Apple Corporation

APPLE CORPORATION 10

AppleCorporation

Professor’sname,

12July 214

AppleCorporation

AppleCorporation is the world’s largest publicly traded company with acapitalization standing at more than $ 440 billion, as well asrevenue of $ 170 billion (2013). The company has 80,000 full timeemployees globally, and a net income in 2013 of $37 billion. In termsof product and services, the company is the second largest IT Companyglobally after Samsung, as well as the third largest manufacturer ofmobile phones after Samsung and Nokia. Apple’s growth history hasaveraged 39% over the last half decade, and it was voted America’smost admired company in 2008, as well as the world’s between 2008and 2012 (Hasan, 2013). However, the recent employee relationsscandal involving the company’s suppliers and part contractors hasbegan to tarnish the success it has enjoyed continually. This paperwill explore the source and potential results of this controversy, aswell as explore how best the company can change its marketingstrategy and employee relations to create a competitive edge in itsmarket penetration and retention.

Apple’sEthical and Social Responsibilities

Applehas been in the middle of a deep labor malpractice allegation since2006, when it started producing the iPhone. Apple, like every othercompany, faces the cost of labor as one of the major factors ofproduction. Therefore, the company seeks to minimize labor andoverhead costs in order to maximize profit. Many multinationalcompanies with massive production demands that are labor intensivehave ventured in the Asian market to get cheap labor (Zylla-Woellner,2013). Thus, Apple contracted two companies, Foxconn and Invetec, asthe companies’ manufacturing the bulk of hardware for the iPhone.Foxcom’s origin is Taiwan, but the company employs more than 1.4million workers in mainland China, a big percentage of who worked iniPhone parts production factories. Initially, Apple Inc was notinvolved in the production processes, and was only interested in thequality of the finished hardware, and the targets realization (Hasan,2013). On its part, Foxcom handled all human resource issues in thefactories, including hiring workers, setting their remuneration,controlling working conditions, and other worker related issues.

Awhistleblower, Mail on Sunday, reported that Chinese factoriesmanufacturing iPhones were practicing unethical behavior such asunderpaying the employees, overworking them, as well as notrespecting their rights. There were also issues of safety. In onefactory, Lianjian, 49 people have been affected by the fumesresulting from Hexane, which is used to clean displays and lenses.The fumes would ordinarily not be hazardous if properly disposed, butventilation is poor in Foxcomm Company. Reports from 2006 to 2009indicate that poor wages averaging $100 per month have been reportedin Foxcomm and other factories making iPhone and iPad parts, withworkers not sufficiently represented or compensated for hours workedovertime (Lüsted, 2012).

Inaddition, workers are required to live in dormitories within thefactory premises, in crowded conditions and where they have to payfor food and accommodation to the employer. The living conditionswithin the factories are strict and harsh. In some instances, theworkers have committed suicide owing to unbearable work pressure. Afamous incidence involved Sun Danyong, a Foxconn employee who waspressured and intimidated in 2009 by Foxconn officials after the lossof a phone prototype for making iPhones (Zylla-Woellner, 2013). Thehuman resource policies governing worker conditions in varioussupplier companies do not meet local and international regulationsregarding fair treatment and representation. In addition, reports ofmassive instances of child and student labor within supplierfactories have severally been made. In 2010, as many as 100,000students were directed to take internship courses in Foxconn, at thepeak of a time when child labor practices were rampant in the factory(Apple, Inc., 2014). These practices have significantly reduced sincethe whistle-blower episode in 2006. However, numerous complaintsregarding labor malpractices have continued to abound in Apple’ssupplier’s factories, besides other issues to do with taxavoidance, environmental impact, and workplace hazards (Hasan, 2013).

Asa leading global company, Apple has the responsibility to ensure thatworkers in all its supplier factories work in safe conditions, areproportionately and sufficiently compensated for the work they do,work to not more than the stipulated hours or are compensated forovertime worked, are entitled to humane and dignified treatment, andare housed in descent conditions or allowed private arrangement forabode. Apple has made great steps towards achieving these basicrequirements. However, it has not satisfactorily met theserequirements. To illustrate this position, 4 people were killed in anexplosion in Chengdu, even after Apple embarked on a vigorouscampaign to improve working conditions in all factories making itsproducts in 2007. This means that, four years after it promised toimprove workplace conditions, the company was yet to meet thisobjective. In addition, Foxconn employees are yet to meet thebenefits promised them under the new arrangement after Apple promisedto improve workers’ remuneration. Apple nets about 58% of the priceof its iPhones, while labor costs are almost insignificant at 1%.Similar companies such as LG and Nokia make pay at least 15-20% formanufacturing and labor costs (Hasan, 2013).

Impactof Apple’s Labor Malpractice Allegations on its Image

Applehas greatly suffered due to the labor malpractice reports in itssupplier’s factories, as well as other issues such as safetyconcerns, monopolistic products, tax malpractices and employeerelations. Labor malpractice led to numerous issues with consumergroups (Lüsted, 2012). In 2012, for instance, Apple Inc received apetition from Members of Change, a non-governmental organization,through the accumulation of 5 million signatures, to consider ethicalissues when producing iPhone5, in the height of child laborallegations in supplier factories (Hasan, 2013). This significantlylowered the expected sales of the new iPhone. In addition, theranking of Apple as the most admired companies in the US fell, beingso ranked for the last time in the US in 2008. While the wave ofsuccess iPhone enjoyed has maintained sales and profit high, theimpact of unethical labor practices in processing factories haslowered the number of units it might have sold so far, and givencompetitive edge to other phone manufacturers including Samsung,whose note and Galaxy S series of phones have presented stiffcompetition for the iPhone.

Methodsof ensuring Supplier Adherence to Ethics Standards

Applehas already embarked on vigorous initiatives to ensure that suppliersmeet basic labor, ethical and wage standards on the internationalcommunity. One of the methods that it can effectively use is theroutine and random checks on factories practice. Already, Apple hasannounced commitment to improved working conditions as early as 2007(Lüsted, 2012). However, the company lacked dedicated follow-up onthe actual work on the ground. Thus, companies such as Foxconn havecontinued to engage in concealed malpractices such as withholdingworker benefits already stipulated in their terms of service, workduration malpractices as well as compensation issues. If, however,Apple employs dedicated representatives resident on the point ofmanufacture, it is possible to monitor processes within the factoriesat all times, ensuring that ethical standards are reached andmaintained at all times. In order to ensure that suppliers reach andmaintain the proper wages as stipulated in the workers’ terms ofservice, Apple may incorporate a software system that is integratedinto every supplier’s payroll or other payment systems and which,without accessing information not essential to Apple or otherwiseconfidential to the contractor, reports on any new employments andevery payment made through the payroll.

Tojustify this position, it is notable that Apple has had standingarrangements with all suppliers regarding wage improvement infactories, but wage disputes have continued to feature in manyworkplaces, with critics often using the words ‘sweat shops’ todescribe iPhone manufacturing companies (Zylla-Woellner, 2013). Theofficial information reaching Apple is that of adherence with the setregulations, but the actual data on the ground suggests a less thanperfect image. To manage this discrepancy, Apple should make it apre-condition for all potential contractors to share an onlinepayroll platform with themselves for employee wage management. Thisway, Apple could have, also, a better map of the exact personnelindirectly working for them, and thus an easy way of determining whatpercentage of the iPhone’s price actually benefits the people whodirectly make it (Hasan, 2013).

Theother method of ensuring good wage management adherence in suppliercompanies would be through regular interactions with the employeesworking under the contracted companies. Such meetings would revealall wage and policy related grievances the workers have. Any suchmeeting, even once a year, could help amend discrepancies arisingfrom wages. As an example, Apple lacks a pro-active way of handlingissues in Foxconn, only reactively admitting blame and promising toact. If the company had a way of interacting with workers, they wouldbe able to hear reports regarding local malpractice. In thealternative, the company can host a confidential online channelaccessible to all indirect employees where they can report wagemalpractices which Apple can then confidentially investigate. Thiswould help avoid intimidation and victimization by the contractedemployers. For instance, through this channel, Apple might have knownthat more than 200,000 employees in one factory were earning a mere$100 per month, while an iPhone was selling for $550 in the sameChinese market.

TheCase of Price Increase to Safeguard Worker Wages

IfApple were to increase iPhone prices to pay workers better wages,customers would still buy the phones. Already, iPhones are among themost expensive ordinary production line mobile phones. At the timeof its launch in 2012, iPhone 5S was the most expensive in itsfeatures category, rivaled only by Samsung Note 2 and Galaxy S3. Yet,even at its launch, several million copies were sold within days(Lüsted, 2012). Thus, it is true to say that the average iPhoneconsumer is looking for prestige and features experience, as opposedto convenience and economy.

TheiPhone, like all Apple’s products, is a defining point for acertain class and culture- the culture of excellence, prestige andadmiration. This rhymes with the corporate culture of Apple of beinga most admired company in the US. The average Apple customer buysclass, not affordability (Colvin,2009).Thus, increasing the cost of the iPhone with, say, 10 percent inorder to increase the wages of workers by a factor of 3 (or 300%),would possibly not affect the sales volumes, but would affect thecompany’s credibility greatly, and safeguard its future market whenother upcoming brands, such as Samsung and HTC, match its productline’s features and pricing. At this point, when pricing andfeatures will be the same, only prestige will differentiate productsfrom different companies. Apple will benefit from having a good image(Hasan, 2013).

Apple’sMarketing Strategy

Whilemost advertisers rely on billboards, TV, Radio and other media forpublication, Apple has adapted a technique that lets mobile carriernetworks advertise the iPhone and other products. This way, Applelimits the budget it uses to advertise its products (Apple, Inc.,2014). For instance, the advertisement by T-Mobile that it would bestocking iPhone5S immediately popularized the product many fold, asT-Mobile is among the leading mobile carrier networks in the US(Lüsted, 2012). Thus, iPhone actually controls the manner ofadvertising by T-Mobile to make its brand more visible, whileT-Mobile pays for the advert. This cost cutting yet highly effectiveadvertising strategy leaves iPhone with higher profits. This methodis, however, limited in terms of scope, as only those companiesoperating in regions of the iPhone’s initial popularity are likelyto advertise it for Apple.

Upcomingmarkets such as Latin America and Africa do not have iPhone’spopularity, and the product is stocked by limited mobile networkcarriers. As competition intensifies, the Apple brand may decline toSamsung and HTC, and advertising may need to be vigorously advanced(Zylla-Woellner, 2013). Thus, Apple may start adopting pressadvertising in high growth markets to make users aware of itsproducts, especially as the market in the US and other high economiesis likely to peak. This strategy has worked for Nokia, the world’slargest mobile phone manufacturer, who diversified into the lowersegment African market to take advantage of a growing market (Hasan,2013).

Theother strategy that iPhone uses is to make sure that its productrange is characterized by class and prestige. Thus, customers buy theidentity rather than the features, as the same features are found insmart phones from many other, cheaper and equally dependable brandssuch as Samsung, HTC and Nokia. The potential problem with thisstrategy is that, with Apple’s current labor issues, as well as thestiff competition from Samsung Galaxy S4, iPhone’s status maybecome increasingly vaguer, at which point its price will become moredeterrent. Diversifying into a cheaper range of iPhones is likely toensure that Apple’s iPhone reaches wider markets and creates moreawareness internationally. This strategy has worked for theinternational cloth line Yves Saint Laurent, a brand that makes awide range of clothing for the high end and low end customers alike,without diluting the appeal of the brand (Colvin,2009).Another company that has adopted the technique is the German carmanufacturer Mercedes Benz, which is still a leading prestigious roadcar manufacturer while it still manufactures a lower end of cars inthe ordinary price range. Apple should diversify into low end mobiledevices (Lüsted, 2012).

References

Apple,Inc. (2014). Available at https://www.apple.com/

Colvin,G. (2009). &quotThe World`s Most Admired Companies 2009&quot.Fortune159(5): 76.

Hasan,R. (2013). AppleInc. – An Analysis: PESTEL analysis, Porter’s 5 Forces analysis,SWOT analysis, Comprehensive analysis of financial ratios, andComprehensive analysis of share performance of Apple Inc.GRIN Verlag

Lüsted,M. (2012). Apple:Company and Its Visionary Founder, Steve Jobs.ABDO Publisher

Zylla-Woellner,J. (2013). BusinessAnalysis of Apple Inc.GRIN Verlag