The High Cost of Calling Critical Issues in the Mobile Phone Industry November 2006 Joseph Wilde & Esther de Haan In today’s globalised world of instant communication, mobile phones are a nearly ubiquitous feature of everyday life in most developed and many developing countries. Ninety percent of the population of Western Europe now has access to a mobile phone, and mobile phone penetration in large Asian countries like China and India is rising exponentially. In 2006, mobile phone sales will reach a volume of 935 million handsets, representing a value of US $136 billion. This SOMO report covers the industry’s top five manufacturers of mobile phones, Nokia, Motorola, Samsung, Sony-Ericsson and LG, comparing the companies’ corporate social responsibility (CSR) policy with the results of SOMO-commissioned field research into the actual conditions at mobile phone factories in China, India, Thailand and the Philippines. Despite the clean image often portrayed by this high-tech industry, SOMO’s research at mobile phone production facilities reveals that conditions in handset factories can be appalling, especially among sub-tier suppliers of mobile phone component parts. This report documents the current situation in an industry where labourers work up to 72 hours a week with compulsory overtime, insecure employment contracts, unsafe factories, inadequate protection when working with hazardous materials, wages below the subsistence level, suppression of union rights and degrading treatment. This situation is complicated by the increasing complexity of mobile phone supply chains. Outsourced production of small component parts for handsets can often stretch into supply chains of nearly a dozen companies; the large name-brand companies have little oversight over this part of their supply chain and generally fail to take responsibility for the poor conditions there. The High Cost of Calling Critical Issues in the Mobile Phone Industry Joseph Wilde & Esther de Haan November 2006 1 The High Cost of Calling: Critical Issues in the Mobile Phone Industry Colophon The High Cost of Calling: Critical Issues in the Mobile Phone Industry By: Joseph Wilde & Esther de Haan Published by: SOMO – Centre for Research on Multinational Corporations Cover Design: Annelies Vlasblom This document is licensed under the Creative Commons Attribution-NonCommercial-NoDerivateWorks 2.5 License. To view a copy of this license visit: http://creativecommons.org/licenses/by-nc-sa/2.5 ISBN 90-71284-09-3 Funding: This report is made possible with funding from the Netherlands Ministry of Foreign Affairs and the Consumentenbond. Additional copies are available from: SOMO Centre for Research on Multinational Corporations Keizersgracht 132 1015 CW Amsterdam The Netherlands Tel: + 31 (20) 6391291 Fax: + 31 (20) 6391321 E-mail: [email protected] Website: www.somo.nl Subscribe here to the SOMO quarterly newsletter to keep informed of SOMO news and activities. 2 Contents List of Tables and Figures................................................................................................ 5 Abbreviations and Terminology ...................................................................................... 6 Chapter 1 Introduction...................................................................................................... 8 Chapter 2 Defining the Mobile Telephone Handset Sector ......................................... 11 2.1. Definition and industrial codes ........................................................................ 12 2.2. Types of companies........................................................................................ 12 Chapter 3 Industry Landscape and Trends .................................................................. 14 3.1. Slowing, but sustained, market growth ........................................................... 14 3.2. The strong get stronger: Concentration of market share ................................ 15 3.3. Market segmentation: Developing markets increasingly important................. 16 3.4. Driving down costs: Producing for the low-end market................................... 17 3.5. Globalisation of the production network.......................................................... 19 3.5.1. Relatively high degree of vertical integration, but outsourcing is on the rise .. 19 3.5.2. Vertical re-integration by contract manufacturers ........................................... 22 3.5.3. Production shifting to low-cost countries......................................................... 23 3.6. EMS vs. ODMs................................................................................................ 24 Chapter 4 Manufacturing Countries .............................................................................. 26 4.1. China............................................................................................................... 26 4.1.1. Companies and production details.................................................................. 26 4.1.2. Production environment .................................................................................. 30 4.2. India ................................................................................................................ 31 4.2.1. Companies and production details.................................................................. 31 4.2.2. Employment and workforce............................................................................. 34 4.2.3. Government policy and regulation .................................................................. 36 4.3. Philippines....................................................................................................... 37 4.4. Thailand .......................................................................................................... 38 Chapter 5 Major Players in Mobile Phone Handset Manufacturing............................ 39 5.1. OEMs .............................................................................................................. 39 5.1.1. Nokia............................................................................................................... 40 5.1.2. Motorola .......................................................................................................... 44 5.1.3. Samsung Electronics Co., Ltd......................................................................... 47 5.1.4. Sony Ericsson Mobile Communication AB...................................................... 50 5.1.5. LG Electronics................................................................................................. 52 5.2. Contract Manufacturers................................................................................... 54 5.2.1. ODMs.............................................................................................................. 54 5.2.2. EMS ................................................................................................................ 55 5.3. Mobile Network Operators .............................................................................. 56 5.3.1. KPN................................................................................................................. 59 5.3.2. Vodafone......................................................................................................... 60 5.3.3. T-Mobile (Deutsche Telekom)......................................................................... 62 Chapter 6 Critical Issues for the Mobile Phone Industry............................................. 65 6.1. Introduction ..................................................................................................... 65 6.2. Labour issues.................................................................................................. 66 3 The High Cost of Calling: Critical Issues in the Mobile Phone Industry 6.2.1. Health and safety............................................................................................. 68 6.2.2. Excessive working hours and forced overtime ................................................ 74 6.2.3. Illegally low wages and unpaid overtime ......................................................... 76 6.2.4. Falsification of documents............................................................................... 79 6.2.5. Degrading and abusive working conditions..................................................... 80 6.2.6. Lack of job security and the use of contract labour ......................................... 81 6.2.7. Workers without a contract.............................................................................. 82 6.2.8. Freedom of association and unionisation........................................................ 82 6.2.9. Right to strike................................................................................................... 83 6.2.10. Poor living conditions in workers’ dormitories.................................................. 84 6.2.11. Women’s rights................................................................................................ 85 6.3. CSR policy implementation and practice......................................................... 86 6.3.1. Transparency and stakeholder engagement................................................... 89 6.3.2. Compliance with taxation laws ........................................................................ 90 6.4. Environmental issues ...................................................................................... 91 6.4.1.