The news that Apple and its key manufacturing partner Foxconn have reached an agreement to shorten the overtime hours and improve working conditions isn't likely to raise the price consumers pay for iPhones and iPads anytime soon, but there could be a ripple effect.
Analysts say Foxconn's announcement could ultimately be a much bigger deal down the road to Apple’s competitors.
“I think the impact on Apple products will be pretty minimal because where they get their big price breaks is in components where they buy huge quantities,” said Tim Bajarin, president of Creative Strategies. “Even if the higher costs affects Apple’s margins, I don’t think they’ll change consumer prices, if anything they’ll be more likely to lean on their suppliers for better deals.”
A potentially bigger issue is whether other manufacturing companies in China will follow Foxconn’s lead, leading to higher wages and benefits paid throughout the supply chain. If that happens, it could affect pricing of a range of consumer goods, as well as tablets made by Apple’s competitors.
“That could put pressure on Apple’s competitors who don’t have the same kind of leverage to bargain with suppliers,” said Bajarin. “Apple has the advantage in that scenario because it has the extra cash to buy components in huge quantities at a discount.”
Vijay Vaitheeswaran, global correspondent for The Economist, says he believes the era of “cheap China” is coming to an end, when it comes to manufacturing.
Speaking earlier today at a Churchill Club event on innovation, Vaitheeswaran said that doesn’t mean companies will move elsewhere like Vietnam for cheaper labor costs. “The supply chain infrastructure and worker productivity isn’t there, the model falls apart,” he said.
Foxconn’s announcement came during the same week of Apple CEO Tim Cook’s high profile visit to China. Cook met with Chinese government officials and took a tour of Foxconn’s iPhone manufacturing facility and met with company officials there.
Excessive overtime, health and safety risks
The agreement came after the Fair Labor Association released the results of its investigation into reports of labor rights abuses at Foxconn. As part of its study, the FLA said it interviewed hundreds of Foxconn workers and managers both on and offsite and conducted an anonymous “worker perception survey” of 35,500 randomly-selected FoxConn workers.
In a summary of its report, the FLA said it found workers putting in excessive overtime and problems with overtime compensation; several health and safety risks and “crucial communication gaps that have led to a widespread sense of unsafe working conditions among workers.”
The FLA audit had found that during peak production times, workers in the three Foxconn factories put in more than 60 hours per week on average. In its agreement, Foxconn said it would reduce working hours to 49 hours per week, including overtime, while keeping total compensation for workers at its current level as well as improve working conditions.