Apple’s Supply-Chain Strife in China

Foxconn is no household name in the United States. It sounds like some type of 19th century grifter strategy, or a fuzzy yet mischievous character from a Pixar movie.

Foxconn Technology Group is, in fact, one of the globe’s biggest contract electronics manufacturers, producing components and hardware for partners with names that are as household as Barack Obama and the New York Yankees. The partners it supplies are a veritable Who’s Who of high-tech giants: Dell, Motorola, HP, Sony, Nokia and many others.

Probably its most well-known partner is Apple. Foxconn manufactures iPods, iPhones and now iPads for the Cupertino, Calif., computing giant.

With more than 500,000 workers spanning the globe, Foxconn is, however, becoming more well-known for all the wrong reasons. A string of reported suicides among its Chinese workforce has grabbed international headlines.

Several media outlets, including the NYTimes.com, are reporting that on Tuesday another employee who worked at a Foxconn factory was found dead—the reported ninth suicide this year alone. (Those alleged numbers, as compared with China’s overall suicide rate, are causing debate about just how many suicides are newsworthy and how many are just reckless innuendo by media outlets.)

As a recent PCworld.com article notes, Foxconn’s “factory life” is anything but a dream for Chinese laborers with big aspirations of making a better future for themselves. When those dreams are crushed, the article points out, the revelations and eventual consequences can be devastating. (The Foxconn strife is not limited to Shenzhen. In February, a disgruntled former Foxconn employee, apparently out for vengeance against the company, set ablaze a Foxconn factory in Mexico, reported the IDG News Service.)

Yesterday’s news recalls an all-too-familiar story I reported on in late July 2009. On a day when Apple executives were basking in the glow of their recession-beating quarterly results, shocking details of another tragedy began unfurling: A 25-year-old Foxconn employee named Sun Danyong had killed himself, reportedly related to a missing iPhone prototype that never made it through the supply chain to Apple’s headquarters.

“There’s tremendous pressure on employees dealing with Apple’s new products to maintain a high-level secrecy over the gadgets, traditionally launched amid great suspense and a big marketing buzz,” noted an Associated Press article at the time. “Apple is also a constant target of prying journalists, rabidly faithful customers and competitors who make great efforts to try to steal a peek at its latest technology.”

That article seems prescient, given the recent and ongoing Apple-Gizmodo brouhaha over the missing iPhone prototype.

China, of course, has been the low-low-cost supplier to the world for decades. That probably isn’t going to change any time soon. But as Kevin O’Marah, AMR Research’s group VP of supply chain research, writes in a recent blog, there are numerous and credible risks that come along with those cut-rate manufacturing deals. O’Marah lists six, but his overall point is blandly succinct: “Supply chain professionals must consider the total package of pros and cons when doing business with China because cost alone won’t get at some of these issues.”

Apple is known as a being a control freak (and that’s being polite). I’m sure it has monitored the unflattering coverage of Foxconn in the past and given careful consideration to the future partnership. Low-cost versus low-risk.

The Foxconn case certainly creates a nuanced decision for Apple, now that it has crowned itself as the Chief Morality Police over what mobile applications it will and will not allow on its wildly successful Apps Store: How will the company respond to an alleged suicide crisis at one of its most important suppliers?

For sure, there’s not an app for that.

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