Apple "ignoring not solving" Chinese factory conditions - report

UPDATE: An internal e-mail from Apple CEO Tim Cook addressing the New York Time's investigative article has been leaked to 9to5 Mac. The e-mail was sent to the company's employees, and reinforces Apple's commitment to highlighting and eradicating violations of its Supplier Code of Conduct.

"As a company and as individuals, we are defined by our values," the e-mail reads. "Unfortunately some people are questioning Apple's values today, and I'd like to address this with you directly."

"We care about every worker in our worldwide supply chain. Any accident is deeply troubling, and any issue with working conditions is cause for concern. Any suggestion that we don't care is patently false and offensive to us. As you know better than anyone, accusations like these are contrary to our values. It's not who we are."

"For the many hundreds of you who are based at our suppliers' manufacturing sites around the world, or spend long stretches working there away from your families, I know you are as outraged by this as I am. For the people who aren't as close to the supply chain, you have a right to know the facts."

ORIGINAL STORY: An in-depth New York Times investigation into the Chinese companies that manufacture products for Apple highlights an "unresolved tension" between the firm's efforts to improve conditions for workers and the need to meet demand for its products.

The article is based on the testimony of "three dozen current or former employees and contractors," including "half-a-dozen" anonymous Apple executives with first-hand experience of the company's supplier responsibility group.

"We've known about labor abuses in some factories for four years, and they're still going on," said one former Apple executive. "Why? Because the system works for us. Suppliers would change everything tomorrow if Apple told them they didn't have another choice."

"If half of iPhones were malfunctioning, do you think Apple would let it go on for four years?"

Chinese companies like Foxconn manufacture products for many of the world's leading technology companies, including Microsoft, Sony and Nintendo. The notoriously poor working conditions in their factories have been widely reported, most recently after a group of 300 workers threatened suicide at an Xbox 360 manufacturing plant.

However, the New York Times alleges that, while Apple has introduced processes to monitor its suppliers, its efforts are compromised by a greater desire to increase production and cut costs.

Apple created a "Supplier Code of Conduct" to ensure "safe and healthy working conditions" and that employees are treated with "dignity and respect." An ever-increasing number of factories are regularly audited to ensure compliance with the code.

You can set all the rules you want, but they're meaningless if you don't give suppliers enough profit to treat workers well

Former Apple executive

In theory, suppliers are given 90 days to rectify their transgressions or face the termination of highly lucrative production contracts.

However, while Apple's annual progress reports have shown steady improvement and the company has endeavoured to educate workers about their rights, the unprecedented demand for Apple products has led to a conflict of interest.

The New York Times reports that more than half of Apple's audited suppliers, "have violated at least one aspect of the code of conduct every year since 2007...and in some instances have violated the law."

The offences largely relate to working hours, wages and living conditions, but have also included "core violations" like the employment of underage workers, the falsification of records, improper disposal of hazardous waste, and workers injured by exposure to toxic chemicals. The article claims that six "core violations" were found in 2007, and a further 70 over the next three years.

However, despite the consistent violations, former Apple executives say the company has ended its relationship with less than 15 suppliers since 2007.

"If you see the same pattern of problems, year after year, that means the company's ignoring the issue rather than solving it," one executive said. "Non-compliance is tolerated, as long as the suppliers promise to try harder next time. If we meant business, core violations would disappear."

Part of the problem is Apple's methodology for selecting its suppliers. Hopeful companies pitch to Apple's executives based on "every financial detail" with "most suppliers...allowed only the slimmest of profits."

"You can set all the rules you want, but they're meaningless if you don't give suppliers enough profit to treat workers well," said another former Apple executive. "If you squeeze margins, you're forcing them to cut safety."

The unprecedented popularity of Apple products has thrown the situation into sharp relief. This week, the company posted record quarterly profits of $13 billion on revenues of $46 billion, yet CEO Tim Cook told investors that the firm was still struggling to meet demand.

"We made a very bold bet entering the quarter as to what the demand [for iPhones] would be. And as it turns out, despite it being a very bold bet, we were short of supply throughout the quarter and did end with a significant backlog," Cook said, referring to the 37 million iPhones the firm sold in the quarter.

"That situation has improved some since the end of the quarter, but we still are short in some key geographies currently."

With demand growing all the time Apple is in a difficult position. The process of finding new partners is "time-consuming and costly," and Foxconn is one of only a handful of companies in the world capable of manufacturing to the scale required.

"You can either manufacture in comfortable, worker-friendly factories, or you can reinvent the product every year, and make it better and faster and cheaper, which requires factories that seem harsh by American standards," said a current Apple executive.

"And right now, customers care more about a new iPhone than working conditions in China."