Why Vizio has no official standards for how its suppliers treat workers
Vizio Inc. puts more trust into third-party contractors than many television companies. Rather than relying on its own factories, the Irvine firm has outside manufacturers do the handiwork, allowing Vizio to lower costs for itself and consumers.
But Vizio, which recently agreed to sell itself to Chinese mega-firm LeEco for $2 billion in cash, doesn’t require vendors to comply with a formal code of conduct — a common industry practice defining a company’s labor and environmental standards.
William Wang, Vizio’s chairman and chief executive, said there’s no need since it doesn’t run factories and works with the “best manufacturers in the world.” Prominent in the arrangement are discussions about maintaining high quality standards, which are “the most important thing” for the company, Wang said.
Still, the void concerns analysts who follow factory conditions because the nation’s second best-selling TV brand’s relationships with major suppliers such as Foxconn, AmTRAN Technology and TPV Technology are out of step with its rivals for U.S. consumers.
Samsung Electronics, LG and Sony are members of the Electronic Industry Citizenship Coalition, which subjects the technology giants’ factories and supply chains to third-party audits. Suppliers such as Foxconn and Innolux say they follow EICC standards, although LeEco and Vizio aren’t participants.
“The fact that Vizio isn’t on there isn’t good,” said David Collins, a former manager of Foxconn and Chrysler plants and now chief operating officer for China Manufacturing Consultants. “In essence, being a good corporate citizen is good for cost and quality.”
Vizio’s lack of membership in the industry organization — and its lack of a supplier responsibility initiative, as many companies call it — are far from an indictment of its business practices. Retailers who sell Vizio’s TVs say they still mandate compliance with their own standards. But for a company built on driving down expenses and extracting narrow profit margins, there’s an appearance of neglect for how its contractors abroad operate, experts said.
It’s widely doubted that codes of conduct are a major driver for improving conditions, but they do provide clear evidence that executives are conscious of the issues.
“If a company doesn’t even bother to make its own code of conduct, in terms of working conditions, it must be worse than other companies because at least the others have some sense of social responsibility — even if it’s superficial,” said Li Qiang, executive director of advocacy group China Labor Watch.
But Vizio has always been one for doing things differently, immediately challenging the market for high-priced televisions when it launched in 2002 with top-quality TVs at budget costs.
Its flourishing manufacturing setup has been lucrative for both sides. Vizio’s contractors are poised to benefit further through the takeover by China’s LeEco, which hawks TVs and smartphones and develops apps, films and shows. LeEco’s factory conditions haven’t faced recent scrutiny.
Executives at LeEco and Vizio lauded their perfect alignment on vision and strategies. For one, both rely on contract manufacturers to make TVs.
This year, nearly 3 million LeEco TVs should come from TCL, 2.5 million from TPV and 1 million from Foxconn, according to Taipei-based research firm Market Intelligence & Consulting Institute. Vizio should get nearly 4 million sets from TPV, more than 2.5 million from AmTRAN and 1 million from Foxconn, the researcher said.
AmTRAN and Foxconn also are longtime minority owners of Vizio. Analysts said that either may give them an incentive to maintain proper standards or a sense of control enabling them to de-prioritize costly compliance activities.
Foxconn, the well-known iPhone assembler criticized for a rash of worker suicides in 2010, declined to comment; AmTRAN and TPV didn’t respond.
These contract firms employ thousands of people in Taiwan, China and Mexico to make Vizio TVs. Vizio itself has stayed lean at hundreds of employees, with product designers in Irvine and support-call takers in South Dakota.
Vizio CEO Wang has prized efficiency. With suppliers, he’s said it’s not about forcing them into low fees but rather about collaborating to decrease their expenses. The structure enabled Vizio to sell nice TVs at steep discounts compared with bigger companies, which were saddled with costs of running factories and structured to generate larger profit. Consumers at Costco, Sam’s Club, Wal-Mart and Target ate up the bargains.
But the same strategy of minimizing burdens could explain why Vizio doesn’t enforce its own code of conduct or do the “public relations work,” said Qiang of China Labor Watch.
Vizio has to hold back somewhere versus more diversified and well-financed companies that can devote dozens of people to factory oversight, he said.
Vizio disclosed the absence of a formal policy as a risk factor in a Securities and Exchange Commission filing last year as it prepared for an initial public offering of stock. The company says establishing such a policy would duplicate the social and environmental standards that its retail partners already mandate.
“We don’t separately require our suppliers to have their own code of conduct because Wal-Mart’s applies to all [our] suppliers,” said Marilee McInnis, a spokesperson for the store’s International Corporate Affairs unit.
Target spokesperson Erika Winkels noted that its policies require product makers “to conduct their business with a high level of integrity and maintain transparent and accurate records.”
Retailers’ demands grew in importance after years of consumer protest about child labor, excessive hours, sweatshop conditions and the purchasing of ingredients from warlords.
Life at large factories, especially in China, has improved, but experts are divided on the causes. A booming economy until late last year forced Chinese factories to step up their practices to woo workers who had ample alternatives. Government crackdowns helped too. In other cases, robots decreased the need for intensive manual work. Codes of conduct have played a small role by comparison.
“I don’t think Apple for example can claim any credit for any improved working conditions at Foxconn,” said Geoff Crothall of worker dispute tracker China Labor Bulletin. “Foxconn increased pay for its employees because of pressure in the domestic labor market.”
Still, membership in the 12-year-old electronics coalition has more than doubled in the last three years to 115 companies, including smelters, retailers, factories and brand names that together have $4.5 trillion in annual sales.
EICC Executive Director Rob Lederer declined to speculate about why Vizio hasn’t joined, but he did lay out benefits. Members go through a biennial audit program, an annual supplier risk assessment and gain access to specialists on emerging problems such as forced labor. Failing members get booted.
“The more people who get subjected to the code of conduct, the better off we think the industry is,” Lederer said.
For Vizio, being on the outside would invite extra scrutiny if its supply chain acts unethically, said Renaud Anjoran, president at China Manufacturing Consultants.
“If their suppliers always do the right thing (as expected by U.S. consumers) and as long as nobody accuses Vizio of negligence, there is no issue here,” he said by email from China. “As soon as bad things start to come out in the press (which is more likely if they have not been actively policing their supply chain), they are very, very vulnerable to critics.”
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