During the last several years, your iPhone’s and iPad’s have been assembled and manufactured by Foxconn, a company that has been afflicted by reports of poor labor conditions. Apple and Foxconn have had a strong relationship in the past; with Steve Jobs and Terry Gou, Foxconn’s CEO, being close and Tim Cook also knowing him before starting at Apple. Due to this developed relationship, and being a firm that is constantly in the spot light, Apple has experienced back lash from activists trying to bring the labor rights issue into the public eye.
However, the Wall Street Journal recently published an article highlighting Apple’s change of heart. Pegatron Corporation will take the reins from Foxconn and become the primary assembler of the iPhone that is expected to launch later this year. If this is in fact because of the negative publicity that Apple has been a target of, one can only speculate. In January 2012 though, it is worth noting that “Apple became the first technology company admitted to the Fair Labor Association.” Apple will still contract with both firms to assemble products, but it is a move that could help mitigate the flack that Apple has received regarding labor rights.
Conversely, it could be a move to simply improve their supply chain. Although it is true the fewer assemblers lead to better, stronger relationships, relying on several would increase the competition between assemblers and possibly reduce Apple’s costs. Additionally, greater diversification at this stage in the supply chain would reduce the risk that comes with relying on one or a few companies. For example, Foxconn experienced manufacturing issues last year that resulted in scratches on the casings of the iPhone5. Depending on several firms to assemble your products reduces the number of those with defects; thus, containing the issue to a small number of products.
Regardless of the reasoning behind Apple’s switch to Pegatron, it is obvious that it will have positive effects on the company. Shrinking their business with Foxconn will help separate them from the negative publicity regarding labor conditions, while diversifying their supply chain will help reduce risk and costs. But, could this hurt Apple? Could separating from Foxconn, a global leader in its business, to a smaller company hurt their supply chain in the long term?