By JESSICA E. VASCELLARO and OWEN FLETCHER
Apple Inc. is increasingly finding itself pinched between the promise and perils of doing business in China.That challenge was thrown into sharp relief by a pair of developments Friday. Under pressure from activists in the U.S. and abroad, the company released a 27-page report detailing working conditions throughout its supply chain, which sprawls throughout Asia, but especially China.The report followed an unexpected fracas outside an Apple store in Beijing, after fans couldn't get their hands on the latest iPhone.Apple disclosed a comprehensive list of its major suppliers for the first time, along with a detailed report on factory inspections. Jessica Vascellaro has details on The News Hub. Photo: Reuters
Local police ordered Apple to close the store, saying the situation wasn't safe. Apple later said it would temporarily halt sales of all iPhones in its five retail stores in mainland China.Chinese authorities have looked unkindly on such disturbances, and Apple executives scrambled to control fallout from the incident, which was shown in videos around the world.In one of his first interviews as chief executive, Apple Chief Executive Tim Cook said the flap was "unfortunate" and "we will learn some things for the future and change some things." He added that safety was of the "upmost importance" to the company.The Chinese market is of growing significance to Apple. Last fall, it said China was its fastest-growing region, with around $13 billion in annual sales.Reuters TV/ReutersApple said it has set new requirements for how suppliers handle combustible dust after an explosion, above, at a Foxconn plant last year.
Demand for the company's iPhones, iPads and Macs reached such a fever pitch in 2011 that some 40,000 people were visiting its Beijing and Shanghai stores each day.But deepening ties to China have brought a new set of complications. In 2009, Apple chose to start selling the iPhone in the country without Wi-Fi wireless Internet capability to comply with government regulations.At the same time, Apple has faced Western and Asian activists, who have complained about conditions at the company's Asian suppliers.In the interview, Mr. Cook said improving working conditions has long been a corporate priority. He said he believes Apple is "raising the bar" for the industry.Apple's supplier report could pique Chinese authorities, who have long sought to stem criticism about business practices there.Apple's Report Card
Findings from the firm's annual audit of its suppliers
62% weren't compliant with working-hours limits.
32% weren't compliant with hazardous-substance management practices.
35%failed to meet Apple's standards to prevent worker injuries.
(Source: Apple's report)
The report is the most comprehensive on the subject in Apple's history, based on 229 audits of factories that do work for the company, the world's second-largest by market capitalization.Apple said that at its direction, suppliers have stopped discriminatory screenings for medical conditions or pregnancy. Apple also said it found 112 facilities that weren't properly storing, moving or handling hazardous chemicals.Apple said it was taking new steps to better monitor and improve conditions at factories, including increasing audits in Malaysia and Singapore and expanding its worker education program.Nearly a third of its suppliers didn't abide by Apple's standards on wages and benefits, the company said. The audits also found five facilities that employed underage workers.Related Video
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"I have spent a lot of time in factories over my lifetime and we are clearly leading in this area," said Mr. Cook, who previously oversaw the company's supply chain as chief operating officer. "It is like innovating in products. You can focus on things that are barriers or you can focus on scaling the wall or redefining the problem."Chinese government ministries weren't immediately available for comment on Friday.While Apple has occasionally divulged selected suppliers, the new list covers those 156 companies that represent 97% of its materials, manufacturing and assembly spending.Getty ImagesSan Francisco Apple store
It includes a range of global technology companies, such as Sony Corp. and Intel Corp., along with lesser-known names like Tianjin Lishen Battery Joint-Stock Co. Ltd.The report makes several references to one of Apple's biggest manufacturing partners, Hon Hai Precision Industry Co. The company, also known as Foxconn, grappled with a spate of employee suicides at a facility in Shenzhen, China, in 2010 and an explosion that killed four workers and injured 18 at plant in Chengdu, China, last year.Apple said it has established new requirements for firms dealing with combustible dust after the blast in Chengdu and an explosion at another supplier's factory in Shanghai that injured 59.Apple also said it is joining the Fair Labor Association, agreeing to outside monitoring of its suppliers."Working hours is a complex issue," said Mr. Cook, saying he was confident the company can improve in the area by "monitoring these plants at a very, very micro level." "I know this is a journey," he said.Aron Cramer, president of BSR, a San Francisco non-profit that works on environment and human rights issues, said Apple, one of its members, isn't alone in issuing detailed working conditions reports. But he said it is doing so from a position of particular scrutiny. "There's interest in everything they do," he said.Meanwhile, Apple was still grappling with the fallout from the Beijing melee.Related Video
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High-profile launches for Apple products often come with massive crowds and, occasionally, unruliness. In the interview, Mr. Cook said Apple had "taken all necessary precautions." "I think we were all taken by surprise," he said.Chinese state media reports blamed the incident on iPhone scalpers. On Friday morning, authorities began forcing people away from the store and blocking the cameras of reporters who had shown up to cover the event. Men with megaphones began declaring that sales wouldn't start and people should leave.