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Ethical Outsourcing
For several reasons, firms may choose to hire an outside firm to fulfill part of its supply chain. The primary motivating factors for outsourcing include low cost of labor and availability of required expertise. A firm may, therefore, shift part of its production to a different location, if the cost of doing business at the current location becomes relatively high (Stevenson, Page 338). For instance, many garment industry companies, including Levi Strauss and Walmart, have suppliers in Bangladesh and Pakistan. As it is with other ethical discussions, the ethics of outsourcing involves arguments for or against particular dilemmas. Globalization is a contributor to these discussions.
Globalization has opened up new sectors and increased dispersion of manufacturing and service operations in different countries. Additionally, companies are contracting other companies in foreign countries through the process of outsourcing. As companies continue to outsource their operations, some are reaping benefits while some are reporting losses, which in turn calls for the address of issues involved in managing global operations (Stevenson, Page 340). The ethical concern is one of the risks associated with global operations (Stevenson, Page 342).
In one of the attempts to expand its ethical outsourcing plans, Levi Strauss & Co. partnered with the World Bank to offer low-interest loans to its foreign partners. Although the loans are meant for all of its 550 offshore vendors, the partners who exercise proper safety, labor, and environmental measures stand to get even lower interests rate on their loans.
In this program, a form of sliding scale determines the interest rate on loans. In that, companies that perform well by offering the best measures in terms of safety and employ management are awarded loans on the lowest interest rates possible. The company rolled out this program as a response to some deadly fires that led to the loss of lives and properties in Bangladesh and Pakistan.
One of the most notable incidents of fires in an apparel company is the Rana Plaza building in Pakistan. The fire led to the loss of over 1000 lives and destroyed properties of five companies operating inside the building. This incidence called for scrutiny of the supply chains in the garment industry. As a result, some companies promised some financial assistance to improve the working conditions in these companies; years later, the results from these programs are not yet precise. Regardless, Levi Strauss & Co. rolled out this independent program with many more incentives. Besides, the company is looking to bolster a long-term relationship with these companies.
Since the rampant fires and accidents in Pakistan and Bangladesh, other companies in the apparel sector have also extended their ethical outsourcing plans. Walmart took a different approach to ensure the safety and operating conditions in its offshore vendors. The company hired an auditing firm to inspect the structural fire safety in 279 vendors in Bangladesh. The companies with poor fire structural safety will either be dropped or compelled to improve their operating environment. The company has already de-listed about 250 plants in Bangladesh on the grounds of safety concerns. However, Walmart’s approach is quite different from the previous programs by other companies that provided funds to its vendors to improve their safety, labor, and environment management.
The arguments of whether global operations are good, bad, or necessary are not any new. The reality is that globalization is already in effect, and the only way to determine its goodness or badness is through ethical outsourcing plans—the strategies employed by Levi Strauss &Co. and Walmart, in response to fire disasters in Bangladesh and Pakistan, provides clear examples of ethical outsourcing.
Work Cited
Stevenson, William J. “Operations Management.” (2005).