Over the last few weeks, what was the juiciest development for those that cannot get enough of gossip about tech giant Apple? Was it “when will the iPad 3 debut and will it have a retina display?” Or the titillating rumor that it will have 4g capabilities?
Perhaps it was the fact that Apple’s share price topped a mind numbing US$500 per share, giving the company of total value of Google and Microsoft combined? Or maybe it was all of those do-good protesters handing over 250,000 e-signatures demanding that Apple treat its workers (or more correctly Foxconn Technology’s workers, which this week reportedly increased salaries and introduced overtime) more “fairly”?
These three seemingly independent sets of events are in no way shape or form, independent. In some sense, Apple’s 2012 reality is Nike circa 1997 or Starbucks 2001. For those who can’t remember back to a time before Twitter existed, here is a little history.
Nike, too, found itself beset by protestations of outrage over “slave labour” conditions in its subcontractor factories in Asia. Starbucks was pilloried for buying its beans from a “colonial supply chain” that exploited coffee growers.
The media frenzy was not dissimilar. There were reporters standing outside stores interviewing bemused customers who expressed solidarity with the downtrodden factory workers and farmers. There were mind-numbing interviews with talking heads from think tanks, NGOs and investment banks speculating on how the corporation was going to have to buckle under the pressure or how the protests represented a turning point in global capitalism.
In the end, Nike did not buckle and Starbucks slowly modified aspects of its supply chain. In neither case did their customers defect. Nor did their share prices suffer (although Starbucks did later but due mostly to poor strategy and over expansion). People kept “just doing it” and kept ordering grande semi-skim soya lattes.
In looking at the recent protests facing Apple, a very simple set of questions might be “why now” and “why them”?
Why not years ago? After all, Apple’s success has been nearly a decade long phenomenon. Its operations in China and its contracting arrangement with Foxconn have been a similarly long endeavour.
The answer is simple. The more successful you are as a company, the more vulnerable you are to what is known as the economics lingo as “hold up”. The protests against Nike and Starbucks were similarly timed to align with a period of success for the companies.
Why is this the case? First, it mainly arises because most of the value companies like Apple, Starbucks and Nike create is intangible – which is why their brand names are so valuable when measured by outside commercial agencies. For example, Interbrand estimated that the value of the Apple brand name increased 50% between 2010 and 2011. Second, that value is, by definition, reputational, and hence can be damaged reputationally.
In these circumstances, the company will, in essence, do nearly anything to protect an extraordinarily valuable asset. This point was brought home to Starbucks, who after caving into to pressure from Fairtrade groups was confounded by the fact that these groups kept attacking them.
One exasperated executive asked why they kept doing this when Starbucks had essentially conceded. The answer was simple; there was still more room for Starbucks to concede more. Nike’s response to the pressure was different. Rather than conceding they moved to capture the regulatory agenda by circling the wagons with related companies to quasi-regulate the international footwear and garment industry through a series of multilateral international agreements.
It is telling that in 2001, Nike was ranked by Interbrand as the 34th most valuable brand. By 2011 they were ranked 25th. Starbucks was ranked 88th in 2001 and is 96th in 2011. Reebok, the darling of the NGO set, was taken over by Adidas, a company with its own problems with protesters.
The second question is why Apple? Again, the answer is clear. First, if you are an NGO with almost no budget but a worthy cause, why not attack a company that is a PR juggernaut? Apple has been truly amazing in extracting millions (if not billions) of dollars of free advertising and promotion for its products by capturing the fascination of the media.
What company would not relish free advertising about its forthcoming products? Apple is known for being notoriously tightlipped and closed. In this they are something akin to the Greta Garbo of the tech world. They say they want to be left alone to just do their thing, but they bask in the media spotlight that such faux reticence creates.
For Change.org Apple represents a potential goldmine of publicity for their causes. Second, Apple’s success translates into market power. If you are an NGO or government it is a lot smarter to go after a company with market pricing power than a company that is a price taker in the market.
Apple has the luxury of being more of a price maker than a price taker and, as such, can give the NGO more of what it wants without potentially impacting its bottom line very much.
But the question is whether this will matter in the end? My research conducted with colleagues over the last decade, and encapsulated in the The Myth of the Ethical Consumer, shows quite clearly that ethics responds to prices. Hence, the fact that Change.org collected 250,000 signatures is certainly a commendable feat but could be fairly meaningless for two reasons.
First, it may be meaningless in that 250,000 signatures pales in comparison to the 100,000,000+ products Iphone and Ipad products sold. For example, Apple sold over 300,000 Ipads on the first day the product was available and recently passed 25 billion app downloads. The petitions are, to borrow a phrase, the “less than 1%”. The non-signers are the other “99% plus” and it is how this “99% plus” responds that matters.
Second, how that “99% plus” responds will depend on what it costs them. There is no price to signing a petition (for example, what would have happened if Change.org asked each petition signer to donate $50 to the down-trodden workers?). If the cost of changing its labour policies amounts to $100 per Ipad and Iphone Apple may have every reason to stonewall the protesters and the “99% plus” of customers will most likely go along with the stonewalling.
In the end, Apple’s ultimate response will probably have nothing to do with the protests. Apple will have other reasons to concede and the recent announcement that Foxconn is increasing some salaries reflects this.
In Apple’s case the other player in this game - the Chinese government - has been giving the company concerns over its ownership of the Ipad brand name. Apple may be willing to jump on the ethical bandwagon not because the protests mean anything, but because it can ill-afford to annoy the Chinese government when they have the power to expropriate part of its most valuable asset.
The petitions and protests are fortuitous in coming at a time when Apple can ill-afford to even have the appearance of exploiting Chinese workers. But it would be naive to assume that Apple’s actions were motivated in any real part by the petitions.