Foxconn-Apple agreement could push up the price of “Made in China”

Some analysts do not rule out the ripple effects on prices of manufacturing products from HP, Dell, Sony or Amazon after Foxconn-Apple agreement on the adjustment of working conditions in China.

Fourteen years after Nike made its adoption of the Code of Conduct in Asia, Apple and Foxconn have made new agreement to improve working conditions of some 1.2 million employees of the subcontractor in its Chinese factories. The new steps of computer giants are triggered by external audit of the Fair Labor Association (FLA).

Although the agreement may have a negligible impact on the selling price of iPads and Apple iPhones built in plants of Foxconn, analysts do not rule out a ripple effect on the cost of manufacture of other U.S. industry groups (Dell, HP, Amazon, Motorola, Nokia and Sony …) that work with Taiwanese subcontractor.

A standard for the rest of the sector

“Apple and Foxconn are obviously two of the biggest players in this sector and they have decided to initiate this change, they will set the standard for the rest of the industry,” said the President of the Fair Labor Association (FLA ), the American Association which conducted the external audit of Foxconn.

Given the many violations of labor law found by the FLA as a result of its audit for three plants of Foxconn, Apple and its subcontractor have supported the recommendations of the Association to limit overtime and raise wages local employees. According to the survey conducted by FLA with 35,000 employees, they were often required to work more than 60 hours per week and sometimes even more than eleven days straight.

In response to the audit of the FLA, Foxconn is committed to recruit tens of thousands of new employees, bringing to 49 hours weekly working time (the official Chinese legal maximum) and re-evaluate the salaries of its employees. Foxconn has already increased the salaries by 25% for the second time in two years, the overall level of average monthly wages is between 360 and 455 dollars (against the minimum wage of 200 dollars in Shanghai), despite concerns from some manufacturers who are suffering from declined demand in U.S. and Europe, the region of Shenzhen has already noted a 13.6% rise of the minimum wage in February.

General trend

“If the labor costs of Foxconn increase, this will affect the entire industry and we will have to decide how much of this increase will pass on to our customers,” said CEO of HP, Meg Whitman. Sign of a general trend: the Japanese group Toshiba, which employs 32,000 employees in China, has also announced measures to improve working conditions of its local workforce.

“If Foxconn tries to raise prices, Amazon could always go to other subcontractors such as Quanta, Wistron, Inventec and Pegatron”, said Mark Gerber of research firm Detwiler Fenton. As for Apple, whose labor costs represent only 5% of the final price of the iPhone, Chief Financial Officer of Dell, Brian Gladden, says that the percentage of the workforce remains “very, very limited” in the overall cost of Dell products.

In the end, everything depends on the effective implementation of Apple-Foxconn agreements . As recalled Scott Nova, the Director of the Workers Rights Consortium based in Washington, similar commitments made by Apple and Foxconn in 2006 have not really been followed up so far.

Pierre de Gasquet

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