SAN FRANCISCO (Reuters) – Manufacturers of household appliances, toys and other manufacturers already face rising wages in China, will experience further pressure after Apple’s decision and its subcontractor Foxconn improve working conditions in production facilities.
Foxconn, a Taiwanese subsidiary of Hon Hai Precision Industry which produces the iPhone, iPad and other Apple devices, will substantially increase wages, hire tens of thousands of employees and address issues of illegal overtime, security and improving the living conditions of employees.
This decision is the answer to one of the largest surveys ever conducted on the activities of a U.S. company outside the United States. Apple has accepted the survey, conducted by the Fair Labor Association, while the group is increasingly accused of making its products on the backs of Chinese workers mistreated.
The association, presenting findings after conducting investigations in three Foxconn factories with over 35,000 employees, said he found numerous violations of labor law, as many unpaid overtime or long working hours.
Given its high profitability and its strong position with its suppliers, Apple’s decision in favor of Chinese workers making its products should not force the group to raise its prices.
But this decision could indirectly compel companies with massive use of force in the work of the second largest economy – primarily clothing manufacturers – to devote more resources to pay and therefore to accept a decline in their profits.
“The fact that groups of electronic wage increase will affect the entire manufacturing sector,” noted Paul Martyn, Vice President of Supply Strategy.
The agreement between Apple and Foxconn may also have an impact on the costs of other manufacturers doing business with the Chinese group, such as Dell, Hewlett-Packard, Amazon.com, Motorola Mobility Holding, Nokia and Sony.
After decades of unbridled economic growth in China, particularly fueled by the fact that many Western companies have outsourced in the country large sections of their production to lower their costs, the era of cheap jobs seems to be ending in China.
“Apple and Foxconn are obviously the two main actors (e) and, as they have partnered to implement this change, I think they will really set the tone for the rest of the industry,” said Reuters Auret van Heerden, president of the Fair Labor Association.
Compared to the cost of various components of a smartphone or tablet, the work represents only a fraction of the total. Analysts said it does not represent more than 5% of the bill of iPhone for Apple.
According to Paul Martyn, if wage growth is spreading, for example, to manufacturers of plastic toys, fast food chains may choose to offer lower quality gadgets in children’s menus.
“We could also see a reduction in the diversity of this type of products (…) There might be more defective items in toys and small electrical appliances (…)”, he said.
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