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CHAPTER 2 OPERATIONS STRATEGY IN A GLOBAL ENVIRONMENT 51 Ethical Dilemma As a manufacturer of athletic shoes whose image-indeed performance-is widely regarded as socially responsible, you find your costs increasing. Traditionally, your athletic shoes have been made in Indonesia and South Korea. Although the ease of doing business in those countries has been improving, wage rates have also been increasing. The labor-cost differential between your current suppliers and a contractor who will get the shoes made in China now exceeds $1 per pair. Your sales next year are projected to be 10 million pairs, and your analysis suggests that this cost differential is not offset by any other tangible costs; you face only the political risk and potential damage to your commitment to social responsibility. Thus, this $1 per pair savings should flow directly to your bottom line. There is no doubt that the Chinese government engages in censorship, remains repressive, and is a long way from a democracy. Moreover, you will have little or no control over working conditions, sexual harassment, and pollution What do you do, and on what basis do you make your decision? Michael S. Yamashita Cortis

Answer 1

Answer:

The company should continue with the decision of producing the athletic shoes in Indonesia and South Korea since the environment and the ease of doing business in these countries is favourable to the company as far as it social responsibility is concerned.

The labour cost differential between the current supplier and the contractor in china exceeds $1 per pair i.e. the current supplier from Indonesia and South Korea is charging $1 higher than the contractor who will be making shoes in Chine. The company wants that this $1 saving would be transferred directly to the labours working for the company if the company starts the manufacturing the shoes through the new contractor in china.

However, manufacturing the athletic shoes in China brings several limitations on the policy of conducting the smooth business and will make the negative image of the company as far as its image of social responsibility is concerned. These limitations include:

1. Chinese government engage in censorship which may result into the threat of interrupted communication between the company and the contactor from china and this may result into the threat of monetary loss to the company and threat of losing the access to the markets by the government of China. Censorship may also limit the business from accessing the international markets.

2. Chinese government is repressive i.e. it restricts the personal freedom of the people. This may affect the ease of conducting smooth business between the contactor and the management of the company in an adverse manner.

3. There is no democracy in China. It may be difficult for the management of the company for getting adapted to this environment.

4. Working condition of china is not appropriate and thus it hampers the business environment.

5. Pollution and sexual harassment also pose a threat for conducting the smooth business in china and will hamper the image of social responsibility of the company.

Thus, doing business in China and making the athletic shoes in china will add a negative impact on the reputation of the company and will impact adversely to its image of being socially responsible. The brand image of the company may go down resulting into the low sales and less revenue generation as Customer might shift to the products of the competitors if the brand image of the company goes down. The political risks and the potential damage to the social responsibility of the company that may result from doing the business in China will outweigh the saving of $1 and transferring the benefit to the bottom line.

The environment of Indonesia and South Korea is getting better and the increase in wages can be managed by saving in the cost of goodwill and brand image of the company that may hamper as a result of producing the product in China.

Thus the company should continue with doing the business in Indonesia and South Korea.