MAN-4504 Palm Beach State College – As a manufacturer of athletic shoes whose image—indeed performance—is widely regarded as socially responsible, you find your costs increasing.

QUESTION

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.Please help me with any suggestions and pointers on ways to go about answering this question. Thank you.

ANSWER

Balancing Cost, Social Responsibility, and Political Risk: Manufacturing Dilemma in the Athletic Shoe Industry

Introduction

In this essay, we will discuss a manufacturing dilemma faced by a socially responsible athletic shoe manufacturer. The company traditionally sourced its products from Indonesia and South Korea but is now considering shifting production to China due to lower labor costs. However, this decision raises ethical concerns regarding working conditions, political repression, and environmental impact. We will explore the various factors and considerations that should guide the decision-making process in such a complex scenario.

Cost Analysis and Bottom Line Impact

The company’s analysis reveals a significant labor cost differential of $1 per pair of shoes between the current suppliers and the potential contractor in China. With projected sales of 10 million pairs, this cost savings would directly impact the company’s bottom line. However, it is important to evaluate whether this financial gain justifies compromising the company’s commitment to social responsibility.

Ethical Considerations and Social Responsibility

The company’s image as a socially responsible brand is a crucial aspect of its reputation and customer loyalty. Shifting production to China, a country known for censorship, political repression, and poor working conditions, poses ethical dilemmas. The company must consider the potential negative consequences on workers’ rights, environmental sustainability, and its overall commitment to social responsibility.

Political Risk and Loss of Control

Operating in countries with political repression raises concerns about the lack of control over working conditions, sexual harassment, and pollution. The company must assess the potential damage to its brand reputation and customer trust if these issues were to emerge in the supply chain. Additionally, political risks such as sudden policy changes, trade disputes, or geopolitical tensions could further impact the company’s operations and profitability.

Stakeholder Engagement and Transparency

To make an informed decision, the company should engage with stakeholders, including employees, customers, investors, and advocacy groups. Understanding their perspectives and concerns regarding the potential shift to China is crucial. Transparent communication regarding the decision-making process, the company’s commitment to mitigating risks, and its long-term vision for social responsibility will help maintain trust and support from stakeholders.

Exploring Alternatives and Mitigation Strategies

The company should consider alternative approaches that balance cost efficiency and social responsibility. Exploring options such as renegotiating contracts with current suppliers, investing in automation and process improvements, or seeking partnerships with manufacturers in countries that align better with the company’s values could be potential solutions. These alternatives can help mitigate risks while maintaining a competitive edge and fulfilling social responsibility goals.

Conclusion

The decision to shift production to China, driven by cost considerations, poses a complex ethical dilemma for the socially responsible athletic shoe manufacturer. Balancing financial gains with social responsibility, the company must carefully evaluate the potential consequences on working conditions, political risks, and its commitment to environmental sustainability. Engaging stakeholders and exploring alternative strategies can help navigate this challenge, ensuring a decision that aligns with the company’s values, maintains its brand reputation, and supports long-term sustainability in the athletic shoe industry.