Pegatron and Foxconn: Apple’s low-cost reality

EDITOR'S NOTE_ This is a guest comment from CLW.

Ever since Foxconn's labor costs increased in 2010, Apple has been more greatly engaging lower cost suppliers like Pegatron, which gain their competitive edge against through lower labor cost, leading to poorer labor conditions. Although Apple claims they have strict internal auditing of supplier labor conditions, our investigation and analysis found that labor conditions at major suppliers are still substandard. Workers still do overtime far in excess of even Apple's own standard. Under this competition structure, suppliers that improve labor conditions are at a disadvantage. Apple is the major beneficiary of this supply chain structure. Below follows a summary of the report. 1. Apple consistently suppresses labor costs by shifting production to cheaper manufacturers

• While Apple earns huge profits, labor costs are relatively low.
• Apple shifted production orders from Foxconn to cheaper Pegatron in order to offset Foxconn’s rising labor costs.
• In 2014, Pegatron Shanghai still possessed about an 8% cost advantage over Foxconn Longhua, translating into a USD 61 million annual advantage at just one of many Pegatron factories that service Apple.

2. Apple is unable to effectively monitor its supply chain; Pegatron still has excessive working hours

• Apple constantly claims that it is monitoring suppliers’ compliance with Apple labor standards.
• Research of Pegatron workers’ pay stubs reveals average of 60+ working hours per week, 52% of workers completed more than 90 hours of overtime per month, even working as many as 132 hours of overtime.
• Workers desire overtime because their base wages are too low; base wages cannot meet the local living standard.

3. It is media attention that has improved labor conditions, not Apple’s self-monitoring

• Media reports in 2010 and 2012 influenced changes in Foxconn’s labor conditions.
• Apple responded to the reports by hiring a third-party organization to improve public relations, though important promises remain unfilled.
• Receiving little attention previously, Pegatron’s excessive working hours reduced quickly after a 2014 BBC report.

4. Apple must take more responsibility for improving labor conditions

• Apple has sufficient profits to improve workers’ treatment.
• Apple executives make public commitments to workers, yet poor labor conditions remain unresolved.
• Earning three-fifths of the profit in the industry, and with USD 178 b in cash reserves, if Apple doesn’t reform labor conditions, who will?