Thursday, January 26, 2012

Apple Customers care more about a new iPhone than working conditions in China.”



In China, Human Costs Are Built Into an iPad

 By CHARLES DUHIGG and DAVID BARBOZA

 The explosion ripped through Building A5 on a Friday evening last May, an eruption of fire and noise that twisted metal pipes as if they were discarded straws. When workers in the cafeteria ran outside, they saw black smoke pouring from shattered windows. It came from the area where employees polished thousands of iPad cases a day. 


Two people were killed immediately, and over a dozen others hurt. As the injured were rushed into ambulances, one in particular stood out. His features had been smeared by the blast, scrubbed by heat and violence until a mat of red and black had replaced his mouth and nose. “Are you Lai Xiaodong’s father?” a caller asked when the phone rang at Mr. Lai’s childhood home. Six months earlier, the 22-year-old had moved to Chengdu, in southwest China, to become one of the millions of human cogs powering the largest, fastest and most sophisticated manufacturing system on earth. That system has made it possible forApple and hundreds of other companies to build devices almost as quickly as they can be dreamed up. 


“He’s in trouble,” the caller told Mr. Lai’s father. “Get to the hospital as soon as possible.” In the last decade, Apple has become one of the mightiest, richest and most successful companies in the world, in part by mastering global manufacturing. Apple and its high-technology peers — as well as dozens of other American industries — have achieved a pace of innovation nearly unmatched in modern history. However, the workers assembling iPhones, iPads and other devices often labor in harsh conditions, according to employees inside those plants, worker advocates and documents published by companies themselves. Problems are as varied as onerous work environments and serious — sometimes deadly — safety problems.


 Employees work excessive overtime, in some cases seven days a week, and live in crowded dorms. Some say they stand so long that their legs swell until they can hardly walk. Under-age workers have helped build Apple’s products, and the company’s suppliers have improperly disposed of hazardous waste and falsified records, according to company reports and advocacy groups that, within China, are often considered reliable, independent monitors. More troubling, the groups say, is some suppliers’ disregard for workers’ health. Two years ago, 137 workers at an Apple supplier in eastern China were injured after they were ordered to use a poisonous chemical to clean iPhone screens. Within seven months last year, two explosions at iPad factories, including in Chengdu, killed four people and injured 77. 


Before those blasts, Apple had been alerted to hazardous conditions inside the Chengdu plant, according to a Chinese group that published that warning. “If Apple was warned, and didn’t act, that’s reprehensible,” said Nicholas Ashford, a former chairman of the National Advisory Committee on Occupational Safety and Health, a group that advises the United States Labor Department. “But what’s morally repugnant in one country is accepted business practices in another, and companies take advantage of that.” Apple is not the only electronics company doing business within a troubling supply system.


 Bleak working conditions have been documented at factories manufacturing products for Dell, Hewlett-Packard, I.B.M., Lenovo, Motorola, Nokia, Sony, Toshiba and others. Current and former Apple executives, moreover, say the company has made significant strides in improving factories in recent years.t means the company’s ignoring the issue rather than solving it,” said one former Apple executive with firsthand knowledge of the supplier responsibility group. 


“Noncompliance is tolerated, as long as the suppliers promise to try harder next time. If we meant business, core violations would disappear.” Apple says that when an audit reveals a violation, the company requires suppliers to address the problem within 90 days and make changes to prevent a recurrence. “If a supplier is unwilling to change, we terminate our relationship,” the company says on its Web site. The seriousness of that threat, however, is unclear.


 Apple has found violations in hundreds of audits, but fewer than 15 suppliers have been terminated for transgressions since 2007, according to former Apple executives. “Once the deal is set and Foxconn becomes an authorized Apple supplier, Apple will no longer give any attention to worker conditions or anything that is irrelevant to its products,” said Mr. Li, the former Foxconn manager. Mr. Li spent seven years with Foxconn in Shenzhen and Chengdu and was forced out in April after he objected to a relocation to Chengdu, he said. Foxconn disputed his comments, and said “both Foxconn and Apple take the welfare of our employees very seriously.” Apple’s efforts have spurred some changes.


 Facilities that were reaudited “showed continued performance improvements and better working conditions,” the company wrote in its 2011 supplier responsibility progress report. In addition, the number of audited facilities has grown every year, and some executives say those expanding efforts obscure year-to-year improvements. Apple also has trained over a million workers about their rights and methods for injury and disease prevention.


 A few years ago, after auditors insisted on interviewing low-level factory employees, they discovered that some had been forced to pay onerous “recruitment fees” — which Apple classifies as involuntary labor. As of last year, the company had forced suppliers to reimburse more than $6.7 million in such charges. “Apple is a leader in preventing under-age labor,” said Dionne Harrison of Impactt, a firm paid by Apple to help prevent and respond to child labor among its suppliers. “They’re doing as much as they possibly can.” Other consultants disagree. “We’ve spent years telling Apple there are serious problems and recommending changes,” said a consultant at BSR — also known as Business for Social Responsibility — which has been twice retained by Apple to provide advice on labor issues. “They don’t want to pre-empt problems, they just want to avoid embarrassments.” ‘We Could Have Saved Lives’ In 2006, BSR, along with a division of the World Bank and other groups, initiated a project to improve working conditions in factories building cellphones and other devices in China and elsewhere. 


The groups and companies pledged to test various ideas. Foxconn agreed to participate. For four months, BSR and another group negotiated with Foxconn regarding a pilot program to create worker “hotlines,” so that employees could report abusive conditions, seek mental counseling and discuss workplace problems. Apple was not a participant in the project, but was briefed on it, according to the BSR consultant, who had detailed knowledge. As negotiations proceeded, Foxconn’s requirements for participation kept changing. First Foxconn asked to shift from installing new hotlines to evaluating existing hotlines. Then Foxconn insisted that mental health counseling be excluded. Foxconn asked participants to sign agreements saying they would not disclose what they observed, and then rewrote those agreements multiple times.


 Finally, an agreement was struck, and the project was scheduled to begin in January 2008. A day before the start, Foxconn demanded more changes, until it was clear the project would not proceed, according to the consultant and a 2008 summary by BSR that did not name Foxconn. The next year, a Foxconn employee fell or jumped from an apartment building after losing an iPhone prototype. Over the next two years, at least 18 other Foxconn workers attempted suicide or fell from buildings in manners that suggested suicide attempts. In 2010, two years after the pilot program fell apart and after multiple suicide attempts, Foxconn created a dedicated mental health hotline and began offering free psychological counseling. “We could have saved lives, and we asked Apple to pressure Foxconn, but they wouldn’t do it,” said the BSR consultant, who asked not to be identified because of confidentiality agreements. “Companies like H.P. and Intel and Nike push their suppliers. But Apple wants to keep an arm’s length, and Foxconn is their most important manufacturer, so they refuse to push.” BSR, in a written statement, said the views of that consultant were not those of the company. “My BSR colleagues and I view Apple as a company that is making a highly serious effort to ensure that labor conditions in its supply chain meet the expectations of applicable laws, the company’s standards and the expectations of consumers,” wrote Aron Cramer, BSR’s president


 Mr. Cramer added that asking Apple to pressure Foxconn would have been inconsistent with the purpose of the pilot program, and there were multiple reasons the pilot program did not proceed. Foxconn, in a statement, said it acted quickly and comprehensively to address suicides, and “the record has shown that those measures have been successful.” A Demanding Client Every month, officials at companies from around the world trek to Cupertino or invite Apple executives to visit their foreign factories, all in pursuit of a goal: becoming a supplier. When news arrives that Apple is interested in a particular product or service, small celebrations often erupt. Whiskey is drunk. Karaoke is sung. Then, Apple’s requests start. Apple typically asks suppliers to specify how much every part costs, how many workers are needed and the size of their salaries. Executives want to know every financial detail. Afterward, Apple calculates how much it will pay for a part. Most suppliers are allowed only the slimmest of profits. 


So suppliers often try to cut corners, replace expensive chemicals with less costly alternatives, or push their employees to work faster and longer, according to people at those companies. “The only way you make money working for Apple is figuring out how to do things more efficiently or cheaper,” said an executive at one company that helped bring the iPad to market. “And then they’ll come back the next year, and force a 10 percent price cut.” In January 2010, workers at a Chinese factory owned by Wintek, an Apple manufacturing partner, went on strike over a variety of issues, including widespread rumors that workers were being exposed to toxins. Investigations by news organizations revealed that over a hundred employees had been injured by n-hexane, a toxic chemical that can cause nerve damage and paralysis. Employees said they had been ordered to use n-hexane to clean iPhone screens because it evaporated almost three times as fast as rubbing alcohol. Faster evaporation meant workers could clean more screens each minute. 


Apple commented on the Wintek injuries a year later. In its supplier responsibility report, Apple said it had “required Wintek to stop using n-hexane” and that “Apple has verified that all affected workers have been treated successfully, and we continue to monitor their medical reports until full recuperation.” Apple also said it required Wintek to fix the ventilation system. That same month, a New York Times reporter interviewed a dozen injured Wintek workers who said they had never been contacted by Apple or its intermediaries, and that Wintek had pressured them to resign and take cash settlements that would absolve the company of liability. After those interviews, Wintek pledged to provide more compensation to the injured workers and Apple sent a representative to speak with some of them.


 Six months later, trade publications reported that Apple significantly cut prices paid to Wintek. “You can set all the rules you want, but they’re meaningless if you don’t give suppliers enough profit to treat workers well,” said one former Apple executive with firsthand knowledge of the supplier responsibility group. “If you squeeze margins, you’re forcing them to cut safety.” Wintek is still one of Apple’s most important suppliers. Wintek, in a statement, declined to comment except to say that after the episode, the company took “ample measures” to address the situation and “is committed to ensuring employee welfare and creating a safe and healthy work environment.” Many major technology companies have worked with factories where conditions are troubling. However, independent monitors and suppliers say some act differently. 


Executives at multiple suppliers, in interviews, said that Hewlett-Packard and others allowed them slightly more profits and other allowances if they were used to improve worker conditions. “Our suppliers are very open with us,” said Zoe McMahon, an executive in Hewlett-Packard’s supply chain social and environmental responsibility program. “They let us know when they are struggling to meet our expectations, and that influences our decisions.” The Explosion On the afternoon of the blast at the iPad plant, Lai Xiaodong telephoned his girlfriend, as he did every day. They had hoped to see each other that evening, but Mr. Lai’s manager said he had to work overtime, he told her. He had been promoted quickly at Foxconn, and after just a few months was in charge of a team that maintained the machines that polished iPad cases. The sanding area was loud and hazy with aluminum dust. Workers wore masks and earplugs, but no matter how many times they showered, they were recognizable by the slight aluminum sparkle in their hair and at the corners of their eyes.


 Just two weeks before the explosion, an advocacy group in Hong Kong published a report warning of unsafe conditions at the Chengdu plant, including problems with aluminum dust. The group, Students and Scholars Against Corporate Misbehavior, or Sacom, had videotaped workers covered with tiny aluminum particles. “Occupational health and safety issues in Chengdu are alarming,” the report read. “Workers also highlight the problem of poor ventilation and inadequate personal protective equipment.” A copy of that report was sent to Apple. “There was no response,” said Debby Chan Sze Wan of the group. “A few months later I went to Cupertino, and went into the Apple lobby, but no one would meet with me. I’ve never heard from anyone from Apple at all.” The morning of the explosion, Mr. Lai rode his bicycle to work. The iPad had gone on sale just weeks earlier, and workers were told thousands of cases needed to be polished each day. The factory was frantic, employees said. Rows of machines buffed cases as masked employees pushed buttons. Large air ducts hovered over each station, but they could not keep up with the three lines of machines polishing nonstop. Aluminum dust was everywhere. 


Dust is a known safety hazard. In 2003, an aluminum dust explosion in Indiana destroyed a wheel factory and killed a worker. In 2008, agricultural dust inside a sugar factory in Georgia caused an explosion that killed 14. Two hours into Mr. Lai’s second shift, the building started to shake, as if an earthquake was under way. There was a series of blasts, plant workers said. Then the screams began. When Mr. Lai’s colleagues ran outside, dark smoke was mixing with a light rain, according to cellphone videos. The toll would eventually count four dead, 18 injured. At the hospital, Mr. Lai’s girlfriend saw that his skin was almost completely burned away. “I recognized him from his legs, otherwise I wouldn’t know who that person was,” she said. Eventually, his family arrived. Over 90 percent of his body had been seared. “My mom ran away from the room at the first sight of him. I cried. Nobody could stand it,” his brother said. When his mother eventually returned, she tried to avoid touching her son, for fear that it would cause pain. “If I had known,” she said, “I would have grabbed his arm, I would have touched him.” “He was very tough,” she said. “He held on for two days.” After Mr. Lai died, Foxconn workers drove to Mr. Lai’s hometown and delivered a box of ashes. The company later wired a check for about $150,000. Foxconn, in a statement, said that at the time of the explosion the Chengdu plant was in compliance with all relevant laws and regulations, and “after ensuring that the families of the deceased employees were given the support they required, we ensured that all of the injured employees were given the highest quality medical care.” After the explosion, the company added, Foxconn immediately halted work in all polishing workshops, and later improved ventilation and dust disposal, and adopted technologies to enhance worker safety. In its most recent supplier responsibility report, Apple wrote that after the explosion, the company contacted “the foremost experts in process safety” and assembled a team to investigate and make recommendations to prevent future accidents.


 In December, however, seven months after the blast that killed Mr. Lai, another iPad factory exploded, this one in Shanghai. Once again, aluminum dust was the cause, according to interviews and Apple’s most recent supplier responsibility report. That blast injured 59 workers, with 23 hospitalized. “It is gross negligence, after an explosion occurs, not to realize that every factory should be inspected,” said Nicholas Ashford, the occupational safety expert, who is now at the Massachusetts Institute of Technology. “If it were terribly difficult to deal with aluminum dust, I would understand. But do you know how easy dust is to control? It’s called ventilation. We solved this problem over a century ago.” In its most recent supplier responsibility report, Apple wrote that while the explosions both involved combustible aluminum dust, the causes were different. The company declined, however, to provide details. The report added that Apple had now audited all suppliers polishing aluminum products and had put stronger precautions in place. All suppliers have initiated required countermeasures, except one, which remains shut down, the report said. For Mr. Lai’s family, questions remain. “We’re really not sure why he died,” said Mr. Lai’s mother, standing beside a shrine she built near their home. “We don’t understand what happened.” Hitting the Apple Lottery Every year, as rumors about Apple’s forthcoming products start to emerge, trade publications and Web sites begin speculating about which suppliers are likely to win the Apple lottery. 


Getting a contract from Apple can lift a company’s value by millions because of the implied endorsement of manufacturing quality. But few companies openly brag about the work: Apple generally requires suppliers to sign contracts promising they will not divulge anything, including the partnership. That lack of transparency gives Apple an edge at keeping its plans secret. But it also has been a barrier to improving working conditions, according to advocates and former Apple executives. This month, after numerous requests by advocacy and news organizations, including The New York Times, Apple released the names of 156 of its suppliers. In the report accompanying that list, Apple said they “account for more than 97 percent of what we pay to suppliers to manufacture our products.” However, the company has not revealed the names of hundreds of other companies that do not directly contract with Apple, but supply the suppliers. The company’s supplier list does not disclose where factories are, and many are hard to find. 


And independent monitoring organizations say when they have tried to inspect Apple’s suppliers, they have been barred from entry — on Apple’s orders, they have been told. “We’ve had this conversation hundreds of times,” said a former executive in Apple’s supplier responsibility group. “There is a genuine, companywide commitment to the code of conduct. But taking it to the next level and creating real change conflicts with secrecy and business goals, and so there’s only so far we can go.” Former Apple employees say they were generally prohibited from engaging with most outside groups. “There’s a real culture of secrecy here that influences everything,” the former executive said. Some other technology companies operate differently. “We talk to a lot of outsiders,” said Gary Niekerk, director of corporate citizenship at Intel. “The world’s complex, and unless we’re dialoguing with outside groups, we miss a lot.” Given Apple’s prominence and leadership in global manufacturing, if the company were to radically change its ways, it could overhaul how business is done. “Every company wants to be Apple,” said Sasha Lezhnev at the Enough Project, a group focused on corporate accountability. “If they committed to building a conflict-free iPhone, it would transform technology.” But ultimately, say former Apple executives, there are few real outside pressures for change. Apple is one of the most admired brands. In a national survey conducted by The New York Times in November, 56 percent of respondents said they couldn’t think of anything negative about Apple. Fourteen percent said the worst thing about the company was that its products were too expensive. Just 2 percent mentioned overseas labor practices. People like Ms. White of Harvard say that until consumers demand better conditions in overseas factories — as they did for companies like Nike and Gap, which today have overhauled conditions among suppliers — or regulators act, there is little impetus for radical change. Some Apple insiders agree. “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,” said a current Apple executive. “And right now, customers care more about a new iPhone than working conditions in China.”