Introduction
Global sourcing is a reality of today’s corporate world. Very few firms can hope to remain competitive in the current competitive landscape without resorting to some form of global sourcing or outsourcing. However, this globalization comes with several ethical issues. One of the biggest issues is the different ethical standards in developing countries when compared with western and especially American countries. This leads to an ethical dilemma for many managers, since on one hand there are huge cost savings and on the other hand the ethics of outsourcing work to a country with questionable ethics. There are no easy answers to this dilemma but as the manager of a company which has some major suppliers in developing countries with questionable labor practices, this is a problem I need to find an answer to.
Competitive Landscape
Before I decide what action is the best in the given situation, I need to analyze the competitive landscape in which my company operates. We are living in a hypercompetitive era with extreme emphasis on price, quality, customer satisfaction and innovation (Hitt, 1998). The technological revolution has led to increased globalization and now even small organizations can become global players using the internet, teleconferencing and other technological tools. This has led to an ever increasing competition and in order to survive, companies must innovate constantly and produce high quality products and services at low prices to “satisfy the increasingly informed customers” (Hitt, 1998).
Global Sourcing
One way to reduce cost is to outsource manufacturing and other routine functions to low cost developing countries. Besides cost reduction, such a global strategy also gives competitive leverage to a company (Yip, 1989). However, a company should opt for outsourcing or global sourcing for the right reasons. Outsourcing processes just for the sake of outsourcing is never a good strategy. A company must first evaluate its internal processes and if it can boost efficiency by tightening up its operations and improving technology, then it does not make sense to outsource (Kripalani, 2006). In the present case, the company is already following a global sourcing model. However, the model needs to be reevaluated for cost savings and efficiency and if similar efficiencies can be obtained at home, it might be better for the company to abandon its global suppliers. Yet, given the high costs of manufacturing in the US, this is unlikely to be a viable alternative and so the next question is of how to make global sourcing ethical.
Sweatshops
Manufacturing units in the developing world often have very poor standards when compared to the American standards. The wages are extremely low, work hours are prohibitively long and conditions are often dangerous. Yet, such sweatshops may not necessarily be evil, especially in very poor countries, where a salary of $1 a day could save many starving families (Kristof & Wudunn, 2000). If the owners of these sweatshops do not violate basic human rights and offer reasonably safe conditions to the workers, a sweatshop may actually be better than nothing at all. Banning a sweatshop may do more harm than benefit the people of these desperately poor countries. However, if American companies can help ensure that the workers in these sweatshops have the right to basic human facilities and are not exploited, the relationship between the American companies and the sweatshop can prove to be mutually beneficial.
The example of athletic footwear industry is a case in point. Criticized for sourcing their products from low-wage, poor working conditions countries, many brands initiated a Corporate Social Responsibility department to manage, audit and report on supply chain issues (Nijhof, Forterre and Jeurissen, 2008). Thus, being proactive with regards to the working conditions in the supplier’s factories in developing countries is one way to avoid the ethical dilemma. In the present case, while the low wages may not be an issue, the company can make a difference by appointing auditing mangers to make sure that the sweatshops managers are not physically abusive and that the working conditions are humane.
Ethics of sourcing from sweatshop
Different countries have different ethics and it is neither possible nor acceptable to enforce western standards of ethics on countries with a different perspective. However, this does not mean that American companies should completely ignore the working conditions in the factories in developing countries and focus only on their profits. When deciding which practices are acceptable and which are not, companies and factories can be guided by the three principles mentioned by Donaldson (1996). These principles are respect for core human values, respect for local traditions and context matters when deciding what is right or wrong.
When a company sources from a developing country, it needs to pay attention to these three principles. As Donaldson (1996) explains, core human values are a right to good health and a right to economic advancement. In a desperately poor country, a sweatshop gives the workers the right to advance economically and improve their standard of living. As Kristoff and WuDunn (2000) have reported, sweatshops have actually changed the economy of developing countries so they cannot be all bad. However, the poor working conditions mean that the workers’ right to good health is being violated. Here, American companies can make a difference by insisting on certain basic conditions and threatening to cancel the contract if those basic conditions are not met. Sweatshops cannot be condemned just because they pay low wages and have long working hours. As Donaldson’s third principle states, a sweatshop has to be seen in the context of the country where it is situated and its ethics determined accordingly.
Conclusion and Recommendations for the Organization
Since international sourcing is unavoidable in today’s corporate scenario in order to remain competitive, the organization cannot afford to sever ties with its suppliers in developing countries just because they do not conform to American standards of ethics. A better strategy would be to work with the suppliers to come up with working conditions which are ethically acceptable to all concerned. For example, giving the suppliers enough time to prepare an order will ensure that the managers do not enforce unrealistically long hours on the workers. Another best practice in global sourcing is to conduct regular site visits of the suppliers. Although it involves incurring additional travel costs, it has several benefits as mentioned by Trent and Monczka (2002) and one of these benefits is that such site visits can help keep a check on supplier’s management practices. The organization could insist on certain minimum health conditions in these factories and then conduct regular audits and site visits to ensure that the sweatshops do violate them. This should help solve the ethical dilemma for the American organization.
References
Donaldson, T. (1996). Values in tension: Ethics away from home. Harvard Business Review. 1996, 48-62.
Kripalani, M. (2006). The future of outsourcing. Businessweek, 2006, 60-61.
Hitt, A.A., Keats, B.W. & DeMarrie, S.M. (1998). Navigating in the new competitive landscape: building strategic flexibility and competitive advantage in the 21st century. Academy of Management Executive, 12(4), 22-42.
Kristoff, N.D. & WuDunn, S. (2000). Two cheers for sweatshops. New York Times Magazine, 2000, 70-71.
Nijhof, A., Forterre, D. & Jeurissen, R. (2008). Managing legitimacy issues in global supply chains: the case of the athletic footwear industry. Corporate Governance, 8(4), 506-517.
Trent, R.J. & Monczka, R.M. (2002). Pursuing competitive advantage through integrated global sourcing, Academy of Management Executive, 16(2), 66-80.
Yip, G.S. (1989). Global Strategy… In a world of nations? MIT Sloan Management Review, 31(1), 29-41.