Essay: Apple's Ethical Issues & Overseas Operations Impact.

Pestle Analysis of the ethical issue in Apple's Supplier (Foxconn) on poor working conditions in China.

In the report, you should address the following points:

- What are the ethical issues faced by the multinational firms (Apple)?
- How did the selected ethical issue influence firm’s overseas operation?
- How did the chosen firm address the ethical issues?
- Do you think they handled well at that time?
- If you were a manager of the company at that time, what alternative strategies you might propose for dealing with such ethical issue?
- What issues the chosen firm should be aware of in their future operations in the chosen country?
-The report should provide a PESTLE overview of the chosen firm’s home country (United States) and the selected host country (China).- Also, need to provide an overview of the organizational culture of the selected firm (Apple).

Overview of Apple's Ethical Issues

Apple Inc. is one of the best manufacturing companies in the world, which produce electronic items such as I-phones, Laptops, Tablets etc. Apple Inc. founded by Steve Jobs, Ronald Wayne, and Steve Wozniak at 1^st April 1976 to develop and sell Wozniak’s Apple I personal computers. Its most of the product manufactured in China by Foxconn group, which is known for contract manufacturing and supplier of Apple’s product. This report talks about the ethical issues of Apple, which consider the case when the employees and workers of Foxconn were continuously facing poor working condition in a Chinese manufacturing plant. It causes few suicide attempts of labour in 2012-13 and an explosion that killed three workers in the same year. This poor condition causes a decline in the sale of Apple products and a decline in the brand image of Apple.  

This report includes an overview of ethical issues of Apple and its impact on its overseas operation. The second part of the report includes a PESTLE analysis on Apple that shows a comparison between USA Apple and Chines Apple working status and their position in both the countries. The third part of the report includes Apple organisational culture that is correlated with these ethical issues of Apple followed by analysis of the ethical dilemma faced by Apple because of the poor working condition in China. The result of such cases caused a heavy loss for Apple in the sales of its products and a huge decline in their stock prices just after these incidents. In the end, a recommendation will be provided that what action should be taken by the company to prevent such issues in the future.   

Foxconn is Apple's major hardware and development contributor, which manufacture Apple phones and laptops in various countries including the USA and China. Foxconn is a Taiwan based company that is the world's largest contractor company of manufacturing electronic products and having more than a dozen manufacturing plant in China (Chan, 2013). Over the last 6-8 years, both Foxconn and Apple Inc. have been in news because of their involvement in poor working conditions in China and it's causing them a great deal of deserved criticism. The employees and workers of Foxconn were continuously facing poor working condition in a Chinese manufacturing plant. It causes few suicide attempts of labour in 2012-13 and an explosion that killed three workers in the same year. It happened because of long working hours (According to an investigation report of CNN the average working hour for a worker in Foxconn is 12-14 hours in a day, and six days in a week), poor wages of workers, and the poor working environment in manufacturing plant. In China, where most of the world’ i-phone and i-pads are manufactured and assembled, Foxconn’s labour and workers were suffering from an extremely stressful and tough working conditions. Foxconn was also blamed for hiring underage workers in the factory. Foxconn is China's largest private-sector employer, and its activities have turned the coastal town of Shenzhen into the electronics workshop of the world. There were many ethical dilemmas and violation of human principle raised because of Foxconn and Apple scandal was exposed to the poor working conditions. They were also blamed for work harassment in the factory with long overtime work. Still, both Apple and Foxconn trying to regain their image by which Foxconn group has raised all workers' salary and hire more than tens of thousands of more workers so that never again a worker dies from working a thirty-hour shift.

PESTLE Analysis for Apple

Foxconn’s poor working environment destroys images of Apple worldwide and Apple suffered from a heavy loss in 2012-13. The CEO of Apple Tim Cook then directly interfered in this matter and visited a few times in Chinese manufacturing plant. Foxconn’s poor working environment destroy the brand image of Apple worldwide and Apple suffered from a heavy loss in 2012-13. As it is shown in the figure (Appendix fig. 1), the net income of Apple declined by approximately $4 billion in 2013, just after the Foxconn-Apple Chinese worker issues. However, Apple recovers the situation in 2017 and earns $48.35 billion, which was more than 2016 ($45.69 billion). These ethical issues influence the overseas operation of Apple and international human rights raise questions against the manufacturing of Apple products in China. The labour harassment and poor working condition in Chinese manufacturing country affect the business of Apple and sale of its products decline tremendously in 2013 (Chan, Pun, and Selden, 2013). Apple then took a few years after that to regain its image and growth rate. The remedies actions of these ethical issues arise in labour cost in manufacturing Apple products and its causes a decline in sales of Apple products worldwide (Sari, 2015).

Apple’s business model is one of the best models in the world and very successful. Despite being all the ethical issues it has faced in 2012-13, it stands itself again and again so strongly. This is the PESTLE Analysis of Apple that shows its status on different external factors that influence the business of Apple. But the Apple Faces different situations in both USA and China because of their bad political relation even the economic relationship between these two countries are so strong that support the business of Apple in both countries.  

Political Factor: Apple iOS smartphone sale is till November 2017 only 39.8% in US where it was outside of US was 61.2%. The major sale region of Apple i-phone was Great Britain where they sell 43% which is less than 2016 (Appendix Fig. 2). Apple will have to pay a heavy cost for finding other alternatives for its product manufacturing. Political Relationship with India is better than China, thus Apple looks for India to manufacture its product as an alternative to China. Apple is dependent on China where most of Apple products are manufacturing at very low cost because of their cheap labour (Vicente-Flores, 2014). Due to growing nationalism amongst Chinese people, Apple faces a major loss in market share in China. A bad working condition in Foxconn manufacturing plants in China affects the operation of Apple in the USA as well and put unnecessary political pressure on Apple operations (Hayoun, 2017). Bad political relations between the US and China may affect the manufacturing of Apple products in China. When Apple tries to get any alternative of China it will increase the cost of production or imposed heavy restriction on import of Apple products, resulting in an increase in Prices of Apple products (Pun and Chan, 2013).

Apple's Organizational Culture and Impacts of Ethical Issues

Economical Factor: The increasing value of Dollar causing a rise in exchange rates. This causing rise in the price of Apple products because its potential markets are in China and Europe, but the rising difference between Dollar and other currencies such as Dollar and Yuan results in increasing the cost of manufacturing Apple products (Moore, 2012). In normal condition, the revenue of Apple would have been higher by 800 points. This indicates if there were no such rise in the value of Dollar then Apple would have made revenue of $52.8 billion instead of recorded revenue of $49.6 in 2015 (Litzinger, 2013). Strong Chinese economy and cheap labour cost attract Apple for manufacturing where the European economy declining and causing a decline in sales of Apple products because of the fall in Pound. Increase in Chinese labour cost affects the manufacturing of Apple product because now Chinese government set rules for minimum wages within the country. In some areas of China, the labour cost increased by 5%-22%. Thus, rise in labour cost causing an increase in the price of Apple products and even if company look for any other alternative of China it will cost a fortune to the company (Josephs, 2012).

Social Factor: The people of the USA are economically well in their financial conditions and the growth of Apple sales is very less in comparison to the Chinese market. Although, the emotional attachment of young Americans with Apple helps to still grow in USA market. Apple is now looking for African countries because in the future there will be a huge market in African countries because they are unfamiliar with Apple products. Thus, the focus of Apple is more on African countries rather than USA (Ngai, et.al, 2014). People in the USA may find that Apple lacks in Social-consciousness and responsibility, as it carries out most of the manufacturing operation in China, resulting it can be a job-creator for the home country.

The Market Share of Apple in China was only 7.1%, where globally it acquires 12.5% of the market until 2016. The other Chinese phones acquire more than 22% of market share in the world and in China; it was more than 60%. Apple covers only 7.1% of the market in China despite being Apple's large manufacturing come from Chinese manufacturing plants (Appendix Fig. 4). If tension rises between USA and China, Apple Company probably looking for other regions such as South Africa, North America, and European Countries, and in Asia, they are looking for establishing a company in India etc. Ethical issues About Foxconn affect Apple's product manufacturing in China and it could restrict its product’s appeal among socially cognisant consumers. The mass manufacturing of Apple products in China creates employment opportunity for Chinese people and its leave a good impact in their mind, but Foxconn’s poor work environment and ethical issues negatively affect people’s perception about Apple (Gupta, 2012). Nationalism of Chinese people more focuses on their domestic products such as Xiaomi, Redmi, and Oppo. These are low-cost products in compare to Apple iPhone. Thus, Chinese people are more connected to their domestic products.

Analysis of Ethical Dilemma Faced by Apple

Technological Factor: Technological advancement is the USA is a part of their growth strategies. Companies like Google and Microsoft, which are based in America, have a strong ability to make duplicates of Apple products. Google takes less than a year to make its own payment App that was almost similar to Apple pay. Apple still struggling to create a place for its product in other places such as Apple TV and music devices, because there are so many other players already exist in the US market. Apple personal computers almost out of trend because of increasing demand for Tablets and Apple smartphones (Pun, et.al, 2016). Apple phone facilitates a limited number of applications on their phone because of their proprietary operating system. Apple largely depends on a variety of Intellectual Property Laws (IPL) in the USA such as music and software for its income. This leaves the company highly vulnerable to both privacy and litigation.

The large part of Apple's income (37%) come from the USA in 2013 because of US government Support where in China it was only 13% in compare USA because of the labour issues and tough Competition in Chinese Market (Appendix Fig 3). The cause is heavy competition among other companies like Oppo, Redmi, Xiaomi etc. China is one of the most growing economies in the world. Technological Advancement in China creates opportunities for other companies such as Oppo, Xiaomi, Redmi etc that are low budgets phone and having the same features as Apple. China is a hub of cheap products because of cheap labour. This causes a high level of competition in Chinese electronic markets where the population is more than 1.4 billion. In a larger market, Apple faces heavy competition because of Chinese low-cost smartphones and electronic devices (Zhou, 2013). This causes Apple expensive product cost in China of Apple products. The technological advancement of China mostly focuses on the manufacturing of cheap products that can be easily affordable for their citizens but Apple's product is so costly even in the USA as well.

Legal Factor: After begins its operation in the USA, Apple always being in news for a participant in various lawsuits. Apple facing of new challenges because of new laws regarding manufacturing and business operations in the government of Donald Trumph (current president of USA) and facing some new legal laws that affect the business and manufacturing of its product in China (Sandoval, 2015). The USA has more strict laws regarding user information privacy, thus the criminal cases are less in comparison to China.

Impact of Poor Working Conditions on Apple's Sales and Brand Image

China introduced new legislation regarding cloud services that require any cloud services in the country should operate by a Chinese company. That resulting Apple transfers its iCloud services to a Chinese company name GCBD (Enderle and Niu, 2012). Chinese rules and regulations regarding cyber-crime are more lethal and provide virtually unfettered access to user data without any protection. Apple pay has to suffer in China because the laws and regulation regarding the financial transaction on the mobile app were not supported by the Chinese government. This causes a problem for Apple to launch Apple pay in China.

Environmental Factor: Disposal of used electronic and non-working devices and its part are the major problems for Apple in the USA. Apple is on track to consume energy from solar, geothermal, and hydro sources to reduce pollution in the USA. The concern of pollution in China being raised about the side effect of its manufacturing plant and its impact on climate change due to global warming is a major issue (Yaverbaum, 2017). China’s efforts to reduce fossil fuel use could increase electricity rates and manufacturing costs for Apple in that country.

Apple Inc. has an organisation culture for creative innovation. The culture of Apple majorly focuses on an ideal self-motivated people for working hard in the organisation thus even they do not have a boss they will manage every activity without any help (Khan, Alam, and Alam, 2015). Apple is committed in its mission statement to provide world’s best technology to everyone including students, teacher, creative professionals, and its consumer all over the world through its technological offerings including hardware, software, and internet services. Apple in its vision statement focuses on delivering quality product and services to its consumers and setting the high industry standard for its competitors (Espanol, 2012). The whole organisation focuses on creativity and innovation in the organisation. These things are inseparable from its culture and will remain so even in the future. Product differentiation through quality has remained the principal focus of Apple.

Apple’s organisational culture is effective in supporting the firm’s leadership because of key features that fit the business. These are the following characteristics of Apple’s organisational culture:

1. The innovative culture of the organisation focuses on introducing new products with the latest technology and unique features.
2. Creativity is another key aspect of Apple organisational culture.
3. Top-notch
4. Secrecy in its business operation
5. Moderate combativeness

Foxconn’s poor working environment destroys images of Apple worldwide and Apple suffered from a heavy loss in 2012-13. Apple CEO Tim Cook looks after this matter and takes several decisions about the welfare of contract-manufacturing workers at a higher priority, and has made an effort to bring the issue out of the shadows (Xu and Li, 2013). Apple audited the manufacturing plant more than 80 times within a year. Apple launched a "Supplier responsibility progress report" to address the problems and what apple doing about them. Apple then discloses its supplier's name, which it refused to do earlier because the company fear about the privacy and secrecy issue about its new product (Darrenfong, 2012). The underage workers audits in 2012 were 176 (Appendix Fig. 5) during Chinese issues that were more than 2011 where Apple only did 18 Audits in their manufacturing units. Apple makes new rules and regulations in which it claims on zero tolerance policy to child labour. Apple also gave notices and warnings to some other supplier companies that solve the problem or company will find new companies.

Recommendations on How to Prevent Such Issues in the Future

The Fair Labour Association (FLA) investigated and conducted the month-long working conditions examination in the Foxconn Company to ensure that whether it was up to date and follow all rules and regulations regarding working conditions or not. FLA found in its report that more than half of workers and employees had worked more than 11 days without any rest. More than 43% of workers reported experiencing and witnessing an accident at the three plants (Guanlan, Longhua, and Chengdu plants) checked. Although the Chinese Labour Law said that employers should work no more than an average of 49 hours in a week, including overtime. While high turnover made Foxconn dependent overtime, workers were often denied pay for extra hours, and almost 14% of the workers were not paid for their overtime work (Guglielmo, 2013). The result of such cases caused a heavy loss for Apple in the sale of iPhones and a huge decline in their stock prices just after these incidents when prices of its share fall $705.07 to $500 within a month. The belief of its consumer continuously declined because of such poor quality-working environment when workers found asleep during work in the Chinese manufacturing plants. To short out the Chinese ethical problem the company had only a few options. These options are as follows:

1. Find another alternative of China for manufacturing
2. A solid and strong legal approach for the worker welfare
3. Aggressive chip away at the problems associated with Foxconn with an iterative improvement program, regular auditing, higher standards, and focuses on enhancing transparency in work
4. Pay more to Foxconn for work transparency, workers welfare, and protection of the environment.

Apple found the third option is the best option and company applied this option to remove the ethical dilemma of Foxconn manufacturing problem. The first option is not an option because those concerned about the welfare of Chinese workers, unemployment is not the solution, because shutting down a manufacturing plant in China causes heavy unemployment in the country (Xu, et.al, 2011). The fourth option is the best option but Apple is not pursuing adequately. Apple was also focusing on option four and starting to pay more to Foxconn for work transparency and worker welfare. Apple was blamed for its lethal approach towards the Foxconn work abuses in China (Hays, 2012). However, we cannot deny that Apple did the enormous effort to the company as expended in raising work standards in China by putting a lot of money and effort. There were already coercive levels of labour force involved behind the workers in Foxconn manufacturing plant in China. Apple squeezes Foxconn for the product manufacturing and Foxconn forced and squeezes their employees.  

Conclusion:

Apple is the big brand name in the world in providing best quality electronic items. Still, they are facing problems related to their image because of improper management and inspection of its supplier Foxconn. Although the mistakes of Foxconn causes a loss for both Apple and Foxconn, Apple recovered its lost image by implementing some strategies that were favourable for workers. Apple recovers its image, gain the same growth percentage in the sale of its products after 2015, and get back on its old track of growth. The main reason behind this is to formulate some strict labour laws that favour workers in China and positive increase in pay of Workers. Although, the political condition between USA and China is not that good, thus obviously Apple has looked for other alternatives of China for establishing some new manufacturing plant in other nations.

Apple should more focus on its worker welfare by spending and paying more money to its supplier Foxconn on creating a good working environment within the manufacturing plant. If I will be a manager of Apple, I will more focus on providing a healthy working environment for its workers and set standard hours for overtime in the manufacturing plant. A strict law should be implemented on the Apple’s supplier company as well that prevent Foxconn to harass employees by excessive overtime. If overtime is done by the employees, they must pay adequate pay for their overtime works that should be more than their regular pay. In Future, Apple should aware about such issues by investigating its supplier companies on regular basis.

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