There are ways suppliers can resist the demands of more powerful companies and treat their people better, says UNSW Business School’s Maggie Dong.
Power imbalances in global supply chain contracts are commonplace. One example is Apple’s relationship with the world’s biggest electronics contract manufacturer Foxconn. With almost 1.3 million employees in mainland China, Foxconn is the country’s largest private employer.
Over the past decade, Foxconn has made headlines over its exploitation of employees and poor working conditions. Apple, in turn, has faced heavy public scrutiny for continuing to benefit from low labour costs, which promote poor conditions and the unethical treatment of workers inside its iPhone factories.
Recently, Apple put Foxconn’s southern Indian factory on probation following protests after hundreds of women working at the plant and living in a hostel had to be treated for food poisoning, a concern both the firms acknowledged and pledged to address.
With Foxconn predicting supply chain issues will persist through to the second half of 2022, many are wondering if Apple has taken any tangible steps towards improving its global supply chain, and especially its reliance on cheap labour and low taxes in countries like China.
The problems at Foxconn seem to be far more extensive than poor management. For example, research shows human rights, environmental and ethical issues persist within Apple’s vast global supply chain, they don’t just appear in Apple’s relationship with Foxconn.
Reports also show Apple has either refused or has been slow to stop doing business with other suppliers, including Suyin Electronics, a company that has repeatedly violated labour laws and failed to improve workplace safety.
So what can suppliers like Foxconn do to put pressure on companies like Apple to address such power imbalances that exist in their global supply chains?
A closer look at power imbalances in Apple’s supply chain
Studies to date have primarily focused on the advantages gained by powerful companies like Apple from outsourcing through cheaper labour overseas, while little research into adverse effects associated with this practice has been conducted.
But a previously published paper co-authored by UNSW Business School’s Associate Professor Maggie Chuoyan Dong examines the disadvantages as well as some of the potential solutions.
The most common challenges, particularly for the supplier organisations in managing relationships with influential clients, stem from the power imbalance between these organisations, explained A/Prof. Dong.
Apple is powerful, she said, while Foxconn faces narrow profit margins – with which it has to make enough money for its shareholders.
The pursuit of profit has forced Foxconn to put additional pressure on employees, which in turn has led to poor and unsafe labour conditions as well as employee suicides (first reported back in 2010), said A/Prof. Dong, who was recently appointed Head of the School of Marketing at UNSW Business School, and formerly served as Associate Professor at the Department of Marketing, City University of Hong Kong.
“There are certainly production management issues within Foxconn. Given the limited/poor margin, there is also the power imbalance issue within its relationships with Apple, which forces Foxconn to reduce costs,” explained A/Prof. Dong.
“There are profitability challenges and the risk that Foxconn can be replaced at any time, at any moment, without any reason. So these are the huge challenges they need to face and sometimes may find some unethical or illegal ways to deal with them.”
The imbalanced supply chain relationship between Apple and Foxconn
The profit problem: why Apple must pay up
Profitability is often a considerable challenge for global suppliers. “Foxconn needs to survive. What they want least is to have to close the company. So first, to break even, and then to make money… they will try every possible chance to make a profit,” said A/Prof. Dong.
The constant pressure of profitability creates an unhealthy loop for the supplier. “Once you’re in an unhealthy loop, you never have time or resources to think about sustainable development, to think about innovation, because you’re lacking the time and resources,” she said.
So with tremendous pressure from Apple to deliver on orders, despite being given minimal time at a low price, Foxconn is trapped in an unhealthy loop. While there are a few things companies like Foxconn can do, the onus is really on the big players like Apple to invest more into their relationships with suppliers, said A/Prof. Dong.
“First, if you want this relationship to be more balanced, to sustain for the longer term, and with more commitments, you need to find ways to encourage the powerful parties, say Apple, to invest more,” explained A/Prof. Dong. So if Apple values Foxconn as a long-term supplier, it will have to show this by investing more into their relationship.
Hope in supplier networks
Suppliers like Foxconn can encourage companies like Apple to listen by forming global networks to exchange information more efficiently, said A/Prof. Dong.
“Suppliers lack resources like finances, technology, branding, so they need to leverage external resources like network alliances/national databases, to network and collaborate with other business partners,” she said. “Together with this business network, they can put more pressure on companies like Apple… together they can build a healthier, more functional relationship that is more stable.”
Another solution is for the suppliers to form stronger networks and collaborative relationships with government institutions or global NGOs that address poor working conditions in various countries. This will help put societal pressure on companies like Apple to do the right thing.
“Apple is a large listed company and its societal reputation matters. It matters a lot to Apple,” concluded A/Prof. Dong.
The original version of this story was published on BusinessThink.
