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How Apple Achieved a Legendary $2.98 Trillion Fortune by Outsourcing | Case Study

In the annals of technological innovation, Apple Inc. stands as a testament to what strategic decisions and visionary leadership can achieve. From its humble beginnings in a garage to becoming a three trillion-dollar behemoth, Apple’s success narrative is a tale woven with threads of innovation, design excellence, and a shrewd approach to outsourcing. In this extensive case study, we embark on a journey to dissect the intricate layers of outsourcing strategy to extract valuable lessons for businesses aiming at sustainable growth.

Apple’s evolution is a saga of perpetual reinvention. Founded in 1976 by Steve Jobs, Steve Wozniak, and Ronald Wayne, the company started as a player in the personal computer industry. [ 1 ] Fast forward to the present day, and Apple Inc. has transformed into a global powerhouse, setting industry benchmarks and captivating consumers with its innovative products.

Table of Contents

#1: outsourcing: apple inc.’s manufacturing backbone, a: challenge: scaling up production.

As Apple Inc. ventured into the realm of consumer electronics with products like the iPhone, iPad, and MacBook, the challenge of meeting unprecedented demand emerged. In response, Apple strategically embraced outsourcing, forging key partnerships to tackle this manufacturing conundrum.

Foxconn, also known as Hon Hai Precision Industry Co., Ltd., emerged as Apple’s manufacturing linchpin. With its headquarters in Taiwan, Foxconn became the largest electronics contract manufacturer globally. The statistics tell a compelling story—Foxconn’s revenue in 2021 reached a staggering $214 billion, ranked 20th in the 2023 Fortune Global 500—a significant portion of which was attributed to its collaboration with Apple.

B: Benefit: Cost Savings and Efficiency

The outsourcing strategy wasn’t merely about meeting demand but a calculated move to optimize costs. According to industry reports, the cost of manufacturing an iPhone X was estimated to be around $370, with the device retailing at $999. This exemplifies the cost-effectiveness achieved through outsourcing, particularly with partners like Foxconn, renowned for their efficiency in mass production. In 2023, Apple Inc. launched the titanium-based iPhone 15 Pro Max, manufactured at $558 and currently retailing from $1199 to $1599.

#2: Leveraging Global Talent and Expertise

A: challenge: the pursuit of excellence.

Apple’s commitment to excellence extends beyond its sleek product designs to encompass the entire user experience. To provide this seamless experience, Apple Inc. strategically tapped into a global talent pool, seeking specialized expertise through outsourcing.

Beyond manufacturing, Apple’s collaboration extended to specialized components. For instance, Apple Inc. sourced its A-series chips from Taiwan Semiconductor Manufacturing Company (TSMC), a world leader in semiconductor manufacturing. In 2022, TSMC’s revenue soared to $63 billion, a testament to its pivotal role in Apple’s supply chain.

B: Benefit: Innovation and Quality Assurance

Outsourcing to experts meant that Apple could integrate cutting-edge technology seamlessly. The A-series chips, fabricated by TSMC, consistently pushed the boundaries of performance, ensuring that Apple’s devices were aesthetically pleasing and technological marvels. This collaborative approach contributed to Apple’s reputation for innovation and quality assurance.

#3: The Design Imperative

A: challenge: nurturing creativity.

Apple’s design philosophy is synonymous with elegance and innovation. Outsourcing became a tool to liberate internal resources, allowing Apple’s design team to focus solely on what they do best—creating iconic products.

By outsourcing components and manufacturing, Apple’s in-house design team gained the freedom to innovate without being bogged down by production intricacies. Statistics reveal the impact—Apple’s design-led approach contributed to a brand value of $263.4 billion in 2022, making it the most valuable brand globally.

B: Benefit: Unleashing Creativity

This focus on design resulted in visually stunning products and fostered a culture of innovation within Apple Inc. The iPhone’s iconic design, for instance, not only captured the market but set a new standard for the entire industry. The freedom to innovate became a catalyst for Apple’s success.

#4: Outsourcing in the Digital Age

A: Challenge: Navigating the Digital Landscape

As the digital landscape evolved, Apple Inc. faced the challenge of staying at the forefront of software development. The solution lies in strategic outsourcing partnerships that complement Apple’s internal capabilities.

Apple’s collaboration extended to software development, with partnerships and acquisitions reinforcing its commitment to excellence. For instance, the acquisition of Beats Electronics in 2014 for $3 billion not only bolstered Apple’s presence in the audio industry but also brought the expertise of Beats’ software engineers into the Apple ecosystem.

B: Benefit: Software Synergy

Outsourcing software development allowed Apple to harness the collective expertise of a global talent pool. The collaborative synergy translated into user-friendly interfaces, seamless integration across devices, and a robust app ecosystem. The strategic outsourcing of software development became a key ingredient in Apple’s recipe for success in the digital age.

#5: Ethical Considerations and Corporate Responsibility

A: challenge: balancing success and responsibility.

While the outsourcing strategy contributed significantly to Apple’s success, it also brought attention to ethical considerations and corporate responsibility. Reports of challenging working conditions at some manufacturing partners prompted Apple to reevaluate its approach.

Apple’s response to these ethical concerns showcased adaptability and a commitment to responsible business practices. According to Apple’s Supplier Responsibility Progress Report in 2022, the company conducted over 1,100 supplier assessments, addressing issues related to labor practices, environmental impact, and ethical sourcing.

B: Benefit: Ethical Leadership

Addressing ethical concerns associated with outsourcing elevated Apple’s corporate image. The commitment to responsible business practices resonated with consumers and set a precedent for the industry. This ethical leadership became a crucial element in Apple’s success story.

Final Verdict: The Outsourcing Symphony

In the grand symphony of Apple’s success, outsourcing plays a pivotal role as a harmonious melody that elevates the entire composition. The strategic outsourcing of manufacturing, expertise, design, and software development has propelled Apple to unprecedented heights and is currently worth almost $3 trillion. This in-depth exploration attests to the transformative power of strategic outsourcing.

* Lessons Learned: A Call to Action

1. Strategic Partnerships : Identify and cultivate strategic outsourcing partnerships that align with your business goals and values. Partnering with industry giants like Foxconn and TSMC gave a solid foundation.

2. Focus on Core Competencies : Outsourcing allows you to concentrate on your core competencies, whether design, innovation, or marketing. As exemplified above, streamlining the design process can lead to market-leading products.

3. Global Talent Pool : Tap into a global talent pool to access specialized expertise and stay at the forefront of innovation. Partnerships with global leaders, such as TSMC in semiconductor manufacturing, were proven to be instrumental.

4. Ethical Outsourcing : Prioritize ethical considerations and corporate responsibility in your outsourcing practices to build a positive brand image. As demonstrated above, regular assessments and a commitment to transparency can set industry standards.

5. Adaptability : Be adaptable and responsive to challenges, iterating your outsourcing strategy to meet evolving demands. Responsiveness to ethical concerns showcases the importance of adaptability in sustaining success.

In the business landscape, the outsourcing symphony can be the key to sustained success. As businesses consider their growth strategies, the above case study serves as a compelling testament to the transformative power of strategic outsourcing. Embrace the symphony, conduct it with precision, and let the echoes of success reverberate through the corridors of your organization.

Get in touch with us at CodersOnFire and start outsourcing your software development projects to gain monumental success in your business.

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Outsourcing Software Projects Made IBM an Amazing $135 Billion | Case Study

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Apple’s reliance on china poses a problem for the company.

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FILE - Apple CEO Tim Cook speaks in front of the new Taiwan Semiconductor Manufacturing Company ... [+] facility under construction in Phoenix, Tuesday, Dec. 6, 2022. Cook will take a more than 40% pay cut this year from a year earlier as the company adjusts how it calculates his compensation. Apple Inc. said in a regulatory filing that Cook’s target total compensation is $49 million for 2023. (AP Photo/Ross D. Franklin, File)

I am getting questions from friends and acquaintances about whether the US’s supply chain woes are over. Afterall, port congestion has cleared, transportation costs have gone down, we are seeing far fewer product shortages, and the looming recession will likely take some of the pressure off hiring and retention woes. The people I talk to are surprised when I say supply chain challenges are not going to disappear any time soon. There are of course the challenges from a potential recession and the increasing severity and frequency of climate change disruptions. But by far the biggest impediment to smooth running supply chains is how difficult it will be for many companies to disengage their supply chains from China. Apple provides a prime example.

The China Problem

When the US agreed to a free trade agreement with China in 1999, the theory was that as more and more Chinese entered the middle class, China would become more democratic. That did not happen. What happened instead was massive theft of intellectual property, huge trade deficits, the hollowing out of the middle class in Europe and North America, and the rise of nativist politics.

The US responded. First, there were the China tariffs of the Trump years. These tariffs remain in place under the Biden administration. The theory was that duties would lower trade deficits. Trump was successful in bringing down the bilateral trade deficit with China, as result of the tariffs he imposed on more than $350 billion worth of Chinese goods. Final figures show the trade gap with China totaled $311 billion in 2020, down sharply to the record high of $419 billion in 2018. But the combined U.S. goods and services trade deficit increased to $679 billion in 2020, compared to $481 billion in 2016. Partly this was because Chinese companies diverted their exports to other nations and those products were then imported into the US.

Next came, the Uyghur Forced Labor Prevention Act, was signed into law by President Joe Biden in December of 2021 and then went into effect in June of 2022. This legislation was the U.S. response to the Chinese government’s systemic use of forced labor against Uyghurs and other ethnic minorities in the Xinjiang province. The importation of any goods into the US that is produced - wholly or in part - in the Xinjiang Uyghur Autonomous Region is now prohibited.

In October of 2022, the Biden administration published a tough set of technology export controls. These controls included a measure to cut China off from certain buying semiconductor chips made anywhere in the world with US tools. The US is greatly expanding its attempt to slow Beijing’s technological and military advances. It is not just US tool manufacturers that are affected. Both American and foreign companies that use US technology are being required to cut off support for some of China‘s leading factories and chip designers. The goal is to set China’s chip manufacturing industry back by at least a decade.

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Then in January, in a rare instance of bipartisanship, the House voted overwhelmingly to establish a new select committee to address the multifaceted threats posed by China. This committee’s powers will be largely investigative, not legislative. But it will put pressure on the Biden administration to get even tougher.

China, of course, is likely to react to these measures in ways that may be hard to predict. However, trade barriers are apt to increase. We are beginning to move from a world of “free trade” to one of bilateral trading blocs. In this new world, democracies will increasingly do business with each other. Similarly, dictatorships and pseudo democracies will increasingly trade with each other.

Apple is Heavily Reliant on Operations in China

Apple, headquartered in Cupertino California, sells smartphones, personal computers, tablets, wearables, and accessories, along with a variety of related services. Apple is the world’s most valuable company. The company had revenues of nearly $400 billion in their last fiscal year.

There were two excellent articles in the Financial Times (FT) on the Apple supply chain. The articles were based on interviews with supply chain experts including nine former Apple executives and engineers. The opaque operations of Apple’s supply chain were explained in some detail.

In their Annual Report , Apple admits that “business can be impacted by political events, trade and other international disputes” and that “the Company’s manufacturing is performed in whole or in part by outsourcing partners located primarily in Asia, including China mainland, India, Japan, South Korea, Taiwan and Vietnam.”

This is disingenuous at best. More than 95% of iPhones, AirPods, Macs and iPads are made in China. By October 2010, Foxconn’s factories in Shenzhen alone had as many as 500,000 workers. Foxconn is Apple’s key contract manufacturing partner.

Apple tightly directs partner processes and activities. Apple would dangle a commitment to buy a custom component – a part no other company would be allowed to buy - in massive quantities in return for taking effective control of the supplier’s R&D. In some cases, Apple would not just specify the production equipment to be used by the supplier on their factory floor, they would buy it and own it. There are also an array of specialized production and supply chain processes jointly developed by Apple and their partners. Specialized sub-suppliers and contractors have grown up to support Apple’s partners. FT points out that “if Foxconn, for example, needs to install sonic welders — a process to merge different metals or plastics with ultrasonic energy — it can call up any number of firms to run the line and hire the labor.”

As a result, China offers labor with specialized skill sets hard to find anywhere else. “Cook,” FT reported, in “explaining why Apple couldn’t manufacture at scale in the US, once told an audience that if every tool and die maker in America were invited to the auditorium where he was speaking, they ‘wouldn’t fill the room’. Whereas in China, ‘you would need several cities to fill with tool and diemakers’.”

Moving Final Test & Assembly to nations like India, which Apple is starting to do, is a band aid. Final Test & Assembly is labor intensive but does not require skilled labor. It might be possible to get some Chinese manufacturing and sourcing partners to open operations in nations like Vietnam and Malaysia. Local labor would be used, but the skilled management and key personnel would be Chinese. Other companies are making this transition. But this is a slow process and it takes years to build up a similar level of expertise. Meanwhile some of these nations have their own challenges. Vietnam, for example, has poor transportation infrastructure and an organized crime problem.

Clearly, in the new political and trade environment, Apple will face a massive challenge in disentangling itself from China. While Apple’s China problem is more severe than other Western companies, the problems are far from unique.

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How Apple’s outsourcing strategy created two giant competitors

Apple is well known for being one of the world's leading design companies but their outsourcing strategy inadvertently created two of their biggest competitors and two of the world's largest technology companies..

No other metric is more important to an organization than its profitability. Profitable companies can invest and acquire while unprofitable ones slowly sink into the abyss of Chapter 11. But while profitability is one of your organizations biggest motivators, the unchecked pursuit of it can eventually destroy shareholder value and create your next, fiercest competitor. This is what Apple (AAPL) and its shareholders found out to their peril when the stock plummeted from it’s high of $700 to a value of $566, wiping out over $150 Billion of shareholder value.

Company executives are increasingly compelled to report profit in percentage terms so naturally they promote and reward the behaviors that increase margins. As such the pursuit of higher profit margins, rather than the pursuit of voluminous profits becomes the dominant behavior.

Today we’re seeing several sectors of the western economy, such as manufacturing, assembly and engineering decline as many of the world’s largest first world organizations progressively outsource cost intensive segments of their businesses to the tiger economies and risk becoming nothing more than high margin, damaged marketing agencies who have outsourced everything but their brand.

The two primary methodologies organizations, analysts and Wall Street use to measure profitability are the Internal Rate of Return (IRR) and Rate of Return on Net Assets (RONA), because by describing profitability as ratios it allows us to neutralize differences and compare the profitability between different industries. IRR inadvertently motivates organizations to focus on smaller, faster wins because if they use their money to fund programs that don’t pay off for years then the ratio is at best modest, meanwhile, RONA motivates organizations to reduce the number of assets they hold on their books.

Consequently, organizations have a strong incentive to shed their cost intensive or lower margin operations so they can concentrate on business units that have higher margin returns. There are, of course, a number of ways that organizations can divest these operations in a way that boosts their overall average margins. Some organizations like IBM choose to dispose of their commodity business units while others like Apple, Amazon, Cisco, Sony, Nokia, Dell, HP and many more prefer to outsource specific operations, which allow them to tactically withdraw or transfer their own resources and sell the related assets.

At first glance outsourcing looks like a win-win for both the organization and their shareholders and it’s hard to fault the approach. Disposing of the related assets improves the organizations cash reserves while the reduction in overheads lifts the organizations average margins and earnings per share. However, what very few organizations see – at least until it’s too late – are the downstream effects and how outsourcing can create their fiercest competitor and destroy long-term shareholder value.

Once an organization has made the strategic decision to outsource their operations – irrespective of the industry, it’s incredibly difficult and costly bring them back in-house. The assets have been sold, the supply chains and skilled teams have been dissolved and the intellectual capital has long since been lost, and once an organization has embraced the outsourcing habit it’s one they’ll find hard to break.

Consequently, what started as a simple way to eliminate costs and increase IRR and RONA suddenly becomes an easy to repeat addiction and as an organization outsources more and more of its operation with every turn of the handle they may be unwittingly equipping their next, most formidable competitor. Whether it’s HP’s x86 server ODM (Original Device Manufacturer), Quanta who now sits in second place in the worldwide IDC Server Market Share rankings ahead of Dell, or IBM’s ODM Lenovo who are now pounding their Systems and Technology Group in markets around the world, it’s inevitable that at some point outsourcers will examine how they can leverage their new insights, assets and skills to become a brand and competitor that reaps higher than average industry margins.

Beware of the lure of outsourcing

Today there are a myriad of organizations who have outsourced segments of their business and inadvertently helped enhance their future rivals competitive capabilities. But despite this, it’s arguable that none of the competitors those organizations helped create come close to the two super powers that Apple has unwittingly created – I am, of course, talking about Samsung, and their sister company Samsung Electronics, and Foxconn who since its association with Apple began have increased revenues by 11,461 percent and 6,002 percent respectively.

Many bystanders are more likely to view the emergence of these two giants onto the global stage as business evolution rather than revolution. While Samsung declared their competitive intentions in 2008, Foxconn has only recently reached the starting line of its long journey. In each case I will show you how both companies have combined renewed board ambition and the investments they made in equipment, processes and people to service their contractual agreements with Apple with the strengths of their core business models to fuel their meteoric rise to fame and fortune.

To understand Samsung’s rise to dominance we have to go back to the turn of the new millennium when Apple released its first generation iPod in 2001, quickly followed by the iTunes store in 2002. Always publicized as the only alternative computing platform to the then dominant Wintel alliances of Microsoft, Dell, HP and IBM Apple always had an iconic – dare we say cult like following even if it didn’t have the revenues to match.

Apple was the bullish underdog that kept nipping at the heels of the Wintel alliance, but one that rarely came up in any of their competitive planning sessions. Over the next 10 years Apple sold over 320 million iPods and as they introduced more products such as the iPhone in 2007 and the iPad in 2009, which at the time of publishing this article have both respectively sold 421 million and 170 million units their annual revenues grew from $5 billion to an eye watering $171 Billion. It’s this growth and the insights into Apple’s operations that helped Samsung and Foxconn craft their own spectacular rises to power.

Almost from the start of its journey Steve Jobs and the executive board shaped Apple into an innovative design company and this is an important distinction to make. Design companies focus on creating beautifully designed, frictionless products and are commonly less interested in administering the cost intensive, low margin manufacturing and assembly operations that inevitably rely on facilities that have to be built, managed and supplied in order to create the final product.

Consequently, Apple was determined to outsource both of these areas of operation from the outset. The lion’s share of manufacturing, many of Apples most bespoke and critical components, including the screens, Flash and DRAM memory and the fabrication of Apple’s bespoke logic processors for all of Apples flagship lines was outsourced to Samsung Electronics (SSNLF) and the responsibility for assembling the iPod, iPhone and iPad was outsourced to Apple’s long standing partner Foxconn.

In the early days, when volumes of Apple branded products were lower than they are today, Samsung and Foxconn were happy with their position in life, but as time progressed and as they saw Apple’s money pile growing into a $150 billion mountain their Board’s ambitions grew. When you feed off of the scraps of the kings table for long enough – and when we say scraps we of course mean when you collectively only make $52.68, at an average margin of 12.02 percent for Samsung and an average margin of 1.70 percent for Foxconn, from the sale of each iPhone vs. Apple’s staggering $368 – sometimes your mind turns to thoughts of rebellion and what you’d need to do to be the next heir apparent …

Why be the iconic customer’s manufacturer when you can be the icon? Why be the assembler when you can be the venture capitalist behind the next big technology wave? In each case both Samsung and Foxconn had the same ambitions – to push themselves up the Value Chain and become the Brand where they could realize higher margin returns and that’s precisely what they did.

Over the course of their 10-year partnership with Apple both organizations had developed highly efficient global supply chains capable of supporting their new aspirations so it was simply a matter of filling the capability gaps in their value chain – namely ‘design’ and ‘brand’ development. Their manufacturing and assembly plants, processes and employee skill sets had all been honed over time to make and assemble Apples products so it was inevitable that the products that they chose to produce and invest in themselves, namely smartphones and tablets, would eventually put them in direct competition with their largest customer.

Samsung was the first company out of the blocks in 2009 and their new strategy put them firmly on a collision course with Apple. They spent billions, struck up a relationship with Google Android and worked hard to boost their design and innovation practices by investing heavily in new multidisciplinary satellite centers around the world. Ultimately, these created the Galaxy S3 and S4, the world’s best-selling smart phones and the world’s number two tablet, the Galaxy Note.

Later, in 2013, Foxconn chose a less confrontational approach, preferring instead to create a venture capital backed hardware accelerator program that invests in and supports designers and innovators of interest, helping them refine their products ready for the mass market and, with Apple expected to release the iWatch it’s probably not by coincidence that the first product that they chose to invest in was a smartwatch.

Given the rise of these two new co-petitors and their increasingly dramatic impact on Apple the organization had to make a number of tough choices, all of which were made even more complicated by the depth of relationship, integration and business insights between the triumvirate. Their choices included fighting Samsung for market share with all of the downstream implications that that would undoubtedly have on their revenues, margins and share price, alternatively they could work diligently to innovate new products for the mass market or they could choose to do both. Irrespective of the choice though everyone knew that they were on a collision course with two of their largest strategic partners.

In late 2013, with their share price stalled for over a year at $550 and activist Carl Ichan pressing for the introduction of a $150 billion share buyback program Apple CEO Tim Cook implemented a raft of new initiatives designed to build new growth and reduce Apples dependency on their co-petitors.

The first initiative to be announced was the introduction of the iPhone 5C, a scaled back, low cost iPhone assembled by Foxconn’s smaller competitor Pegatron and squarely positioned to compete with Samsung’s cheaper alternatives. Next came the decision to bring manufacturing of some of Apple’s smaller flagship lines such as the iBook back to the U.S. and then finally the announcement that in 2014 Apple was switching all of its $10 billion annual memory and processor orders to Samsung’s arch competitor TSMC.

As for the future as Apple strives to create and dominate untapped mass markets it now looks certain that they will be introducing two highly hyped, revolutionary new products in the iTV and the iWatch.

Outsourcing has clear cost and scale advantages and managed correctly it will let you refocus your organizations resources on areas that drive growth – however, as we can see from our example, outsourcing areas of your business that underpin your organizations key revenue generators – such as software development, manufacturing and product assembly can have dangerous long-term consequences.

My advice is to think carefully about which areas of your operation to outsource and focus on outsourcing areas that have a low value to your organization as well as a low value to any future outsourcer who may, in years to come, decide to become your competition. If, however, you do outsource areas of your operation which they could leverage to compete with you, then you must work diligently to determine the long-term, downstream implications, build a comprehensive, time-sensitive risk register and adopt a multioutsourcer strategy.

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Apple, Offshoring and the Decline of the American Middle Class

Working conditions continue to be an issue at the Foxconn factories in China where Apple makes its best-selling electronic gadgets. On June 19, a young man who worked at one factory jumped to his death from a neighboring apartment building. Shockingly, it was the 19th such suicide since January 2010.

Opinions on the issue fall into two camps. Human rights activists condemn Foxconn for exploiting workers. Globalization apologists claim life would be harder in China without all the jobs that have been outsourced from the West. However, neither camp has addressed the issue of what offshoring has meant back here.

I have had my fill of the sanctification of Steve Jobs who, after all, merely gave us shinier toys and bad manners. To be fair, however, offshoring isn’t entirely an Apple story. If it’s electronic and produced in batches of more than a few thousand units, odds are it came out of a factory in Asia. Apple didn’t invent outsourcing to China, but it did make the practice chic, and Apple has made Foxconn what it is today (and what it is, isn’t pretty).

There’s a noteworthy passage in Walter Isaacson’s 2011 biography of Jobs that recounts an exchange between the Apple CEO and President Obama:

“Apple had 700,000 factory workers employed in China, he [Jobs] said, and that was because it needed 30,000 engineers on-site to support those workers. ‘You can’t find that many in America to hire,’ he said. These factory engineers did not have to be Ph.D.s or geniuses; they simply needed to have basic engineering skills for manufacturing. Tech schools, community colleges, or trade schools could train them. ‘If you could educate those engineers,’ he said, ‘we could move more manufacturing plants here.’”

That’s more than a little disingenuous. It’s more truthful to say that America doesn’t have 30,000 engineers and 700,000 factory workers who are willing to work more than 60 hours a week, live in squalid dormitories, get pulled out of bed in the middle of the night to change a critical part, and earn $3,000 or less a year. And we shouldn’t have .

We do have thousands of Americans who are desperate to work hard for a living wage. In June, for example, more than 20,000 people applied for the 877 new jobs that Hyundai needed to fill a third shift at its assembly plant in Montgomery, AL.

I have been in Chinese factories, and I didn’t like what I saw. Too often, they toed the line of physical abuse. That is not the way humans should live.

Nonetheless, working conditions in China are basically an issue for China. The focus here needs to be on what offshoring has done to America. Quite simply, offshoring has gutted the American middle class. The top end—more than the well-known 1 percent, but less than 10 percent of all Americans—is doing splendidly. The bottom 25 percent is doing as sadly as ever and possibly worse, due to government cutbacks of food programs and other subsidies. It’s the two-thirds of the population between the bottom 25 percent and the top 10 percent who are getting slammed.

According to the Federal Reserve, median family income was $49,600 in 2007 but only $45,800 in 2010 , a drop of 7.66 percent in just three years. In 2010, the median American family had no more wealth than it had in the early 1990s.

It is not by accident that this country has laws governing minimum wage, workweek hours, workplace safety, child labor and environmental protection. Decent wages translate into decent neighborhoods and taxes that support critical services like schools that, in turn, should lead to even better wages and better neighborhoods. All of our most pressing social concerns ultimately come back to jobs and education.

It took more than the presence of several hundred million unemployed Chinese to make offshoring feasible. Some are technological, some are cultural. They include:

• Smaller and lighter products. Transportation costs increase with bulk.  
• More efficient transport systems. Think UPS, FedEx and container shipping.  
• Virtually free communication. The Internet has lowered the cost of communication close to zero.  
• Decay of corporate community ties. It seems quaint today, but as recently as 25 years ago, corporate leaders who shuttered factories were not held in high esteem at the country club.  
• Greed. Ignore Gordon Gecko; greed is not always good. Greed causes corporations to pay a few executives thousands of times the average employee’s income, cut environmental corners, terminate employees with decades of loyalty, and even force domestic workers to train foreigners to take their jobs. (Thirty-five years ago, the CEO of the large corporation where I was a middle manager earned seven times as much as I did. I don’t think he felt underpaid. The CEO of Caterpillar, which is seeking wage concessions from striking workers at its factory in Joliet, IL , was paid $16.9 million last year, or 300 times more than the best-paid hourly worker there.)  
• “Free trade.” There’s no free trade, except for foreign competitors who enjoy remarkably unfettered access to U.S. markets.  
• Currency manipulation. Chinese goods are cheap to a great extent because China is willing to lowball the yuan, just as Japan undervalued the yen for decades. The results include massive stockpiling of U.S. debt by Beijing, jobs for a lot of Chinese workers, and cheap everything at Walmart. Despite what you’ve been told, U.S. debt in China’s hands is China’s problem, not ours. When you owe the bank $1,000, it’s your problem. When you owe the bank billions, it’s the bank’s problem—and China has become America’s bank.  
• Dumping. Vast quantities of Chinese goods are sold here below the cost of materials and production. That’s illegal, but only if our government is willing to impose sanctions.  
• Stupidity. I can’t think of another word to describe the failure of American companies to recognize that the total cost of offshoring is much greater than the quoted piece price. Communication issues and time-to-market factors greatly affect total price, but they never seem to get taken into account when sourcing decisions are made. More importantly, few CEOs consider that today’s offshore supplier could become tomorrow’s domestic competitor. In 1960, the United States had 29 domestic manufacturers of television sets. Thirty years later, after those OEMs decided to put their names on products made in Japan, the United States has no domestic television manufacturers.

Is it too much to hope for a revival of “Buy American”? If the millions of unemployed and underemployed university grads who make up so much of Apple’s customer base decided to boycott iPhones and iPads until a reasonable amount of manufacturing returned, it would definitely make a difference. A boycott needn’t be confined to Apple, of course, but Apple has such a high profile that an effective movement should start there.

Ultimately, we have to pin our hopes on the promising trend of reshoring —companies bringing production back from places like China. I’ve been encountering more and more repatriation operations. They tend to be small, but collectively they are making a difference. New ventures that would once have turned all production over to foreign manufacturers are thinking twice and producing in-house. Businesses tend to be followers. When they see their competitors succeeding with reshoring, they will become converts as well.

What do you think? Am I being too hard on Apple? Do you see offshoring as a threat? How can we encourage U.S. OEMs to bring work back from overseas? Share your thoughts.

Editor’s note: Before “Shipulski on Design,” “Leading Lean,” and “Uncommon Sense,” there was ASSEMBLY magazine’s longest running and most controversial back-of-the-book column, “Unconventional Wisdom” by Jim Smith. A nationally known expert on electronics assembly, Smith never hesitates to question the sacred cows of manufacturing and economics. You can read more from him at his “Science of Soldering” blog.

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China spent $1.5B to bring Apple production offshore, will US cities do the same?

Dive brief:.

• China's "iPhone City" in Zhengzhou — which hosts Apple's manufacturing partner, Foxconn Technology Group, and can produce 500,000 iPhones a day — is emblematic of the local incentive system behind many companies' offshoring decisions, according to a recent New York Times report .
• ​Although few know exactly how much the Chinese government bestowed upon Foxconn to bring its operations to the region, the  local government has provided at least $1.5 billion for aid in building sections of the enormous factory and convenient employee housing.
• In addition, Zhengzhou eliminated both corporate taxes and value-added taxes for the first five years of production in iPhone City, then halved them for another half-decade. The city also lowered Foxconn’s payments to workers by roughly $100 million per year.

Dive Insight:

In the period during which China lured Foxconn and thus Apple to Zhengzhou, offshoring was the most reliable way to lower production costs and ensure limited taxation on profits. However, with American companies manufacturing overseas under public pressure to come home, how many will maintain foreign production?

The answer may lie with incentives. Almost every American city and state has devised its own set of desirable  terms by which to draw new business. Low taxes, an abundant workforce, and even an easy lifestyle are touted as reasons to relocate. While few can offer anything resembling what China gave Foxconn, similar industrial parks (e.g. Tesla Town , Silicon Valley) are commonplace. In fact, when President Donald Trump's tariff-based, anti-offshoring saber-rattling began on Twitter last summer, Carrier reached a $7 million tax-break deal with Indiana to maintain its production in the state.

Yet, incentives can only go so far. Economic and practical factors such as a trained workforce, available space, and desirable near-shoring will impact the return of U.S. manufacturing. Also to be considered is the unlikelihood that foreign locations used to the added income and employment availability will simply wave goodbye to longstanding business residents. Zhengzhou is a good example: 6 million are employed there. Will China kiss Apple goodbye, along with its jobs? If a global restructuring of supply chains is to occur, it will be a protracted process with both sides offering incentives (and threats).

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Is Apple Bringing Jobs, Production Back to U.S.?

In 2011, during a dinner in Silicon Valley, President  Barack Obama questioned Apple’s founder and CEO, Steve Jobs , on why the company couldn’t manufacture its products on American soil. It’s reported that Jobs was dismissive, arguing that production and assembly jobs would never return to the United States.

At the time,  offshoring  was all but the default option for U.S. manufacturers, thanks to cheaper overseas labor and materials driving down overall production costs.

But in the years that followed, U.S. companies endured growing pressure to move their manufacturing operations back home, to the extent that the rate of  reshoring  reached an all-time high in 2018. Such efforts promise to boost the economy and create skilled jobs in the manufacturing industry but are also driven by political instability, trade wars, rising labor costs in developing countries, and disruptive global events — including COVID-19.

The movement continues to gain momentum. In the first half of 2023, the number of U.S. jobs created as a result of reshoring exceeded the previous year’s  record rate of around 340,000 jobs . Research also shows that the geographic distribution of global suppliers will fundamentally shift by 2026 from being mostly global to mostly local. This is the result of economic and geopolitical instability.

A History of Apple Reshoring Efforts

Apple has long depended on offshoring to maintain its production schedule and manage costs.

In 2017, it was reported that China’s “iPhone City” in Zhengzhou could produce  500,000 iPhones  a day. This was thanks in part to the Chinese government’s multi-billion-dollar investment in Apple’s manufacturing partner, Foxconn Technology Group.

In 2019, it was reported that  five million Chinese jobs  — including 10,000 direct employees — were dependent on Apple’s manufacturing.

As recently as 2022, Apple was manufacturing  more than 90%  of its products in China through outside contractors.

The cost and effort to reshore production at this scale would be astronomical. Indeed, it’s estimated that reshoring iPhone manufacturing alone would cost upwards of  $4 billion , most likely to the detriment of the business and its end customers.

Nonetheless, Apple is conscious of maintaining its brand reputation, as well as the increased security and visibility that come with reshoring and nearshoring initiatives.

What changes has it made in the past 10 years?

December 2012 – Tim Cook Reveals Apple Reshoring Plans

Following Jobs’ death, Tim Cook took on the role of Apple’s CEO. During an interview with Brian Williams on NBC,  he announced  that the company would be investing $100 million to resume manufacturing in the U.S., starting with one of Apple’s existing Mac lines.

November 2013 – Apple Announces New Manufacturing Plant in Arizona

Apple announces plans to open a  new manufacturing plant in Mesa, Arizona , that will run on 100% renewable energy. The plant will create 1,300 construction jobs and 700 positions at the plant itself, manufacturing sapphire materials for several Apple products.

March 2016 – Trump Urges Apple to Reshore Production

During his presidential campaign, Donald Trump called  upon Apple to reshore its production  and threatened to impose harsher tariffs on Chinese imports. "I’m going to get Apple to start making their computers and their iPhones on our land, not in China,” he said during a rally in March. “How does it help us when they make it in China?”

Since then, the Trump administration’s “America First” policies have led to speculation that Apple might be  incentivized to reshore production  with a lowered corporate tax rate and a one-time tax on its $200 billion in overseas accounts.

August 2017 – Foxconn Announces $10 Billion in Wisconsin Facilities

Apple uses Taiwan-based company Foxconn to assemble its products in China. Just as the trade tensions start to escalate rapidly between China and the U.S., Foxconn  announces a $10 billion investment  in production facilities in Wisconsin.

January 2018 – Apple to Invest $30 Billion in Capital Expenditures

Apple commits to investing more than  $30 billion  in capital expenditures in the U.S. over five years. This includes an increase in funding — from $1 billion to $5 billion — to its Advanced Manufacturing Fund, which serves to boost the domestic manufacturing sector. These investments are predicted to create an additional 20,000 Apple jobs.

Indeed, in September 2019, as an example,  $250 million  from the Advanced Manufacturing Fund was awarded to Kentucky-based Corning Incorporated, which supplies the company with precision glass for the iPhone, Apple Watch, and iPad.

July 2018 – Apple Ranked Company Most Committed to Reshoring Jobs

A new study  ranks the manufacturing companies most committed to reshoring jobs, and Apple comes out on top. The study reported that Apple had reshored a total of 22,200 jobs.

September 2019 – Apple Announces Plans to Manufacture the Mac Pro in Texas

Apple  confirms  that it will manufacture its redesigned Mac Pro in Texas, from the same Austin facility where the Mac Pro has been made since 2013. The device will feature components manufactured by more than a dozen U.S. suppliers.

March 2020 (and beyond) – The Outbreak of COVID-19

Apple’s supply chain was not exempt from COVID-19-related  disruption,  with many of its suppliers in China being forced to shut down production for several weeks. Apple reported component shortages and shipping delays and even postponed the release of its iPhone 12.

At the time, many believed that the devastating events of 2020 and beyond would be enough to put an end to complex global supply chains.

The long-term impact of COVID-19 is still difficult to quantify, but at the very least, it motivated corporations to re-evaluate their supply chain strategies. A survey conducted at the beginning of 2022 revealed that more than  60% of European and U.S. manufacturing companies  expected to reshore part of their Asia production in the next three years.

April 2021 – Apple Commits $430 Billion to the U.S. Economy

Apple announces  its plans to invest $430 billion and create 20,000 new jobs across the U.S. over five years, supporting American innovation and driving economic benefits in every state.

May 2021 – Apple Invests $45 million to Corning Incorporated

Apple announces that it will  invest $45 million  from its Advanced Manufacturing Fund to Corning Incorporated, a supplier of precision glass for iPhone, Apple Watch, and iPad. The investment will be used to expand Corning’s U.S. manufacturing capacity and drive research and development into innovative new technologies.

September 2021 – U.S.-Based Apple Manufacturers On the Rise

It is reported that, as of September 2021, 48 of Apple’s 180+ suppliers have U.S. manufacturing sites, an increase of 25 from the previous year. Over 30 of these manufacturing sites are in California.

December 2022 – Apple Commits to U.S.-Made Microchips

In December 2022, Apple’s CEO, Tim Cook, announced that the company would be purchasing microchips made at an Arizona-based factory owned by Taiwan Semiconductor Manufacturing Company (TSMC) and partially subsidized by the U.S. government.

“Apple had to buy all the advanced chips from overseas; now they’re going to bring more of their supply chain home,” President Biden said at the time of the announcement. “It could be a game-changer.”

January 2023 – Apple Begins Expansion of Austin Campus

Apple is ready to start the second phase of development for its $1 billion Austin campus. The construction of two new buildings,  Capstone Phase Two AC09  and  Capstone Phase Two AC07 , will begin in September 2023, and the estimated completion date is May 2025.

May 2023 – Apple Announces Multibillion-Dollar Broadcom Deal

Apple  announced  a multiyear, multibillion-dollar agreement with Broadcom to develop 5G radio frequency components — including FBAR filters — and cutting-edge wireless connectivity components, to be developed at several key U.S. manufacturing and technology hubs.

What Does the Future Hold for Apple’s Supply Chain, Manufacturing Jobs?

Apple’s efforts to establish home soil manufacturing have come at great expense. Since 2018, Apple suppliers have spent an estimated  $16 billion  on diversifying their production assets away from China to India, Mexico, the U.S., and Vietnam.

In addition, the reshoring process is long and labor-intensive. It’s not unusual for a company to spend 18 months or more establishing a new manufacturing plant, particularly if it is to cater to the large-scale manufacturing operations of a company like Apple.

Nonetheless, Apple is widely regarded as  an innovative leader  in supply chain management, unafraid to take risks and consistently setting high standards for its competitors. Its future decisions about reshoring will be highly strategic and with consideration of the business, its customer base, and the opportunities to create jobs for Americans.

Get Thomas Insights on Reshoring

• How the Apple Supply Chain Stays Top Ranked in the World
• What Is Reshoring, and Why Do Companies Reshore?
• Offshoring vs. Outsourcing: What’s the Difference

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Daria Spizheva

Technology and software expert and author

I’m a writer with a passion for technology and a firm believer that the key to explaining detailed technical and business information is simplifying it into concepts everyone can understand.

Top 13 Examples of Offshoring: Companies that Were Successful and the Reasons Behind the Ones That Failed

👍 Rating — 4.8 (15 votes)

What Does Offshoring Mean and What are Examples of Offshoring ?

Offshoring, or the use of developers from a different country than the one your company is based in, has become increasingly common in the tech industry. Some of the most common examples in tech include hiring software developers offshore, building offshore dedicated teams, or creating remote technology centers. Many startups use an offshoring partner like TurnKey who helps companies build their offshore team and grow their tech business.

While building an offshore dedicated team can be a great way to do any type of full-cycle software development, staff augmentation, or team extension, it’s important to choose the right offshoring model . The wrong choice can lead to significant losses of budget, time, and even negatively impact customer experience. 

Before writing this article, I did a deep dive into the success stories of offshoring and the lessons learned by universally recognized tech companies to give you the goods, so you can make an informed decision about offshore .

Table of Contents

Top reasons why companies opt for offshoring solutions.

For tech companies and startups,   offshoring is so popular because it brings a ton of benefits, including:

#1. Flexibility in development

One of the primary reasons why companies offshore their software development is the flexibility it affords in the development process. When startups need to rapidly scale up or down according to demand, they can do so more easily by tapping into an offshore development team. This way they are not limited by the number of full-time employees they have on staff at any given time; instead, they can flex and contract as work demands.

#2. Time and cost savings

Technology startups use offshore talent to save both money and time . By working with a dedicated offshore development team, startups can get their products to market faster and at a lower cost than if they were to develop the products entirely locally. In addition, by offshoring non-core business tasks, companies can focus their limited internal resources on more important tasks that directly contribute to their bottom line.

#3. Wide pool of highly skilled developers

I have noticed that startups are increasingly turning to offshore workers to tap into a wide pool of highly skilled developers. This trend is driven by the allure of accessing talented professionals who offer exceptional expertise at a more affordable cost compared to their counterparts in countries like the United States. This advantage allows startups to optimize their budget and invest in other critical areas of their business. 

Companies like TurnKey recognize this demand and provide comprehensive solutions for offshore team building, offering access to a diverse talent pool of highly skilled developers. By leveraging the expertise and cost-effectiveness of offshore workers, startups can create robust software development teams capable of driving innovation and achieving their business goals.

If You're Looking for a Dedicated Team to Help With Your Software Development Needs, Look No Further Than the Experts at TurnKey

#4. Access to specialists

Often times a startup is looking for a very specific type of programmer with niche skills.  These folks are hard to find, particularly if you only look locally.  Offshoring this role dramatically increases your chances of finding these specialists.

#5. Streamlined paperwork and legal compliance

Working in a global-first company, I have witnessed the tremendous benefits that companies can experience by partnering with offshore providers specializing in this practice. By transfering their software development needs, companies can alleviate the burdensome tasks of maintaining proper records, navigating complex taxation rules, and addressing intellectual property concerns. Good offshore vendors effectively eliminate the bureaucratic challenges that often accompany hiring developers in foreign countries.

At TurnKey, we understand the importance of providing a seamless and worry-free experience for companies looking to tap into global markets. That’s why we offer our clients worry-free EOR services  backed by our team of professional legal officers who have conducted extensive research on the intricacies of local labor laws in countries across Latin America   and Eastern Europe. With this promise, we aim to protect tech startup executives from employee misclassification risks and other potential pitfalls. We believe that the location of talent should never limit the opportunities for growth and success. With our expertise and comprehensive service offerings, startups can confidently embrace offshore team building and focus on their core business objectives.

Watch “ When Offshoring is Great, and When It’s a Dog ” to learn more about choosing the right time to offshore.

Successful Examples of Offshoring

Let’s now shift our focus to successful examples of offshoring in the realm of software development. These real-life success stories demonstrate how companies effectively navigated the complexities of offshore collaboration and reaped all the benefits it offers.

I coudn’t help but to toss in this TurnKey client example of how sometimes going offshore turns out to be an even bigger success than initially planned. The client was Headspace, a leading meditation app. In this case, the entire first round of offshore hiring for Headspace’s innovation center of excellence in Mexico was completed within 30 days of when the ink dried on the contract, with onboarding completed soon after. This exceptional service won TurnKey praise and allowed Headspace to excellerate their plans for the center.

TurnKey was able to build out the first team in under two months of working with Headspace. The talent was overwhelmingly positive. We were surprised at the quality of the engineers TurnKey was able to find and the speed with which they were able to find them.

In 2014, this messaging app was acquired by Facebook for 9 billion. At the time of the acquisition, WhatsApp had only 55 employees, but it had already become one of the most popular messaging apps in the world with over 450 million monthly active users. 

One key to WhatsApp’s success was its reliance on offshore talent. The company hired development teams in Eastern Europe which helped it to break the top ranking lists on Google Play, App Store, and other platforms. Thanks to its offshoring strategy, WhatsApp was able to grow at an incredible pace and become one of the most valuable properties in Facebook’s portfolio.

While Google does have one of the corporate world’s largest development teams, they wanted the perspective that comes from outside talent to truly advance and innovate. Because of this, the total number of Google contractors outnumbered their inhouse employees in 2018, according to a Bloomberg report . This is just one example of how Google is continuing to grow and expand its global reach.

In 2020, the company also made a major acquisition to consolidate its position as a leading provider of cloud-based services. CloudSimple is a Ukrainian company that provides a secure, high-performance, and a dedicated environment to develop a VMware migration solution. With this acquisition, Google was able to offer an even more comprehensive suite of cloud-based services to its customers.

Such offshoring solutions illustrate that even the world’s largest companies can’t do it all on their own. By tapping into the knowledge and creativity of contractors, they’re able to keep their business fresh and relevant. In a rapidly changing world, that’s more important than ever.

Amazon is always looking for new ways to stay ahead of the competition. One way it has done this is by offshoring its research and development. By offshoring to a Ukrainian startup specializing in home security systems, Amazon has been able to access exceptional talent at a reasonable wage. As a result, Amazon is likely to remain a leading player in the e-commerce and cloud computing industries for many years to come.

We Get You Best-In-Class Talent From Latin America and Eastern Europe

Slack is one of the most popular communication tools on the market today, with more than 12 million daily active users. Simplicity and great design are the landmarks of Slack. However, few are aware that the company offshored a great deal of its development such as its logo creation, marketing and design, and software for web and mobile apps.

IBM is one of the world’s largest technology companies, with operations in more than 170 countries. IBM has a long history of offshoring, dating back to the 1960s when the company began shifting production to foreign markets. In recent years, IBM has continued to offshore talent for software development , consulting services, R&D, and monitoring cloud-based computer systems. 

Over time, IBM became the largest multinational employer in India. In addition to its large workforce, IBM has made a significant investment in India’s infrastructure and economy. The company has spent billions of dollars on research and development, and it has established several technology labs and centers in the country.

JPMorgan Chase & Co.

In recent years, JPMorgan has been expanding its operations in the Philippines. The company offshored to Metro Manila and a captive site in Cebu City, employing locals to provide software development and operations (in addition to mortgage operations and customer care services for their US-based businesses). 

JPMorgan isn’t the only financial institution to offshore. It’s estimated that about 80% of the world’s largest banks have offshore software development operations. By moving operations to countries offshore, financial institutions can reduce costs and boost their profits without sacrificing service quality. In addition, offshoring solutions can help to improve quality control and speed up production timelines.

People.ai is a startup that offers a B2B sales acceleration platform based on machine learning technologies. The company is based in San Francisco but decided to open an R&D office in Ukraine to find offshore AI developers (which are a bit of a rarity).

Now, People.ai has access to a talented pool of developers who can help create innovative products and improve existing ones. In addition, the company benefits from lower costs associated with running an offshore tech office in Ukraine and can offer a more competitive product to its customers.

Despite being a relatively young company, Lyft has made a big splash in the ride-sharing industry. Founded in 2012, Lyft has quickly become one of the leading providers of on-demand transportation. 

One of the company’s key differentiators is its focus on creating an innovative and convenient customer experience. Lyft is always exploring new ways to improve its service, and it has established a strong reputation for being at the forefront of customer service innovation. In 2021, the company decided to open a software research and development center in Eastern Europe as a way to further strengthen its tech community and product development capabilities. The technology center has already made significant progress, and the team currently consists of 20 people. With plans to grow to 100 members focused on data mapping, and improving Lyft’s services, the center is expected to make even more contributions to its product development efforts.

BigCommerce

BigCommerce is a leading e-commerce platform that provides innovative solutions for businesses of all sizes. Founded in 2009, BigCommerce has helped tens of thousands of businesses worldwide to grow and scale their online operations. 

In recent years, the company has been on an aggressive growth trajectory, expanding its team and its product offerings. However, a skilled workforce in tech is in short supply in the U.S., so BigCommerce decided to open a company offshoring unit in Ukraine . The move has been highly successful: in just one month, the team settled into their brand-new office, and within six months the team grew to exceed 30 developers. BigCommerce is now well positioned to continue its rapid expansion and drive even more innovation in the e-commerce space.

The online resale platform ThredUP decided to open a software R&D office in Ukraine. They knew that they could tap into a pool of highly-skilled tech professionals in the country, and they were not disappointed. Now their offshore team includes hard to find machine learning specialists, Java programmers, and .Net Warehouse developers, as well as payroll & accounting operations. The results were impressive: in 2019, they raised 68 million in funding from their IPO and became the world’s largest consignment store. ThredUP is now on track to revolutionize the clothing industry.

Offshoring Examples of Companies Who Failed and Why

I hope those examples have given you a better understanding of the potential power of offshoring software development.  In this section, let’s bring it back to earth and explore the darker side of offshoring. Here are a few real-life examples where offshoring endeavors encountered difficulties. These case studies provide valuable insights into the common pitfalls and serve as cautionary tales for tech businesses considering or currently engaged in offshoring initiatives. I share them in hopes you can extract valuable lessons along the way, and they will help you make informed decisions to ensure the success of your offshoring endeavors. Let’s dive into these stories of offshoring failures:

Accenture and Hertz

Hertz has accused Accenture of breach of contract, fraud, and negligence, claiming that the management and consultancy failed to deliver on its promises to build a new customer-facing website and mobile apps. 

According to the lawsuit, Hertz paid Accenture over $32 million for the project, but the result was “a buggy website that did not work as intended and mobile apps that had to be completely rebuilt.” Hertz was seeking unspecified damages from Accenture and a jury trial. This case exemplifies how important it is for startups to carefully vet their partners before entering any contractual agreement.

At TurnKey, we have a robust candidate vetting process that global companies like Headspace , diib , Ripple trust. Every developer that joins your team is put through a robust screening protocol.

TurnKey's people professionalized our company from the processes they've implemented to the product features they've developed. TurnKey has the uncanny ability to recruit top professionals to our cause who don't churn. They are critical to diib's core culture.

Navitaire and Virgin Airlines

The software developed by Navitaire crashed two times within three months, and it took nearly 24 hours for Virgin to find a solution and fix the problem each time. With this in mind, Virgin realized that it could not take the risk of another software failure. Therefore, they made the tough decision to shut down all operations for 24 hours to fix the issue once and for all. This decision may have caused some inconvenience for passengers, but it was ultimately the right call.

Potential Pitfalls from Offshoring

While offshoring offers numerous benefits, it is crucial for startups to be aware of the potential pitfalls that can lead to failures, like in the previous examples. Ideally, this firsthand experience and substantial research have highlighted the importance for companies considering offshoring solutions to proactively identify and mitigate these risks:

Poor offshoring partner

In many cases, the offshoring agency may not care about being a true partner or may stretch the truth about what is possible.  Moreover, offshore firms often try to offload the developers they have on their “bench” onto clients regardless of whether it is a good fit for the client’s needs or not; instead, insist that any developer you work with is custom recruited based on your exact specifications.

What’s the main lesson? Carefully research potential providers before heading down the offshore development path. (Or skip this process all together and just call TurnKey!)

Wrong choice of location

When a company decides to offshore its operations, it is crucial to choose the right country or region. Several factors must be considered, including labor costs and infrastructure. If one of these factors is not up to par, it can lead to problems down the road. For example, if labor costs are too high, it may stop you from hiring a full team. If infrastructure is lacking, it may be difficult for your developers to work on code in real time. As such, companies must carefully consider all factors before deciding where to hire offshore.

Weak communication management

One of the biggest challenges of offshoring is that it can be difficult to maintain open lines of communication between employees in different time zones. This can lead to miscommunication and delays, which can ultimately impact the quality of the product or service being offered. In addition, offshoring can also create cultural misunderstandings if employees are not sensitive to the differences between their own culture and the culture of their offshore staff.

Lack of control over business processes

When a company outsources its software development to another country, it can lose a certain degree of control over the process without safeguards in place . This can lead to delays and errors in the development process. Additionally, the company may not have the same level of expertise in-house to oversee the project and ensure that it is being developed correctly. As a result, offshoring can fail due to a lack of control over software developers (which is why working with TurnKey is so great – you are always in control!).

Want to Avoid These Problems and Head Straight to Success?

How to Make Software Development Offshoring Work for Your Startup or Company

Ready to wave your wand and conjure the perfect software development team from afar? This section reveals the secrets to harnessing the powers of offshoring and having them work their magic in your startup or tech company.

#1. Set clear goals

Setting clear goals is essential for any product team, but it’s especially important when offshoring. Without clear goals, it can be difficult to know whether or not your offshoring partner is meeting your expectations. Trying to accomplish too much in a short period can set you up for disappointment, while unrealistic goals can breed frustration. So when setting goals for your software development, be specific and be realistic. With clear and achievable goals in place, you’ll be well on your way to making your offshoring model work .

#2. Identify which time zone and culture is best for you

There are many things to consider when making this decision. What time zones will work best for your team? What kind of culture do you want to work with? What language do they speak? Do they have the same values as you do? These are all important questions to answer before making a geographical decision about where to offshore.

#3. Use time zone differences as an advantage

Rather than seeing time differences as a hurdle, use them to your advantage by hiring employees in time zones that only slightly overlap. That way, you can have someone working on your startup 24/7.

If you’re running a startup, you know that time is of the essence. Every minute counts when you’re trying to get off the ground. So when it comes to offshoring, using time zone differences to your advantage can be a game changer.

Note that this won’t work for every task or job function but for tasks that can be done remotely and don’t require face-to-face interaction, offshoring can be a great way to get things done around the clock without breaking the bank.

#4. Provide effective communication channels and tools

When you’re working with a remote team, it’s essential to have clear and concise communication to maintain a cohesive workflow. There are a few ways to ensure that your communication is effective. First, you should invest in reliable video conferencing software to hold regular face-to-face meetings with your team. Also, make use of project management tools like Asana or Trello to keep everyone on track in real time. Finally, set clear expectations from the start so that everyone is on the same page.

#5. Partner with a great offshoring provider such as TurnKey

Each startup that’s looking to scale quickly knows offshore teams are an attractive option. However, it can also be risky, as it can be difficult to manage a remote team and keep track of progress. That’s why it’s so important to partner with a great offshoring provider like TurnKey. We allow you to retain control over your team while handling all the nasty administrative work for you . If you’re looking to build a world-class remote development team, there’s no need to look any further than TurnKey’s Yourshore model, which we named as such to emphasize that this is YOUR team!

How Does TurnKey Help You Turn Your Offshoring Into A Success Story ?

Thanks to our years of experience and proven process, TurnKey provides you with top offshore talent faster than most offshoring companies.  We custom recruit your dedicated software development team, and we are super transparent when it comes to pricing, so you’ll always know exactly what you’re paying for. Even better, we can help you reduce churn dramatically. So if you’re looking for a recruiting partner that can help you take your startup to the next level, then you should contact us today. We will build YOUR team on YOUR rules to lead you to YOUR success–we call it the YOURshore way!

Final Thoughts

Offshoring can be a great way to get the software development help you need while saving time and money and still maintaining control of your startup. But it’s important to do your homework first and make sure you’re making the best decision for your company – and partnering with a firm you can trust. Otherwise, it could end up costing you more in the long run.

We’ve Helped Tons of Companies Reach the Offshore Promised Land

From a software development perspective, offshoring is the use of developers in another country from the one your company is based in. The most common examples of offshoring services in the software development industry include hiring software developers offshore, building offshore dedicated teams, and creating remote technology centers.

Startups hire talent offshore more often because it helps save budget, but big technology firms like IBM and Apple also offshore to other countries because they recognize talent is available globally and can help them scale quickly.

When scaling a company’s software development operations, there should be a good balance between cost, quality and speed. Startups find all of that and more when they hire offshore developers. They leverage the expertise found in a global talent pool while also saving significant money and accelerating their speed to market.

TurnKey Staffing provides information for general guidance only and does not offer legal, tax, or accounting advice. We encourage you to consult with professional advisors before making any decision or taking any action that may affect your business or legal rights.

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Apple Suppliers & Labor Practices

Is tech company Apple, Inc. ethically obligated to oversee the questionable working conditions of other companies further down their supply chain?

With its highly coveted line of consumer electronics, Apple has a cult following among loyal consumers. During the 2014 holiday season, 74.5 million iPhones were sold. Demand like this meant that Apple was in line to make over $52 billion in profits in 2015, the largest annual profit ever generated from a company’s operations. Despite its consistent financial performance year over year, Apple’s robust profit margin hides a more complicated set of business ethics. Similar to many products sold in the U.S., Apple does not manufacture most its goods domestically. Most of the component sourcing and factory production is done overseas in conditions that critics have argued are dangerous to workers and harmful to the environment.

For example, tin is a major component in Apple’s products and much of it is sourced in Indonesia. Although there are mines that source tin ethically, there are also many that do not. One study found workers—many of them children—working in unsafe conditions, digging tin out by hand in mines prone to landslides that could bury workers alive. About 70% of the tin used in electronic devices such as smartphones and tablets comes from these more dangerous, small-scale mines. An investigation by the BBC revealed how perilous these working conditions can be. In interviews with miners, a 12-year-old working at the bottom of a 70-foot cliff of sand said: “I worry about landslides. The earth slipping from up there to the bottom. It could happen.”

Apple defends its practices by saying it only has so much control over monitoring and regulating its component sources. The company justifies its sourcing practices by saying that it is a complex process, with tens of thousands of miners selling tin, many of them through middle-men. In a statement to the BBC, Apple said “the simplest course of action would be for Apple to unilaterally refuse any tin from Indonesian mines. That would be easy for us to do and would certainly shield us from criticism. But that would also be the lazy and cowardly path, since it would do nothing to improve the situation. We have chosen to stay engaged and attempt to drive changes on the ground.”

In an effort for greater transparency, Apple has released annual reports detailing their work with suppliers and labor practices. While more recent investigations have shown some improvements to suppliers’ working conditions, Apple continues to face criticism as consumer demand for iPhones and other products continues to grow.

Discussion Questions

1. Do you think Apple should be responsible for ethical lapses made by individuals further down its supply chain? Why or why not?

2. Should Apple continue to work with the suppliers in an effort to change practices, or should they stop working with every supplier, even the conscientious ones, to make sure no “bad apples” are getting through? Explain your reasoning.

3. Do you think consumers should be expected to take into account the ethical track record of companies when making purchases? Why or why not?

4. Can you think of other products or brands that rely on ethically questionable business practices? Do you think consumers are turned off by their track record or are they largely indifferent to it? Explain.

5. Would knowing that a product was produced under ethically questionable conditions affect your decision to purchase it? Explain with examples.

6. If you were part of a third-party regulating body, how would you deal with ethically questionable business practices of multinational corporations like Apple? Would you feel obligated to do something, or do you think the solution rests with the companies themselves? Explain your reasoning.

Related Videos

Ethical Fading

Ethical fading occurs when we are so focused on other aspects of a decision that its ethical dimensions fade from view.

Bibliography

Apple ‘failing to protect Chinese factory workers’ http://www.bbc.com/news/business-30532463

How Apple could make a $53 billion profit this year http://money.cnn.com/2015/07/17/technology/apple-earnings-2015/

Global Apple iPhone sales from 3rd quarter 2007 to 2nd quarter 2016 (in million units) http://www.statista.com/statistics/263401/global-apple-iphone-sales-since-3rd-quarter-2007/

Despite successes, labor violations still haunt Apple http://www.theverge.com/2015/2/12/8024895/apple-slave-labor-working-conditions-2015

Reports – Supplier Responsibility – Apple https://www.apple.com/supplier-responsibility/progress-report/

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Apple knew a supplier was using child labor but took 3 years to fully cut ties, despite the company's promises to hold itself to the 'highest standards,' report says

• Apple discovered that Suyin Electronics, one of its Chinese-based suppliers, relied on child labor on multiple occasions, but still took three years to fully cut ties, The Information reported on Thursday.
• Ten former members of Apple's supplier responsibility team told The Information the company has refused or has been slow to stop doing business with suppliers that repeatedly violate its labor policies when doing so would hurt its profits. 
• Apple has faced intense criticism recently amid reports that it relies on forced Uyghur labor and protests over poor working conditions and wage theft by workers that make its products.
• Visit Business Insider's homepage for more stories .

Apple is back under the spotlight over labor conditions in its supply chain following an explosive report from The Information on Thursday that revealed new details about the company's reluctance to cut ties with suppliers who violate its ethics policies.

According to the report, Apple learned in 2013 that Suyin Electronics, a China-based company that (at the time) made parts for its MacBooks, was employing underage workers, and despite telling Suyin to address the issue or risk losing business, Apple discovered additional workers as young as 14 years old during an audit just three months later.

But rather than immediately cutting ties with Suyin for violating its supply chain ethics policies — which prohibit child labor and which Apple claims are the "highest standards"  — Apple continued to rely on the company for more than three years, according to The Information.

Apple did not respond to a request for comment on this story. Suyin could not be reached for comment.

Ten former members of Apple's supplier responsibility team told The Information that Suyin wasn't an isolated incident, and that Apple had refused or was slow to stop doing business with suppliers that had repeatedly violated labor laws or failed to improve workplace safety when it would have cut into its profits.

Apple similarly refused to cut ties with Biel Crystal, one of its two suppliers of glass iPhone screens — despite a consistently poor workplace safety record, Apple employees' own concerns, and Biel executives explicitly admitting that improving safety wasn't worth it because doing so had actually led to less business from Apple — because cutting ties would have left Apple with less financial leverage over its remaining supplier, Lens Technology, according to The Information.

Related stories

Biel did not respond to a request for comment.

In an illustration of just how intertwined Apple has become with unethical labor practices, The Washington Post reported earlier this week that Lens Technology itself relies on forced labor from thousands of Uyghurs that the Chinese government has displaced from their homes in Xinjiang.

While US lawmakers have proposed legislation aimed on curbing American companies' ability to use forced Uyghur labor, Apple sought to weaken the bill, The New York Times reported last month. (Apple took issue with that claim, telling The Times that it "did not lobby against" the bill but rather had "constructive discussions" with congressional staffers).

Apple has long been criticized over the labor practices of its suppliers , particularly in China but increasingly in other countries including India, where workers at an iPhone factory rioted after accusing management of withholding their pay.

In November, Apple was also forced to cut ties with its second-largest iPhone manufacturer , Pegatron, after discovering the company had violated labor laws by relying on "student workers" who were in practice doing work that had nothing to do with their degrees.

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Apple Inc.’s Offshore Management and Labor Rights Dissertation

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Executive summary

Major global companies such as Apple have lately been criticized for engaging with offshore or outsourced suppliers that have been found to be involved in mistreating their workers as well as engaging in work-related malpractices. The outsourced companies have been accused of intimidation as well as other labour rights violations against their workers. The other major global corporations, such as Nike and Reebok, have e also faced similar accusations previously. Indeed, Apples outsourced factories have been accused of engaging in sweatshop operations where employees often work under excessive long hours or overtime, sub-minimum wages and abusive management.

As a result, the company brand image has been negatively dented and is associated with labour malpractices. Most significantly, the company sales volume around the globe has drastically reduced, so make its profits. Moreover, the company competitors have also taken advantage of its afflictions to introduce their products in the global market place and increase their sales.

Therefore, the purpose of this dissertation is to identify and discuss the mechanisms through which these global corporations, in particular, Apple might implement to reduce the negative association with these offshore suppliers and improve the working conditions as well as the welfare of their workers. Most importantly, is to improve the corporation brand image constantly being eroded by these criticisms. Moreover, the dissertation is aimed at providing practical recommendations to Apple management regarding the management of the off-shore suppliers in order to reduce the incidences of violations of labour rights.

Introduction

Since time immemorial, firms have presented poor working conditions to the employees. The employees have done nothing in regard to these working conditions. Strikes have been called for when a tragedy occurs but have been called off before any impact is made. This is what happened in the United States during the Industrial Revolution as well as at the end of the 20 th Century. The poor working conditions are no longer experienced in the United States, apart from the agriculture sector. However, in the poor third world countries, the poor working conditions are still being experienced everywhere. Large firms have now transferred their factories from The United States in order to avoid the strict employment regulations within the country.

These firms are seeking cheap labour from such third world countries as Taiwan, China, South Korea and Vietnam. These firms will reap cost-saving benefits from these countries as they are offered cheap labour and offering high-cost products. To their surprise, the public has been awakened by the media leading to their downfall for such malpractices. Apple has not escaped the criticism either. This dissertation explores the situation in Apple’s offshore suppliers and their exploitation of employees to fetch higher profits. The dissertation explores how Apple has engaged off-shore suppliers who treat their workers poorly. It recommends mechanisms that can be implemented in order to improve the working conditions of workers as well as avoid improve the public image in regards to association with off-shore suppliers.

Dissertation Objectives

This dissertation objectively aims to:

• Analyze the poor treatment of workers that Apple’s offshore suppliers engage in
• Identify previous recommendations or efforts that Apple has made in regard to the violation of labour rights by off-shore suppliers.
• Identify mechanisms that Apple can adopt in order to improve its associations with off-shore supplier engaging in these malpractices.
• Formulate recommendations that will enable Apple to manage off-shore suppliers to reduce the violation of labour rights

Literature review on labour rights violations

Off-shoring, equally dubbed as off-shore outsourcing is a prevalent phrase used in describing a common practice amongst corporations that are situated within the United States that tend to contract with business enterprises located beyond the United States. The aim of outsourcing is to make such companies perform services which might have otherwise been performed by the in house workers who occupy white-collar jobs such as the designers of computer systems. Similarly, the term as been used in most of the United States companies that off-shore blue-collar workers jobs in auto assembly lines and textile. This implies that off-shoring has occurred for a longer period of time. However, by extending off-shore services from the manufacturers to the suppliers or service providers, companies have constantly faced heightening public policy concerns. For instance, in the U.S., workers encountered forgone employment opportunities and job losses.

Besides, despite the greater demand for employment opportunities, companies that adopt off-shore outsourcing as their business strategies have encountered numerous criticisms from both the public as well as the media. Most of these criticisms relate to the violation of labour laws which include minimum wages, poor working condition, few free working hours, abusive management, excessively long working hours and underage employment. Scholars have summed all these under sweatshop operations. For the United States policymakers, the utilization of sweatshops labours has been a major concern. Even though sweatshops are commonly found in foreign countries, researches indicate that U.S. based corporations that outsource services to off-shore suppliers have been significantly impacted by the vice.

In the off-shore outsourcing context, however, the issue of violating labour laws and regulations has been eminent. This is depicted in the form of forced overtime as well as unhealthy and hazardous working conditions. According to Lee et al. (2007), the number of suitable working hours is largely determined through state accords. Nearly every state has its own national laws which dictate the minimum period for resting and the maximum number of hours that an employee should work per week. The laws limit the maximum consecutive number of hours that an employee might aim to meet. Therefore, reliant on the state, working time might considerably differ based on a number of factors linked to the expectations and needs of both the employees and employers.

The recommended work hours

Before the establishment of ILO, the global working classes considerably demanded 48 hours per week, implying eight hours a day. The generalized application and extension of the eight hours a day to the workers represented a kind of transformation that no other reform could match in value. It offered the workers some spare time to share concepts, ideas and unite with the families. In general, it safeguarded the well being and health of the employees given that overlong working hours proved to be detrimental to the moral and material welfare of the employees as well as to the economic efficiency. The ILO industrial work hours’ convention number one of 1919 predetermined the principle of 48 hours per week and 8 hours daily not excluded the overtime hours. Based on Lee et al. (2007) claim, initially the convention intended to limit the hours of work in the manufacturing sector by restraining the overtime hours.

Basically, the establishment of the initial 48 hours week standard emanated to be very significant as it reinforced safety and health rights of workers. Empirically it has been proved that over fifty hours work week is harmful to the health of workers (Spurgeon, 2003). Adequate non-work or leisure time has been accepted to be essential for workers well-being. The underlying principle remained an integral component of various national policies which aims at maintaining work time within such limits. Thus, according to recent research conducted by ILO, long working hours, as witnessed in off-shore outsourcing, can be defined in three different ways:

• Hours which exceed those that employees wish or desire to work
• Hours that exceed the maximum work hours afar which negative consequences on the employees are very apparent including crucial safety and health effects
• Work hours that exceed standard legal hours which determine the socially suitable work time levels

The ILO work hours’ reduction recommendation article 16 of 1962 asserts that overtime denotes every hour that is worked above the usual hours (Spurgeon, 2003). Given that off-shore suppliers violate labour regulations, this dissertation follows ILO overtime definition to assert hours which are worked above the statutory normal hours that establish the socially suitable level.

Excessive overtime

Scholars have tried to ascertain what is meant by the phrase excessive overtime. The term is believed to identify not just the work hours that exceed the national statutory regulations defined maximum work time hours or the relevant international standard working time, but similarly the work hours which seem to contain negative upshot s on the employees. The workers issue as regards to the exposure to potential safety and health risks concerning long working hours materializes as the main point which distinguishes overtime from excessive overtime.

The 1933 Working Time Directive of the European Union asserts that enhancement or improvement of the health, hygiene and safety of the workers at workplaces is a goal that ought not to be subordinated entirely to the economic concerns. Spurgeon (2003) claims that even though the accruing risks might vary based on the way the hours appear to be structured, the characteristics of individuals and the nature of work, strong evidences have been given showing that workers are exposed to potential health risks if they work for over 48 to 50 hours weekly. This dissertation will further explore these issues by giving relevant and real-life examples or cases.

The excessive and forced overtime problem, particularly in the offshore supply chain as depicted in the electronics and garment production industries has been a protracted topic of concern. The problem which emanate in form of the violation of labour regulations and employees rights has persisted with little inquiry on the causal dynamics as well as little proposals for targeted solutions or remedies. Therefore, there is the crave for investigating the contemporary approaches to the overtime problem as well as its ensuing impacts so as to device innovative and novel methods that could be used to overcome the labour and workers rights and regulations violation in the offshore supply chain.

Overtime Rationale

In the developing countries, it is a common practice to expect workers in the manufacturing industries to work excessive overtime (Dawson et al., 2004). In China for instance, a survey that was carried out by an autonomous non-profit making organization called Verite in the fiscal 2004 which monitors the abuses of international labour rights in the offshore supply chains and production sites found worrying results. In fact, the investigation results depicted that out of the 142 Chinese supplier factories, over 93% reportedly practiced ‘excessive overtime’ from the fiscal 2002 to 2003. A similar case was reported in Indonesia. In the latter country, inside the PT Dae Joo Leoports Factory, workers were obliged to work a minimum overtime of two hours daily. They often finished the assigned task very late in the night so as to accomplish the universal buyers’ production deadlines. Most employees reported that the managers pressurized them to work during night shifts and do overtime. A report by the Workers Rights Consortium (2003) showed that any worker who complained was penalized.

Literature reveals that, from the perspective of employers, there is an incessant pressure on most offshore suppliers and companies to increase products and service quality while cut down the operation costs in order to maximize the fixed capitals. This in turn results into reduced numbers of workers and increased operational hours to generate the requisite quantity of output. The corporations and their allied offshore suppliers are required to deliver several commodities to different clients to meet the needs of different groups of customers. However, some of the placed demands are in comparatively small volumes but are intended to meet the cultural diversities of global buyers. Besides, fluctuations in orders placed by buyers might give rise to unpredictable peak seasons. The offshore supplying companies’ management could endeavor meeting such tight deadlines that various universal buyers impose by frequently creating overtime for the workers (JICAWR, 2005).

According to ILO (2009) report, from the perspective of workers, most employees from the developing countries wish to voluntarily or freely work overtime given that they earn low hourly wages. This implies that, insufficient employment which involves insufficient earnings is correlated to the excessive work hours (Lee et al., 2007). Better Factories Cambodia carried out a research which showed that workers claimed that shorter work-weeks, reduced working hours as well as no overtime resulted into universal economic hardships during crisis. Kang and Dannet (2010) assert that the reason was attributed to the fact that their low salaries were not enough to sufficiently meet the budgeted basic needs. In Philippines, Mehran (2005) conversely reported that over 90% of the employees work beyond the normal forty eight hours a week so as to earn more.

Verite (2004) reported that in China, 53% of employees who work in the garment industry affirmed that the primary motivation to work overtime is extra income. However, 36% of the employees stated that overtime was compulsory while 5% claimed that they worked overtime to finish their quota or to avoid punishments. Furthermore, in China whereas employees hardly opt to labor excessive hours, they prefer working longer hours as compared to the limits of works that the Chinese National Law sets so as augment their wages. To enforce the work hours as the legal limits set would imply that the hourly wages of the employees would considerably decline (Foster & Harney, 2005).

The root causes of Work overtime

In the offshore supply chains and industries, it is not the management decisions that make workers to work overtime. In fact, delays are usually encountered in the supply chains with respect to the acquisition of materials or the unskilled workers low productivity level which necessitates overtime. Besides, some buyers when faced with the last minute changes in style tend to shun tackling the issue of overtime to have their placed orders eventually shipped in. Stoop (2005) claims that this may be aggravated by lack of collaboration amid the production departments, auditing departments and the buying companies.

The incidences of overtime which results into the violation of labor laws and workers rights can be attributed to quite a number of causative factors including:

• The countries diverse working cultures
• Low skilled employees which give rise to low productivities
• Bad planning or overbooking by the vendors of the corporations
• Quality problems which results in reworking the products
• Inadequate capacity to adapt to order fluctuations during low and high seasons
• Emergency productions
• Supply chain delays including short lead times particularly in reorders, last minute alterations in styles and late materials arrivals

Causes of emergency productions

From Verite (2004) report, emergency productions accrue due to quality problems, customs or transportation problems, power outages, equipment and communication problems as well as delays in raw materials receipts. Last minute market demands production requirements can as well cause emergency productions which lead to the violation of labour regulations and workers rights by the offshore suppliers.

The causes of overtime including short lead time, lack of future orders security and last minute changes in style habitually instigate from and are deeply rooted in the buyers working practices. Verite (2004) suggested that one solution to this eminent problem could be for the outsourcing corporations and buyers to change their buying practices. Nevertheless, the factory managers in the offshore supply chains equally have some overtime responsibilities. For example, overbooking emanates to be a usual occurrence in offshore supply chain companies. Offshore suppliers can partly solve this problem via arranging for well paid overtimes and partly thru subcontracting. The offshore successful supplying companies have a problem related to the fact that they are never sure with the consistency of order flows. Thus, they generally hesitate in the capacity expansion investments. Given that the excessive overtime costs are normally underestimated, the offshore supply chain management ought to device systems that might assist in the calculation of orders benefits and costs. Such systems could enable them to avoid overbooking and decline less profitable orders.

The need for overtime

The violation of labour laws and regulations in offshore supply chains are found to anchor on the issue of forced and voluntary overtime, child labour, low wages and few free times. Various surveys have examined the quantity of time the workers will require to work overtime. Verite (2004) asserts that crave for overtime working hours significantly varies reliant on the social, physical and economic perspectives.

From the financial and economic view point, most employees strongly wish for overtime. In reality, report by Verite (2004) indicates that over 40% of the survey participants avowed that they would wish to work a range of 15 to 20 overtime working hours a week. The majority of the respondents however reported that they would wish not to extend their respective work hours above sixty (60) working hours a week.

The physical well being is similarly an essential facet that should be taken into consideration when deliberating on the issue of overtime. When the physical needs of the workers are taken into consideration, most workers are reported to desire to work below twenty hours overtime a week. Actually, quite a number of workers are reported to have said that they would want to work between five hours and zero spare work hours. Very few offshore supply chain workers showed some interests in working beyond twenty overtime hours a week.

The family relationship and the social aspect is also an imperative facet that should be considered when making overtime decisions. Over 50% of the workers who argue from the social perspective say that they would wish to work less than 5 hours weekly overtime. Just a small number of workers are open to working beyond weekly overtime of five hours. The study actually proved an essential step that outsourcing companies should consider when engaging offshore suppliers in the business operations. For instance, when a corporation is bound to outsource its services, there is the need to ensure that the preferred number of employees overtime hours are put into consideration while negotiating with buyers and employers and setting up novel working schedules in the offshore supplying companies. There should be a clear demarcation between compulsory and voluntary overtime that company’s team management sets.

In the manufacturing offshore supplying industries, overtime is deemed as a problematic and significant issue. This is particularly true in the offshore supply chains situations where greater efforts are needed for the improvements. Recently, various corporations that outsource their services to offshore suppliers have come under immense criticisms and mounting pressure from various interest groups and a wide range of stake holders. The partaking business entities are required by such interest groups to deal with worrying trends of diminishing labour standards within the universal offshore supply chains (Dowson, Hetmann & Kerin, 2004). Of great essence is working excessively for longer hours without breaks in the offshore supply chains which depict labour laws and regulations non-compliance in such companies. Therefore, there is the demand for further investigation on this issue so as to offer practical recommendations and measures to improve on the workers employment conditions.

Overtime impacts on workers safety and health

Impacts of long working hours on the health of workers.

Various evidences have been offered to show how long working hours are detrimental to the psychological well being, longevity and health of workers. Studies by White (1987), Spurgeon (2003) and Kerin (2003) showed that work hazards including repetitive motions, noise and chemicals affect the well being and health of workers indirectly. The studies further showed that overtime indirectly results into stress and fatigue related diseases whereas workers health are directed affected by excess overtime. Scores of studies tend to classify the long working hours effects as either long term or short term. The long term effects of long working hours in the offshore supply chains entail cardiovascular diseases such strokes and heart attacks, disability retirement, as well as musculoskeletal disorders (Verite, 2004). On the other hand the short term effects consist of high blood pressure, sleeping problems, fatigue and accidents or injuries.

The following conclusions were drawn by Spurgeon (2003).

• Long working hours might result into musculoskeletal disorders and pre-term birth in workers
• Long working hours are correlated to increased health threatening coping behaviours and somatic symptoms including irregular and poor diet as well as increased smoking
• Regularly working beyond 50 hours a week or even above 60 hours a week seems to increase the cardiovascular disease risks
• Regular work above 48hours a week constitutes considerable occupational stress that increases the mental health problems risks and reduces job satisfaction

With respect to physical health, employees who work for longer hours frequently complain of fatigue. Even though the fatigue concept is extremely difficult to gauge, NIOSH (National Health for Occupational Safety and Health) report asserts that overtime as depicted in the offshore supply chains causes stern fatigue problems in 15.41% of the employees working more overtimes (Dawson, Heitmann & Kerin, 2004). A research conducted by Verite (2004) to determine the correlation amid fatigue and extended overtime amongst Chinese garment industrial workers showed that employees stated increased exhaustion subsequent to working overtime hours ranging from 2.5 hours to 3.5 hours daily for a month. Out of the total respondents, 18% indicated that they had eye strains, 9% indicated that they depressive or sadness feelings and 8% had back problems. Besides, 25% of the offshore supply chain industrial workers claim that long hours at work causes increased health and medical problems. Workers tiredness hence increases with increments in the number of daily overtime hours.

In the physical health realm, considerable evidences indicate strong positive correlations between cardiovascular disease risks and long working hours. A study carried out by Uehata (1991) in the Japan’s karoshi (death from overwork) where seven women and one hundred and ninety six men suffered from fatal cardiovascular attacks showed a positive correlation between the amount of work time and the illnesses. From those who die from the karoshi, two thirds are reported to have toiled for over sixty hours weekly or over fifty hours of overtime monthly (Verité, 2004).

Often, long hours of work are cited to be a considerable cause of workers tress. However, occupational stress as depicted by the offshore supply chain workers might cause negative behavioral patterns namely poor irregular diet, alcohol consumption, smoking and cognitive difficulties including loss of concentration and poor memory. Long working hours as stipulated by Spurgeon (2003) are further associated with exhaustion, insomnia, nausea and headaches. For instance a study conducted by Maruyama and Morimoto (1996) on the length of time that Japanese middle managers worked showed those who worked for longer hours had poor lifestyles typified by irregular sleeping patterns, meals and daily life.

Overtime health complaints and financial compensation

A correlation seems to exist between offshore supply chain workers health and overtime compensation. An investigative study on the relationship amid rewards such as career opportunities, job security as well as salary and work overtime found that intimidation and high value rewards together with continuous pressure to work overtime causes threefold boost in somatic complaints. This is in comparison with low work overtime pressure combined with higher reward values (Van der Hulst & Geurts, 2001). Another research study conducted by Siu and Donald (1995) to determine the correlation amid offshore supply chain and garment workers payments and overtime found that Hong-Kong men receiving no payments for the toiled overtimes had numerous health grievances in comparison with other male workers receiving some payments for overtime work.

Prolonged contact with noxious chemicals

An interview conducted by Verite (2004) to legal and medical experts at local southern China institutions to collect data on the effects of protracted exposure to noxious chemicals and long working hours showed some positive results. In fact, the study established that there are serious and immediate effects on the health of workers which result into some cases of death or even prolonged hospitalization. The report incorporated nerve damages amongst electronics and shoes workers who are immensely exposed to a chemical such as n-hexane. There were cases of miscarriages amongst pregnant women employees who had close exposure to benzene. Shoe industrial unit workers exposed to glue felt paralyzed and numbness in their feet and hands. Garment workers who had long time exposure to dimethylformamide were sick, had jaundice and vomited while high blood pressure was common amongst workers who toiled for longer hours without breaks. Within a time span of 14 and 15 work days hours, two workers were reported to have suddenly died in a shoe plant.

Long working hours, frequent workers intimidation, little or no payments coupled with less free working time have been proved to have negative effects on the mental health of the offshore supply chain employees. ILO carried out a research study on the effects of long hours of work. The results depicted that working for more than eight hours daily might cause higher tress levels and mental health problems (Spurgeon, 2003). Similar to fatigue however, stress as commonly witnessed in the offshore supply chains materializes to be a difficult concept to measure and define. Forced overtime and workers intimidation in many cases tend to be linked with unmanaged workloads. Thus, it becomes extremely intricate to separate the stress associated with long hours of work from any other source of pressure.

Mental disorders in the offshore supply chains are commonly caused by depressions. Sanderson and Andrews (2006) asserts that depressed offshore supply chain workers have considerable cases of reduced work productivities and increased absenteeism. In the fiscal 1990s, Greenberg et al., (1993) conducted a study in the United States which showed that the annual depression cost in terms of reduced productivity and work loss that was passed to the employing corporations was approximately $43.70 billion. This implied that, as workers intimidations and work hours increase, the emotional stability of workers decreased, sadness or depression rises and low work spirits crops in. In essence, after employees have worked for 3.5 hours of forced overtime daily for a period of one month, workers reported increased incidences of low spirits or low morale.

Workers intimidations, low or no payments, child labour and forced overtime as seen in the offshore supply chain could lead to a major mental disorder known as bipolar disorder which accrues due to low morale and excessive overtime. A study by Kesseler et al., (1994) showed that workers suffering from bipolar disorders tend to lose sixty and half work days in comparison with twenty work days that are lost by workers due to major depressive disorder. Another research led by Americans established that employees suffering from bipolar disorders have considerably long term disability absences, short term disability and greater sick leaves in comparison with workers lacking bipolar disorders (Gardner et al., 2006).

Reports and various research studies indicate that the most stern effects of forced or voluntarily long working hours without payments coupled with workers intimidation accrue in form of suicides and sudden deaths. For instance, a report filed by the Japanese National Policy Agency (JNPA) showed that in the financial year 1991, the total number of industrial workers who committed suicide was 922. In the fiscal 1996, the number industrial suicides increased to 1,257. A multiple number of factors are established to be behind such death incidents. In karoshi cases, even though no suggestions were made to relate the death incidents to forced labour and voluntary long working hours without rest, it is undoubted that a significant factor that led to such sudden deaths was occupational stress. Work related sudden deaths and suicides equally seem to characterize the spectrum end of the psychological harms that might emanate from intimidations and excessive work demands (Spurgeon, 2003).

Effects of workers intimidation and forced excessive overtime on workers health

The research results on a study conducted by Ezoe and Morimoto (1994) established that when Japan offshore supply chain factory workers are given or forced to undertake extra works that were just extensions of the routine productions, risks associated with mental health problems increased. On the other hand, research study by Maruyama and Morimoto (1996) proved that offshore supply chain workers occupying the managerial professional job positions that are intrinsically exposed to more than ten works hours daily with significant general strain are likely to report lower qualities of life and high levels of stress. In German and UK cases, it is evidenced that if healthcare workers such as nurses and doctors are forced to work longer hours without rest and with low remuneration packages, they are likely to develop mental health problems and high stress (Houston & Allt, 1997; Kirkaldy et al., 1997).

From the above cases, it should be noted that workers intimidation, forced overtime with little or no payments, child labor and long term exposure to poisonous chemicals ought to be avoided in the offshore supply chain industries where work seems to be highly stressful either mentally or physically. To realize this, offshore supply chain industry managements should avoid continuous scheduling of employees. In fact, there must be a clearly implemented strategic system for rotating employees instead of limiting excessive overtimes with little payments and more intimidations to certain workers only. Moreover, workers in the offshore supply chain industries ought to be consulted by the U.S. based outsourcing concerning their work time, any form of intimidations and forced overtime without pays as well as irregular or unpredictable working hours especially where such factors seem to be above the control of the workers (Spurgeon, 2003).

The impacts of forced long hours of work and intimidation on the safety of workers

Numerous evidences have been proffered showing that offshore supply chain industrial workers working for long effective hours with little or no payments but with increased intimidation experience increased accidents rates and poorer performances. This is because of the strong correlation amid fatigue and working time (Harrington, 2001). Further studies reveal that there is an association between rates of workplaces accidents and the amount of time worked. A report by Hanecke et al. (1998) indicated that out of the documented 1.2 million workplaces accidents reported in the fiscal 1994, most of them occurred in the evening and more often after the 9 th work hour. Between the ninth and twelfth work hours, workers tend to have declines in vigilance, lower cognitive functions, increased fatigue and decreased alertness feelings which result into increased rates of injuries. For instance, report on Hong Kong machine operators hand injuries depicted that workers who toiled for averagely elevens hours daily without rest encountered the highest hand injury rates.

Most workplace accidents take place either indirectly or directly due to errors made by human beings. According to the assertions made by Spurgeon (2003), such industrial accident incidences are closely associated with the biological cycles. Froberg (1977) added to this by establishing the correlation amid workers performance and body temperature. Increase in workers alertness occurs when the body temperature rise and this increases the levels of performances. The reverse is also true.

The impacts of forced long hours of work on the social lives of employees

Long hours of work coupled with intense intimidation and little or no payment as often occurs in the offshore supply chain industries have proved to have some detrimental effects on the family and social lives of the workers. In many culture for instance, family dinner is perceived as the solitary every day occasion which permits a consequential family togetherness. Therefore, parents who are bound to work forced or voluntary long hours under intimidation hardly get time to participate in such a unifying occasion. Childcare arrangements in addition need to be properly planned so as to accommodate the parents working schedules. It is nevertheless very difficult for women who are engaged in forced night shifts and voluntary overtimes to accomplish their dual reproductive and productive roles together with the typical greater domestic obligations.

In most offshore supply chain industries, quite a number of the workers are women having greater domestic obligations and elder or childcare responsibilities. It is reported that forced long working hours without rest does not permit female workers adequate time to spend time with their families and perform their domestic responsibilities. Women holding senior managerial positions and are therefore forced to work for more than fifty hours weekly tend to face difficulties in their family affairs. Most offshore supply chain female managers claim that their respective family lives are suffering a great deal while a considerable 25% have the feelings that their marital associations are greatly threatened. A corresponding study by Spurgeon (2003) reported that women occupying senior less positions and do not face work intimidations as well as forced overtime are less concerned with their family lives risks.

Forced overtime, workers intimidation, low remuneration packages and labour productivity

Workers intimidation, low remuneration packages and forced or voluntary overtimes do not merely lead to negative health effects on workers and generate high workers dissatisfactions along with increased accidents rates, but also related closely to workers efficiencies (Hurst et al., 2005). Basically, in the offshore supply chain industries, workers’ productivity is measured through the per hour total pieces per worker. Researches reveal that there is a correlation between labour productivity and the worked overtime. This implies that, there is a direct relationship amid forced or voluntary overtime and productivity. However, provided workers can perform similar quantity of work due to improved productivity, the issue of working extra time will be a thing of the past.

Spurgeon (2003) found that workers intimidation, poor working conditions and forced excessive overtimes in the offshore industries could lead to workers dissatisfactions, high accidents rates, reduced efficiencies and poor workers health which in turn give rise to high employees’ turnover. Despite the positive relationship, some studies have shown that workers intimidation, low payments and forced overtime hardly increases the proportion of the total outputs. In some instances, offshore companies that extend the hours of work with low or no payments experience absolute reductions in the levels of outputs in the long-rung periods (White, 1987). Thus, forced excessive overtime, workers intimidation and poor work conditions only reflects on the linkage that exists between offshore supply chains labour productivity and occupational safety and health.

At work, safety and health are greatly affected by the levels of forced or voluntary overtime. Studies by Kerin (2003) and Spurgeon (2003) found a positive correlation amid higher incidences of repetitive strain injuries, on job injuries, high blood pressure and high cardiovascular disease incidences which occur as a result of poor occupational safety and health conditions and forced overtime. Forced overtime in the supply chains cause increments in the rates of workers sicknesses and absenteeism. This consequently significantly impacts on production scheduling and planning as well as workers productivities. While explaining the correlations amid offshore supply chain companies’ profits, productivities along with workers safety and health, O’Donnell (2000, p.215) stated that the performances of workers are high only if the employees are emotionally and physically able to effectively work by showing crave of working.

O’Donnell (2000, p.216) in his study model showed that safety and health improvement programmes play significant roles towards the improvement of the psychological and physical well-being of employees. This in turn reduces presenteeism and absenteeism, the former being a situation where the worker is really at work yet the mind is not set to work. To reduce workers absenteeism, offshore supply corporations must promote healthy working conditions in order to prevent diseases. Similarly, offshore supply chain corporations should help in the management of the workers chronic and acute health problems to improve on the employees’ motivations, creativity, and performance which overall increases productivity. If offshore supply chain corporations offer good environmental safety and health conditions, there are chances that the rate of accidents will decrease thereby reducing the cost of catering for the injuries and accidents. Besides, offshore supply chain corporations need to promote corporate culture on health (Kirkcaldy, Trimpo & Cooper, 1997).

The costs of forced long hours of work, workers intimidation and poor work conditions

From the offshore supply chain employers, there are various disadvantages which are tied to forced overtime, workers intimidation, poor working environment and long hours of work without rest. For instance, forced overtimes entail extra costs that are settled at premium amounts. Workers often concentrate on the amount of time they spend instead of giving attention to the achieved outputs. The motivation for workers to do their jobs is reduced due to increased cases of accidents, stress, sicknesses and tiredness. To reduce incidences of negative media and public criticisms, offshore supply chain industries should take the following decisive measures:

• Minimize the need for workers intimidation and overtime when trying to meet the customers’ demands
• Increase productivity during the normal work hours
• Review operations and policies to ensure that no excessive overtime and workers intimidation is encouraged
• Appropriate number of employees should be hired to accomplish yearly, monthly, weekly and daily placed demands
• Train and encourage workers to promote a corporate culture of better and conducive work environment

Analysis and discussions

A lot of overseas suppliers have been found to have sweatshop working conditions. Sweatshop is a term used to refer to labor violations and is characterized by three elements; poor pay, unhealthy working conditions and long working hours. These sweatshops hinder workers from enjoying their freedom as well as expressing their needs. Although the malpractice is in the agricultural and garment industries, Apple has been accused of relating with suppliers with such working conditions. Apple received allegations that one of its products- iPod was manufactured in China under sweetshop conditions.

Foxconn, an off shore supplier of Apple owned by Hon Hai, came under fire for unusual suicides among its employees. The firm is the world’s leading producer of electronic products for such companies as Apple, Nokia and Dell. An investigation by university students from Taiwan, Hong Kong and China revealed that, the company employs 900,000 laborers aged 16-24. Majority of these laborers are student interns from technical schools who seek employment during summer holidays (Guardian, 2010). These students work for up to two years earning 1200 yuan ($ US 180) per month. Nine suicides were committed in the dormitory adjacent to the factory where most of these workers lived. These workers jumped from the factory buildings due to humiliating working conditions and abusive language used by the management.

To curb these suicides, the management covered the premises with suicide nets which prevent stressed workers from jumping into their deaths. The laborers are also expected to sign a “no suicide” pledge. Foxconn has a “Destress Room” for the stressed workers. These are found within “Soul Harbour Studio” which offers counseling services to the workers. The Destress Room on the other hand has punching dolls which a laborer can punch to vent his anger out. Earlier the management had appointed Buddhist Monks who blessed the laborers. They had also provided a hotline which the laborers used to ask for help. But even with all these measures the workers went on committing suicides. April this year, a worker jumped from the top of the dormitory killing himself. Recently (in June) another worker, (Xie) jumped from the roof of a dormitory. Claims were made that the police had asked his colleagues to clear the evidence. This shows how the management has succeeded in winning the police into their authoritative and harsh style of management (Guardian, 2010).

Foxconn was also accused of hiring underage students but hid them during the audit process by the Fair Labor Association. Some of these students were from the university. Foxconn partnered with a local university to offer internship as a compulsory curriculum, in June this year. The students were promised a monthly wage of 1550 Yuan (US$ 243). This translates to 705 Yuan (US$ 118) after the deduction of such expenses as food, travel and accommodation. The However, the students complained that they learnt simple tasks meant for high school students such as shaving the rim of a phone. Two explosions from aluminum dust were experienced in the factory due to brushing of iPads and iPhones (Lee, 2007). One of the explosions occurred in Chengdu facility as a result of poor ventilation in the factory. Four workers were killed and 18 of them were injured. The workers work for six or seven days standing in poorly ventilated factories (Guardian, 2010). One has to drop something on the ground so as to bend while picking it up. This is the only way a worker can get a break from the long hours of standing. When asked, Apple argued that they were carrying out investigations regarding the matter.

According to Guardian (2010) 73.3% of Foxconn’s workers work for 10 hours a day. Foxconn breaches the labor laws by allowing an average of 83.2 hours a month instead of the official 36 hours. The most affected are the students. The laborers are given unrealistic targets which force them to work for unpaid overtime. The production time has been reduced and high output expected from the workers corresponding to the few working hours. Due to unrealistic targets, the laborers are always under pressure. As a result, 47.9% of the laborers suffered mental stress, 24.1% of the female laborers had irregular menstruation periods while 12.7% of the laborers suffered fainting spells.

The low pay has forced most of the laborers to live in dormitories. The living conditions in these dormitories are poor too. Each laborer receives a living space of approximately two square metres. The laborers are expected to pay approximately £11 per monthly for this space. Poor quality of food is offered leading to numerous cases of diarrhea. A dish of rice costs fifty pence. These laborers cannot afford the high profile entertainment services; as a result they feel alienated. This alienation of workers has caused stress that has led to the numerous suicidal cases. Workers are only given ten minutes to visit the toilets or bathrooms. To do so, one must sign a certificate. The long queues found in the toilets prevent some of the laborers from using the facility. The laborers are not allowed to laugh, walk, sleep or talk while at the work place. The workers must arrange the chairs neatly and should not cross specific yellow lines. The laborers are also expected to keep their uniforms neat.

A laborer who violates any of these rules calls for not more than 127 punishment ranging from official warning to discharge. This is done in order to make the laborers more committed to their duties. These laborers are only allowed to enter the work premises after numerous checks at the entrance point. Foxconn is a “no go zone”. The security force at the entrance is tight. The police force is not allowed to the premises. If workers ring them their calls are diverted to the security division. The police are allowed to the premises when the workers are rioting to calm them down and disperse them (Guardian, 2010).

In May 2010, fire broke out at Foxconn’s premises, in a computer assembly location. The workers who were injured were treated within the factory. This was to prevent entry of the media into the saga. The media is not allowed into the premises either. This is to protect the reputation of the company that has been messed up with over the years. The fence on the windows prevented the workers from escaping. This reveals the poor environment in the premises that can be hazardous in times of calamity.

There exist hierarchical ranks at Foxconns (Guardian, 2010). Those ranking highly are free to execute both physical and verbal abuse to their juniors. The trade unions do not assist them either. Workers complain to them but they are out to extend the management’s exploitation. They praise the regime’s mistreatment of the laborers. Resignation from Foxconn is a complex process. One has to seek 15 approvals from the top management. The signatories are dictated by the labor requirements of Foxconn. The management is a “Military-style “one which requires the workers to obey their orders in a training camp.

The tasks carried out at Foxconn are monotonous. These tasks include; shearing aluminium from the periphery of the Apple logo or wiping the screens. This can go on for an average of ten hours. The wages earned are too little to pay tax. Some laborers work for 24 hours while others are forced to stand throughout their shifts. The workers receive their pay on the 10 th of every month. This salary is not enough to buy luxuries. The starting salary is so low that these laborers would have to work for two months to afford an iPad. There is only enough to eat. 64% of these workers complained that the amount earned is not enough to meet their basic needs (Guardian, 2010).

Workers at Foxconn admire falling ill so as to get a sick off from work. These workers take advantage of sick leave approvals so as to get some rest. While at work the laborers refer to the trolleys used to pull bulky items as “BMWs”. They cannot afford “BMWs”, but can only dream of one day buying their own “BMWs”. This motivates them to work harder. They don’t dream of owning the gadgets they make. However, the benefits and sick off days are reserved for senior workers. This was according to a student employed in the factory. The seniors are selfish and benefit at the expense of the junior workers. While these juniors work like machines and languish in poverty, they enjoy luxuries and good life. They are resented for this (Guardian, 2010).

The workers treat each other coldly. They are unfriendly to one another. Some of the laborers do not know the names of their roommates. They feel they are of their level and hence no need to be friends. However, Foxconn provides a remedy for this. It gives a reward of $1000 to any laborer who can mention a colleague’s name. This has made these workers interested in knowing their colleagues and eventually formed friendships. They lack people to talk to when they are depressed. Superstition is their character trait as well. If a worker hurts his finger on a machine, some of the workers would think that the machine is cursed and would not use it.

The laborers dream of growing rich one day. To fulfill their dreams, they buy raffle tickets. They also invest in horse-racing gambling. The internet cafes located outside the factories provide a form of entertainment. The miserable male laborers who lack lovers watch online pornography at these cafes.

A report by New York Times showed that, the workers stand for long hours causing swelling of legs. The report further showed that a poisonous chemical substance had caused serious accidents on 137 laborers in Eastern China. This had happened after the workers had been ordered to use the chemical in cleaning iPhone screens. Another report revealed that 100 workers in these offshore shops had been harmed by toxic substances. The report further revealed that, these laborers had had been forced to work for 15 hours a day at a monthly pay of £27. Foxconn is now planning to expand to Pearl River Delta. This was according to a report released by Reuters in October 2010. This is because they feel the cost production is lower in those regions as compared to Shenzhen. Labor wages are much lower and there are more people willing to serve the hard living conditions (Guardian, 2010).

There exist communication gaps. The communication lines are not clear and this brings about poor communication between the workers and their employer. The workers do not have a mechanism to air their views and complaints. The authoritative nature of the management does not allow the workers to speak out and any attempt to do so is faced with brutality. This has made the workers result into such mechanisms as riots. Just recently, the workers rioted from their dormitories over early dismissal from work. They feared they might receive fewer salaries. The workers are not involved in decision making processes of matters concerning them. The early dismissal reveals this clearly.

In April 2012, 20 workers at Shenzhen factory protested from the rooftop over relocation of the factory to Huizhou. This is a city located in Guangdong in the North. The protesters pressed the management to find them employment within Shenzhen or else they lay them off. A few days later, laborers at Taiyuan factory, in Shanxi province went on strike over pay row (Guardian, 2010). This happened because the management had pledged to increase all employees’ pay apart from those at the entry level.

This year, 200 employees at Foxconn were treated to a trip to Taiwan. The management would cater for all the costs involved. The workers received free iPods as a reward for their good work and their hardworking nature. This was a small portion compared to the huge number of workers employed at the factory. This shows how the management is discriminative in carrying out its duties. Only a few out of the huge crowd receive favors. This might invoke resentment among the rest of the workers as they would want to receive the same treatment for the services they give.

Instead of improving the working conditions Foxconn projected to add more 300000 robots, this year. There are already 10000 robots in the factory. The robots would perform the hard tasks such as assembling, welding and spraying that were more risky and tougher. The workers had complained of these routine tasks. The company wants to increase the robots to 1000000 in the next three years.

Foxconn’s president Terry Gou promised to improve the wages and reduce working hours but this never happened as the company was not in a position to concede as their rivals would take advantage of the confusion to poach their clients. The only remedy taken by the management was forcing workers to sign a “No Suicide” pledge. The working conditions that had caused desperation to the point of committing suicide have not changed. Foxconn has now expanded and moved to the inland cities. More workers come seeking employment despite the poor working conditions (Guardian, 2010).

However, Terry Gou is not worried by the poor working conditions at Foxconn. While giving a highlight of the paid trip on a Taiwanese TV program, Gou was featured telling the workers there is nothing wrong with sweatshops. He urged them that sweating and bleeding is necessary for the sake of the future generation. He further said that the workers received what they deserved (Wooden et al., 2009). Foxconn is not the only Apple’s sweatshop. Poor working environment was also found in Suzhou facility. The facility is owned by Wintek, a supplier of Apple. In 2010, an accident occurred at the facility injuring 137 workers after a chemical substance, n-hexane, that cleans the screens of iPhone dried faster than expected.

A gas explosion at Riteng Computer Accessory in Shanghai resulted in injury of 61 laborers. The accident occurred in December 2011, during a trial of aluminium iPad panels. The accident would not have occurred there was proper ventilation at the factory. These poor working conditions seem to go on at Foxconn and other offshore suppliers. The workers have no hope of improving their lifestyles and when their employers enjoy luxuries, expensive gadgets, high profile lifestyle and big titles; they continue languishing in poverty.

Practical measures that have been taken by the company

As mentioned before Apple has to deal with the problem of working conditions such as overtime in their supply chain factories. In most of these supply units, there are unpredictable and uncontrollable requirements for better working conditions. For instance, the amount of overtime per worker depends on the orders that are made and the target quantity that has to be achieved per week (Wooden et al., 2009). Thus, the reports indicated that overtime in most of these supply units is a way through which high quantity orders as well as fluctuations during peak seasons are met.

The reports also indicated that overtime at certain levels can be beneficial to these supply units as well as the major company. Besides meeting the fluctuation demand for the company, employees also have the opportunity of earning extra pay (Li & Zax, 2003). However, in most cases, poor working conditions such improper management of excessive overtime leads to low productivity, fatigue-related injuries and accidents, increased chances of errors, suicides and other social related problems that could ultimately damage the brand image of the company. The company has put in place measures that must be undertaken by the supply chain factories in order to deal with these problems.

Management systems

Amongst other problems faced by these supply factories excessive overtime has come out to be the major employees’ problem and it is caused by poor human resource management, inefficient internal production systems as well as inadequate internal communications. Therefore effective and efficient internal management plays an important role in decreasing the excessive overtime which in turn increases the workers’ productivity. A good management system comprises of improved work structure and schedules, better control and recording system that would monitor the overtime (Li & Zax, 2003). Apple internal experts predicted that the increase in productivity in some of their supply unit chains would only increase if better management systems are put in place. Even without technology, efficient time management system and utilization has remained to be the key factor in improving the labor productivity through numerous methods that reduces the non-productive time.

Healthy work schedule design

As many workers in most of these supply chains argue that overtime is unavoidable especially during peak order times, healthy work schedules are substantial for the well-being of the workers as well as the labor productivity (Harrington, 2001). The result will be the long-term profitability of these factories as well as the company as a whole. According to the company internal expert analysis, healthy work related issues are important objective that cannot be subordinated to the considerations of economic benefits. It is not sufficient to discourage singly the excessive working hours.

In addressing the problem of overtime, it is important to develop better time-accounting systems that include the maximum number of hours, optimal start and stopping times, the optimal budgeting methods and rest breaks (Wooden et al., 2009). Moreover, the supply factories are required to develop systems that could measure the needed inputs for specific tasks and monitor workloads. These systems should be combined with incentives as well as proper objectives for the line mangers. To achieve the target objectives, the line managers should identify work processes that would replace the long hours working culture with smart working conditions.

The supply chain companies are also required to allocate other time between the paid work schedules for other activities such as care work, leisure and social activities. This is not only aimed at improving the workers welfare but also to improve the company image through social responsibility by the workers (Spurgeon, 2003). In addition, the personnel managements of these companies are required to allocate workers time for holidays and advancement through training and educational expansions through incentives. This will provide motivation to the employees which in turn would lead to increased productivity. Further, healthy work schedules should also include ways to deal with non-work time consuming activities such as maternity leaves, sick leaves and other related activities.

Structural improvements

The supply chain production units are also encouraged to take structural adjustments in order to reduce the need for excessive overtime. Generally, the Apple management requires these factories to take three courses of action towards these structural adjustments. These include using shift systems, changing the remuneration systems as well as changing the production methods.

The shift system is aimed at reducing the excessive overtime as well as improving the health and living standards of the workers. It is true that most of the outsourced production units need shifts to maximize the production of high-tech machines. Therefore, it is recommended that such factories introduce the three shift system to make excessive overtime virtually impossible. In designing the night shifts, the human resource managements are required to consider minimizing the night shift as much as possible in order to reduce the harmful impact on the employees’ health (Houdmont et al., 2011). It is expected that the changes to the three shift system together with increased hourly wages will increase the employee’s benefits and reduce costs the firms. However, the human resource managements should be aware and ways of dealing with the disadvantages that come with such changes.

The remuneration system is also another important human resource management policy element that is aimed at reducing the excessive overtime. The reports indicate that workers in most of these supply chain units rely on overtime payment to compensate for low wage levels during the normal hours. In most cases workers are reluctant to reduce the amount of overtime worked or may go slowly during the normal hours so as to increase the overtime hours. This type of problem can only be solved through the application of performance-based payment system (Spurgeon, 2003).

The performance can be attained through individual production or unit or group production. However, the system need to be understood and remain transparent or else it may lead to conflict among the workers who may feel that they are unfairly treated. Those supply factories that are strictly line based are also required to restructure so as to adopt the performance based system of payment. These supply factory managers are also required to look into the types of tasks. Those employees charged with complex tasks should be remunerated differently or have their pay increased based on the complexity of the task (Li & Zax, 2003).

Changing the production system set up through the application of technology is aimed at limiting the need for overtime. This strategy is targeting those suppliers with Inflexible lines systems in which tight situations normally occur thereby creating difficulties in planning. These companies are advised to introduce more flexible production liners in combination of more efficient team work to drastically reduce the amount of time needed for target production.

Overtime record and control

The company also needs its outsourcing suppliers to improve their proper recording of the overtime in order to improve the working situations in their factories. Proper recording of the overtime is believed to the first step in controlling the excessive overtime. The rationale behind this argument is that proper tracking and recording of overtime by management creates awareness of those factors causing overtime and when it is needed in the factory. This awareness will make the management team to control and ultimately reduce overtime (Spurgeon, 2003).

Decent occupational health and safety conditions

Occupational hazard reduction and provision of better occupational health and safety environment will improve labor productivity within these supply chain factories. Although the costs of improving health conditions have been cited by these outsourced companies as the major drawback towards this endeavor, report indicate that the costs are not as high as they are being portrayed. In fact, the hidden cost of suicides, labor related injuries, death and diseases are higher than the cost of prevention therefore apple has put in place regulatory measures for its outsourced suppliers that will improve their workers occupational safety and health (Houdmont et al., 2011).

These actions are not only designed to promote smart regulatory actions by the company but also to change the safety culture of its supply chain. Also the company has encouraged its outsourced suppliers to adopt the government safety and regulatory measures that is aimed at changing the private sector behavior with the leased resources possible (Foster & Harney, 2005). Moreover these companies are required by apple to make their compliance decision for their potential benefit instead of actual penalties that may accrue from various governments.

To achieve this, company need its supply chain companies to design specific training programs for their employees aimed at improving their occupational safety and health conditions in different kinds of work places (Houdmont et al., 2011). The company internal experts believe that this will increase the employee’s desire to directly work and improve their performance hence the companies’ productivity. This will in turn improve the Apple brand image.

Training and educational programs

Most of the supply chain companies are located in countries where workers are not aware of their working rights such as working in decent and safe working environment as well as to be paid accurately for their overtime work. For this reason, Apple has taken steps in ensuring that the workers of most of its outsourced suppliers are better educated and informed especially in the application of safety occupational procedures and equipment particularly in those companies where there is high risk of contamination and accidents (HR Magazine, 2006).

Apple believes that managers together with their employees need to appreciate the importance of health and safety working environment. This will ultimately improve the morale of workers, generate the company loyalty and improve the brand image of the company. Besides, health and safety standards Apple have encouraged their supply chain companies to transparently provide information concerning the pay rates as well as the overtime premiums to their workers. Reports indicated that 90% of the outsourced company’s workers neither know their legal overtime rates nor do they know that they are supposed to be paid according to the legal overtime premiums (HR Magazine, 2006).

Collective action

The reports indicated that there is a huge gap existing between the policy procedures and policy implementation aimed at improving the working conditions of most of the Apple outsourced suppliers (Lee, 2007). The Apple to change the working cultures of its supply chain companies, it has to advocated for the collective negotiations as an effective method of improving the working conditions. Apple has encouraged the workers in its supply chain companies to collectively negotiate for actions that they deem are necessary at improving their working conditions. Collective negotiation is believed by the company to be one of the best methods of pressuring these outsourced companies to take working conditions as well as the need of individual works into consideration.

On the other hand, the company has also entered into negotiation with its competitors for a common action against the improper working conditions in their outsourced companies. This will be taken as a common working conditions policy by the major world organizations rather than be seen as the one company policy (Li & Zax, 2003). Apple believes that common control of these supply chain company by competing global organizations is an effective way in improving the working conditions. Moreover, the common stand will also pressure various governments to put in place various legislations that are aimed at improving the working conditions of the private sector.

Monitoring and key adjustments

The company will also continuously evaluate the effectiveness in the adoption of new systems for better working conditions it its supply chain. Apple will also continue evaluating the effectiveness of the processes and outcomes of the new systems that they have put in place for their outsourced companies (Lee, 2007). While evaluating the new systems and work procedures, apple will also take into consideration if such systems meet the factory needs and at the same time whether such constitutes the required working-time arrangement. In addition, the company will also re-evaluate and track the factors that are deemed to have impact on health, safety and the well-being of their outsourced supplier’s workers. The company will continuously assess health and safety conditions, overtime work, remunerations, environmental hazards and the compliance practices of their supply chain companies.

Key recommendations

Since the company aims at improving its global image it must ensure that workers in its suppler factories receive all the required compensations that not only includes the regular hourly salaries but also overtime benefits and premiums. In addition, the company must ensure that all its supply factories improves their communications as well as support for their management to ensure compliance to better working conditions such as the occupational safety and health conditions as well as overtime. Further, the company must also ensure that technical assistance and training are provided to the supply factories especially on production management so as to reduce the need for excessive overtime. Moreover, the company must ensure support for these supply factories to create internal planning as well as mechanisms that are aimed at improving the working conditions including reducing the excessive overtime, decreasing the frequent lateness on changes in design specifications.

Besides, Apple must ensure that its supply factories are compliant with better working legal practices such as occupational health and safety standards in various countries in which they operate. The company must ensure that these factories train their workers on their rights, safety and health precautions as well as the pay rates and overtime premiums. In addition, the factory measures such as the management support of the employee’s voluntary decisions on work related issues, elimination of unlawful punitive measures such as salary reductions and work point demerits are undertaken by these factories. Most importantly, Apple should support the workers controlled safety committees in these factories. Though it is a requirement for Apple to take these measures to improve and protect its brand image, each of the stakeholder’s responsibility would be useful in creating a sustainable industry that offers decent working conditions for all the workers around the world.

Apple Inc. has acknowledged the unethical behavior of some of its outsourced suppliers around the globe. In the suppliers responsibility report released this year, the company specified unethical practices that are being performed by most of its outsourcing units ranging from child labor to long extreme working hours. Even though the company has managed to build its integrated manufacturing and design facilities in numerous parts around the globe, some of its outsourcing units has contributed to the corporate ills that must be dealt with at all levels. The global network has enabled the company develop and launch its products in the major global markets. Some of its products that have been produced in these outsourced suppliers have provided the company with a cost saving advantage which has resulted into huge profits.

Even though the company is reaping huge benefits as a result of outsourcing, it is now emerging that there is underlying consequences that will take the company years to deal with.

The employment of over forty minors by some of its suppliers and the series of suicide cases at Foxcon facility as well as waste release issues in some of its facilities have severely dented the company global image and its operations. The vulnerability of these global companies to the unethical practices of their supply chains have been perceived as a hindrance to the global expansion. Therefore the company has taken various measures such as improving the management systems within its supply factories, designing healthy work schedules, encouraging the structural improvements, coming up with proper overtime record and control, advocating for decent occupational health and safety conditions, training and educational programs for these factory employees, encouraging collective action together with competitors and the factory employees as well as monitoring the implementation of these key proposed adjustments.

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IvyPanda. (2021, February 7). Apple Inc.'s Offshore Management and Labor Rights. https://ivypanda.com/essays/apple-incs-offshore-management-and-labor-rights/

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Bibliography

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Apple: A Case Study in Why a Tax Holiday for Offshore Cash is Indefensible

May 4, 2017

Matthew Gardner Senior Fellow

The Apple corporation made waves earlier this week with its disclosure that its worldwide cash now exceeds $250 billion.  Less noticed was a separate disclosure on Wednesday that the company’s offshore cash now exceeds $239 billion, meaning that more than 93 percent of the company’s cash is now held—at least on paper—abroad.

This represents an increase of $9.4 billion in the past three months, sending a clear signal that the company continues funneling money offshore to avoid U.S. taxes on a scale unmatched by any other U.S. company.

Taken on its own, holding cash abroad isn’t inherently bad behavior for a U.S. multinational engaged in business worldwide. But virtually everyone except Apple CEO Tim Cook now recognizes that in Apple’s case, the firm’s mountain of offshore cash reflects not the normal workings of a worldwide enterprise but a brazen effort to hide U.S. and European profits from the reach of the tax man. Back in 2013, the U.S. Senate’s Permanent Subcommittee on Investigation (PSI) made a careful and convincing case that Apple had used loopholes in the tax laws to make legal, but ethically reprehensible, “cost-sharing agreements” with its insubstantial Irish subsidiaries that allowed the company to avoid paying tens of billions of dollars in income taxes. Then, last fall, the European Commission (EU) ruled that Apple has used its Irish subsidiary for an elaborate profit shifting scheme that was not only unethical but downright illegal.

But you don’t need a lengthy investigation to know that Apple is dodging taxes offshore: the company’s annual report tells us so. The disclosures in the company’s latest 10-K reveal that Apple has paid a total foreign tax rate of less than 4 percent on its offshore cash. This means its unpaid U.S. tax bill on this cash is a whopping $75 billion.

It’s in this context that policymakers should be evaluating the current plan —supported by Congressional leaders and President Donald Trump—to offer a “tax holiday” for companies holding profits indefinitely offshore. While hundreds of companies hold at least a chunk of the $2.6 trillion plus in U.S. corporate cash that now sits offshore, Apple’s share is by far the biggest, and Apple’s near-zero foreign taxes on these profits mean that Apple would likely be far and away the biggest beneficiary from a low-rate holiday on offshore profits. Which means that the biggest winner from the proposed tax holiday is a company that has been on an illicit tax holiday of its own making for years.

The question isn’t whether Apple has played U.S. policymakers like a piano so far: it has. CEO Tim Cook has used his considerable PR skills to portray Apple as a helpless victim of a rampant corporate tax law, while insisting that the findings of the PSI and the EU are “total political crap.” But he has offered no evidence to counter these tax avoidance claims.

The real question is whether Congress will continue to be duped. Instead of offering a new tax holiday, Congress could easily make Apple pay its taxes. It could require Apple (and other companies shifting their intangible profits from the U.S. to foreign tax havens, for that matter) to pay their fair share by ending deferral of tax on offshore profits. This would give an immediate shot in the arm to U.S. tax collections, and it would help counteract the corrosive public fear that tax rules are written for and by powerful corporate interests.  If, instead, Congress instead follows President Trump’s recommendation and rewards Apple’s bad behavior with billions of dollars in new tax breaks, the public’s trust in our political leaders will be further eroded—and our leaders will deserve it.

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Supply Chain Management

A collection of resources and commentary providing an introduction to supply chain management and related systems for students, practitioners, and anyone else interested in learning more about how to design, manufacture, transport, store, deliver, and manage products.

Tuesday, February 26, 2013

Apple's offshoring in china:time to backshoring.

• “Made in the U.S.” could add value to the high-end productions of Apple to customers around the world, because for iphones and ipads, the purchase price is not the main criteria for customer decision, but rather technology, flexibility, brand, and design.
• Backshoring manufacturing could help Apple to achieve greater agility and responsiveness of supply and meeting customer expectations in product variation. A study (Laine and Laiho) introduces a successful example, for a Finland company, a backshoring of the final assembly of the whole production from Taiwan to Finland, providing increasing supply responsiveness and product quality, as well as maintaining the total cost of operations at the same time.
• The north America is a huge market for Apple products.
•   It is believed that bring back offshored productions will bring back the jobs to America as well.
• The extremely high labor costs still hinder the Apple’s entirely backshoring manufacturing to the U.S., within the fiercely competition among electronics companies.
•   With the rapidly increasing Asian demand market, it still takes long time and high logistics charges to send all demanded products to Asia area.
•   As nearing the U.S., save more on logistics costs.
• As labor rates in the electronics manufacturing industry increasing for years, Mexico’s labor wages has been very stable since 2003, and became even slightly lower than China.
• As business risk in the whole industry is increasing, the frequently happened violence in Mexico could make situation worse and raise physical safety concerns.
• Although Mexico nears the U.S., it does not have a large domestic demand for Apple’s products.
•   Workers may not be as skilled as China’s workers.
• China has the absolute advantage over Mexico because its domestic consumption has been pointed by the government as a key to its future economic growth, while manufacturing in Mexico remains almost exclusively for export.   China’s middle class is estimated to consist of 100-300 million people, which is even larger than the entire population of Mexico. 
• The rapidly expanding Asian market attracts Apple’s interests, and China’s location and position make it easily access to other Asian countries.
•   China has large amount of well-educated semi engineers and skilled workers, who can work at a highly efficient level.
• With the large amount of resources, China could build a faster and cheaper supply chain. Many suppliers of Apple are from Asia.
• Untaxed profit kept U.S. offshore in China.
• As oil price increased, logistics charges have been dramatically increased.
•   As the economic developing, the cost of labor in China has increased significantly and will probably continue to increase (Figure 1). With the inflation keep going up in China, raw materials and energy costs also raised.
• Intellectual Property (IP) safety is concerned in China, as Apple treats its technology and design as top secret.

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Home — Essay Samples — Business — Apple — Offshoring Practice At Apple Company

Offshoring Practice at Apple Company

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Published: May 19, 2020

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• Their inventory can be more than what is being demanded
• The company is affected based on the economy of the World
• Their resellers might also carry or sell products from other manufacturers

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