Apple at a China Crossroad

No, we're not stirring the pot again on our proposed Jobs' trip to China. We're referring to the impending collision between business decisions and political appeasements. Apple will have some serious decisions to make over the next few months regarding this lucrative market. Just this week reports surfaced that iTunes in China has been blocked due to Pro-Tibetan content, specifically, the "Songs for Tibet" album, added this week.

Apple, like many global companies faces serious questions in China. How should this situation be resolved? Give in to pressure from China and remove the album, at the risk of a backlash from around the world, or stand firm and risk losing what could easily be one of their most lucrative iPhone markets? And yes, there is the tiny detail that many Apple products are manufactured in China, as well.

What will Apple do? Well, there is one small incident that might give us a hint. Last year, Venezuelan president Hugo Chavez decided to unilaterally change the time zone of Venezuela by half an hour. As you probably have noticed, most time zones are segmented by hours. The move placed Venezuela in its own time zone. As of July, Apple hadn't added the half hour offset for Venezuela in its time settings, causing problems like these. Microsoft on the other hand, had an update out within a few weeks acknowledging the time zone change. Was this lack of change an intentional political statement on Apple's part? If so, would they be as willing to take that sort of stand with China?

Dealing with China will be a far more high-profile, and high stakes process. Apple was wise to bring Andrea Jung from Avon onto the board early this year. At the time, the move was seen as a smart way to learn to market more effectively to women in China. In reality though, Jung could prove even more important as Apple navigates the Chinese political landscape.

While Apple has been a global brand for decades, China may be the first significant time in which a decision they make - to pull the Pro-Tibet album or not - will displease at least one major group of potential customers. Our bet: the album will disappear from the Chinese iTunes store, iTunes access in China will be restored, and except for a few protests (perhaps a letter from Richard Gere?) we'll all forget this happened. On the other hand, if it's a slow news cycle, or the issue is painted against the bigger backdrop of doing business with China, then this might not go away as quickly as Apple would like.

So put on your CEO hat. What would you do if you ran Apple?

Steve Jobs needs to go to China

No, we don't think Steve Jobs needs to take in Olympic competition. We're talking about a different type of visit. Back in 2006, newspaper reports claimed iPods were manufactured by what amounted to slave labor. (photo above, from engadget.) Apple investigated the situation, and issued a report in August 2006, with their own investigation's findings. While the report reads mostly positive, there are some negative issues raised:
Our audit of on-site dormitories found no violations of our Code of Conduct. We were not satisfied, however, with the living conditions of three of the off-site leased dorms that we visited. These buildings were converted by the supplier during a period of rapid growth and have served as interim housing. Two of the dormitories, originally built as factories, now contain a large number of beds and lockers in an open space, and from our perspective, felt too impersonal. The third contained triple-bunks, which in our opinion didn’t provide reasonable personal space.

Really? Triple bunks do not provide reasonable space? How many times do you think Steve Jobs, Jonathan Ive, and Phil Schiller have triple bunked? The fact of the matter is, you're talking about a manufacturing environment that would never fly in the U.S.

Additionally, in talking to 83 line workers (is that a fair statistical sample of 200,000 workers?) Apple found two who were disciplined by being forced to stand at attention for an unknown period. We'll assume as Apple has, that this is a statistically accurate representation. If that's the case, it would indicate as many as 4,800 employees may have been treated similarly at the facility. Granted only 30,000 of these workers were said to actively work on iPod assembly. Shouldn't Apple be concerned with the big picture though? If people face inhumane conditions in one building cranking out a competing product, should you still do business with that company just because a sample of 83 line workers showed only two had been forced to stand at attention while creating yours?

Why bring this up now? There are reports iPhone production is being ramped up to 800,000 units per week, beyond the capacity of Foxconn. How will Foxconn fulfill this new demand? If there ever was a time that a precariously close to inhumane work environment could go over the edge, this new production ramp would be it.

On any day, a visit to the Foxconn complex could be an eye-opening experience for any CEO. And for Jobs, and the socially responsible vibe given off by Apple, what a tremendous gesture it would be. If indeed, he could watch firsthand just how 800,000 iPhones get made in a week, and not feel there are human rights violations, we could finally let the matter drop. To put the biggest product launch for the company, perhaps ever, on the line in the interest of human rights would be a huge step.

All we, as Apple observers and stockholders have to go on is Apple's own report. A report that while it didn't find any "showstopping" issues in Apple's opinion, still found overtime violations and housing concerns. It's not that Apple is different from other companies. Plenty of electronics for other companies are pumped out of Foxconn as well. But that's not an excuse. "Everyone else is doing it," doesn't cut it. This isn't an "everyone else" kind of company. This is a company that once had original Macintoshes rolling off one of the most advanced automated assembly lines in the world, and it was done here in the United States. And guess what? No one had to sleep in triple bunks, or stand at attention.

Go to China, Steve. Look firsthand at just how Apple products are manufactured. We'll happily go along, and vow to never raise the subject again if everything checks out.