Apple 2.0

Covering the business that Steve Jobs built

What's really going on at Apple's iPhone 5 factory in Zhengzhou, China

October 7, 2012: 8:53 AM ET

Crippling strike? Minor dispute? In the long run, it almost doesn't matter.

Photo: Ye Fudao/worker for Foxconn, via CLW

FORTUNE -- Let's assume for the sake of argument that the truth of what happened last week at Foxconn's Zhengzhou factory complex -- where Apple's iPhone 5s are being assembled at a furious pace -- lies somewhere between a Chinese labor advocacy group's account and that of the factory's owner, Taiwan-based Hon Hai.

The New York office of China Labor Watch claims that 3,000 to 4,000 workers went on strike last Friday, causing a "widespread work stoppage" on the iPhone 5 factory floor that lasted most of the day.

Hon Hai categorically denied the report, telling western news organizations that the plant suffered only "two brief and small disputes" several days earlier. "There has been no workplace stoppage in that facility or any other Foxconn facility," it declared in a press release, "and production has continued on schedule."

But something clearly happened. According to Reuters, China's official Xinhua news agency quoted a government spokesman in Zhengzhou as saying some 100 Foxconn quality inspectors refused to work for an hour on Friday after one was allegedly beaten by workers irate over the inspection demands.

"The instruction to strengthen quality inspections for the iPhone 5 was given by Apple Inc.," a spokesman for the Zhengzhou industrial zone told Reuters, "following multiple complaints from customers regarding aesthetic flaws in the phone."

The "multiple complaints from customers" is news to us, but the fact that the official Chinese news agency supports China Labor Watch's (CLW) account of a Friday labor stoppage lends a bit more credence to their side of the story. CLW's version also has the benefit of offering a lot more detail than Hon Hai's.

According to CLW:

"It was reported that factory management and Apple, despite design defects, raised strict quality demands on workers, including indentations standards of 0.02mm and demands related to scratches on frames and back covers. With such demands, employees could not even turn out iPhones that met the standard. This led to a tremendous amount of pressure on workers. On top of this, they were not permitted to have a vacation during the holiday. This combination of factors led to the strike.

"That quality control inspectors would also strike is of no surprise. According to workers, there was a fight between workers and quality control inspectors in area K that led to the damage in inspection room CA, the injury of some people, and the hospitalization of others. After this, another similar incident occurred in area K, once again leading to quality control inspectors getting beat up. Yesterday, inspectors in area L received physical threats. When inspectors reported these issues to factory management, the management simply ignored and turned their back on the issue. For these reasons, all day and night shift inspectors carried out a work stoppage today that paralyzed the production lines."

As we say, the truth of what happened probably lies somewhere between the two accounts. It sounds like Apple was trying to produce iPhone 5s fast enough to meet demand without compromising its exacting quality standards, which can't be easy.

But the fact that there was any organized labor activity on Foxconn's iPhone assembly line suggests that deeper forces are at play. The days that electronics manufacturers from industrialized countries -- not just Apple (AAPL), but Microsoft (MSFT), Hewlett Packard (HPQ), DELL (DELL), Amazon (AMZN), Sony (SNE) and even Samsung -- can count on boundless supplies of cheap, compliant Asian factory workers may be numbered.

To paraphrase Winston Churchill, this may not be the end, or even the beginning of the end, but it may, perhaps, be the end of the beginning.

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Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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