By Poornima Gupta and Edwin Chan
SAN FRANCISCO (Reuters) - In a landmark development for the way Western companies do business in China, Apple Inc said Thursday it had agreed to work with partner Foxconn to substantially improve wages and working conditions at the factories that produce its wildly popular products.
Foxconn - which makes Apple devices from the iPhone to the iPad - will hire tens of thousands of new workers, clamp down on illegal overtime, improve safety protocols and upgrade worker housing and other amenities.
The moves came in response to one of the largest investigations ever conducted of a U.S. company's operations abroad. Apple had agreed to the probe by the independent Fair Labor Association in response to a crescendo of criticism that its products were built on the backs of mistreated Chinese workers.
The Association, in disclosing its findings from a survey of three Foxconn plants and over 35,000 workers, said it had unearthed multiple violations of labor law, including extreme hours and unpaid overtime.
Apple, the world's most valuable corporation, and Foxconn, China's biggest private-sector employer and Apple' main contract manufacturer, are so dominant in the global technology industry that their newly forged accord will likely have a substantial ripple effect across the sector.
Working conditions at many Chinese manufacturers that supply Western companies are considerably inferior to those at Foxconn.
"Apple and Foxconn are obviously the two biggest players in this sector and since they're teaming up to drive this change, I really do think they set the bar for the rest of the sector," FLA President Auret van Heerden told Reuters in an interview.
More immediately, the Apple-Foxconn agreement will raise costs for other manufacturers who contract with the Taiwanese company, including Dell Inc, Hewlett-Packard, Amazon.com Inc, Motorola Mobility Holdings, Nokia Oyj and Sony Corp.
The agreement will likely result in higher prices for consumers, though the impact will be limited because labor costs are only a small fraction of the total cost for most high-tech devices.
Foxconn said it would reduce working hours to 49 hours per week, including overtime, while keeping total compensation for workers at its current level. The FLA audit had found that during peak production times, workers in the three factories put in more than 60 hours per week on average.
To compensate for the reduced hours, Foxconn will hire tens of thousands of additional workers. It also said it would build more housing and canteens to accommodate that influx.
Apple CEO Tim Cook, who company critics hoped would usher in a more open, transparent era at Apple after he took over from the late Steve Jobs last fall, has shown a willingness to tackle the global criticism head-on.
The much-anticipated report marks the first phase of a probe into Apple's contract manufacturers across the world's most populous nation. With 1.2 million workers, Foxconn - an affiliate of Taiwan's Hon Hai Precision Industry - is by far Apple's largest and most influential partner.
(Reporting By Edwin Chan; Editing by Gary Hill)