As the world becomes smaller and the global marketplace increases, companies have been establishing plants in nations in which the labor costs are cheap. While many deride this practice as a loss of jobs in the home market of the company, others argue that consumers are demanding less expensive goods. This demand for less expensive, same-quality goods, is resulting in new plants in third-world nations, or outsourcing to companies who can provide less expensive goods because of inexpensive labor costs.
Ethically, the challenge for companies is to hold its employees, subcontractors and contractors in other nations to the standards the company has established in its home nation. Most companies have established a Code of Ethics, and companies seeking to establish plants abroad struggle to maintain their standards and uphold their ethical principles. In the textile industry, for example, this struggle has been visible for many years. Companies such as Russell Corporation, Gap, Wal-Mart, and others have plants around the world – in Honduras, India, China, and other less-developed or less wealthy nations.
When companies establish these plants, they are best served when they establish a method of educating the workforce about their ethical principles, and enforcing those principles. The failure to have a method of checks and balances in other nations can be catastrophic to companies. Public relations nightmares are the watchword when a company’s overseas plants are found to violate ethics and engage in poor human rights practices. Because of sensitivity to the loss of domestic jobs and an overarching sensibility of basic human rights, watchdog groups are ready to pounce when they detect unfair or unethical practices.
Ethics, as the practice of values, is where the proverbial rubber meets the road. Talking about ethics and producing a document or code is one thing, but living the ethics can be a difficult task abroad. The reason is that different cultures have different ethics. A practice considered to be completely wrong in the United States – bribery of government officials – is commonplace in places like Mexico and some Latin American countries. Such a practice is considered to be the norm. Companies should investigate the ethical principles of other countries before they seek to establish a plant, and determine which principles they will follow.
The choices are to follow the principles of the nation in which their headquarters are located, or have a different set of principles for each site. Most companies choose to keep one set of principles to be established throughout the world. The difficulties arise when these principles are not upheld, and companies face a challenge of what to do when breaches of ethics occur. Of the ethical dilemmas facing companies overseas, perhaps the most controversial is the use of Child Labor.
In the early days of the United States, children worked in fields and factories, as the nation moved into the modern era (Whaples, 2005). While few objected to farm children, conditions in factories resulted in an uprising of public sentiment against child labor, and led to the establishment of laws to protect children (Whaples, 2005). Although the United States has advanced to the point that children are not generally pressed into service to help support the family, other nations around the world are still in transition from an agrarian society to an industrial age.
As they make this transition, they are experiencing the same struggles, and some new ones, that the United States experienced in its early years. The dilemma, for global companies, is to decide whom they will hire. If they hire children, they need to anticipate a backlash due to the practice. Wal-Mart, the world’s largest retailer, very publicly faced a child-labor issue when its Kathie Lee line was found to have been producing clothing using child labor in sweatshop-like environments in Nicaragua, Honduras, and in the United States in plants in Manhattan (Ortega, 1998).
When investigative reporters and watchdog groups revealed what was happening, Kathie Lee Gifford, the spokesperson for the line, was mortified. She took Wal-Mart to task in public statements, and stated that she was very disappointed that they had not enforced proper ethical practices in their plants (Ortega, 1998). She and her husband established a foundation and assisted immigrants and women and children in poorer nations, and invested millions of her own dollars to address the issue.
Wal-Mart established inspection teams to police the practices in their plants and with their suppliers, but the stain of that event still carries over into the public psyche today (Ortega, 1998). One might expect that the public debacle faced by Wal-Mart would have educated other companies participating in the world market. Unfortunately, some lessons are learned from experience. Such was the case with Gap. A world brand, Gap was found, in 2007, to have been using child labor in India.
That in itself was not surprising to the public, but the fact that these children had been sold by their parents to subcontractors for Gap was a fact that the public found deplorable. Britain’s Observer Newspaper broke a story in which a boy told them he had been sold to Gap by his parents (CNN, 2007). Gap, in response, indicated that they were unaware of the practices, and the President, Marka Hansen, stated that the company had put practices in place to prevent such measures years before (CNN, 2007). In fact, she stated that, “In 2006, Gap Inc. eased business with 23 factories due to code violations. We have 90 people located around the world whose job is to ensure compliance with our Code of Vendor Conduct (CNN, 2007). ” While Gap could have closed the plants and taken their business elsewhere, the company chose to stay and reform the plants, because, as Marka Hansen stated, “it would deprive those working in proper conditions of their income (CNN, 2007). ” Such is the dilemma – how to keep a plant open, pay a living wage, maintain codes and standards of conduct and working conditions, and produce a profitable product.
As the world becomes smaller, some of these dilemmas may disappear. Nations in which the plants are established will begin to enjoy a higher standard of living, and there may be an equalizing of costs and expenses, resulting in a world economic climate in which there is a level playing field. Until then, however, companies need to be aware of the potential for breaches of ethics, and educate their employees in other nations about the code of ethics and the company’s enforcement methods.
Additionally, companies can strive to hold their suppliers and subcontractors to the same practices. This is not merely an altruistic measure – it is in the company’s best interests to maintain high ethical standards throughout its supply chain. Wal-Mart, Kathie Lee, and Gap could all attest to the costs in terms of customer goodwill and long memory of the consumer when it comes to breaches of ethics. Good ethical business practices may be difficult to enforce and maintain, but the failure to do so can be disastrous for the company.
References CNN. com. (2007, October 29). Gap: Report of kids’ sweatshop ‘deeply disturbing’. Retrieved November 1, 2009, from http://www. cnn. com/2007/WORLD/asiapcf/10/29/gap. labor. Ortega, B. (1998). In Sam we trust: The untold story of Sam Walton and how Wal-Mart is devouring the world. New York. Times Books. (pp. 328-335). Whaples, Robert. “Child Labor in the United States”. EH. Net Encyclopedia, edited by Robert Whaples. October 7, 2005. Retrieved November 1, 2009 from http://eh. net/encyclopedia/article/whaples. childlabor