Current Issue
This Month's Print Issue

Follow Fast Company

We’ll come to you.

Chinese Working Conditions Raised ... Along With the Price of Gadgets?

Foxconn girl

The worker's environment in Chinese electronics manufacturer Foxconn has been a sticky issue for Apple's PR department, but it's also highlighted one big fact: If Western firms stick with Chinese sources, gadgets will get more expensive.

This is the thrust of a piece at the New York Times, which starts by looking at the reports about the new tear-down revelations concerning Apple's newest iPhone version: The smallest part of the cost of putting the thing together seems to be the manufacturing/assembly element, in China. The electronics themselves are sourced from all over the world—wherever there's a facility of sufficient scale and expertise to supply Apple's voracious demands. These parts are subject to their own market forces and price swings, demonstrated most obviously in the variable pricing of flash-based memory chips. But swings in component costs are very much structured into the business model of every manufacturer of high-tech consumer electronics.

What's not necessarily factored in is variable costs in the manufacturing and assembly line pieces of the production process. The NYT piece contends that manufacturing costs in China are about to get "far more expensive" and that this is going to affect the business of companies like Apple, Dell, HP and others who rely on Chinese factory work's low cost to maximize the profits.

Foxconn and companies like it operate almost on the Walmart model, where the profits come measured in cents per unit, but so many units fly through the fingers of the million-or-so employees per day that the operation does rake in the cash. But as the Foxconn suicide scandal has revealed, along with protests by assembly-line workers for other companies, workers in China are increasingly unwilling to work under such high pressure for such low wages ... and the Chinese authorities may have to cede to their wishes if it's to continue doing business with the West, with its very different thinking about worker rights.

Thus, wages in China will rise, pushing up the cost of manufacturing electronic gadgets. It takes years to get an alternative supply chain running up to reliable speed, particularly where delicate high-tech gizmos like the iPhone are concerned (and where assembly-line slip-ups are already making headlines) so Apple and its competitors are just going to have to suck up the increased cost for quite a while. And that means either innovating the design or assembly process with new tech—which also costs some capital expenditure at first—or taking a hit on profits or passing the costs along to the consumer as increased cost.

To keep up with this news, follow me, Kit Eaton, on Twitter.