To improve labour conditions in the global electronics industry, more attention needs to be paid to contract manufacturers

 

hIn recent years, there have been numerous labour violations in the global electronics industry. They include factory worker suicides, forced labour, child labour, excessive over-time, poisonings, illnesses, and deaths from chemical exposure. Many of these violations occur in supplier factories of big brand companies such as Apple, Hewlett-Packard, and Dell. While brands are considered ultimately responsible for these violations, their efforts to improve the situation are more often than not inadequate and unsustainable (Locke, 2013).

The crux of the problem lies in the just-in-time production model that involves brand firms demanding fast and cheap, yet high quality outputs from suppliers in the electronics industry. While suppliers tend to have little bargaining power against these demands by brand firms, the notion of ‘powerless’ suppliers does not fully apply to a set of large and key suppliers in the electronics industry – contract manufacturers. Contract manufacturers are large multinational corporations with an extensive and growing set of capabilities in production, supply chain management, customer management, design, engineering, and others. According to the European Commission, the top five contract manufacturers (see Table 1) in the industry conduct up to 80% of manufacturing for brand firms.

Table 1. Top five CMs compared with the top five brands in the electronics industry.

Contract manufacturer Revenue (USD million, 2013) Employees
Foxconn 131,533.1 1,290,000 (2014)
Flex 26,108.6 150,000 (2014)
Jabil Circuit 18,336.9 More than 175,000 (2015)
Sanmina-SCI 5,917.1 33,144 (2014)
Celestica 5,796.1 22,600  (2014)
Brands Revenue (USD million) Employees
Apple 170.910 (2014) 92,600 (2014)
Hewlett-Packard 112,298 (2014) 317,500 (2014)
Dell 56,940 (2013) 108,800 (2014)
Lenovo US$46,296 B (2015) 60,000 (2014)
Acer US$10.48 B (2014) More than 10,000 (2014)

Sources: Fortune 500, 2014 (http://fortune.com/fortune500); Lenovo (2015); http://investing.businessweek.com/research/common/symbollookup/symbollookup.asp; www.google.com/finance (accessed 17 June 2014); https://www.linkedin.com/company/asus, accessed 12 June 2015; http://www.bloomberg.com/research/stocks/financials/financials.asp?ticker=2353:TT&dataset=incomeStatement&period=A&currency=US%20Dollar; company websites.

Brand firms maintain long-term relationships with these contract manufacturers (see Table 2). As relationships between brand firms and contract manufacturers mature, and as contract manufacturers increase their own resources, activities, and capabilities in corporate social responsibility, this group of suppliers should be looked at as entry points for changing labour governance practices in the industry – notably by pushing back against brand firm business practices that result in labour violations.

Table 2. Brands with which CMs had greater than 10% net sales (A) or greater than 10% net revenue (B).

2014 2013 2012 2006 2005
Flex (A)
Google/Motorola > 10%
Hewlett-Packard > 10% > 10% 10%
Blackberry > 10%
Sony-Ericsson > 10% 14%
Jabil Circuit (B)
Apple 18% 20% 14%
Blackberry 12% 11%
Cisco 11%
Hewlett-Packard 10%
Nokia 21% 13%
Royal Philips 12% 14%
Sanmina-SCI (A)
Alcatel-Lucent > 10% > 10%
IBM 12.8% 23%
Lenovo 10.5%
Hewlett-Packard 10%
Celestica (B)
IBM > 10% > 10% > 10%
Cisco > 10% > 10% > 10% > 10% > 10%
Juniper > 10% > 10%
Blackberry > 10%

Source: Company SEC 10-K filings.

More attention needs to be paid to these contract manufacturers because they own, run, and manage the largest factories in the industry and employ a large number of workers. Their factories and workers are mainly located in developing countries where risks of labour violations are the greatest. As a result, contract manufacturers must be compelled to exercise more leverage over labour governance negotiations within the industry. This will require engagement and pressure by non-governmental organizations, trade unions, and governments to create risks and obligations for contract manufacturers to exercise more power over labour governance for example by establishing a collective ‘floor’ on labour costs and working conditions which can be used in the bidding process with brand firms. These issues are explored in more detail in my article ‘Exercising power over labour governance in the electronics industry’ in Geoforum.

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