Production costs are rising. Your company can make more money for shareholders by relocating your plants to a country
CASE (20 MARKS)
Production costs are rising. Your company can make more money for shareholders by relocating your plants to a country with lower labor costs and fewer regulations. Using this case, Stan Raggio, senior vice president for sourcing and logistics at The Gap, and Karen Musalo, then director of the Markkula Center for Applied Ethics International Human Rights and Migration Project, discussed the ethical issues companies should consider at an Ethics Roundtable for Executives. You are the chief executive of Electrocorp, an electronics company, which makes the onboard computer components for automobiles. In your production plants, complex hydrocarbon solvents are used to clean the chips and other parts that go into the computer components. Some of the solvents used are carcinogens and must be handled with extreme care. Until recently, all of your production plants were located in the United States. However, the cost of production has risen, causing profits to decline. A number of factors have increased production costs. First, the union representing the workers in your plant waged a successful strike resulting in increased salary and benefits. The pay and benefits package for beginning employees is around $15/hour. A second factor has been stringent safety regulations. These safety procedures, which apply inside the plant, have been expensive in both time and money. Finally, environmental regulations have made Electrocorp’s operations more costly. Electrocorp is required to put its waste through an expensive process before depositing it at a special disposal facility. Shareholders have been complaining to you about the declining fortunes of the company. Many of Electrocorp’s competitors have moved their operations to less-developed countries, where their operating costs are less than in the United States, and you have begun to consider whether to relocate a number of plants to offshore sites. Electrocorp is a major employer in each of the U.S. cities where it is located, and you know that a plant closure will cause economic dislocation in these communities. You know that the employees who will be laid off because of plant closures will have difficulty finding equivalent positions and that increased unemployment, with its attendant social costs, will result. However, you are aware of many other corporations, including your competitors, that have shut down their U.S. operations, and it is something that you are willing to consider. You have to decide how you would like to proceed. Your options are to further investigate one or more of the overseas sites or to simply continue all operations within the United States. Examine each possibility and the factors you will consider in weighing
the pros and cons.
Answer the following question.
Q1. Give an overview of the case.
Q2. If you were the chief executive of Electrocorp, what would be your decision with regard to shifting the plant to other locations? Justify your answer.
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