PGDM Section A CORPORATE SOCIAL

RESPONSIBILITY &
SUSTAINABLE
DEVELOPMENT

CASE REPORT:
Apple & its Suppliers: Corporate
Social Responsibility
SUBMITTED TO:
DR. PROF SONU GOYAL

SUBMITTED BY:

GROUP 3
NAME ROLL NO.
DIVYA GARG 21PGDM013
DIVYANSH SHRIVASTAVA 21PGDM014
DIVYANSHI SINGH PATEL 21PGDM015
EKAGRA 21PGDM016
HARDIK KAPOOR 21PGDM017
HARSH BERIWALA 21PGDM018

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APPLE’S HISTORY
The corporation was established on 1 April 1976 in California, United States by Steve Jobs and
Steve Wozniak. In the late 1980s and early 1990s, it began to expand on the personal computer
industry. After the firm nearly went bankrupt, it persuaded co-founder Steve Jobs to return in
1997 to help revive it. Jobs and his team were able to introduce such groundbreaking products as
the iPod and the iPad with enormous zeal.

It’s first-Generation iPhone was the biggest success when it was launched in 2007 by Steve Jobs
and with its cutting-edge technology and design and innovation, it became the market leader in
smartphone industry, enabling it to charge premium prices and obtain a very high profit margin.

Since the debut in the smartphone industry, it had a great customer loyalty in that segment.
Apple customers were extremely loyal to the company's products, frequently purchasing PCs and
tablets in addition to the iPhone. According to a survey performed by [Link],
nearly 60% of 3,000 iPhone owners declared "blind loyalty" to their iPhone, with 78% saying
they couldn't "imagine having a different sort of phone." 

FOXCONN’S CRISIS
Foxconn, based in Taiwan, was one of Apple's largest and most established suppliers. In 2014,
Apple accounted for more than 40% of Foxconn's revenue. However, in 2009, a factory worker
allegedly committed suicide after misplacing an iPhone 4 prototype. It was later claimed that the
employee's treatment during questioning was torture-like.

Another 18 Foxconn employees attempted suicide a year later, and 14 died at the manufacturing
company's facilities. 16 Several explanations were advanced for these deaths. Poor labour
practices and working conditions were identified as the primary motivators for the employee
attempting suicide. Since the 2010 incidents, the company has faced increased scrutiny and
pressure from various stakeholders, including non-governmental organizations (NGOs), the
media, and customers such as Apple, to improve its working conditions. 

PEGATRON'S CRISIS
Pegatron, a Taiwanese electronics manufacturing firm that primarily assembled the iPhone 4, 4s,
5, and 5c, as well as Apple's iPad. The company had factories in Taiwan, mainland China, the
Czech Republic, and Mexico, as well as customer service centers in the United States and Japan.

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In 2013, Apple's Unkept Promises, a report based on an undercover investigation into working
conditions at Pegatron factories, was published by China Labor Watch (CLW), a U.S.-based
NGO whose mission was to increase transparency of factory labor conditions in China. The
report claims that three Pegatron factories in China violated 86 Chinese regulations, including 36
legal and 50 ethical violations ranging from the use of a juvenile workforce to violations of rights
of women, exorbitant working hours, and environmental pollution.

On December 19, 2014, the global news media charged Apple and Pegatron once more, claiming
that Apple had "broken its promises." The BBC Panorama programme aired a documentary
based on an undercover investigation of actual practices and working conditions at a Pegatron
factory in Shanghai.

The documentary depicted the inhumane treatment that was occurring in the factories. Workers,
for example, were given no basic health and safety training and were required to work excessive
hours — up to 16 hours a day, which could sometimes last for 18 consecutive days.

CSR CHALLENGES:
 Apple and its supplier operated in very different cultural, legal, political, social, and
economic environments. Apple had more than 200 suppliers scattered around the world
ranging from Korea, Japan, and Taiwan. As most of the suppliers were located in emerging
countries, they had much lower expectations and different social values and norms.
 Maintaining close buyer-supplier relationship: Apple squeezed its suppliers to produce the
products at lower and lower cost. An e.g., is provided in the case wherein it is mentioned
that Foxconn had tried to improve the working conditions and meet the required standards.
However, Foxconn started losing orders from Apple around the same time that it had
improved its labor practices, perhaps due to increase per unit cost. The other speculation was
Pegatron accepted a margin of 0.8 per cent while Foxconn had been seeking 1.7 per cent.
 Because of Apple’s huge size, stock market value, visibility, and partly self-created self-
image it faced more scrutiny than perhaps any company in the world.
 Individuals differed in their assessment of how much attention should be paid to these labor
rights issue and what constituted an acceptable level of working conditions. For example,
Richard Locke, a professor at Brown University had studied working conditions for many
companies and had found that Apple had gone beyond standard practices. But Li Quang was
of the opinion that Apple is always finding excuses for its unrealized commitments.  

REVENUES & INCOME

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 There is no impact of such negative publicity on the sales of Apple. Even with the years
passing, the sales of the company are increasing, and the income is also rising as a
percentage of revenues.
 The major revenue for the company comes from the iPhone. Even, there are different
products available in the portfolio, the major chunk of contribution is from the iPhone whose
demand is rising at an increasing rate in the market irrelevant of the negative publicity.

OUTSOURCING STRATEGY OF APPLE

 In 2004, Apple closed its last U.S. Manufacturing line, since then it has been outsourcing all
its production and assembly lines to global suppliers, mainly China.
 Most of the parts of the iPhone are manufactured by these global suppliers which include
German and Taiwanese contractors who provide advanced semiconductors, while Korean
suppliers like Samsung provide memory and display panels, Europe providing the chipset.
But ultimately everything is assembled in China. 
 Offshore outsourcing strategy is not looked upon favorably in the U.S. because it amounts to
a loss in local job opportunities. In February 2011, the president of the United States, Barack
Obama, opposed this strategy and endorsed bringing back job opportunities. However, an
anonymous executive of Apple responded that it was an inevitable choice. 
 Apple enforced harsh deadlines to meet with the launch of its first iPhone in 2007. The
screen material needed to be replaced from plastic to glass, to resist scratches. This was to be
done within 6 weeks. When no other American supplier agreed, China accepted this time
constraint. This led to more workforces being hired overnight and increase in shifts at a short
notice.
 According to CLW’s 2013 report, the base wage of the Pegatron factory in Shanghai was as
low as 1.50$per hour. It also disclosed that most workers wanted to leave the factory in such
harsh working conditions.
 Despite the public controversy, this choice was sensible as its offshore suppliers in China,
India etc. can provide the required product. The limited number of capable and skilled
workers in the U.S. adds up to this choice.    
 Apple also proved that their offshoring strategy can produce more high value adding jobs in
research and design in the United States.
 Offshoring strategy may significantly reduce the operating costs. However, this comes with
a tradeoff. It significantly reduces the level of control and monitoring over the
manufacturing process and practices. Although Apple has enforced proper codes of conduct
and standards for their suppliers, in absence of daily monitoring, strict compliance with
those is difficult to ensure.

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 Apple seems to be on the other end of this fundamental tradeoff. Their statement engraved
behind every product - “Designed in Apple California” and “Assembled in China” captures
the essence of their outsourcing strategy very efficiently.

IS APPLE RESPONSIBLE FOR THE ALLEGED HUMAN

RIGHTS VIOLATIONS THAT OCCURRED?

Apple's two main suppliers, Foxconn and Pegatron, are based in China, where, according to
numerous media sources, many human rights violations have happened.
Long working hours, low salary rates, poor labor practices and working conditions, the use of the
juvenile labor, pollution, and breaches of women's rights were among the human rights
infractions.

Apple Inc. is AT FAULT due to following reasons:

 Apple has significant influence over its suppliers and can compel them to adopt better labor
policies. Apple is a key buyer for these suppliers, i.e., 40% of Foxconn’s revenue comes
from Apple.
 Apple is notorious for compelling its suppliers to supply parts at a low margin while
maintaining a high profit margin; for example, it pays some of its suppliers a 0.8 percent
margin while maintaining a profit margin of more than 35 percent. Suppliers use unfair trade
tactics to reduce costs and boost their margins. To offset this, Apple should guarantee that
enough margin is left for suppliers when establishing internal estimations for various
purchases, so that they do not have to resort to abusive labor practices.
 Apple must guarantee that the supplier declares that they will implement fair labor practices
as part of their contract as part of their Corporate Social Responsibility.
 Apple, as the world's most valuable company, cannot ignore its corporate social
responsibility, and it must keep an eye on the labor policies of its suppliers, as Apple is
indirectly accountable for them as well.

ROAD AHEAD

 Apple is a key buyer for these suppliers, i.e., 40% of Foxconn’s revenue comes from Apple.
Hence, Apple holds substantial power over its suppliers and can get better labor practices
implemented by their suppliers.

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 These suppliers are manufacturing on a contractual basis for Apple, so Apple can also be
considered a principal employer. Hence, it is Apple’s duty to ensure that fair labor practices
are followed by their suppliers also.
 Apple is known for forcing its suppliers to supply parts at a shallow margin, whereas its
profit margin is very high, e.g., it pays a 0.8% margin to some of its suppliers, whereas its
margin is more than 35%. To cut costs and increase their margins, the suppliers resort to
these unfair trade practices. To counter this, apple should ensure that while making their
internal estimates for various purchases, they should ensure that enough margin is left for
the suppliers so that they do not have to resort to unfair labor practices.
 As part of their Corporate Social Responsibility, they should ensure that the supplier should
declare that they will follow fair labor practices as part of their contract.
 Apple believes in making processes simple; however, this principle has its limitations in the
case of Supply Chain Management. They will have to maintain close coordination with all
their suppliers to ensure that its suppliers’ labor practices are fair.
 Apple is the world’s leading company in terms of valuation, cannot neglect its corporate
social responsibility, and it must keep an eye on what labor practices are followed by its
suppliers as Apple itself is indirectly responsible for that also.

LEARNINGS

 The companies should adopt Triple Bottom Line Thinking

Apple has not adopted the Triple Bottom Line Thinking. Its top priority is to maximise its
profits and addressing the environmental issues as long as they don’t impact the profits of
the Company.
 The CSR guidance should be Right from The Top
If the company’s CEO has not established a CSR Culture, nobody in the firm can do that.
Like in the Case of Mahindra also, we see the CEO itself was determined towards the CSR
activities and then he was able to perform that well.
 The companies should adopt towards Transparency
The company should make its functions more transparent. Apple’s transparency was far
from satisfactory. It does not release its sustainability report. They should also ensure the
operations of their suppliers to be more transparent. So, the more transparent companies’
function, the more Brand Value, it can generate.
 CSR is a Long Run Bet
CSR is an important aspect of the business. Even if it is not eating the short-term profits, the
company should focus on it as it can be a key driver in the long run for the companies. It is a
long run Bet for the Companies as it increases the satisfaction of the consumers.
 All the Stakeholders must be entertained

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 The companies should take into account all the Stakeholders of the Business. Apple does not
engage with its shareholders well that is also a reason for its negative publicity. It should
disclose the things to its stakeholders to be successful in the Long Run practices.

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