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Presented(by:(( Anosh(Baxter((( Fangfang(Song(((( Sam(Chen(

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The!Apple!!Foxconn!Case! !

IBUS!7108!Stakeholder!Management!

Executive(Summary(
! Times!are!rapidly!changing,!a!phenomenon!that!can!evidently!be!seen!in!all! walks!of!life.!Business!management!for!one!has!changed!drastically!in!the!past!few! decades,!especially!since!the!millennium.!We!now!live!in!an!age,!in!which!companies! must!take!into!consideration!the!reaction!and!effect!of!every!part!of!their!business! on!each!and!every!stakeholder.!The!importance!of!stakeholder!management!and! corporate!social!responsibility!(CSR)!in!todays!business!world!cannot!be!stressed! on!enough,!and!has!become!an!integral!part!of!management!concern!for!most!firms.! Business!managers!are!now!aware!of!many!more!actors!and!players!that!need!to!be! taken!into!consideration!before!making!each!decision.!It!is!the!duty!of!the! management!of!a!company!to!ensure!that!the!functioning!of!the!company!and!all!its! affiliates!and!partners!is!as!per!the!established!code!of!conduct!and!working! conditions!that!meet!that!of!the!countrys!law!as!well!as!that!of!the!company!itself.!! They!owe!it!to!the!investors,!patrons,!clients!and!to!society,!to!maintain!the! reputation!of!the!brand!and!to!have!done!their!due!diligence!in!selecting!buyers,! suppliers!etc.!No!one!wants!to!use!a!product,!which!is!the!result!of!child!labor!or! unlawful!labor,!especially!after!paying!a!premium!price!for!the!product.! ! People!in!general!are!rapidly!becoming!more!aware!of!the!ills!and! manipulations!of!large!corporations,!where!and!how!their!money!is!being!invested,! how!their!products!are!being!made,!the!impact!to!the!environment!and!society! caused!by!these!corporations!and!the!manner!in!which!they!operate.!NGOs,! government!bodies,!employees,!investors!and!other!stakeholders!are!now!more! powerful,!resourceful!and!can!enforce!their!rights!on!these!companies!forcing!them! to!function!in!a!moral!and!ethical!manner!and!are!showing!great!interest!in!doing! the!same.! ! !! Introduced!by!Edward!Freeman,!Stakeholder!theory!is!a!management!theory!

articulated!as!the!framework!of!ethics,!values!and!morale!in!business!management.! (Mayer)!The!theory!tries!to!identify!who!is!a!stakeholder,!how!managers!can!create! value!for!each!of!its!stakeholders!together!and!also!illustrates!the!negative! implications!of!not!following!the!basic!principles.!Using!this!theory,!this!report!aims! to!examine!the!relationship!between!Apple!and!Foxconn!and!unveil!the!recent! ! 1!

The!Apple!!Foxconn!Case! ! IBUS!7108!Stakeholder!Management! ! ! controversy!their!partnership!was!under!and!the!impact!of!the!same.!The!report! also!aims!at!comparing!the!labor!conditions!in!China!and!how!other!companies!are! handling!the!situation.!Lastly,!in!our!analysis,!we!have!recommended!appropriate! steps!and!strategies!for!each!of!the!companies.! !

Foxconn(International(Holdings(
! Hon!Hai!Precision!Industry!Co.!Ltd,!better!known!as!Foxconn,!was!founder!by! Mr.!Terry!Gou!in!1974.!Headquartered!in!New!Taipei,!Taiwan!this!company!is!the! largest!independent!electronic!contract!manufacturers!in!the!world!employing!over! a!million!employees!worldwide.!(Durden,!2010)!Foxconn!has!a!strong!global! footprint!in!the!Americas,!Europe!and!Asia!with!a!significant!portion!of!their! operations!in!China.!Some!of!its!major!clients!and!products!include!Apples!iPhone!&! iPad,!Sony!PlayStation,!Acer,!Toshiba,!Dell,!Vizio,!Nokia,!Motorola,!Hewlett8!Packard,! Cisco!and!many!more.!(Foxconn!Technology!Group,!2007)! ! ! Through!the!years!Foxconn!has!developed!into!one!of!the!most!dependable! and!trusted!associates!for!joint8design,!contract!manufacturing!and!after8sales! services!in!the!computer,!communication!and!consumer!electronics!(3C)!sector.!The! companys!E8Enable!Components,!Modules,!Moves!and!Services!(ECMMS)!business! model!and!constant!integration!has!facilitated!the!companies!core!strengths!and! advantages!of!speed,!accuracy,!efficiency,!quality!control!and!most!of!all!low!cost.! The!company!has!over!40!production!and!research!centers!and!over!35,000!patents! granted!through!out!the!globe,!and!is!now!focusing!its!research!and!development!in! nanotechnology,!heat!transfer,!wireless!Internet,!material!sciences,!and!green! manufacturing!process!in!areas!covering!wide!spectrum!of!3C!products.!(Foxconn! Technology!Group,!2007)! ! ! Between!200082005!Foxconn!achieved!substantial!growth.!It!achieved!an! approximate!compounded!annual!growth!rate!(CAGR)!of!50%!each!year.!!In!2005,! Foxconn!was!the!largest!handset!manufacturer!in!the!world!with!revenues! amounting!to!$6.3!billion!(only!from!sale!of!handsets)!and!was!also!ranked!the!Best! Employers!in!China.!(Foxconn).!In!2011,!even!though!the!company!was!faced!with! controversies!that!have!been!discussed!further!on,!the!company!reported!an!after8 ! 2!

The!Apple!!Foxconn!Case! ! 2012)!

IBUS!7108!Stakeholder!Management!

tax!income!of!$2.7!billion!with!consolidated!revenues!of!$106!billion.!(Ingraham,!

Apple(Inc.(
!

Apple! Inc.! was! founded! by! former! CEO! Steve! Jobs! (195582011)! in! 1976.!

Forbes! ranks! the! company,! headquartered! in! Cupertino,! California! and! employing! over!60,000!people,!the!worlds!most!Powerful!Brand.!(No!Stop!Technology!8!The! Apple! Fan! Site)! The! company! is! primarily! engaged! in! bringing! the! best! user! experience! to! its! customers! through! media! and! mobile! communication! devices,! personal! computers! and! a! variety! of! related! peripherals,! software! and! networking! solutions.!Some!of!their!world8renowned!products!are!the!Apple!iPhone,!iMac,!iPad,! iPod,!Apple!TV,!iOS!platform!and!iCloud.!Perhaps!the!biggest!break!through!for!the! company! was! the! iStore! that! sells! digital! media,! music,! movies,! games! and! applications! to! its! customers.! ! The! company! is! known! for! innovative! high! quality! and! high! performance! products.! (Forbes)! In! 2012,! Apples! iPhone! accounted! for! 53.3%!of!the!U.S!smartphone!market.!(Islam,!2012)! ! Under!the!management!of!Steve!Jobs!and!now!CEO!Tim!Cook,!Apple!Inc.!has! proven! an! outstanding! performance,! especially! until! the! last! quarter! of! 2012.! Its! year! on! year! revenue! growth! rate! was! 65.96%! for! (201082011)! and! 44.58%! for! (201182012)! with! revenues! exceeding! $156.5! billion! in! 2012! alone.! (Financial! Times).! In! July! of! 2011,! the! world! was! shocked! to! know! that! Apple! Inc.! had! cash! reserves!of!$75.876!billion!while!that!of!the!U.S.!Treasury!amounted!to!only!$73.76! billion.! Meaning! their! cash! reserves! were! higher! than! the! assumedly! strongest! economy!in!the!world.!(CBS!News,!2011)!!On!September!21st!2012,!Apple!Inc.!stock!

3!

The!Apple!!Foxconn!Case! ! IBUS!7108!Stakeholder!Management! ! ! price!reached!a!528week!high!of!!$!705.07.!However,!since!then,!the!stock!price!has! plummeted!rapidly!to!$435.11!(as!of!April!2,!2013)!(Financial!Times).!!! ! ! Since! the! past! six! months,! Apple! Inc.! has! been! facing! a! lot! of! negative! limelight! in! regards! to! their! connection! with! Foxconn! and! exploitation! of! workers! and!labor!conditions!in!China.!The!media!has!framed!it!as!Apple!is!responsible!for! the!conditions!of!those!workers!and!the!suicide!cases,!and!to!a!certain!extent!rightly! so.! The! period! in! which! the! world! perceived! Apple! Inc.! as! the! one! of! the! best! companies! and! all! things! Apple! as! the! best! thing! out! there! is! over.! Apple! is! now! known!as!a! first(world(brand(with(third(world(production.!Long!time!patrons!of! the!brand!are!now!switching!to!Android!based!devices!and!Apple!is!losing!its!market! share! quickly.! Recent! developments! have! changed! the! minds! of! millions! of! customers!and!many!investors!are!panicking!and!retreating!from!their!investment! in!Apple!Inc.!as!they!are!weary!about!the!impact!on!the!stock!price!and!in!turn!their! investments.!Apple!is!facing!the!heat!from!NGOs,!investors,!and!employees!in!the!U.S! and!in!China.!(FACTS!AND!DETAILS,!2012)!

Apple(and(FoxconnE(Their(relationship(and(sequence(of( events(
! ! ! Since!several!years,!Apple!has!partnered!with!Foxconn,!who!is!responsible!

for!assembling!and!manufacturing!Apples!products,!particularly!the!iPhone!5,!the! iTouch,!the!iPad!mini!and!the!third!and!fourth!generation!iPads.!(Apple!Insider,! 2013)!Approximately!40%850%!of!Foxconns!business!is!committed!to!Apple.!In! fact,!Foxconn!actually!has!several!factories!dedicated!to!the!assembling!of!Apple! products!only.!(Computer!World,!2012)!Its!well!established!set!up,!years!of! experience,!high!quality,!precision!and!ability!to!service!the!high!level!of!demand!for! Apples!products!are!some!of!the!reasons!for!their!partnership.!The!most!significant! reason!of!course!is!the!low!price,!which!allows!Apple!to!sell!its!products!at! competitive!prices!yet!make!significant!profits.!The!question!is!how!is!Foxconn!able! to!offer!such!prices.!(Facts!and!Details,!2012)! ! 4!

The!Apple!!Foxconn!Case! ! !

IBUS!7108!Stakeholder!Management!

It!comes!as!no!surprise!that!Apples!products!are!made!in!China.!Literally!

each!and!every!company!in!the!world!looking!for!low8cost!high8volume!production,! especially!electronics,!turns!to!China.!The!low8cost!factor!however,!is!mostly! attributed!to!the!poor!working!conditions!and!cheap!labor!prevailing!in!the!eastern! economy.!Foxconn!has!recently!received!a!lot!of!negative!limelight!due!to!a!number! of!employees!complaining!about!the!torturous!working!conditions,!inhumanely!long! hours!of!work!as!well!as!the!use!of!child!labor.!However,!the!world!has!started! paying!attention!to!all!of!this!only!since!the!news!about!a!series!of!suicides!cases!of! Foxconn!employees!broke!out.!(Facts!and!Details,!2012)! ( Compared!to!most!other!factories!in!China,!Foxconn!is!significantly!better!in! many!ways.!The!main!facility!in!Shenzhen,!China!spans!one!square!mile!and!is! almost!a!city!in!itself.!The!factory!boasts!of!having!everything!from!dorms!for!70,000! employees!to!banks,!bakeries,!fast!food!outlets!and!even!two!Olympic!size!pools.! However,!the!employees!at!Foxconn!seem!to!be!extremely!unhappy!with!the! amenities!at!the!factory!and!they!way!they!are!being!treated.!Each!employee! typically!works!a!128hour!shift!with!an!average!of!83.2!hours!of!overtime!each! month.!The!approximate!daily!salary!of!a!Foxconn!factory!employee!is!$22,!while! some!earn!as!low!as!$450!per!month!after!pulling!60880!hour!weeks.!(PROPUBLICA,! 2012)!The!employees,!who!are!given!dorms,!have!to!share!their!accommodation! with!three!to!nine!other!employees!depending!on!the!size!of!the!room.!Some!of!them! dont!even!have!access!to!hot!water!at!times.!After!working!shifts!longer!than!12! hours!with!only!a!308minute!lunch!break,!the!workers!have!very!little!time!to!spend! with!their!family!and!friends.!They!dont!even!have!the!time!to!use!the!pool!or!any!of! the!other!amenities,!which!some!say!are!dirty!and!unsafe.!!Though!the!company!is! one!of!the!largest!and!most!advanced,!it!is!still!managed!military!style.!(Facts!and! Details,!2012)! ! Between!2007!and!2012!(only!a!five!year!period)!17!Foxconn!employees! committed!suicide,!most!of!them!on!the!Foxconn!campus!itself.!The!most!alarming! period!though!was!between!March!20108May!2010,!in!which!there!were!9! independent!cases!of!Foxconn!employee!suicides.!As!delightful!as!having! dormitories!on!the!factory!website!may!sound,!in!hindsight,!the!employees!are! treated!like!prisoners.!After!working!for!10812!hour!shifts,!the!employees!take!the! ! 5!

The!Apple!!Foxconn!Case! ! IBUS!7108!Stakeholder!Management! ! ! shuttle!back!to!their!dormitory!where!they!have!no!privacy,!sleep!in!bunk!beds,! watch!television!in!a!common!room!and!have!no!work8life!balance.!They!have!no! time!to!recreate!outside!the!campus!or!spend!time!with!their!family!and!friends.!The! workers!complain!that!they!are!treated!like!prisoners!and!slaves.!They!feel!its!better! to!end!their!lives!rather!than!work!under!such!extreme!condition.!(Wired,!2011)! ! In!the!beginning!of!2012,!150!Foxconn!employees!protested!and!threatened! mass!suicide!from!the!three8story!factory!building!in!Wuhan.!The!protest!began! after!600!employees!were!displaced!to!a!new!assembly!line!without!any!training.! The!laborers!complained!that!the!assembly!line!was!to!fast!for!them!to!cope!with! and!in!just!the!first!morning,!almost!all!of!them!had!painful!blisters!on!their!fingers.! They!also!complained!that!the!factory!was!filled!with!dust!and!everyone!was! choking.!Now,!the!company!has!put!up!nets!around!the!buildings!to!safeguard!any! jumpers.!(The!Telegraph,!2012)!

Apples(side(of(the(story((
! ! Despite!having!evidence!of!all!the!above!since!2010,!Apple!has!shown!no! concern!and!continues!to!force!higher!production!orders!from!these!factories.!For! the!longest!time!there!was!no!reaction!or!comment!by!Apple!on!this!topic.!Its!initial! approach!was!to!ignore!what!was!going!as!long!as!possible!and!pray!that!it!would! fade!away.!In!2012,!Apple!released!the!supplier!responsibility!report!containing! rules!and!regulations!by!which!its!partners!were!meant!to!abide!by!in!order!to!do! business!with!the!company.!Its!own!audit!report!in!2012!suggested!that! approximately!30%!were!not!in!compliance!on!some!count!or!the!other.!In!the!mean! time,!when!Apple!was!pressured!by!protests!taking!place!in!China!as!well!as!their! headquarters!and!stores!in!California,!Apple!representatives!actually!tried!to!defend! themselves!stating!that!they!have!no!choice!but!to!continue!manufacturing!with! Foxconn.!Reasons!being,!the!cost!factor,!the!availability!of!manpower!needed!and! also!the!severe!lack!of!engineers!in!the!west.!The!company!also!tries!to!defend!itself! by!comparing!the!suicide!rates!to!those!of!certain!cities!in!the!U.S.!!In!our!opinion,! the!comparison!is!pathetic!and!illogical.!Peoples!lives!arent!an!acceptable!sacrifice! ! 6!

The!Apple!!Foxconn!Case! !

IBUS!7108!Stakeholder!Management!

for!cheap!labor!and!higher!profits.!(KARLGAARD,!2012)!They!put!on!a!real!show!of! how!far!deep!our!world!has!gone!into!capitalism.!

Labor(Conditions(in(China(
! ! ! The!situation!in!China!is!mind!boggling,!to!say!the!least.!Only!a!few!of!these! major!electronics8contractors!own!large!and!modern!state8of8the8art!facilities!built! according!to!highest!technology!standards!and!human!resource!management.! Majority!of!the!other!assembly!plants!either!do!not!have!enough!financial!resources! to!meet!the!industry!standards!to!create!a!better!work!environment!or!just!do!not! see!the!benefit!of!making!such!an!investment.!China!has!been!known!as!a!giant! labor8intensive!processing!factory.!The!main!reason!for!this!is!the!large!supply!of! labor!compared!to!its!demand.!The!average!worker!in!China!earns!approximately! $0.60!per!hour!or!between!$60!and!$150!a!month!and!receive!no!other!benefits! from!the!company..!The!women!earn!less!than!thee!men!for!the!identical!work!and! are!offered!no!maternity!leave!or!benefits.!Unable!to!withstand!the!pressure,!there! have!been!a!significant!number!of!suicides!and!protests!in!China.!(FACTS!AND! DETAILS,!2012)!Although!a!number!of!major!contractors!are!taking!various! initiatives!to!ensure!its!work!environment!meets!the!expectation!of!external!interest! groups,!they!are!still!criticized!for!their!poor!work!environment!conditions,!extreme! hours,!unpaid!overtime,!child!labor!and!humiliating!disciplinary!measures!on! workers.!(The!Huffington!Post,!2012)!! ! For!decades!now,!a!significant!number!of!western!companies!are!being! scrutinized!for!their!part!in!unlawful!and!inhumane!working!conditions!prevailing! in!China.!These!companies!proclaim!to!be!U.S!companies!and!to!be!functioning!with! the!most!ethical!and!moral!standards!with!the!interest!of!all!their!stakeholders!in! mind,!but!none!of!their!production,!assembling,!manufacturing!or!in!most!cases! even!packaging!actually!takes!place!in!the!United!States.!These!companies!are!taking! advantage!of!the!low!cost!of!labor!and!other!resources!in!places!such!as!China.!Their! products!are!made!by!exploited!laborers!in!China,!who!are!forced!to!work!extremely! long!hour!under!extremely!poor!working!conditions!and!in!some!cases!by!children! ! 7!

The!Apple!!Foxconn!Case! ! IBUS!7108!Stakeholder!Management! ! ! as!young!as!12.!However,!these!companies!conveniently!turn!a!blind!eye!to!the! conditions!in!which!the!laborers!that!make!their!product!are!being!treated.!These! companies!are!only!interested!in!having!the!product!manufactured!at!the!cheapest! possible!cost!and!feel!they!are!not!responsible!or!liable!for!lives!and!welfare!of!those! laborers!as!they!are!not!part!of!the!company.!However,!companies!in!the!west!and!in! China!as!well,!are!realizing!that!there!is!a!serious!need!for!change!in!this!attitude.! The!partners!or!affiliates!of!a!company!are!a!reflection!of!the!company,!its!vision,!its! integrity!and!its!ethical!and!moral!standards.!The!company!is!responsible!for!every! aspect!of!its!supply!chain.! ! China!is!an!important!manufacturing!base!to!thousands!of!companies!but!is! slowly!changing!its!trend.!Firstly,!there!are!not!as!many!workers!in!the!coastal! regions!to!work!in!factories.!Because!of!Chinas!family!planning!policy,!there!is!a! dramatic!change!in!demographics.!Plus,!migrant!workers!are!less!willing!to!travel!to! coastal!cities!to!work!because!of!economic!development!in!inner!part!of!Chinese! region.!Some!migrant!workers!prefer!to!stay!in!their!hometown!even!the!pay!is! lower!than!the!pay!in!coastal!regions.!Secondly,!workers!have!many!other!job! opportunities!to!choose!from,!such!as!restaurants,!hotels,!and!shopping!centers.! Thirdly,!the!turnover!rate!of!these!workers!is!high.!These!migrant!workers!are!more! likely!to!change!their!job!when!they!are!not!satisfy!about!their!pay!and!working! environment.!Human!resource!shortage,!strikes!and!controversies!make!a!deep! financial!impact!to!the!whole!production!line!and!high!turnover!rate!results!in! growing!training!expenses.!Legal!working!hours,!competitive!wages,!and!better! working!environment!only!meet!the!minimum!standards!of!these!workers.!!

FlextronicsE(Industry(competition(
! ! Flextronics!for!example,!is!a!Singapore8based!company!that!provides!designs,! logistics,!and!manufacturing!electronic!parts!for!hundreds!of!firms!around!the!world! and!is!exemplary!of!how!other!firms!should!function.!Flextronics!mission!is!to! increase!its!customers!competitiveness.!Flextronics!helps!customer!design,! manufacture,!and!transport!electronic!products!through!its!network!of!facilities! ! 8!

The!Apple!!Foxconn!Case! !

IBUS!7108!Stakeholder!Management!

around!the!world.!Flextronics!provides!complex!mechanical,!electrical,!and!system! integration!capabilities!to!help!its!customers!to!lower!costs!and!reach!market!faster.! Its!vision!is!to!deliver!the!top!operations!system!and!best8in8class!services!in!the! industry.! ! ! Flextronics!is!the!second!largest!electronics!manufacturer!by!revenue!in!the! world!after!the!Taiwan!based!industry!leader!Foxconn.!Flextronics!has!strong!global! presence!in!over!30!countries!with!approximately!75%!of!its!manufacturing! capacity!in!low8cost!countries,!such!as!China!and!Brazil.!(The!Wall!Street!Journal,! 2013)!!Flextronics!operations!in!China!serve!many!customers!in!different! industries,!such!as!medical,!industrial,!and!consumer!market.!Flextronics!China! owns!several!operation!centers!in!Beijing,!Shenzen,!Ganzhou,!Shanghai,!Nanjing,! Suzhou,!and!Hong!Kong.!Flextronics!Chinese!facilities!own!several!certifications!in! different!areas,!such!as!quality,!health!and!safety,!and!corporate!social! responsibility.!Moreover,!Flextronics!has!received!many!awards!such!as!the!2010! Zhuhai!City!Labor!Relations!Harmonious!Enterprise!and!the!2010!Guangdong! Province!Excellent!Corporation!for!labor.!The!company!also!ranks!46th!in!the!list!of! Top8100!Foreign!Companies!in!2011!by!the!China!CSR!Research!center.!(Flextronics! CSER!Sustainability!Report,!2010/2011)!The!china!CSR!Research!Center!is!an! organization!under!the!China!Enterprise!Confederation!and!China!Entrepreneur! Association.!! ! Michael!McNarmara,!CEO!of!Flextronics,!believes!that!corporate!social! responsibility!should!be!an!important!part!of!Flextronics!culture!and!has!been! successful!in!implementing!that!ideology!in!every!level!within!corporation.! Flextronics!adopts!opinions!from!different!perspectives,!such!as!employees,! investors,!and!customers,!and!takes!stakeholders!opinion!seriously.!Also,! Flextronics!takes!several!initiatives!to!ensure!that!it!meets!the!national!regulations! and!industry!standards,!a!example!that!is!severely!lacking!in!most!other!firms.! ! The!Flextronics!Pledge!is!designed!to!create!a!positive!working!environment! and!a!strong!communication!system!and!to!maintain!close!relationship!with! communities!in!sustainable!way.!The!four!major!parts!of!The!Flextronics!Pledge!are! People,!Environment,!Ethics!and!Governance,!and!Community!Partnership.!Take! ! 9!

The!Apple!!Foxconn!Case! ! IBUS!7108!Stakeholder!Management! ! ! Zhuhai!Facilities!in!Guandong!province!for!example,!Flextronics!invested!US$9! million!to!enhance!employee!facilities!in!operation!center.!The!initiative!not!only! increase!employee!engagement!rate!but!also!decrease!employee!turnover!rate.! (Flextronics!CSER!Sustainability!Report,!2010/2011)! ! ! Flextronics!works!with!Electronic!Industry!Citizenship!Coalition!(EICC)!to! ensure!that!its!global!electronics!supply!chain!follow!certain!environmental! standards!to!manufacture!electronics!products.!Working!environment!improvement! is!also!an!important!part!to!the!collaboration!between!Flextronics!and!EICC.!EICC!is! an!NGO!that!dedicated!to!form!and!promote!the!best!practice!of!conduct!within!the! information!and!communication!industry.!(Flextronics!CSER!Sustainability!Report,! 2010/2011)!Flextronics!also!work!with!Global!Business!Initiative!on!Human!Rights! (GBI)!to!ensure!that!its!employees!receive!deserved!respect!and!right!they!should! have!while!working!in!Flextronics.!GBI!is!a!business8led!organization!that!focuses!on! human!rights!in!business!context!around!the!world.!GBI!is!also!an!organization!that! promotes!the!implementation!of!the!United!Nations!Guiding!Principles!on!Business! and!Human!Rights.!Flextronics!became!a!member!of!GBI!in!2010.!(Flextronics!CSER! Sustainability!Report,!2010/2011)!

Recommended(Strategies(for(Foxconn(
! If! we! use! the! Power,! Legitimacy,! and! Urgency! model! to! map! and! prioritize! Foxconns!stakeholders,!the!employees!are!obviously!amongst!the!most!prominent.! In! this! labor8intensive! industry,! workers! are! of! significant! importance! to! the! company.! Their! physical! and! mental! wellbeing! could! tremendously! affect! the! companys!operational!efficiency,!product!output!and!product!quality,!which!in!turn! could!affect!the!financial!performance!of!the!whole!group.!Therefore,!the!company! should! always! try! to! manage! the! labor8firm! relationship! closely! and! keep! the! employees! satisfied.! ! As! mentioned! above,! the! recent! controversies! about! the! company! were! basically! centered! on! its! poor! employee! management.! A! variety! of! stakeholder!groups!such!as!NGOs,!customers!(such!as!Apple)!and!governments!have! ! 10!

The!Apple!!Foxconn!Case! !

IBUS!7108!Stakeholder!Management!

since! pushed! the! company! to! improve! the! workplace! environment,! to! reduce! the! working! hours,! and! to! elevate! the! base! salary! of! front8line! workers.! ! However,! despite! Foxconns! relentless! efforts! in! seeking! ways! to! solve! the! various! labor! related!issues!emerged!in!recent!years;!the!company!rarely!succeeds!in!changing!its! image! as! a! sweatshop.! How! can! Foxconn! utilize! the! stakeholder! management! strategies! to! effectively! mitigate! the! conflicts! between! the! labors! and! the! firm! remains!an!open!question.!! In! this! section,! we! would! like! to! discuss! some! feasible! strategic! options! to! help!Foxconn!mitigate!the!conflict!between!the!company!and!the!laborers.!Generally! speaking,! there! are! four! possible! solutions,! which! could! be! classified! into! two! categories.! One! is! through! collaborating! with! external! stakeholders! such! as! the! government! and! Non8Governmental8Organizations.! The! other! is! mainly! through! Foxconns!internal!efforts.!The!following!paragraphs!would!showcase!the!strengths! and!weaknesses!of!each!option.! The! first! strategy! is! primarily! an! incentive! driven! solution! and! also! a! good! way!to!engage!another!important!stakeholder!8!the!government.!!As!Foxconn!is!the! largest!employer!and!income!provider!in!the!cities!in!which!they!operate,!they!could! utilize! their! strong! bargaining! power! to! negotiate! preferential! treatment! with! the! local!governments.!For!example,!they!could!ask!the!government!to!provide!cheaper! or!subsidized!housing!for!their!employees!for!better!living!condition.!They!can!also! urge!the!government!to!provide!tax!incentives!and!reinvest!the!money!to!improve! the!condition!of!the!corporate!dormitory,!canteen,!transportation!service!and!other! facilities! that! basically! serve! the! employees.! They! could! also! work! with! the! government! to! establish! and! improve! the! local! occupational! education! systems! to! offer! more! opportunities! for! the! motivated! employees! to! develop! their! technical! expertise! and! advance! their! career! paths.! However,! the! disadvantages! of! working! with! local! governments! are! as! obvious! as! the! advantages.! It! is! clear! that! the! company! could! get! significant! benefits! through! working! with! the! government;! alternatively,!its!recruitment!might!be!strictly!confined!in!terms!of!head!count!and! location.! The! government! could! impose! more! hiring! quota! for! unskilled! laborers! and! locals,! and! could! possibly! force! the! company! to! hire! more! workers! than! the! actually!needed!to!solve!the!unemployment!problem.!There!is!also!the!risk!of!being! ! 11!

The!Apple!!Foxconn!Case! ! IBUS!7108!Stakeholder!Management! ! ! perceptible!to!being!part!of!unlawful!and!corruption.!In!the!long!run,!the!company! could!lose!its!competitiveness!and!standing!in!the!economy.! The! second! possible! strategy! is! to! engage! the! Non8Governmental8 Organizations! as! external! monitors! to! ensure! the! companys! operation! complies! with! domestic! and! international! labor! standards.! Foxconn! could! invite! several! global!influential!NGOs!such!as!Fair!Labor!Association!to!regularly!audit!the!working! and!living!conditions!of!the!companys!plants!across!the!world.!The!NGOs!can!give! comments! and! suggestions! for! improvements.! The! company! could! gain! positive! publicity!through!this!collaboration!and!regain!its!image!and!investor!confidence.!It! would! also! help! reassure! its! employees,! clients,! and! other! stakeholders.! The! disadvantage!of!this!strategy!is!that!it!could!be!very!difficult!to!align!the!interests!of! different! stakeholders.! The! shareholders,! clients,! managers! and! local! governments! may! not! be! interested! in! getting! external! parties! such! as! NGOs! involved! in! the! companys! internal! affairs.! Also,! in! the! long! run! the! cost! of! transparency! and! compliance!could!be!significantly!high,!thus!making!this!solution!less!attractive.! As!we!mentioned!before,!the!third!option!is!basically!through!internal!efforts.! Foxconn! can! reduce! the! potential! risk! of! labor! issues! through! developing! or! investing!in!production!automation!technology!such!as!robots!to!replace!humans!in! manufacturing!facilities.!This!will!entirely!eliminate!the!risk!of!labor!issues!and!will! also!allow!Foxconn!to!expand!manufacturing!capacity!in!virtually!anywhere!on!the! planet! instead! of! just! in! some! specific! countries! with! cheap! labor.! However,! using! robots!to!replace!human!work!has!some!critical!disadvantages!as!well.!First,!it!will! need!significant!initial!investment!to!buy!the!robotic!equipment.!Second,!the!power! supply,!installation,!and!daily!maintenance!of!these!robots!also!require!huge!amount! of! investment.! In! addition,! robots! can! only! perform! duties! that! they! are! programmed!to!do.!They!are!not!as!flexible!as!human!workers.!Foxconn!would!also! receive! further! heat! for! cutting! jobs.! In! the! long! run,! this! would! be! an! optimal! solution! for! solving! labor! issues,! but! the! short8term! impact! to! the! company! could! tremendously!undermine!its!financial!performance.!! Lastly,! to! get! rid! of! the! labor! problems,! Foxconn! can! also! consider! moving! forward! up! the! global! value! chain.! The! company! can! choose! to! gradually! change! ! 12!

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IBUS!7108!Stakeholder!Management!

their! business! model! from! a! pure! original! design! manufacturer! to! an! innovation! powerhouse! with! a! strong! brand! name! (like! most! of! their! customers)! or! expand! their! business! in! retailing! area.! This! option! can! help! the! company! to! gradually! reduce!the!risk!of!labor!issues.!However,!Foxconn!would!have!to!face!the!fact!that!it! will! lose! the! competitive! edge! from! its! economy! of! scale.! Overall! it! is! difficult! for! Foxconn! to! make! this! radical! change! since! the! company! lacks! the! experience! and! expertise! in! research! and! development,! and! more! importantly,! Foxconn! doesnt! have!a!well8established!brand!management!strategy!to!the!same!either.!!

Recommended(Strategies(for(Apple(Inc.(
! Firstly,! it! is! important! for! Apple! to! figure! its! most! important! stakeholder! group.!If!Apple!would!like!to!stay!attractive!to!todays!pickier!and!more!demanding! customers,! whose! purchasing! behavior! is! driven! by! not! only! the! technological! superiority! but! also! the! moral! consciousness! of! the! products,! the! company! would! definitely!need!to!change!their!cost!arbitrage!oriented!outsourcing!and!supply!chain! management! strategies.! Its! about! time! for! Apple,! a! long! time! major! technology! innovator!and!marketing!genius!also!known!as!one!of!the!most!arrogant!corporate! citizens! in! the! world,! to! take! on! their! stakeholder! management! issues! seriously.! Standing! in! Apples! shoes,! we! would! suggest! that! the! company! considers! the! following!possible!strategies!to!enhance!its!brand!equity,!profitability!as!well!as!its! firm!value.! First! of! all,! Apple! needs! to! place! stricter! environment! and! labor! rules! and! standards! on! its! suppliers! and! business! partners.! It! must! to! pre8screen! the! functioning! and! execution! of! their! partners! business! before! entering! into! contract! with! them! and! also! regularly! monitor! their! partners! to! make! sure! they! are! continuously! compliant.! Apple! should! force! its! partners! to! follow! legal! labor! laws! and!not!engage!in!any!unlawful!labor!acts!or!child!labor.!Although!Apple!seems!to! impose! the! highest! standards! of! product! quality! and! social! responsibility! on! its! suppliers,! it! never! seems! to! be! successful! in! monitoring! the! compliance! problem! existing! in! its! whole! supply! chain! system.! Apple! should! develop,! together! with! related!NGOs!and!suppliers,!a!workable!mechanism!to!effectively!monitor!the!whole! ! 13!

The!Apple!!Foxconn!Case! ! IBUS!7108!Stakeholder!Management! ! ! compliance! problem.! It! would! be! costly! and! time! consuming! at! the! initial! stage.! It! would!be!worth!it,!as!it!would!pay!off!in!the!long!run.! ! Secondly,! Apple! could! simply! shift! part! of! its! production! from! China! or! to! other!low!cost!economies!such!as!India,!Bangladesh,!Indonesia,!Philippines,!Mexico! or!Brazil.!These!countries!have!labor!problems!as!well!but!are!not!as!bad!as!those! prevailing! in! China.! They! could! also! try! partnering! with! other! independent! manufactures!in!China!to!take!the!load!of!Foxconn.!However,!this!would!lead!to!an! increase!in!cost!price!and!a!more!cumbersome!supply!chain.!Raising!their!prices!in! the! market! could! seriously! backfire,! as! their! products! are! already! priced! at! the! higher!end!of!the!market.! ! Another! approach! would! be! to! set8up! its! own! factories! in! China.! They! can! form! a! diverse! management! team! there! of! locals! and! Americans! to! manage! their! factories! in! China.! In! this! way,! Apple! can! employ! the! needed! workers! themselves! and!offer!them!fair!wages!and!working!conditions.!This!move!can!regain!Apple!Inc.s! image! through! out! the! world.! Their! stakeholders! will! also! be! satisfied! with! their! initiative!and!Apple!will!no!longer!be!perceived!as!iSlave.!However,!this!would!mean! a! change! in! Apples! business! model.! It! would! involve! heavy! investment! in! production!and!integration,!which!Apple!does!not!have!experience!in.! ! Lastly,!to!quickly!remedy!its!already!damaged!brand!image,!Apple!can!spend! more!money!and!put!more!efforts!in!CSR!practices!in!the!developing!world.!It!would! be!a!wise!to!involve!the!external!stakeholders!such!as!media,!PR!companies,!NGOs,! etc.!to!run!global!campaigns!to!broadcast!Apples!endeavor!in!eliminating!poverty,! unemployment! and! poor! labor! practices! in! the! less! developed! world.! Empirical! evidence!shows!that!people,!especially!the!potential!customers!of!Apples!products,! could!be!influenced!and!manipulated!by!media.!! ! !

(
! ! 14!

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IBUS!7108!Stakeholder!Management!

Conclusion)
!
Apple!and!Foxconn,!both!have!fallen!in!the!eyes!of!the!world.!Being!involved! in! child! labor! and! employee! suicides! is! not! easy! to! come! back! from! but! is! not! impossible.! That! being! said,! they! are! both! well8established! and! well8reputed! companies! and! have! the! scope! to! regain! from! this.! We! hope! the! companies! rectify! the!current!situation!as!soon!as!possible.!Just!like!for!any!person,!the!character!of!a! company! is! tested! when! it! is! up! against! it. This! is! the! chance! for! Apple! Inc.! and! Foxconn! to! show! the! world! what! they! stand! for! and! the! integrity! and! morality! on! which!they!run.! The!fact!is!we!live!in!a!capitalist!world!and!from!a!business!standpoint,!it!is! important!to!exploit!your!options.!However,!as!human!beings!certain!things!such!a! money!and!power!often!make!us!irrational!minds.!We!fail!to!address!the!issue!of!the! less!fortunate!and!take!advantage!of!everything!we!can.!One!of!the!biggest!problems! today!is!labor!exploitation!all!over!the!world.!The!time!has!come!where!capitalism! needs!to!be!monitored!and!regulated,!and!that!needs!to!be!respected!and!addressed.! Multinationals!such! as!Apple!and!Foxconn!can!no!longer!afford!for!a!controversial! situation!to!get!out!of!control.!It!needs!to!realize!the!impact!of!their!decisions!and! how!badly!their!businesses!can!be!affected!earlier!on,!and!take!steps!to!rectify!the! same.! NGOs,! clients,! governments,! media,! shareholders,! investors! and! all! other! stakeholders! can! play! a! major! role! in! the! success! or! failure! of! the! firm.! ! They! are! becoming!active,!powerful!and!resourceful.!Stakeholder!management!and!corporate! social!responsibility!are!critical!aspects!and!embraces!all!aspects!of!the!business.!It! is!not!possible!to!put!a!direct!cost8benefit!relationship!on!it,!but!it!undoubtedly!has! its! benefits.! As! a! company,! they! owe! to! the! society! in! which! they! exist.! It! is! their! responsibly!to!safeguard!the!interest!of!all!those!at!stake.! Companies!all!over!should!take!this!case!as!an!example!of!no!matter!how!big! your! company! or! reputation,! negative! controversies! can! cause! great! harm! and! downfall.!No!matter!how!much!good!you!do,!the!effect!of!the!bad!you!do!will!repel! you!much!worse.! ! ! ! 15!

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IBUS!7108!Stakeholder!Management!

! Source:!Foxconn!2011!CSER!Report8Stakeholder!Management! ! ! ! ! ! ! ! 16!

The!Apple!!Foxconn!Case! ! !

IBUS!7108!Stakeholder!Management!

Works!Cited!
Apple!Insider.!(2013,!March!25).!Apple!product!refreshes!boost!Foxconn!to! record!$3.2B!profit!By!Sam!Oliver.!Retrieved!March!25,!2013,!from!Apple! product!refreshes!boost!Foxconn!to!record!$3.2B!profit!By!Sam!Oliver:! http://appleinsider.com/articles/13/03/25/appleJproductJrefreshesJboostJ foxconnJtoJrecordJ32bJprofit! CBS!News.!(2011,!July!29).!Apple!now!has!bigger!cash!reserve!than!U.S.! Retrieved!March!23,!2013,!from!Apple!now!has!bigger!cash!reserve!than!U.S.:! http://www.cbsnews.com/2100J205_162J20085526.html! Computer!World.!(2012,!October!12).!Foxconn!builds!products!for!many! vendors,!but!its!mud!sticks!to!Apple!.!Retrieved!March!2013,!2013,!from! Foxconn!builds!products!for!many!vendors,!but!its!mud!sticks!to!Apple!:! http://www.computerworld.com/s/article/9232826/Foxconn_builds_products _for_many_vendors_but_its_mud_sticks_to_Apple! Durden,!T.!(2010,!Dec!10).!Foxconn!Employees!Exceed!1!Million.!Retrieved! March!21,!2013,!from!Foxconn!Employees!Exceed!1!Million:! http://www.zerohedge.com/article/foxconnJemployeesJexceedJ1Jmillion! Facts!and!Details.!(2012,!April).!APPLE!AND!FOXCONN:!WORK!CONDITIONS,! PROBLEMS!AND!CHANGES!.!Retrieved!March!24,!2013,!from!APPLE!AND! FOXCONN:!WORK!CONDITIONS,!PROBLEMS!AND!CHANGES!:! http://factsanddetails.com/china.php?itemid=2282&catid=9! FACTS!AND!DETAILS.!(2012,!APRIL).!APPLE!AND!FOXCONN:!WORK! CONDITIONS,!PROBLEMS!AND!CHANGES.!Retrieved!MARCH!29,!2013,!from! APPLE!AND!FOXCONN:!WORK!CONDITIONS,!PROBLEMS!AND!CHANGES:! http://factsanddetails.com/china.php?itemid=2282! FACTS!AND!DETAILS.!(2012,!April).!LABOR!IN!CHINA:!WORKING!CONDITIONS,! WAGES!AND!STRESS.!Retrieved!March!30,!2013,!from!LABOR!IN!CHINA:! WORKING!CONDITIONS,!WAGES!AND!STRESS:! http://factsanddetails.com/china.php?itemid=367#01! Financial!Times.!(n.d.).!Retrieved!from! http://markets.ft.com/research/Markets/Tearsheets/Summary?s=AAPL:NSQ! Forbes.!(n.d.).!Forbes:Apple.!Retrieved!from!Forbes:Apple:! http://www.forbes.com/companies/apple/!

! !

! !

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The!Apple!!Foxconn!Case! ! IBUS!7108!Stakeholder!Management! ! ! Foxconn.!(n.d.).!Foxconn!Milestones.!Retrieved!from!Foxconn!Milestones:! http://www.foxconn.com/PullulateCourse.html! Foxconn!Technology!Group.!(2007).!Foxconn!International!Holding.!Retrieved! March!21,!2013,!from!Foxconn!International!Holding:!http://www.fihJ foxconn.com/about/HONHAIprofile.aspx! ! Ingraham,!N.!(2012,!march!28).!Foxconn!and!Hon!Hai!report!record!Q4!2011! earnings:!$1!billion!in!net!income!with!$35.8!billion!in!revenue.!Retrieved! March!21,!2013,!from!The!Verge:! http://www.theverge.com/2012/3/28/2908226/foxconnJhonJhaiJq4J2011J earnings! ! Islam,!Z.!(2012,!Dec!23).!iPhone!Achieves!Highest!Ever!U.S.!Smartphone!Market! Share.!Retrieved!march!21,!2013,!from!iPhone!Achieves!Highest!Ever!U.S.! Smartphone!Market!Share:!http://www.tomshardware.com/news/iPhoneJU.S.J MarketJShareJApple,19972.html! ! KARLGAARD,!R.!(2012,!February!02).!In!Defense!of!Apple's!China!Plants.! Retrieved!March!30,!2013,!from!In!Defense!of!Apple's!China!Plants:! http://online.wsj.com/article/SB100014240529702046529045771953729737 34672.html! ! No!Stop!Technology!J!The!Apple!Fan!Site.!(n.d.).!No!Stop!Technology!J!The!Apple! Fan!Site.!Retrieved!March!22,!2013,!from!The!History!of!Apple!Inc.:! http://www.nostoptechnology.com! ! PROPUBLICA.!(2012,!March!16).!By!the!Numbers:!Life!and!Death!at!Foxconn!.! Retrieved!March!25,!2013,!from!By!the!Numbers:!Life!and!Death!at!Foxconn!:! http://www.propublica.org/article/byJtheJnumbersJlifeJandJdeathJatJfoxconn! ! The!Telegraph.!(2012,!Jan!11).!Mass!suicide'!protest!at!Apple!manufacturer! Foxconn!factory.!Retrieved!MARCH!30,!2013,!from!Mass!suicide'!protest!at! Apple!manufacturer!Foxconn!factory:! http://www.telegraph.co.uk/news/worldnews/asia/china/9006988/MassJ suicideJprotestJatJAppleJmanufacturerJFoxconnJfactory.html! ! Wired.!(2011,!February!28).!1!Million!Workers.!90!Million!iPhones.!17!Suicides.! Whos!to!Blame?!Retrieved!March!26,!2013,!from!1!Million!Workers.!90!Million! iPhones.!17!Suicides.!Whos!to!Blame?:! http://www.wired.com/magazine/2011/02/ff_joelinchina/all/1! ! China!CSR!Map!(2013),!China!Corporate!Social!Responsibility!(CSR)!Research! Center,!China!CSR!Map! http://www.chinacsrmap.org/Org_Show_EN.asp?ID=1228! ! ! 18!

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IBUS!7108!Stakeholder!Management!

Flextronics!(2013),!Flextronics!Global!Services,!Flextronics! http://www.flextronics.com/services/default.aspx! Flextronics!(2011),!Corporate!Social!and!Environmental!Responsibility! Program!Sustainability!Report!2010/2011,!Flextronics! http://www.flextronics.com/Documents/CSER%20Sustainability%20Report% 20(English)%20J%20for%20viewingJfinal2.pdf! James!R.!Hagerty!(January!2013),!Flextronics!CEO!Sees!Hope!for!U.S.!Tech! Production,!The!Wall!Street!Journal! http://online.wsj.com/article/SB100014241278873236896045782218642534 62582.html!

! ! !

19!