Reference no: EM131917331

Problem: Social Responsibility to Host Country

When doing business abroad, does a firm have social responsibilities to the host country beyond those required by the market and the law of that country? This issue has arisen in many contexts, including factory labor conditions. Not infrequently, corporations have been chastised for allowing working conditions in their foreign operations or in their suppliers' plants that Western cultures consider substandard. Such sweatshops pose a host of commercial, economic, ethical, political, and social questions. For example, on April 24, 2013, 1,129 people died when a multistory building collapsed in a suburb of Dhaka, the capital of Bangladesh. Only a day earlier, cracks had been discovered in the building, which housed retailers on the lower floors and a number of clothing factories on the top floors. In response to the discovery, the retailers immediately closed, but the owners of the factories on the higher floors insisted their workers continue to produce the clothing that was destined for European and American consumers. As evidenced by the over 5,000 garment factories employing more than 3.2 million workers, low labor costs have attracted nearly every major clothing company to Bangladesh, where unsafe factory facilities have long been a problem. Only five months earlier, a fire in a similar factory killed 112 workers after which importers, including Walmart, pledged to do more to ensure worker safety, but little was achieved. The call for Western buyers to take effective action came loudly and immediately following the loss of life in April 2013.

Despite the renewed outcry, real reform does not appear to be on the near horizon.14 Traditionally, free-market economists have believed that sweatshops are necessary and beneficial. Sweatshops allow the economies of developing countries to improve because their export sectors expand and consumers in global markets are better off because they pay less for the products they buy. This faith in the market is based on the concept of comparative advantage: that developing countries typically have a comparative competitive advantage in cheap labor while developed countries have comparative advantages in such things as an educated workforce, manufacturing infrastructure and expertise, certain particularly well-developed industries, and so on. These economists argue that sweatshops have been an element of every developed country's transformation from an agrarian society to an urban-based, highly industrialized economy. If poor countries want to develop, a sweatshop stage is necessary, they say.

The expected progression holds that, as exports from a developing country rise, its local economy grows, generating funds that can be used in part to increase the overall standard of living and to invest in education and infrastructure, which, in turn, will allow the country to compete on other bases. Other economists disagree that all developing countries must necessarily endure a sweatshop phase. A pure free market, or hands-off economy, does not exist either in industrialized countries or in the developing world. Governments often play a role in creating comparative advantages. For example, in Bangladesh the government has set the minimum wage at $37 per month; it prohibits many workers from organizing labor unions and workers in industries which may be unionized face rules that make success challenging; it has set building standards, but does not effectively enforce them. In addition, the increase in national wealth referenced by free-market economists, often created by poor laborers, may for a considerable time find its way primarily into the hands of industry heads and government employees.15

Question

If you were the vice president for supply chain management for a large manufacturer or retailer, what type of labor standards would you impose on suppliers from other countries, if any?