College of Business Administration

GROUP MEMBERS:

Anja Schweppe
Juharlina Nalendra
Fabiola Gonzalez
Liliana Mirulescu

EXECUTIVE SUMMARY:

The United States located electronic company Electrocorp faced the problem of declining profitability due to rising production costs, specifically high wages, costly worker's safety and environmental standards. In order to solve this problem Electrocorp is deciding whether to relocate some of their plants to South Africa, Mexico, or the Philippines.

The first alternative of keeping the plants in the US would mean that Eletrocorp obeys the strict environmental and safety regulations, pays its workers $15/ hour, but avoids the loss of jobs in the US. The company would incur high production costs. The second alternative of relocating plants to South Africa would create a job loss in the US. The company would save costs by hiring workers for $10/ day and obeying less strict safety and environmental standards. The strong labor union could cause problems in the future. The third alternative of relocating to Mexico would have the same effects as relocating to South Africa, except that the wages for workers are $3/ day. A larger amount of costs could be saved, although Electrocorp would have to pay attention to citizen health groups which could cause bad publicity. The last alternative of relocating to the Philippines offers the highest cost savings due to the least strict safety and environmental regulations, no activist groups and the market pay rate of $1/ day.

The evolving ethical issues can be summarized as follows: Is a relocation of Electrocorp's plants ethical considering the loss of jobs in the US, workers' exploitation in the host country, and the harmful impact on the host country's environment?

In addressing this issue, we have to start with the stakeholders' interests. The shareholders are interested in the profitability of the corporation. According to them, if profitability cannot be achieved in the US, Electrocorp needs to relocate to countries that offer cheaper production. The US employees are concerned about them loosing their jobs if plants are relocated. This is unacceptable to them unless they are adequately compensated for the job loss and supported through programs that assist them in finding new employment. With respect to Electrocorps customers, an reduction in operating costs through relocation is in their interest because it could mean lower prices. On the contrary, if costs increase product prices might climb so high that customers will switch their supplier and turn away from Electrocorp. Stakeholders in the host countries can be divided in the government, the environment, and the community. The government welcomes the relocation of Electrocorps plants because their economy will be stimulated through direct foreign investment and employment. But the government will also ensure that local policies and regulations will not be violated. Additionally, the stakeholder environment has the right of not being harmed. Likewise, the local community has the right to healthy and habitable living conditions. The workers in the host country have the right to fair compensation and save work conditions. In their decision, Electrocorps executive managers have to consider the interests of these stakeholders.

Analyzing the issue based on ethical frameworks, we start with the theory of deontology. Since a deontologist acts responsibly and respectfully to all individuals based on rules and principles, he would choose the alternative of keeping the plants in the US. A relocation to one of the mentioned countries would not be responsible nor respectful to the US employees (they loose their jobs), to host country workers (they work under unsafe working conditions), and to the environment (harmed by the corporation). A utilitarian decides based on a cost/ benefit analysis. He chooses the decision that offers the greatest good for the greatest number of people. Therefore, a utilitarian chooses to relocated to the Philippines due to the highest cost savings, job creation in the Philippines, and to avoid bankruptcy. US employees will be compensated for their job loss and assisted with their job search. According to the theory of justice (fair and equal treatment of all stakeholders), we have to choose either a relocation to South Africa, or a modified relocation to Mexico or the Philippines. Modified means higher wages as well as stricter safety and environmental standards. That way, Electrocorp would have moderate cost savings, employees earn moderate wages, and the environment would be less polluted. Land ethics is founded on the preservation of the environment. Base on this theory, the first alternative of keeping the plants in the US must be selected because of the least harm to the environment (stricter regulations). We come to the same conclusion of keeping the US plants when considering the social contract between the employer (job security) and the employee (work duties). Only this alternative will uphold the social contract.

Our final selection will be relocating some plants to the Philippines. With this alternative a potential bankruptcy can be avoided, it is the most efficient use of the company's resources, and it creates jobs in the Philippines. By increasing workers' wages to $3/ day as well as by increasing safety and environmental standards above the required minimum and by offering laid off US employees severance pay and support programs, the interest of all stakeholders are satisfied equally.