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Tim Cook’s Challenge: Sorting Out Apple’s Chinese Supply Chain

7 Sept. 2011

While its design and technology consistently win praise for pushing the envelope, Apple’s environmental and labor practices haven’t always met with such approval. The latest criticism comes from a group of Chinese NGOs (Friends of Nature, Institute of Public and Environmental Affairs, Green Beagle, Envirofriends, Green Stone Environmental Action Network) that claims to have found evidence of “severe damage to the environment” at five Apple suppliers in the country.

Of course, the perils of building a large supply chain are well-documented. Nike famously learned from its big Chinese slap in the face to better monitor labor practices across its suppliers. The Gap similarly sorted its supply chain out after photos of child laborers at one of its suppliers went viral. Now most consider the apparel industry to be leaps ahead of any other when it comes to corporate social responsibility (CSR) and supply chain control.

It’s not that the IT industry is new to the idea of supply chain management. Rather, at the same time that electronics companies are building more and larger facilities in China, Chinese activists are shining a brighter light on the performance of those companies.

Ironically, the electronics industry has participated in the creation of its own problem, in a way. It’s not just that larger companies have larger supply chains, but also that as more and more people are walking around with iPhones in their pockets, it has become easier to document labor and environmental issues at facilities around the globe. Moreover, as China has become a business center in its own right, there seems to be less fear around losing the jobs and investments of foreign companies as a result of criticizing their behavior in the country. There’s also growing public awareness of the environmental impacts of the IT industry in general.

Information technology is not the virtual industry that people often envision, Ma Jun, director of the Institute of Public and Environmental Affairs (IPE), told GreenBiz. “It’s an actual industry with huge amounts of discharged pollution, including toxics and heavy metals.”

On the surface, Apple has all the right processes in place: rigorous auditing, transparent reporting, a supplier code of conductbased on that formulated by the Electronics Industry Code of Conduct (EICC, co-founded by HP, Intel and IBM back in 2004 to deal with exactly these sorts of issues and help the electronics industry to voluntarily address them). But according to the Chinese NGOs, these commitments aren’t making their way from the company’s website to its on-the-ground operations.

The groups lob several pretty severe accusations at the company in their report, released last week, but a big part of the problem seems to be transparency. Secrecy is key to mind- and market-share in the tech world, so how to balance the need for transparency from a social responsibility perspective with the need for secrecy from a business perspective? This is the million-dollar question Apple, and other electronics companies, are trying to answer now. Given the clandestine nature of tech manufacturing, the Chinese NGOs spent several months trying to pinpoint Apple suppliers in the country before investigating the practices of those suppliers. And according to a Financial Times reported, they still got it wrong. Apple has contacted the authors of the report to sit down and discuss the problems, but have also notified them that some of the suppliers listed in the report are in fact not Apple suppliers.

This latest report is a sequel to an earlier one, published back in January, that focused on various issues with toxics in Apple’s Chinese supply chain, and ranked 29 IT companies operating in China based on their environmental and human health performance, and the transparency of their business practices (Apple shared last place). According to the report’s authors, Apple has “systematically failed to respond to all queries regarding their supply chain environmental violations,” which spurred the NGOs to further investigate and publicize the more egregious examples.

Amongst the groups’ accusations against Apple are charges of water contamination from a suspected PCB supplier to the company, the emission of toxic gases from a metal surfacing company with suspected ties to Apple, and dumping of hazardous materials such as copper, nickel and cyanide, by companies thought to be Apple suppliers. The report also calls Apple’s auditing processes into question, pointing to the deadly explosion at an iPad2 production facility in Chengdu back in May. According to the report’s authors, the facility’s construction was rushed (76 days to construct what was to be the world’s largest iPad2 supplier), with machinery being installed at the same time that production was taking place and workers receiving only minimal training before assuming their posts. “For this kind of company to have passed an audit led by Apple’s Vice President and then to go on to win the main contracts for Apple’s global iPad market, it must surely leave one to question Apple’s auditing process,” the report says.

The Chinese report comes a few months after a wave of worker suicides at Apple suppliers in the country and just a few years after a Greenpeace report that panned the company for using toxics in its products in general. Apple responded quickly back then, with Jobs saying the company was actually very committed to environmental performance, but just didn’t like to talk about it. Greenpeace pushed for proof, and the company set about eliminating arsenic, mercury, and brominated and chlorinated chemicals from its products. Apple also committed earlier this year to eliminating conflict minerals from its supply chain.

Nonetheless, Apple seems less prepared to deal with this new China supply chain problem. Given the great CEO switch of 2011, that’s not necessarily surprising, but this–perhaps even more so than the Samsung debacle–could be Tim Cook’s first big challenge in leading the company. It will certainly put the former COO’s reputation as a supply chain genius to the test.

The recent report notes that several other IT companies previously called out by the Chinese environmentalist groups have already made steps to improve both practices and transparency. ”During the past year and four months, a group of NGOs made attempts to push Apple along with 28 other IT brands to face these problems and the methods with which they may be resolved,” the recent report reads. “Of these 29 brands, many recognized the seriousness of the pollution problem within the IT industry, with Siemens, Vodafone, Alcatel, Philips and Nokia being amongst the first batch of brands to start utilizing the publicly available information. These companies then began to overcome the spread of pollution created by global production and sourcing, and thus turn their sourcing power into a driving force for China’s pollution control. However, Apple has become a special case. Even when faced with specific allegations regarding its suppliers, the company refuses to provide answers and continues to state that ‘it is our long-term policy not to disclose supplier information.’”

According to IPE, Apple has now agreed to sit down with the NGOs and discuss the issues raised in their reports. In the meantime, Steve Dowling, a spokesman for Apple, issued a quick statement to the media: “Apple is committed to driving the highest standards of social responsibility throughout our supply chain,” he said. “We require that our suppliers provide safe working conditions, treat workers with dignity and respect, and use environmentally responsible manufacturing processes wherever Apple products are made.”

The company’s 2011 supplier responsibility report also addressed some of the problems raised by the Chinese groups, including the poisoning of workers at a Suzhou factory, and the worker suicides at Foxconn, a supplier not only for Apple, but also for Sony, HP and Dell.

So far, the American media seems largely to be on Apple’s side, subtly blaming Chinese suppliers and the Chinese government for the problem. “Apple is hardly the only company facing criticism over its Chinese supply chain,” David Barboza wrote in The New York Times. “In recent years, dozens of multinationals have been accused of using Chinese factories that employed child labor, violated the country’s labor laws and fouled its waterways.”

“Widespread environmental degradation has accompanied China’s breakneck economic growth, and the government has been criticized for failing to take steps to curb pollution,” Reuters reporter Michael Martina wrote of the report.

Whether the public picks up on this story at all and whether it creates the sort of consumer backlash Nike’s faux pas did in the 1990s remains to be seen. Between the public’s short attention span and the appeal of all things Apple, it seems unlikely. Apple also looks to be picking up the pace in dealing with the recent batch of accusations, which should help its cause if the public decides to tune in. No matter what happens, it will be interesting to see how Cook, and Apple, deal with the problem.

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