Running head: GLOBAL ETHICS IN MANUFACTURING OUTSOURCING
Global Ethics in Manufacturing Outsourcing
Robinson, Stone, and Zimmerman
MGMT 560 Ethics in Global Marketplace
November 4, 2012
Dr. Roger Fuller
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GLOBAL ETHICS IN MANUFACTURING OUTSOURCING
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Global Ethics in Manufacturing Outsourcing
Choosing the subject of ethical philosophies as pertaining to manufacturing outsourcing.
This highly used and controversial method of production has many facets and there are several
supporters as well as opponents throughout the academic, political, philosophical, and business
worlds. Although a complete analysis of this subject cannot take place in this medium, certain
key points have been chosen. Companies known for their use of outsourcing in three different
industries; therefore, this gives a well-rounded discussion of the three ethical philosophies
chosen as particularly fitting for this subject. Mattel Inc, Ford Motor Company, and Apple Inc.
as the outsourcers were chosen. The use of these companies represents the automobile, toy, and
consumer electronic industries as they utilize outsourcing frequently. Each company will be
introduced and then evaluated by the authors citing academic sources defending and or opposing
outsourcing as a manufacturing method using the moral absolutist, libertarian, and cosmopolitan
ethical philosophies. During the research period the authors became aware that in certain
outsourcing situations more than one opinion could be formed by some of the philosophies. In
this case, the authors may appear to contradict themselves by expressing more than one
viewpoint. This is by design the intent of the authors to point out the complications that occur by
the conflicting viewpoints within philosophies. In all sections the authors strived to present as
much information possible without becoming repetitive. However, similarities may appear due
to the same subject matter but different company. In the conclusion, the authors shall provide
any fundamental findings or make points that the authors found particularly important within the
discussion. Although this discussion should be conclusive there are no limits to the possibilities
and opinions.
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Mattel Inc.
Mattel is a toy company that was founded in 1945. With locations in over 40 countries,
global ethics is something that the company takes seriously (Mattel, 2005). Mattel has
developed rules not only for dealing with their own facilities around the world, but also dealing
with their suppliers. While dealing with branches of the company in different countries can be
difficult, controlling the conditions of the suppliers can be even more challenging.
In the mid 1990’s news stories were breaking that were exposing companies for the
exploitation of the workers that were producing their products. These articles targeted
companies that exploited workers in terms of age, low wages, work hours, and unsafe work
environments; were detrimental to the environment in terms of pollution and contamination.
Most of the companies that were exposed for exploiting their workers were companies in the
clothing industry. However, Mattel Toy Company was caught off guard by news story that aired
on Dateline in mid-December of 1996. This story was about underage workers that were
working long hours and excessive overtime to produce products for Mattel (Sethi, 2011). In
response to the embarrassment that Mattel suffered in the exploitation of children to produce
their product when they were a company that claimed to be family oriented, Mattel developed a
Global Manufacturing Principal guide.
While many companies at the time were releasing some kind of guild to deal with
branches of the company and suppliers that operated in different countries around the world,
Mattel approach was slightly different. First released in November of 1997, the Global
Manufacturing Principal of Mattel included created detailed standards of compliance,
independent external monitoring of the companies compliance, and full and uncensored public
disclosure of audit findings and the company’s responses to the findings (Sethi, 2011).
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Moral Absolutist View
Mattel approached the Global Ethics with a moral absolutist view after the Dateline news
article aired. During this time period Mattel approached to their Global Manufacturing
Principals as black and white. The detailed standard of compliance, external audits, and
disclosure of all audit findings and responses showed that the company view on what they
considered right and wrong was clear. The standards that they put into place defined wages and
hours, child labor, forced labor, discrimination, freedom of association, working conditions, legal
and ethical business practices, product safety and product quality, environment, customs,
evaluation and monitoring, and compliance (Sethi, 2011). Mattel worked hard to hold their
managers accountable for any violations of their Global Manufacturing Principals and their Code
of Ethics.
The drive was from the top down with the executives having regular meetings to discuss
the issues that were currently affecting the different sites around the world and the solutions that
were being applied. With the executives constantly monitoring the progress of each site and
taking an interest in the corrective actions that were being applied and effectiveness of the
solutions the first line manager were energized in the pursuit of compliance to the newly set
principles. With several issues needing to be worked and the support of the top level executives
in the company, employees were excited to make changes to the processes of the company. The
employees felt like their work toward being a more ethical company was important and was
making a difference not just in the facilities that they were working in but also the communities
that they were in and the industry as a whole. This feeling of achievement coupled with the
accountability of the audit finding not only being seen with in the company, but also to the
general public shaped up the companies facilities and resulted in few audit finding from the
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external auditing company. Mattel kept Global Ethics as a main company concern, revising the
Global Manufacturing Principles in 2001 to make zero tolerance provisions (Sethi, 2011).
Libertarian View
Mattel’s Libertarian view came out after the company was able to implement the Global
Manufacturing Principals in their own facilities across the globe. Implementing the principles
within the Mattel facilities, there was a since of pride and accomplishment that accompanied the
push for ethical responsibility. Any violation of the ethics principals that were set forth was a
direct reflection on the company. Not only were the policies promoting basic human rights,
workers’ rights and safety, it also protected the company against embarrassing news stories like
the one in 1996. Abiding by the Global Manufacturing Principles had the biggest effect on the
culture of the company. After the cultural shift, Mattel did not see a dramatic effect on the
bottom line to implement these changes (Sethi, 2011). This win/win situation made it an easy
sell to implement and stay compliant within their facilities; however the supply base provided a
new set of challenges.
The suppliers that Mattel was currently using were not as committed to making these
changes. To ensure that the supplier companies were compliant would take a great deal of
oversight from Mattel and limit the suppliers that they were able to use. The additional oversight
to ensure that the suppliers that produced their products by the principles that had been outlined
was increasingly complicated. Supplier that practiced policies that fell outside of Mattel’s
Global Manufacturing Principles either had to be replaced or monitored to ensure that Mattel’s
products were not produced using those policies (Sethi, 2011). Another issue that complicated
supply chain monitoring was the fact that much of the work was no done by the company that
Mattel had contracted with, but one of their suppliers. Trying to monitor the suppliers several
tiers under the original supplier proved to be costly and time consuming. By trying to monitor to
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this level of compliance when Mattel’s competitors were not the company was becoming in
jeopardy of not being able to keep cost competitive. Without the public outcry to drive change in
their competitors Mattel had to choose between being profitable and having a higher ethical
standard. Mattel realized that to survive the company needed to be profitable and was reluctant
to follow through with disciplinary action to the violating suppliers, leading up to the massive
recall of 2007 (Gilbert, 2010).
Cosmopolitan view
From a cosmopolitan view, Mattel supported the idea that all of the people should enjoy
basic human rights in labor and safety and natural resources. The Mattel Company is a very
family oriented company that promotes family values and ethical responsibility. Mattel created
the Mattel Children's Foundation was established in 1978, to make a meaningful difference, one
child at a time. To reinforce its commitment to the children, in 2005 Mattel also partnered with a
number of other children’s charities. The charities that Mattel partnered with; Special Olympics,
Save the Children, the Mattel Children's Hospital at UCLA, the National Association of
Children's Hospitals and Related Institutions (NACHRI) and the Children Affected by AIDS
Foundation (CAAF) all focus on the health and well-being of children (Mattel, 2005).
Despite the highly publicized ethical issues that Mattel had in 1996 and 2007, Mattel is a
leader in corporate responsibility. Mattel acted to correct the child labor issue of 1996 with new
policies and guidelines, and corrected the safety issues of 2007 with a massive recall and stricter
supplier oversight (Gilbert, 2010). Not only was Mattel name one of the best companies to for in
2009, it was named one of the world’s most ethical companies in 2009 and 2010 by fortune
magazine (Mattel, 2010). Mattel’s constant work toward human rights especially with the
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involvement of children has earned them a leadership role in corporate responsibility that is
shared by few other companies in manufacturing.
Ford Motor Company
According to Ford Motor Company (2012), they are global leaders in the automotive
industry with 65 plants spread across six continents, and employing 168,000 employees. Ford
was founded in 1903; they shipped their first cars to Europe in their first year and in 1911
manufacturing in Europe began. Due to “a more than 20% drop in total industry demand in
Europe since 2007” (Ford Motor Company, 2012, par 4) they are closing the Belgium
manufacturing plant, which will be a loss of 43,000 jobs; however, this is a required move to
strengthen Ford’s business and return them to profitability in Europe. The Belgium plant was
underutilized and all manufacturing functions were moved to other European locations (Ford
Motor Company, 2012). In 2011 [Ford] signed a four-year agreement with the United Auto
Workers that will help us improve our global competitiveness. “As a result, we will be investing
$16 billion in the U.S. and adding new jobs at our U.S. manufacturing facilities” (Mulally, 2012,
p. 4).
Over the past 20-years Ford Motor Company have had financial highs and lows, due to
economic struggles and massive product recalls whether it be cruise control causing electronic
fires or vehicle roll-overs cause by Firestone tires. It is easy to think that the delay in Ford and
Firestone recalling the tire, which had caused the vehicle roll-overs was a flaw in ethics—the
statement if it is legal it must be ethical—in the past decade they have focused more on how they
conduct business. The tire recalls began in Europe in 1993, the delay in America was related to a
legal determination; before Firestone and Ford recalled faulty tire, 88 Americans lost their lives
in violent vehicle roll-overs. “An ethical culture starts with clear and unequivocal goals setting
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at the top, spreads throughout the organization, and is reinforced through frequent use in
everyday decision making” (Verschoor, 2000, para. 12).
Moral Absolutist View
Ford’s outsourcing of tire manufacturing increased the likelihood that the tires produced
would not be fitting for the vehicle. The moral absolutist would be shocked to see a safety risk
being imposed on the public to increase profits. Under the concept of moral absolutism, there is
only right and wrong with this being a definite wrong. Even though this is a slightly one sided
argument, a person can see a certain amount of logic in it. What is right is right and what is
wrong is wrong. Placing profits above safety concerns and then dragging the recall out is indeed
wrong. The authors do not see a viable defense of Ford’s actions under the moral absolutist view
but only see criticism for the entire debacle. Although most objections to outsourcing usually
rage around human rights, the Ford tire problem adds a whole new dimension to the outsourcing
debate. After all who would willingly pay less for a product that they know could end up in a
deadly accident?
Libertarian View
Libertarians believe in self-ownership and the personal freedom to act as one pleases. A
libertarian would defend Ford’s right to outsource tire manufacturing as well as other parts. This
is long as it served top transfer wealth to areas where it is needed, for example to India. This
idea was documented by James as expounded on the views of Kant. The duty of more affluent
people or corporations is to transfer jobs and wealth to the less affluent (James, 2005). However,
even the most militant libertarian would not have approved of the deaths caused by the
outsourced tires. This would go against the duty of care that is often found in libertarian thought.
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Cosmopolitan View
The cosmopolite would consider two different facts in this case. First, the question is
whether or not the outsourcing is the best for all stakeholders. Ford provided people in the
developing markets of South America through outsourcing. It follows that jobs increase wealth
amongst the citizens and therefore is a type of re-distribution. The unfortunate circumstances
surrounding the outsourcing events would have disturbed the cosmopolitan thinkers but the
overall gain for all stakeholders would have created an ethical dilemma. Although no one
condones death of consumers, the cosmopolitan would probably weigh the good of the
stakeholders. Even though the deaths toll is relatively high, the cosmopolitan may determine that
it is a small price to pay contrasted with the societal good that occurred.
Apple Inc.
Apple Inc. became the iconic company for developing computers and other consumer
electronic products. These products are innovative in function, look, and feel. Apple also
motivates other entrepreneurs to develop products that enhance the capabilities of the Apple
products. In order to accomplish the production of Apple products, outsourcing in foreign
countries is used as a production strategy. Baljko wrote about Apple’s use of outsourcing as
primarily to reduce costs, increase manufacturing flexibility, and increase efficiency (Baljko,
1999). This strategy appears to be in-line with most consumer electronics manufacturers. De
George greatly criticized this fact while giving statistics about the jobs lost in the U.S. to
outsourcing heavens like China, Korea, India, and Taiwan. According to De George’s research,
the U. S. will lose more than 3.3 million jobs in this sector by 2015. De George was also careful
to point out that some authors estimate that by 2015 the sector will have created more than 138
million jobs in the U.S. This makes the outsource loss appear relatively minor contrasted with
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the overall increase (De George, 2006). The challenge for Apple as well as others in this
industry is to balance the economic ramifications with profit motives while considering
stakeholder needs. Critics will always charge Apple with profiteering while moving U.S. jobs
overseas while proponents of outsourcing will count the U.S. jobs created. Then there is the
ethical discussion of working conditions in foreign factories and the corporate responsibility of
the home company to the foreign workers. This debate does indeed have many facets and the
authors’ goal is to analyze certain outsourcing actions conducted by Apple Inc. using three
ethical philosophies. In the end weather Apple’s outsourcing is a good or bad development,
depends on the personal opinion of the evaluator. There are in this case no clear answers.
Moral Absolutist View
The authors see two different views within the moral absolutist realm that fit into this
discussion. First is the argument for due to an absolutist view of Apple’s actions that because the
competition outsources Apple must outsource to stay competitive. Under this argument, is also
the underlying tone that whatever is good for the bottom line is ethical. This extreme view is
what also creates the most criticism of outsourcing no matter who is doing it. This was also the
view of Apple when the Foxconn problems first began to become public. According to He H.,
Apple waited until the Fair Labour Association (FLA) published their report of labor abuses
before taking steps to eliminate them (2012). These labor abuses ranged from illegal overtime to
unequal pay amongst the employees. There were also health and other violations cited in the
FLA report. These types of situations create the feeding ground for criticism of outsourcing
practices.
Second, a moral absolutist view could take on that because things like Foxconn do
happen when companies outsource, then outsourcing is always bad. This follows a more
traditional theory that things are always good or bad and never change their characteristics. The
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authors must admit that this is a rather simplified and closed minded view to any issue but it does
exist. These are also usually generalizations made that discount any positive effects of Apple’s
outsourcing. Frequently, outsourcing critics pose that outsourcing is bad for all stakeholders
concerned. However a closer review of literature such as He (2012) and Mishra (2012) one gets
the sense that many improvements in working conditions as well as job creation in low income
lands is a definite benefit of outsourcing. However a moral absolutist is not capable of seeing
these advantages.
Libertarian View
Under a deontological view, Apple’s decision to outsource is defensible that they have a
duty to cut costs and increase the efficiency of their operations. Furthermore, a deontic person
could argue the duty of a corporation to provide jobs and wealth in places where it is needed in
the world. This global view also goes with the underscores a belief that ethics is a form of
following a sense of duty rather than the consequence of the actions. An example of this would
be the to ignore the U.S. jobs are outsourced overseas because the company was following a duty
to transfer its wealth into a region that needs it more. According to James this portion of
libertarianism supports distributive justice in a global economy where there is no sovereign rule.
This is in agreement with Kant’s argument that a world government cannot exist and therefore
corporations will have to redistribute because they have a duty to do so (James, 2005). The
consequentialist would argue that corporations have the right to outsource as long as it increases
profits and efficiency. This highly mathematical view justifies the actions of Apple since
according to Bajko Apple has done just this.
Regardless of which libertarian view, the argument for outsourcing is very effectively
made by either. After all, lowering of trade barriers; the common currency in the European
Union; the redistribution nature of outsourcing; and the economic motives provide strong
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arguments for the libertarian in favor of outsourcing. The authors’ also conclude that companies
should at least be supported to outsource when in the libertarian view all conditions are met.
Furthermore, by utilizing a libertarian, many of the arguments against Apple’s outsourcing made
in during the discussion of absolutism are nullified. However, a person should consider the
libertarian view a very limited scope as there are many factors to be considered when justifying
or refuting Apple’s outsourcing practices.
Cosmopolitan View
Of all the ethical views expressed so far, cosmopolitism is perhaps the best way to defend
Apple’s outsourcing. The idea behind cosmopolitan view is that all humans are citizens of a
common society and therefore are entitled to the same rights, resources, and wealth as all other
humans without regard to nation-state. This philosophy sees Apple’s outsourcing as a way to
increase human rights in foreign countries as well as a non-governmental redistribution of
wealth. The downside to this defense of outsourcing is stated by Bederman (2007) as being a
wonderful idea but lacking in the possibility of enforcement. However, that is exactly the
concept that makes cosmopolitanism such a popular idea; the fact that humans do not need any
regulation other than the need to treat everybody equally. This philosophy is based also on the
pure will that all people would do this without any other motivation. Still this philosophy is
based on a should-be-situation instead of reality. Although the authors agree that probably the
world would be a better place if everyone thought and acted in a cosmopolitan manner; there are
individuals and corporations that don’t. Of course there, is also the libertarian argument, is there
not a duty to provide good working conditions? He wrote about the poor working conditions
that occurred in China with Foxconn which manufactured IPads and IPhones for Apple (He,
2012). The cosmopolitan would probably respond that Apple did insist that Foxconn change its
hiring, payroll, and work-hour conditions. The cosmopolitan would also argue that without
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Apple’s involvement, Foxconn would have continued its abusive labor practices. The fact is that
without the investigation and public report through the Fair Labour Association, Apple as well as
the rest of the world may have never found out about those abusive labor practices. This fact
leads the authors to conclude that the cosmopolitan, although based on human good, is not a
realistic validation for Apple’s outsourcing.
Conclusion
In conclusion there are many different ways to view outsourcing. Depending on the view
used to analyze the decision of a company to outsource its work, the decision can be made to
look ethical or unethical. With a global economy it is imperative for companies to be
multinational so that they can take advantage of labor and resource advantages by having work
done in different countries across the globe. The three companies that we looked at for this
paper were all companies that were started and based in the United States. In order to increase
volume each of these companies opened facilities in other countries in order to support sales to
these countries as well as others with in the region.
These companies are not only competing with other United States companies within their
industry, they are also competing with companies from other countries. This competition led
these companies to move much of their manufacturing overseas in order to compete with foreign
companies for sells not only overseas but also in the United States. As shown above there is no
absolute right or wrong to the decisions that the companies make.
Looking at the situation from another point of view or ethical theory can reverse the
outcome of weather the company was acting within their ethical responsibilities. These
companies have attempted to take the ethically responsible path but at one time or another have
found themselves on the wrong side of the line according to the public consumer’s point of view.
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These companies walk a line of what their ethical responsibilities are and what they are able to
do and still remain competitive. It can always be argued that there is more that each of these
companies could have done toward a standard global ethics policy, but these choices do have an
effect on the company’s bottom line. The theory of sustainable development says the ethical
development needs to be sustainable (Hutchings, 2010). When companies are not able to
compete because of their advanced ethics policies, then they can be driven out of business
leaving the policies of their competitors. While advanced ethical policies are what companies
should strive to provide to the communities that they operate in, they can’t do it at the cost of
being driven out of business. Businesses should strive to create sustainable and lasting change
when put policies in place, or they could do more harm than good to the communities that they
are operating in.
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