Memo to Foxconn (and Apple): Don't Discipline Your Workers with Nightsticks

As Chris Rock said about Rodney King and LAPD in one of his skits on The Chris Rock Show: "if the police have to come and get you, they're bringing an ass kickin' with them." Unfortunately, this particular labor/supplier management philosophical embrace courtesy of the LAPD seems to run rampant among Foxconn's security staff in China at the moment. The topic to which I refer specifically is Foxconn's latest labor challenges (and Apple's supplier management challenge) outlined in the following Reuter's article.

It suffices to say that given the continued labor unrest at Foxconn, Apple is clearly not on top of their vendor management game. Let's do the math ourselves on this. With 5,000 police sent in against 2,000 rampaging employees on one recent day, it's safe to safe that no iPhone 5s were made that day (though we're sure if the police were using the latest Apple phone, that they could have made use of the nifty new maps feature to get to the protestors that much faster).

Granted, Foxconn has around 1 million employees in China. And this latest incident occurred at "only" a 79,000-employee plant. But still, riot shields, batons and hospitalized workers in critical condition is not only tragic in itself. It also contributes to the continued stream of negative PR from Apple's supply base, not to mention additional lost production. Perhaps most important and vexing, it sends a strong message about poor morale and weak management skills at Foxconn, which currently plays an inseparable role in Apple's supply chain.

One thing we do know about managing suppliers in China is that when there's smoke, there's fire. As I hinted at in an earlier column on the issue, does anyone think that once these workers go back to building iPhones that there will not be quality fluctuations? Will there be no cogs thrown into the machinery, no intentional mischief? I'd be interested in seeing stats comparing quality from rioting plants vs. those from plants with more amicable worker-management relations. I bet there is a noticeable gap.

For Apple, this may be yet another PR emergency. But beyond bad headlines, Apple needs to get on top of the situation before this hits their bottom line from tarnished product quality. As I pointed out in my story on the vulnerability of such a high profile company on Spend Matters PRO (subscription required), incidents like the one at Foxconn right now will likely become more frequent. These situations happened in the west as early industrial laborers tried to extract more from their input, and still take place (although mainly among public workers) and even big profile firms like Apple aren't immune.

Takeaways here include that strategic outsourcing and supplier management relationships spanning the globe need to be monitored carefully. One prediction I'll stake my own baton on is the high likelihood of resurgence in expat arrangements and other employee transfers to not only functionally train employee, but also culturally cross-train teams throughout Asia. This should be high on the list as you go into the budget cycle for 2013.

As you become a large employer (aka source of revenue) to communities overseas, you should cultivate these relations in your favor. Someone will turn the steady stream of business into political leverage – it might as well be you. Develop friendly ears who can give you a heads-up before push turns to shove and worse like the current Foxconn troubles.

Both of the above recommendations point to a need for boots on the ground – not the jackbooted kind – but your own employees that can manage all these activities. Consultants and partners are good, and can provide information that those that have gone "too local" might hide, but adding your own staff to the mix shows commitment and provides an added level of cultural insight that contractors can't provide.

Undoubtedly, many revisit contract terms, CoCs, SLAs and other legal aspects of working with their Chinese and SE Asian manufacturing partners – just remember that their perception of contracts, and the legal systems they operate in are quite different from how we run the legal side of businesses here in the US. Certainly bring those terms into play per your corporate policies, just don't expect them to work the same way. An approach that also leverages direct interaction, onsite presence and a human touch will be even more effective.

Develop a bit of the soft touch that Chris Rock (the person, not the foul-mouthed persona) has -- where he prefers to spend time with his children over making movies or standing onstage. It could be time to spend some quality time with your suppliers!

- Thomas Kase

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