SAN FRANCISCO—An investigation by a labor practice watchdog group that revealed serious workers' issues at Taiwanese contract manufacturer Hon Hai Precision Industry Co. Ltd.—which operates under the trade name Foxconn—could be a "moment of reckoning" for the electronics industry similar to what occurred in the footwear and apparel industry in the 1990s, according to market research firm IHS iSuppli.
The Fair Labor Association (FLA)
issued a report last month detailing the results of a month-long investigation into labor practices at Foxconn. The FLA said the investigation uncovered "significant issues" with working conditions at three Foxconn factories in China, including workers working more than 60 hours per week and not being compensated with overtime.
The FLA, which conducted the investigation with the support of Apple Inc., one of Foxconn's largest customers, said that following its investigation in secured commitments from Foxconn to reduce working hours to legal limits while protecting pay, improve health and safety conditions and establish a genuine voice for workers. The FLA said it would monitor the situation on an ongoing basis to verify compliance.
Apple
joined the FLA in January under mounting pressure from workers rights advocates and consumers concerned about working conditions at Foxconn in the wake of a string of suicides at Foxconn worker facilities last year.
According to IHS, the FLA investigation of Foxconn, the impact of the investigation could be similar to what Nike Inc. and other footwear and apparel manufacturers experienced in the 1990s, when damaging revelations over their use of sweatshop manufacturing resulted in the creation of fair labor standards for suppliers and ultimately led to the creation of the FLA.
"Much of the press coverage of the FLA investigation has focused on the impact it will have on Apple’s margins or on prices that consumers will pay for iPhone or iPads," said Thomas Dinges, a senior principal analyst for electronics contract manufacturing at IHS, in a statement. "However, the real impact is on the overall relationship of electronic brands with contract manufacturers like Foxconn. Brands now realize that the biggest risk in dealing with contract manufacturers lies in the potential public relations disasters that can arise from worker’s rights issues."
According to IHS, the Foxconn investigation underscores the serious risk to the public image of electronics brands inherent in their $360 billion relationship with the global contract manufacturing industry. The result of the investigation is likely an increased focus on compliance—as well as rising costs for electronics brands, according to a recent analysis from IHS.
