You may have heard by now that Samsung is the latest target of labor rights groups who have shifted their focus on multinational activity in China into overdrive. The proximate cause of this increased activity is, of course, the success of these groups with Apple and its supplier Foxconn. As I’ve written about several times, investigations of several Foxconn factories uncovered numerous labor violations, forcing Apple into a defensive posture, which culminated in its welcoming in the Fair Labor Association to perform audits and keep a “scorecard” as Foxconn set about reforming its internal systems. I wrote about the FLA’s mid-term report card recently.
Act II, apparently, is Samsung. Slightly ironic that Samsung and Apple are currently locked in an international death-by-patent fight. I suppose that when court is in recess, their respective legal teams can go outside, smoke a ciggie, and commiserate about labor activists and China.
As the second target, Samsung should expect a drop-off in the attention of the public and the outrage of folks who follow labor rights issues closely. There is also a major political event that will take place several weeks from now in China that should suck some of the air out of just about any China-related news story.
However, while Apple may have taken the biggest hits from the public due to its being the first target, Samsung shouldn’t breath a sigh of relief just yet. Taking these allegations as true (for the moment), there are three reasons why this might end up being worse for Samsung than it was for Apple:
1. Broader Scope of Violations
At Foxconn, there was a long list of violations, but when you cut through the repeats and such, it was mostly about overtime and worker safety. With Samsung, well, here’s a list:
- Overtime (forced and otherwise)
- Underage labor
- Worker safety
- Work flow issues (e.g. standing)
- Age and gender discrimination
- General oral and physical abuse of workers by supervisors
- Abuse of interns
- No written contracts
- Problems with internal systems (e.g. grievances)
All of those are fairly common in Chinese factories (unfortunately) and many were at issue with the Foxconn investigations, but it seems to me that we’re looking at several additional items here that, when taken as a whole, point to a larger overall problem.
2. Severity of Violations
To make matters worse, some of these types of violations seem worse this time around. For example, although underage labor was at issue with Foxconn, the argument that they were systematically, and purposely, hiring and employing underage kids never really materialized. The allegations against Samsung include the charge that they deliberately hire young, female workers, sometimes recruiting between the ages of 16 and 23.
Samsung has said that it has a zero tolerance policy on child labor and that an internal investigation uncovered no such violations. China Labor Watch says it found seven underage workers at one factory alone, a Samsung supplier in Huizhou. It’s not clear whether Samsung’s investigation covered suppliers or just its own facilities.
Speaking of which . . .
3. Samsung Directly Owns or Controls Many of These Factories
This is far and away the biggest problem. Throughout the whole Apple-Foxconn affair, the question was always whether Apple was aware of these violations and if it in fact required its suppliers to meet Apple’s supplier code of conduct. Apple’s direct actions were never in question, or at issue.
This is not the case with these allegations against Samsung. Of the eight factories that China Labor Watch focused on in its latest investigation, six of them are owned or controlled by Samsung.
Let’s have a look at the shareholding structure of those six factories:
Shenzhen Samsung Kejian Mobile Telecommunication Technology Co., Ltd, with about 500 workers, is 60% owned by Samsung and primarily produces Samsung’s CDMA cell phones;
Huizhou Samsung Electronics Co., Ltd, with about 10,000 workers, is 99% owned by Samsung and primarily produces MP3/MP4 players, MINI combinedspeakers and receivers, and DVD home theaters;
Tianjin Samsung Electronics Co., Ltd, with about 2,000 workers, is 91% owned by Samsung and primarily produces DVD players and parts for TVs;
Tianjin Samsung Mobile Display Co., Ltd, with about 3,500 workers, is 95% owned by Samsung and primarily produces mobile displays;
Samsung Electronics (Shandong) Digital Printing Co., Ltd, with about 2,000 workers, is 100% owned by Samsung and primarily produces digital printers; and
Suzhou Samsung Electronics Company Co., Ltd, with about 4,000 workers, is 88% owned by Samsung and primarily produces refrigerators, washers, air conditioners, compressors, small home appliances, and related parts.
So we’ve got five Joint Ventures and one wholly foreign-owned enterprise (WFOE). Of the JVs, Samsung’s equity holdings vary (60, 88, 91, 95, and 99%). Based on my experience, what we’re looking at here is probably only one JV where operational control is even an issue with respect to their local partner (the one in Shenzhen).
What that means is that there’s nowhere to hide. Workers have no labor contracts? It’s the fault of the JV’s HR Manager who in reality is a Samsung employee. Workers are forced to stand for no good reason? Someone at Samsung is responsible for making that decision. And so on.
Let’s keep in mind that we are still at the allegations stage of all this, and when all the facts come out, things might look a bit different. However, we’ve seen this movie before, and we know how it’s going to end. If Samsung is smart, they will diffuse this entire situation by adopting Apple’s strategy: find a labor rights group it can work with and get to work fixing these problems.