Assignment:
Activity
Create a 3 to 5 page paper (750 to 1200 words, not including the cover page and reference page) in APA format in response to the prompts below.
a. Discuss the two cost leadership approaches and argue which of these approaches seems more reasonable for the firm you selected. Describe the conditions that would make each approach make more or less sense.
b. Assuming that the firm you selected in Unit 1 is the firm you are advising. Read the Ethics and Strategy information on the "Race to the Bottom". Your company is considering moving its manufacturing to China or Western Europe. What product differentiation strategies do you recommend for your firm? What ethical guidelines should the company have in place prior to signing an agreement with a firm? Describe the advice you would give to them regarding their product differentiation and cost leadership advantage.
Ethics and Strategy The Race to the Bottom O ne of the most important productive inputs in almost all companies is labor. Getting differential low-cost access to labor can give a firm a cost advantage. This search for low labor costs has led some firms to engage in an international "race to the bottom." It is well known that the wage rates of most U.S. and Western European workers are much higher than the wage rates of workers in other, less developed parts of the world. While a firm might have to pay its employees $20 per hour (in wages and benefits) to make sneakers and basketball shoes in the United States, that same firm may only have to pay an employee in the Philippines or Malaysia or China $1.00 per day to make the same sneakers and basketball shoes-shoes the firm might be able to sell for $250 a pair in the United States and Europe. Thus, many firms look to overseas manufacturing as a way to keep their labor cost low. But this search for low labor cost has some important unintended consequences. First, the location of the lowest cost labor rates in the world changes over time. It used to be that Mexico had the lowest labor rates, then Korea and the Philippines, then Malaysia, then China, now Vietnam. As the infrastructures of each of these countries evolve to the point that they can support worldwide manufacturing, firms abandon their relationships with firms in prior countries in search of still lower costs in new countries. The only way former "low-cost centers" can compete is to drive their costs even lower. This sometimes leads to a second unintended consequence of the "race to the bottom": horrendous working conditions and low wages in these low-cost manufacturing settings. Employees earning $1 for working a 10-hour day, six days a week may look good on the corporate bottom line, but many observers are deeply concerned about the moral and ethical issues associated with this strategy. Indeed, several companies-including Nike and Kmart-have been forced to increase the wages and improve the working conditions of many of their overseas employees. An even more horrific result of this "race to the bottom" has been the reemergence of what amounts to slavery in some Western European countries and some parts of the United States. In search of the promise of a better life, illegal immigrants are sometimes brought to Western European countries or the United States and forced to work in illegal, underground factories. These illegal immigrants are sometimes forced to work as many as 20 hours a day, for little or no pay-supposedly to "pay off" the price of bringing them out of their less developed countries. And because of their illegal status and language barriers, they often do not feel empowered to go to the local authorities. Of course, the people who create and manage these facilities are criminals and deserve contempt. But what about the companies that purchase the services of these illegal and immoral manufacturing operations? Aren't they also culpable, both legally and morally? Sources: R. DeGeorge (2000). "Ethics in international business-A contradiction in terms?" Business Credit, 102, pp. 50+; G. Edmondson, K. Carlisle, I. Resch, K. Nickel Anhalt, and H. Dawley (2000). "Workers in bondage." BusinessWeek, November 27, pp. 146+; D. Winter (2000). "Facing globalization." Ward's Auto World