Can Fairphone trigger a paradigm shift in the Electronics Value Chain?
- The electronics industry faces more and more issues concerning the value chain. Scarce resources, fast technological change, labor conditions and e-waste are obstacles they have to deal with in future.
- Fairphone is a social enterprise which builds smartphones to demonstrate that consumer electronics can be produced in a social and fair manner.
- Improving visibility is critical in making the electronic supply chain more sustainable. It is important to first enhance cross-functional cooperation to address the different aspects and challenges of sustainability.
- Increasing customer demand for sustainable products is generating a shift in behavior of consumer electronics manufacturers.
Carina Strahl, Advisor at shared.value.chain, talked to Tessa Wernink, Director of Communications at Fairphone, to discuss the phone, the social enterprise and sustainability in the electronics supply chain.
Can you just give us a brief run-down of what Fairphone is and how it started?
Fairphone is more than a phone, it is a statement or symbol to inspire the industry to look at social and environmental issues in the supply chain. We want to create change in four areas: design, mining, manufacturing and electronic waste (“e-waste”). We intend to speed up innovation and bring the customer closer to the product. It is a movement for change which Fairphone is taking step by step in creating a fair product through interventions in the supply chain. We are often introduced as the fairest phone, but it is really important that our mission actually is to make a testimonial for creating a fairer electronics supply chain.
Fairphone always emphasizes that the phone that was brought out is not entirely fair. However, there is no clear definition of what fair is and what this implies. Everyone perceives it as something different. Does Fairphone have a definition of what it identifies as “fair” and how you want to go about in achieving it in the long run?
We called the phone Fairphone because we want to start a discussion about what “fair” is. We also realized that there is no such thing as a 100% fair product. It should be a debate about what is happening in the supply chain. Fairphone is also a name to start a discussion about fairness. To go about this we look at the four focus areas I mentioned before (design, mining, manufacturing and e-waste/recycling). In all of these areas we want to understand what the social and environmental issues are and we want to see how we can make them better. We look at international conventions, talk to stakeholders and try to connect people who have been working with these domains for a long time to see how we can make step by step improvements. As a social enterprise we want to combine the business activities with having a social and environmental impact and being more transparent. We want to give the consumer the ability to decide for themselves what is fair for them. This happens by creating transparency in the supply chain.
Fairphone currently uses tin and tantalum from fair sources through collaboration with the NGO “Solutions for Hope” in the Democratic Republic Congo (DRC) and with the CFTI “Conflict Free Tin Initiative”. Do you conduct assessments of mining sites?
No, these two minerals come from conflict-free validated mines in the DRC. We have joined the projects as a buyer together with several other companies. By sourcing our tin and tantalum here we created demand that benefits local economies. This is the first step. The next step involves looking for example at health and safety issues and working conditions. Assessments exist, and we get the related reports which are all available on the websites of these initiatives, but they are run by the organizations that set up the supply chain – for example the CFTI is an initiative of the Dutch government and local NGOs in the DRC. Besides now focusing on local improvements, a future step could be to conduct assessments on the closed-pipe supply chain of smelters or component manufacturers and their factories but we are not there yet.
How did you audit and then select the producers for the first generation Fairphone?
First of all, it is important to note that we call them assessments rather than audits. We are trying to assess the situation to see where we can create positive impact together with our suppliers and how we can improve the situation also in the long run – not just go around with a check box. But yes, we chose the factory in China based on a list of criteria. We wanted the suppliers to know that we are interested in social and environmental issues as well as costs and financials. It’s good to remember that at this time, we had no proof of concept, no funds, no design. We were also limited in selecting a fitting supplier. Besides the criteria, it needed to be clear that we wanted to work together to see what can be improved. On a basis of mutual benefit. This meant working on a short-term improvement plan, like better fire exits and solving health and safety issues, but at the same time considering long term issues such as overtime and fair wages to see how we can jointly improve them. That’s how we came up with the model or mechanism of the Worker Welfare Fund.
Implementation of agreed actions is a key challenge to ensure to meet the highest possible standards.
Indeed. We no longer produce at the same factory but for Fairphone 2 have had to move to a different one. This mostly had to do with the design of the Fairphone 2. However, for the production of the first Fairphone we had someone who was based on-site, and present to monitor the issues on our improvement plan were implemented and maintained. The improvement plan was based on two separate (one announced and one unannounced) assessments by an independent agency which were carried out over the course of six months. Off-site visits were carried out as well as on-site visits.
Fairphone wants to influence/motivate other electronics companies to change their production system, strategy and supply chains to take sustainability serious. Have there been any big electronic companies who approached you in order to inquire about your practices or about becoming more sustainable themselves?
At events and conferences we get to talk to many people in the electronics industry and we are in some joint initiatives with big electronics companies, like the CFTI. We are collaborating with companies in our own supply chain, like with our PCB manufacturer on setting up pilot projects around supply chains for more fairly sourced materials and with telecoms operators like Vodafone, KPN and Deutsche Telekom. Being a platform to try out new models is part of creating impact on a larger scale, surpassing our own supply chain. It is great that we seem to bring together people in the same company who – before Fairphone – would never have talked to each other. The sustainability department of one company getting together with the marketing, procurement and production department in the same company to talk about Fairphone. They were able to see this collaboration as an opportunity and show that cooperation of sustainability experts with those in the supply chain and product development is crucial to create change from the inside-out. People come back to Fairphone and say that we have created momentum to start talking about sustainability in a cross-functional and cross-company manner, which is great to hear.
What you are saying here is extremely interesting. Many companies have sustainability departments that never collaborate with their colleagues in the supply chain. Breaking these internal boundaries has a lot of potential. There are still so many silos in companies and therefore it is great to create this kind of discussion. Does this mean that in the future you see yourself join forces with big electronic companies to help them more actively in achieving sustainability?
Bigger companies have more resources and there are some really good sustainability initiatives out there. We are not competing with them; in fact, we are small and can experiment with how to speed up innovation and bring the consumer into the process, it’s the bigger companies who can use their knowledge on how to scale successful models.
The other side of Fairphone is consumers and their behavior; the average person gets a new mobile phone every 1.5 or 2 years. How do you think Fairphone can change this make-use-throw-away attitude?
Over the years, the mobile industry has created an expectation for consumers that their phones need to get replaced every few years. Other electronics such as washing machines, however, have to last as long as possible. This mentality has to do with both the offers consumers receive, their expectations and with recent technological developments. For us this is particularly interesting. The focus on Fairphone 2 has been to design our device from the ground up. Where the first model was a licensed design from the factory, now we get the opportunity to look both at the design for consumers as well as theoretically designing our own supply chain. By doing so can take the whole process and lifecycle into account. We have focus our design on longevity, ownership and transparency and particularly longevity marks a paradigm shift in the industry. How can we make something that last as long as possible? This is not only about how durable but also how repairable it is. In this way, we can influence the two areas where the highest emissions of Co2 take place, namely in production and recycling. In other words, the longer people keep their phones, the less phones need to be made. And the easier it is to open up, the less energy is needed to recycle. We concentrated on the use phase of the product to see that people are actually proud to say that they use their phone for many years. We want to offer the phone to people who wish to keep their electronic goods for longer, who can fix the phone and maybe also put their own operating system on it. People often feel that technology is something they can’t repair so we aim to make it easier for them to actually do so.
Fairphone is also very much about raising awareness and showing them that it is possible to use a phone for many years.
Recent figures of the big service providers show that SIM-only contracts have increased. This means that they purchase their phones outright or that they don’t get a new phone when they sign a new contract. This is a change from the ubiquitous subsidy model, when it is often not clear to consumers how much they pay for the actual phone and how much for the service. This shows that there is no transparency about the value of the phones people buy. But a smart phone obviously costs more than the €0 stated in a provider contracts. When bought without a contract a phone is a big investment, so people who buy a Fairphone know that they have spent quite a bit of money on a phone and can in fact see in our cost breakdown where their money goes.
The price of an iPhone is around €700. If people had to pay this at once they would probably think very carefully about buying a new one after only one year rather than keeping the old one. Making people aware of how expensive a phone is can certainly be a good step towards decreasing overall consumption levels. Talking of consumption, where do you sell most of your Fairphones?
Germany is our biggest market, with more than 40% of our sales, followed by France, Switzerland, the Netherlands, Austria and the UK.I often get asked why we are so strong in Germany and I believe there are several reasons for this. Sustainability issues are very much part of everyday life, politics and the media and it almost seems like a taboo not to talk about environmental and social concerns. Until now, we have never paid to advertise Fairphone so it is all community driven through peer-to-peer communication and social media that provides us with a lot of free advertising.
The countries you mentioned all belong to the developed world. People in less developed countries are catching up and looking for new devices?
We are trying to create a competitive phone and show that a phone with our business model can exist at a good price. We have seen people in the developing world who are tired of products that break all the time. For these markets the motivation might or might not necessarily be the same as for Europeans, but I believe people are definitely susceptible to the idea of Fairphone. A challenge is to make the product affordable and available for everyone. But Fairphone does not have to become something that reaches all consumers. We hope that more awareness among a greater group of people can start momentum for the change, both in the market and the greater industry. Fairphone’s main aim is not just to gain market share, although we need to grow to strengthen our influence. Our main aim is to create positive impact across the electronics industry. That’s why we have taken a commercial, market approach and hope that the demand for fairer electronics in the end will extend beyond what we can offer. Scaling up is one of the challenges we face, but that’s a skill the bigger brands have mastered and that is where the true impact lies.
Yet, you already start a scaling-up process as the number of phones you will produce for the second generation Fairphone will be higher than those of the first.
Yes. We are currently working on the second generation Fairphone. Like with the first one, we relied on crowdfunding, or a pre-order model to start production. This means that people pay in advance and before we start producing. The big step have taken now is to design our own phone. This is quite a big leap on investment for us, but through this we can choose our own suppliers, have better control over the materials and production processes and go deeper into the supply chain
We first work out the bill of materials for our new phone, and then look at suppliers. The supply chain for electronics is complex. It is not like bananas or coffee, which exist out of one commodity, instead electronics consist of hundreds of supply chains that come together in one product. It is therefore impossible to know all your suppliers immediately, so we will first map the supply chain and work with key component suppliers on creating improvement. Last time, for example, we were able to get two conflict-free and traceable materials into the supply chain and now we want to add the next to two conflict-free materials, tungsten and gold. This has been quite a journey to understand how to integrate fair gold. With the new phone, we have the opportunity to work with component manufacturers to see if they have fair gold solutions or if we can set up pilot projects together. The great thing about this approach is that the impact can extend beyond our supply chain to the supply chains the manufacturer has for other products.
Regarding the timeline and volumes of Fairphone 2, we intend to do another pre-order campaign (probably starting in September 2015). Remaining independent has been really good for us in order to build our company around our social mission. The expectation is that the phone will be released in late 2015. We started a sign up for the pre-order in February and people signed up for it very quickly. Besides this, we also look into collaborating with resellers who can offer the phone.
What do you see as the biggest obstacle in producing a fair smart phone? Are there international differences?
The biggest challenge (as well as opportunity) is to get all stakeholders working together for a higher shared goal. We live in an economic system where people are competing for market share. It is important to find partners who understand that the shared goal we have is higher than the immediate output and market share. These are people who really want to work towards long-term objectives. Another continuous challenge is in mining and sourcing from the DRC. It is difficult to work with volatile regions like the DRC as the conflict there is highly complex which makes it hard to achieve long term change.
On a company level the issue we are facing now is that we are a production company but at the same time try to raise awareness and build a community, not just customers. Expectations are that by 2016 we sell between 100,000 and 150,000 phones a year, which is not a lot in industry terms, but quite substantial for us. In 2016 we want to start selling our product in the US, which is quite a different market. Scaling up therefore is a challenge for us. During growth we need to organize ourselves around our social mission, but also lean enough to maintain a sustainable business model. We constantly face the question whether we are a campaign or a phone company, I hope one day the idea of a ‘social enterprise’ is so engrained that you don’t need the word ‘social’ before enterprise anymore.
Tessa, thank you so much for your time and insights.