions of China, starting in 2006. The project addressed issues such as overtime reduction, worker-management communication channels, and the implementation of new Chinese labor regulations. By working with managers this project sought to develop management systems to support compliance with EICC standards, responding to the complaint that buyers are more interested in pushing the costs of compliance onto suppliers than in helping them develop systems to ensure future success.
Yet the results of this program have been ambiguous. The twenty-four FISI-participant companies showed modestly improved compliance in the labor and health and safety sections of subsequent audits. But a control group of nonparticipants improved in roughly equal measure.19 On environmental compliance, FISI participants actually declined slightly over time.
With all of its resources, commitment to CSR, and capability-building programs, why could Hewlett-Packard not improve? Furthermore, if HP could not improve, can we expect improvement from other, less wealthy companies? In the next section we shed light on these questions by looking more closely at one type of violation and the specific industry practices that have made it highly resistant to change.
Working hours are the only EICC code item where a specific, substantive standard is stipulated: “A workweek should not be more than 60 hours per week, including overtime, except in emergency or unusual situations.” Yet employees in the electronics industry frequently work far more than this. Seventy- to eighty-hour weeks are common, and having onsite dormitories means workers can be woken up to start production in the middle of the night when production schedules demand it (Duhigg and Bradsher 2012). NGOs and scholars regularly cite working-hour violations as a highly significant, recurring issue, often assigning blame to brands (Chan, Pun, and Selden 2013; Good Electronics 2009; Level Works 2006; Verite 2004). As Jenny Chan and her colleagues (2013) put it, “At the workplace level, very short delivery times imposed by Apple and other multinational corporations make it difficult for suppliers to comply with legal overtime limits” (111). Brands’ executives do not necessarily disagree. In a 2008 survey an extraordinary 90 percent of EICC members admitted that excessive working hours are their major ongoing challenge (EICC 2009).
An examination of HP’s working-hour violations by region reveals the most frequent violations, more than 83 percent, occur in Chinese plants. This is consistent with other research on Chinese labor issues (Pun 2005; Yu 2008a). Apple has not fared any better. While Apple has just started to cooperate with outside researchers (Heisler 2013), a review of their “Supplier Responsibility” reports demonstrates problems similar to those at HP. Sixty percent of Apple’s audited facilities had excess working-hour problems in 2010, and this percentage did not improve in 2011. In 2012 the Apple Supplier Responsibility report explicitly discussed this persistent problem: “We continue to address excessive working hours, and this has been a challenge throughout the history of our program. While this problem is not unique to Apple, we continue to fight it.” Eliminating excessive working hours is not an insignificant undertaking, since as the FLA report on Apple pointed out, monthly overtime hours would need to be reduced from an average of eighty to thirty-six in order to strictly comply with Chinese labor law (Fair Labor Association 2012).
How can one explain the persistence of excessive working hours in the electronics industry? It would be tempting to look for explanations from within the factories, perhaps focusing on the productivity of workers, their desire to maximize income, or the harsh militaristic styles of production managers. While there can be a tendency to “look for the keys under the lamppost,” the shared problems of HP and Apple point in a different direction. We argue that practices further afield—particularly, where design, product development, and consumer purchasing occur—cascade powerfully at the point of production. In the context of highly dynamic consumer and retail markets, brands’ strategies have produced a very particular architecture of production and organization of work.20
The electronics industry has become increasingly dependent on fast-moving consumer markets. Since the advent of the personal computer, the industry evolved from being primarily a supplier to companies and governments to being dependent on consumer markets. Consumer markets breed “disruptive innovation” and encourage firms to advance the technological frontier while reducing costs in order to prevent “disruption from below” (Christensen 1997). To maximize market share over short product life cycles, retailers engage in constant promotions to drive down selling prices. With an average product life cycle of eight months, prices may drop as often as every two months. This price erosion, along with the need to carry a broad product assortment, means retailers have no appetite for large inventories. Instead they opt for frequent shipments to meet consumer demand (Leinbach and Bowen, 2004). Of course, brands and retailers do not want to find themselves out of stock if a product is successful, since consumers may choose a competitor if their own product is no longer available.
This balancing act is complicated by the concentration of electronics retailing. As noted earlier, the top four companies in the European and US consumer electronics and computer retail distribution channels control most of the market—more than 50 percent in Europe and closer to 75 percent in the United States. Their market power allows retailers to maintain their own profit margins and force price reductions on brands as products move through their life cycles. Retailers also seek to differentiate products to minimize comparison shopping, which is facilitated by the Internet. This means that brands often make small changes to the functionality of products to disguise similarities between the offerings of rival retailers. This thin differentiation of products leads to a constant parade of new product introductions, punctuated by rapid phase-outs. In 2010 HP maintained more than two thousand different SKUs (stock-keeping units) for laser printers, more than fifteen thousand for servers and storage equipment, and more than eight million possible configure-to-order combinations in its desktop and notebook product lines (Ward et al. 2010).
These practices create great uncertainty within the industry. Buffeted by rapidly changing technology, volatile consumer demand, and powerful retail customers, electronics brands seek to optimize supply chain management practices to remain competitive. In research conducted by Riikka Kaipia and her colleagues (2006) on demand and production volatility in the production of a major European mobile phone brand, it was determined that even with a relatively linear increase in demand in stores, equipment manufacturers faced extreme volatility in demand. They had to cope with production changes of up to 80 percent on a week-by-week basis. They would hold their inventory and ship it on an as-needed basis, but often only after wholesale prices had already dropped. Kaipia and her fellow researchers present this dynamic as a classic bullwhip effect, where fluctuations become progressively amplified throughout the supply chain. The consequences of this bullwhip effect, including excess inventories and late deliveries, can add to costs and weaken companies’ reputations.
The electronics industry has sought to manage these supply chain challenges through three broad strategic responses: (1) modular product design, (2) production of buffer inventories of intermediates, and (3) postponement of final assembly until signaled by “pull-based” ordering systems. First, products (computers, printers, and mobile phones) are designed with standardized, substitutable components that can be assembled when necessary into common modules. Second, these components and modules, known as “intermediates,” have separate production schedules, which allows for the buildup of buffer inventories. These can be reallocated across different products during final assembly depending on consumer demand at the moment. Finally, assembly of finished goods is postponed until accurate demand signals are available. This triggering of orders is known as “pull-based” ordering due to the dependence on consumer demand, as measured by point-of-sales data, to release orders into a production system. Thus, if one model of phone does not sell well, the components ordered for it may be used in other phones. However, once a phone is built, it must be sold at an acceptable price or, if not, heavily discounted to clear the inventory—the “sour milk” in Apple CEO Tim Cook’s terminology (Satariano and Burrows, 2011). In the contemporary electronics industry, final products have significantly higher costs than just the sum of their parts because of the threat of rapid obsolescence. Yet postponement reduces the risks of holding unsold finished goods.
Although these practices mitigate risks for brands and retailers, they create volatility in the manufacturing process and, we argue, generate many of the labor problems that have plagued HP, Apple, and others. A by-product of pull-based systems is that demand volatility is magnified at the final point of assembly. As brands postpone final assembly for as long as possible, production volumes exhibit period spikes of 300–500 percent over baseline levels. This is further amplified by new product introductions that require large ramp-ups and by the difficulty of projecting whether a product will be successful. Brands and suppliers recognize the need to plan for volatility, and HP has sought to optimize capacities in this area by encouraging its supply chain professions to publish their research in scholarly journals. But even with this effort, the bullwhip can sting. During the introduction of new HP ink jet printer, adjusted low and high forecasts varied as much as 250 percent, amounting to a difference of five hundred thousand units. For a factory, going from the bottom end of this forecast to the top would require the hiring of roughly eight thousand additional employees within one to two months, most of whom would need to be released three to four months later as the product’s short life cycle ended (Locke and Samel 2012).
In the MIT study of factories in Southeast Asia (in Malaysia, Thailand, and Singapore) that are suppliers for HP, the vast majority had working-hour violations in 2007.21 Closer analysis reveals that all of the violations occurred in plants with high unit volumes and a relatively small mix of different products. In interviews, managers often cited the management of working hours as the most significant problem they face. They all employed large numbers of short-term “agency” or contract workers to smooth production. These workers, who are overwhelmingly migrants, routinely exceeded 60 percent of a plant’s total workforce.
Volatility in manufacturing is not new; it has a long history in an array of industries (see Katz and Sabel 1985). But it is being managed in a unique way in today’s electronics industry. Here, manufacturing processes are an odd amalgam of “lean production” principles and traditional Taylorist work practices. Originating in the early twentieth century and named after its main proponent, Frederick Winslow Taylor, Taylorism—or “scientific management” of the work process—splits manufacturing into many small, standardized, repeatable, and meticulously timed tasks. In electronics, pull-based ordering and the postponement of final assembly demand a high degree of flexibility and adaptation, as plants need to scale up and down quickly. In principle, automation might help to manage volatility, but this approach would run the same risk that mass producers in an earlier era faced: that capital-intensive equipment is underutilized when orders are low. Thus, contract manufacturers combine lean manufacturing techniques with large-scale hand assembly and a Taylorist division of labor, both reminiscent of a bygone era. This style of work is common not only in the factories in the MIT study but also in electronics plants throughout East and Southeast Asia, and it is especially pronounced in plants with high-volume, low-variety production schedules (Lüthje 2002; McKay 2006). In his study of electronics plants in the Philippines, Steven McKay (2006) found that companies staffed their Taylorist workplaces by taking advantage of segmented labor markets, and especially by hiring young women who were marginalized in local labor markets and willing to work for low wages.
Nearly all of the Southeast Asian manufacturers in the MIT study used conveyer assembly lines, in which operators are fixed in place and the product travels past them. Each assembly station involved work tasks of between twenty and thirty seconds. Depending upon the sophistication of the product, lines consisted of eighty to two hundred workers and could be altered rapidly to meet demand. Most managers were aware of alternative “cell assembly” options, and one plant used both approaches when possible. But roughly 95 percent of employees worked on conveyor assembly lines. Plant managers explained that this Taylorist form of work organization permits very short training periods for new operators, further contributing to their ability to expand and contract production quickly. Furthermore, the vast majority of engineers in these factories were process engineers, focused on maximizing efficiency in the assembly line.
Their strategy for maximizing efficiency depends heavily on the flexible use of labor. Firms periodically hire and shed large numbers of contingent workers, largely drawn from the ranks of migrants from other parts of the country (in Thailand and China) or other countries (in Malaysia and Singapore). Employee turnover at these plants is high, and mobility between factories is facilitated by the common work organization of conveyor assembly. Most assembly line operators are women migrant workers, hired on two-year contracts. Because of volatility, factories break their labor contracts on a regular basis (Bormann, Krishnan, and Neuner 2010; Good Electronics 2009).
But adding and shedding new workers on a large scale is costly and difficult, so managers must also squeeze more hours out of their existing workers and cut their hours when production declines. Research on Apple’s main supplier in China, Foxconn, helps to put this problem in perspective. As one senior Foxconn official explained,
When a company like Apple or Dell needs to ramp up production by 20 percent for a new product launch, Foxconn has two choices: hire more workers or give the workers you already have more hours. When demand is very high, it’s very difficult to hire 20 percent more people. Especially when you have a million workers—that would mean hiring 200,000 people at once. (qtd. in Chan, Pun, and Selden 2013, 108)
As this suggests, the system that promotes extreme working hours is not unique to HP’s suppliers. Indeed, the managers interviewed in the MIT study indicated that their organization of work—conveyer assembly and rapid scaling up and down—was independent of any specific brand that they were working with. Furthermore, they explained that their usual schedule of two twelve-hour shifts often had to be expanded from five to six or seven days per week to meet production deadlines. For their part, migrant workers in East and Southeast Asia often seek to maximize their earnings by working overtime whenever possible.22
Given this architecture of production, contract manufacturers’ main way of staying profitable is to squeeze as much as possible out of the work process, leading to an interlinked set of labor problems—namely, excessive working hours and reliance on contingent workers. This architecture of production limits brands’ and manufacturers’ inventory risks, but it also limits the opportunity for contract manufacturers to take other paths to profitability (Clark, Kraemer, and Dedrick 2009). It is clear that there is a deep contradiction between the idea of limiting working hours, along with the standards that HP and Apple have adopted on this, and the structure and dynamics of electronics production.
As discussed earlier, since electronics factories are more difficult to move than are apparel factories, we might expect governments to play a role in limiting working hours. Workweeks of seventy to eighty hours exceed not only the standards of EICC and major electronics brands but also the standards of labor law throughout East and Southeast Asia. Many scholars and practitioners have argued that private, voluntary standards are needed precisely because governments do not have the capacity to enforce their own labor laws (e.g., Sabel, O’Rourke, and Fung 2000). Yet others have argued that private initiatives must be complemented by government action (Locke 2013; Weil 2004) and that some states have developed the capacity for effective enforcement (Piore and Schrank 2008; Schrank 2013).
Notably, however, our research on the electronics industry suggests that excessive working hours persist in factories operating in both strong and weak regulatory environments. For example, in Singapore, a country with strong regulatory institutions and high wages, excessive working hours were readily observed in local electronics assemblers (Locke and Samel, 2012). This finding is not surprising given that Singapore has historically used a foreign-worker levy scheme to facilitate the availability of significant numbers of foreign migrant workers at lower wages. Like migrant workers elsewhere, low wages and available hours create ample incentive for excess overtime. In nominally weaker states, government officials have regular access to electronics plants and thus arguably access to information regarding labor practices. For example, Malaysian and Thai policy makers routinely visit plants to discuss ways of cooperating in order to enhance compliance with national labor laws and the EICC. Yet these plants manifest repeated violations.
As it turns out, growing their electronics industry, not regulating it, motivates policy makers in emerging economies. To support the industry a range of different types of governments have converged in support of flexible labor markets. As McKay (2006) argues, firms have often convinced local officials in the Philippines to suppress labor organizing, which, they argued, would reduce competitiveness because of higher wages, workers who are less compliant, and the threat of disruption. Reflecting on this dynamic, McKay sheds light on how developmental states come to promote flexibility at the cost of labor standards:
When I began this research, I was struck by what seems to me a great potential for developing country workers to organize collectively in one of the world’s leading industries. The industry, after all, consists of high-profile multinationals, sensitive to disruption that employs nearly all permanent workers. But I soon found that the firms—and their accomplices in the Philippine state—recognize this potential far more clearly than workers, and accordingly take active steps to head off potential collective worker action both inside and outside the plants. (226)
This approach, however, may have negative unintended consequences for developmental states. In the Penang, Malaysia, semiconductor cluster, successful local firms were able to use flexible labor markets to increase their profits. But their management routines discouraged technological upgrading, which was the stated objective of the government’s support for the industry (Samel 2012). In the absence of clear developmental benefits, there might be rationales for governments to move away from active support for highly flexible labor markets and perhaps even to tighten labor market regulations. The Chinese government has begun to do this in the Pearl River Delta region, where it has encouraged rising wages and more aggressively enforced regulations in order to encourage industrial upgrading (Oster 2011). Whether this could occur in other countries that host electronics manufacturing remains to be seen.
While the other industries highlighted in this book are also large, none are as fast-moving and dynamic as electronics. The investments both brands and manufacturers have made in building the capacity to introduce new technology at a scale of millions of units makes change incredibly difficult to bring about. The architecture of electronics production, honed by decades of growing competition and shrinking product life cycles, has created a system of work organization that appears to be both exploitative and resistant to change.
Where does this leave conscientious consumers who care about labor conditions in global industries? It is relatively unreflective consumer demand, for rapidly changing new devices, that has fueled the existing system. As the Jemima Kiss quote at the beginning of this chapter implies, provenance does not appear to be an important purchasing consideration for electronics, especially when contrasted with performance, network effects, design, and technological innovation. Yet attention to “conflict minerals” has fueled some change in the electronics industry, so perhaps a wave of consumer concern could also transform labor conditions in manufacturing. For the most part, our analysis suggests that the current system of production will be quite resistant to change. It is “locked in” by the dominant system of innovation and retailing.
Yet there are several avenues worth considering. First, arguably, some brands should be more capable of improving conditions than others. Apple, for instance, is the market leader, sells a relatively small assortment of products, and owns its own retail stores, giving it better control of inventory planning. Apple’s recent engagement with the FLA and labor standards scholars suggests that the company has abandoned its earlier strategy of largely ignoring its critics. But it is not yet evident if the company’s new commitments will lead to sustainable changes, particularly as Apple faces threats to its platform leadership.
Second, there is a small movement, led by a Dutch social enterprise, to produce a phone that is both free of conflict minerals and produced under fair working conditions. The company promotes the product, appropriately named the Fairphone, as being made by workers who are paid fair wages and as offering an open “future-ready” design so that it can be updated rather than replaced.23 The initial production runs will be small—just 25,000 phones in an industry that sold 1.75 billion phones in a single year (Gartner 2013). The availability of Google’s Android operating system, a competitor to Apple’s iOS platform, enables this effort. Without a technologically sophisticated offering, it is doubtful that “alternative” electronics could gain any traction. Yet even if it meets this condition, Fairphone acknowledges it faces challenges in production. For example, because its production occurs on only one or two lines of a much larger factory, Fairphone is reluctant to offer higher wages to just a small group of workers. Instead it will place funds in a welfare account that can be distributed to all workers in this factory.24 This is far from perfect, but it is an improvement. The more important questions are how often consumers will insist on new models and how big the company’s volume will be. If production remains small and model development is infrequent, then perhaps a fair device is possible. But if scale or speed increases substantially, then Fairphone will find it challenging to remain true to its founding ideals.
A third avenue involves changes in the relationship between developmental states and the electronics industry. As described above, the high expectations of states have sometimes been met with the reality of limits on technological spillovers and industrial upgrading of electronics assemblers. This may give NGOs and conscientious consumers a new ally: the host country governments. As we have seen, leading brands have been able to push market uncertainty down to the employees at final assembly. In addition to poor working conditions, this has also restrained skill and capability building among local firms (Samel 2012). Governments may push back against this regime by tightening labor markets; allowing wages to rise; and enforcing laws on wages, hours of work, and industrial pollution. While the active involvement of the state in reducing labor market flexibility is nascent, it may be the best hope that conscientious consumers have for bringing about robust improvement in the electronics industry.