How to make cheap iPhones and undercut Foxconn: 12-hour workdays, unpaid overtime and no holidays

“So long, Pegatron.”
“So long, Pegatron.”
Image: Imaginechina via AP Images
We may earn a commission from links on this page.

A report out this morning alleges that working conditions at three Chinese factories operated by Pegatron, a Taiwanese manufacturer of Apple products, violate both Apple’s standards and China’s labor laws. China Labor Watch (CLW), a New-York based non-profit, sent undercover investigators to work at three factories in and around Shanghai. Between them, the three sites employ some 70,000 people. The investigators found (pdf) a panoply of illegal and unethical practices, including:

  • Work hours in excess of Apple’s 60-hours-per-week standard
  • Coercive conditions to discourage workers from refusing overtime or taking days off
  • Restricted or non-existent breaks to drink water or use the bathroom
  • Discriminatory hiring conditions such as age limits and height restrictions
  • Docking of pay for minor rule violations, such as not waiting in line to get food in the cafeteria

Pegatron CEO Jason Cheng promised to investigate the allegations and to “take immediate actions to correct any violations to Chinese labor laws and our own code of conduct.” Apple disputed the findings in a statement issued to the Wall Street Journal. The company said it had conducted more than 15 audits at Pegatron factories since 2007, the most recent of which found employees working 46-hour weeks. It did however acknowledge that some workers’ personal ID cards were being held by labor brokers “as they helped set up bank accounts for those employees” and put an end to the practice.

Reports of grim worker conditions at Chinese factories producing electronics are nothing new, but Apple has had a tough time getting its suppliers to clean up their acts. Apple’s chief supplier, Hon Hai (better known as Foxconn), doubled its minimum wage in 2010 and promised to do so again last year after a spate of worker suicides.

Meanwhile, Pegatron has increasingly come under the spotlight as Apple gives it more orders to so that the iPhone maker’s can reduce its reliance on Hon Hai. Apart from mobile devices and Macs for Apple, Pegatron also makes products for several companies, including Dell, Microsoft and HP. However, CLW’s investigators were all assigned to Apple lines, including one on the “cheap” iPhone expected to debut this fall.

Though a much smaller company, Pegatron has been winning Apple contracts by offering aggressively low prices. That shows in its margins. In the last quarter of 2012, Hon Hai’s operating margin stood at 3.7%. In contrast, Pegatron’s margins were a razor-thin 0.3%, nudging up to 0.8% by the end of March.