Originally published on 21 Century Nomad on August 1, 2013
Blame Mike Daisey. He drew me into this mess of a research project with his appearance on This American Life in January 2012. Like many, I was enraptured and sickened by his description of the work conditions and lives of young Chinese laborers at the Foxconn facility in Shenzhen, China that assembles iPhones, and now iPads. What I learned in that podcast made me angry, as both an owner of Apple products and as a critical sociologist who focuses on globalization and labor. Daisey’s account of conditions at Foxconn and the experiences of Chinese workers sparked my initial cursory investigation into Apple’s supply chain and their stance on corporate social responsibility, by way of the their annual Supplier Responsibility Reports. Then, a couple of months later, This American Life aired a retraction episode that revealed that Daisey had fictionalized his account. While host Ira Glass noted that nothing Daisey said was actually untrue, he had not seen all that he said he had, but rather had folded into his monologue the documented accounts of others. Glass, and many Apple consumers, seemed to breathe a collective sigh of relief, and the affair was rather quickly swept under the rug by the consuming public and the press.
These events made me deeply curious about the brand power of Apple. I wondered, how does a company that receives such bad press persist in its popularity? How could it be that, rather than taking a hit in the aftermath of a vicious exposé of labor conditions at their suppliers, Apple revenues surged and broke records throughout 2012? So, I embarked on a really big research project–bigger, more complex, and vastly more difficult than any project I have ever delved into before. I seek to identify all of Apple’s suppliers, map their supply chain, illuminate their financial structure, and understand their brand power here in the US and around the world. While I have a couple of lengthier and more in-depth pieces on this research in the works that will be published in a few months, I wanted to share with you some highlights from the research thus far. Here we go.
10. The iPad is the fastest adopted piece of technological equipment in history. Since Apple introduced the iPad in 2010 the company has sold over 155 million devices, and while sales fluctuate from quarter to quarter, they are on an upward climb annually. The success of the iPad is due in part to the fact that it has become a customer gateway to Apple products, and is increasingly the first Apple product a person purchases. To date Apple has raked in over $80 billion in revenue from iPads alone, which amounts to 18 percent of Apple’s total $434 billion in revenue since the third quarter of 2010, when the iPad was introduced.
9. They are the world’s most valuable technology company and the second most valuable company in the world. Measured as market capitalization, or the total value of stock shares of a publicly traded company, Apple is valued at 413.9 billion dollars. Apple has achieved this level of public confidence by posting record-breaking revenues over the last two years, and owes those revenues to the iPhone and iPad. Today these two devices are the company’s bread and butter, and account for over 70 percent of Apple’s total annual revenue, with the iPhone alone comprising 50 percent of revenue for 2012. While Apple’s revenues began a steady climb after they introduced the iPod in 2001, the company’s revenue jumped by over 50 percent between 2008 and 2007 when the iPhone debuted. The iPhone contributed significantly to Apple’s dominance in the stock market, as before the device their total stock value was $30 billion, and just two years later it had increased three-fold to $106 billion. Apple’s introduction of the iPad also had a significant effect on the company’s revenue stream, which increased from $65.2 billion in 2010 when the iPad was introduced to $108.2 billion by the close of 2011.
8. While they currently have only about 14 percent of the global smartphone market, Apple rakes in the most profit in the industry. In terms of market share Apple ranks third globally, trailing Nokia by a small margin, and well behind Samsung, the global leader. Despite the small percentage of the global market that Apple represents, the company amasses 73 percent of all smartphone profits. How is this possible? The highest profit margin in the business makes it so. Apple rakes in nearly 60 percent of the sale price of an iPhone as profit. Samsung’s profit margin, by contrast, hovers around 18 percent.
7. Apple customers are deeply loyal and tend to own more than one Apple product. As of a report published a year ago, one third of US households owned at least one Apple device, and most of those owned more than two Apple products. I, for instance, own a MacBook, an iPod classic, an iPod shuffle, once owned an iPod mini, and I use an iMac in my office provided by my employer. Some are so loyal that they have tattooed versions of the company logo or power button onto their bodies. Say what?
Apple customers are so devoted because, yes, the company makes exceptional products, but also because the company and the ad firm it works with, TBWA/Chiat/Day, excel at what is known within the marketing world as “emotional branding.” Marc Gobé, who wrote a book about this type of branding, describes it as “…how a brand engages consumers on the level of the senses and emotions; how a brand comes to life for people and forges a deeper, lasting connection.” They do this successfully by tapping into our hopes, dreams, and aspirations. As Naomi Klein astutely observed in her book No Logo, “…corporations may manufacture products, but what consumers buy are brands.” Apple has done an excellent job of selling its brand and all that it promises.
6. They pander to white folks, men especially, who want to be associated with people of color and racially diverse communities. In a study I conducted with Gabriela Hybel analyzing the content of nearly 200 Apple commercials that have run in the US between 1984 and the present, we found clear trends in who is represented in the company’s commercials, and who is targeted by them. We found overwhelmingly that main characters in commercials are white adult men. Similarly, when a product-focused commercial features a hand operating the product, like in the case of many iPhone and iPad commercials, that hand is typically a light-skinned hand. However, we found that background characters are more gender and racially diverse, and include black people and a few Asian folks. Based on these findings it is clear that Apple’s primary target demographic is adult white men, and given the racial and gender representation of background characters, white men who like to see themselves as living among or traveling through racially diverse spaces and communities. I mean really, who’s cooler than a white guy with black friends?
5. Apple receives lucrative government contracts to provide technology to school districts and students. In 2012 the company sold 4.5 million iPads to schools within the US, and a total of 8 million to schools globally. During that year Apple broke its own sales records in the education market. This June the company made headlines when it announced that it had been awarded a $30 million contract to provide iPads to students in the Los Angeles Unified School District, which has pledged to have one of the devices in the hands of each of its students by 2014. The monetary size of this contract and the scope of its application throughout the school district made it newsworthy, but in fact school districts across the country are handing over their funds to Apple, but in smaller, less newsworthy amounts. Just recently the Medina-Gazette of Ohio reported that the Medina school district had signed a $228,620 contract with Apple to lease 190 MacBooks for three years, with the option to then buy them for a dollar each when the lease is up. Back in 2011 the school district of Auburn, Maine spent $200,000 on 300 iPads for kindergarten students, which follows the precedent the district set when it distributed Apple laptops to all middle school students in 2002 and 2003. Similar kindergarten iPad programs are in place in Omaha, NE; Columbiana, OH; Huntington, WV; Paducah, KY; Charleston, SC.; Scottsdale, AZ; and in Minidoka County, ID. An internet news search for “Apple + education” reveals that this is a nationwide trend. One has to wonder, at a time when schools are being closed en masse and teachers struggle to make ends meet on low and declining pay, whether Apple is where the investment in education should be made.
4. Apple has avoided paying over $74 billion in taxes to the federal government since 2009 by moving their cash to offshore holdings. Recently the company executed a cleverly financed $55 billion payout to shareholders to avoid paying $9.2 billion on this year’s tax bill. Isaiah J. Poole, writing for TruthOut, observed that simply by paying these taxes, Apple could have bolstered the federal coffers such that some of the recent round of budget cuts known as “the sequester” could have been avoided. Ironically, Apple, a company whose leadership maintains that “education is in our DNA” helped contribute to the decimation of federal spending on education that hurts poor and special needs students the most. How do you like them iPads?
3. Tim Cook’s announcement in December 2012 that Apple would begin manufacturing a line of Macs in the US is a symbolic gesture that means little given the insignificance of individual Mac lines as revenue streams. For 2013 the percentage of revenue generated by all Mac computers (Mac, iMac, varieties of MacBooks) ranged between 10 and 13 percent, and that number has steadily declined since the iPhone and iPad were introduced and became the revenue workhorses for the company, together accounting for over 70 percent of annual revenue. Given that Cook’s announcement indicates that one line of Macs will be manufactured in the US, the increased cost of production due to higher labor cost will have a marginal impact at best on the company, given the tiny portion of revenue that will be affected by this change in the supply chain. While this announcement might help alleviate the unease consumers and investors feel over labor issues in the Chinese supply chain, this proposed change is nothing but a red herring.
2. They once held the record as the most irresponsible labor rights and environmental offender of all 29 major tech companies working with suppliers in China. A report published in August 2011 by a collection of Chinese NGOs included findings from a study of suppliers associated with the 29 biggest tech companies operating in China. While environmental and labor violations were found at suppliers across the board, of all the tech companies contracting work to them, Apple was least responsive to requests from NGOs that it address chronic environmental and labor violations at 27 of its suppliers. As of the publication of the report, Apple had been completely unresponsive to requests for action. Violations at suppliers included hazardous water runoff containing heavy metals waste that pollutes lakes, rivers, and groundwater in and around rural Chinese communities; and noxious emissions of gasses that cause nearby residents respiratory illness, chronic headaches, and dizziness. Some residents of villages near suppliers reported a sharp increase in cancer rates in the decades since tech companies began producing in their regions. In January of this year a third report on Apple was released by the NGO group that revealed that Apple has responded to some of the most egregious environmental violations cited in the previous report, and that effective improvements have been made at a few suppliers. However, the report points out that while labor and environmental violations are systemic, most of the Chinese supply base remains unexamined by Apple. Rather than proactively managing its supply chain, and taking responsibility for its role in shaping what happens at suppliers as a result of the very low cost schedule Apple affords them, the company remains irresponsibly reactive.
1. Apple’s presence in China is not having a “trickle-down” economic effect on the Chinese state or its citizens. When This American Life ran their retraction episode in the aftermath of revelations that Mike Daisey had fictionalized his account of meeting young Chinese who work for Apple suppliers and who have suffered illness, injuries, and injustices on the job, host Ira Glass suggested that the conditions Daisey described and others have documented are necessary evils in the process of modernization and industrialization that China is undergoing. Glass suggested that ultimately China and its citizens will benefit from having become the world’s factory, and from having supplier contracts with successful companies like Apple. The sad reality is that Chinese laborers earn very little for their work in assembling Apple’s i-devices. On Monday, July 29, China Labor Watch released a damning new report that lists a multitude of violations of Chinese and International labor laws, and reveals that workers at Pegatron facilities where the new “cheap iPhone” is in production make the equivalent of US $1.50 per hour. At a 60 hour work week, that’s $90 per week before taxes. As a country, China sees a marginal economic benefit at best from these arrangements. One important fact that is overlooked by many who comment on Apple’s presence in China is that most suppliers the company works with are not Chinese at all–they are Taiwanese, Korean, and Japanese owned. Foxconn, for instance, is owned by the Taiwanese Terry Gou. Pegatron, the group of factories recently identified as labor law violators by China Labor Watch, is also Taiwanese owned. Further, while Apple’s profit margin is nearly 60 percent of the value of an iPhone, Chinese labor for assembling the device accounts for less than 2 percent. Suppliers like Foxconn, where these workers assemble the devices, receive a 1.5 percent profit margin for their services. Labor law violations and occupational safety hazards occur because suppliers are struggling to turn a tiny profit on their contracts with Apple. Steve Jobs was notorious for nickel-and-diming every supplier the company worked with, and his micro-managerial and dictatorial legacy is now built into the cost and profit structures of the company. While Apple consumers might view his legacy as one of innovation, leadership, and genius, for young Chinese workers his legacy is occupational abuse, intimidation, harassment, injury, illness, displacement from their families, and loneliness. Think Different? Not in the slums of Shenzhen.
Acknowledgements: The research this post is based on was compiled with the help of Gabriela Hybel, Tara Krishna, and Zhao Li. Li provided invaluable research of Chinese news media and translation services. Gabi, Tara, and Cortney Anderson provided editorial assistance on this post. I am deeply grateful for their dedication to this project.