Fairphone: A Journey Towards Ethical Smartphones

Summaries Case Fairphone Abstract - Bas van Abel & Co founder Miquel Ballester  started Fairphone as an NGO awareness campaign - design a prototype of a “fair” smartphone (“a seriously cool phone putting social values first”)  Abel wanted to produce a competitively priced, aesthetically appealing, mid-range smartphone that would rival any in its price category  raise awareness of the link between phones and minerals mined in the context of a bitter civil conflict in the Democratic Republic of Congo (DRC)/ ameliorate the dark side of the mobile phone industry (e.g., use of conflict minerals, poor working conditions in East Asian factories, and electronic (e)-waste dumped in developing countries) among the Dutch - attracted a large following in the media and socially conscious consumers across Europe  customers fully financed the production of 25000 smartphones (priced at 325 euro each) through a crowdfunding initiative - Van Abel + staff had to quickly learn how to produce high-quality smartphones while keeping their promise to improve the social welfare of underrepresented mine and factory workers along the mobile phone industry’s supply chain - 2013  first batch delivered to customers; 2014  scale up production; plan for the future  How could Fairphone reach a larger audience with its message and product? How should the organization be designed in order to achieve this mission? Background - metals are vital to the mobile phone industry  e.g., Tantalum: used to make capacitors that store electric charge in mobile phones - where do the minerals come from? DRC  rich in mineral deposits (e.g., cassiterite (tin), gold): located below the surface of the earth - however, these minerals have been implicated in a bitter civil war in the region  rebel groups, firms and foreign-backed militia loot the DRC’s minerals resources in exchange for arms and cash. These groups inflict appalling violence on the local population - Minerals mined in the context of DRC’s conflict are also called “conflict minerals” - approx. 3.9 million people died - moreover, prevalence of rape and gender-based violence  DRC as the “worst place on earth to be a woman”  increased global demand for smartphones fuels the conflict in the DRC as militia groups compete to control mines that supply increasingly valuable mineral ores to the mobile phone industry Life begins as an awareness campaign - van Abel: “I didn’t even know about conflict minerals when I started this (Fairphone) project” - after smartphone campaign van der Mark and van Abel received a financial grant from a government agency  awareness campaign was born (using social media demonstrating the situation) - van Abel: “Yes, I was interested in making the prototype phone from a purely design perspective, but not the business side to it. The whole aspect of bringing the phone to the market did not interest me. I was intrigued by the fact that everything comes from the ground” The media get involved  Nokia: ignoring the immense human suffering for the extraction of conflict minerals - Fairphone started to receive favorable reviews from the Dutch media + publicity (campaign team counted 400 online community members) Trip to Congo, corporate interest, and unexpected price - travelled with documentary filmmaker to Katanga - after return, KPN, a mobile network operator became first customer + agreed to buy 1000 smartphones Lifecycle of mobile phones is more complex than conflict minerals - van Abel + his team researched the mobile phone supply chain  through a dense network of middlemen operating across eastern Africa, conflict minerals are graded and transported to smelters in East Asia. The smelters extract metals from the refined ore and sell the metals to electronic component manufacturers who, in turn, sell their components to phone manufacturers located in China  conflict minerals only the tip of the iceberg of unfair practices in the supply chain - mobile phones were assembled under poor working conditions in factories - workers were not paid or worked long-hours without adequate compensation  spate of worker suicides at Chinese mobile phone manufacturer Foxconn - at the end of useful life phones from Europe were often dumped in developing countries like Ghana, where they formed piles of potentially toxic electronic e-waste scavenged by desperately poor slum dwellers in search for valuable metals like copper and gold Crisis and serendipitous discovery - questions arose how the company could produce a smartphone? How could it rase large sums of money for production?  money from funding not enough to design a phone - opportunity: an innovation incubation programme  Fairphone was one of the 10 business ideas selected for a three-month intensive entrepreneurship “bootcamp” accelerator programme  400,000 euros investment from an angel investor Fairphone the social enterprise Sourcing conflict-free minerals from the DRC - Dodd-Frank act: requires companies publicly traded in the US to demonstrate that minerals used in their products do not fund armed groups in the DRC  companies started avoiding sourcing from DRC altogether BUT area depends on quarries and mining “If there is no mining, there is no money”; “No money, no life”  Fairphone wanted minerals from the DRC as part of the Fairphone mission and a conflict-free supply chain (few industry players helped + initiatives/ projects started) License a reference smartphone design - Van Abel partnered with a mid-size smartphone factory in Guohong  Guohong’s management team agreed to license their smartphone design for a small fee + agreed to reveal the identity of their suppliers, support social assessment of their factory Producing a Fair smartphone Operations audit - best smartphone manufacturers would not produce for Fairphone + Guohong had never produced smartphones got developed country markets  less professional, less efficient than large manufacturers - uphill struggle to produce a quality phone which meets the requirements of the European market How to manufacture a smartphone Prototype stage – phone would incorporate conflict-free tantalum capacitors, conflictfree solder pastes from the DRC and recycled plastic Design verification test (DVT) – hundreds of phones are assembled using materials from suppliers in order to produce a consistent high-quality phone Process verification test (PVT) and mass production – ensure that the assembly process is done with minimal defects attributable to the assembly process Reception of the world’s first fair smart phone - positive feedback  high brand equity and fewer than 150 phones had been returned - however, workers at factory dissatisfied with their wages Fairphone’s challenges - Fairphone needed to place larger orders in order to gain leverage with suppliers in the mobile industry - second challenge was organizational design  company structure was informal