Some years ago Joseph Bozich was watching his son play in a high school basketball game when his vision started to become blurred. A day later he couldn't read. His doctor suspected that Bozich had a brain tumor, but tests revealed that the cause was multiple sclerosis. Luckily for Bozich, his vision improved, and he has not suffered Exercise 2 The level of perceived corruption varies from culture to culture. The Corruption Perceptions Index (CPI) is a comparative assessment of a country's integrity performance based on research done by Transparency International. Provide a description of this index and its ranking. Identify the five countries with the lowest as well as the highest CPI scores.
Do you notice any similarities or differences in each group of five countries? another attack, but the incident left him with a desire to do something important in life-to somehow make a contribution to humanity. As founder and CEO of Knights Apparel, a privately held company, Bozich realized he had the power to make such a contribution. A former U.S. collegiate bodybuilding champion, Bozich got his start in apparel working for Gold's Gym, selling branded clothing to outside retailers. In 2000 he founded Knights Apparel and started to build a business selling athletic clothing with college logos to universities around America. Like most organizations in the apparel industry, Bozich relied on a network of foreign suppliers to manufacture his products.
The apparel industry is often accused of using sweatshop suppliers based in poor nations where pay is low, hours are long, and working conditions are awful. In 2005, Bozich wondered if it might be possible to change this-to source product from less developed nations but to do so in a more ethical way, paying employees a decent wage and providing them with good working conditions. After some investigation, Bozich decided to establish his own "model factory" in the Dominican Republic. He purchased a factory that had previously been used by a Korean company to make baseball caps for Nike and Reebok. The Korean company had moved production to a lower-wage country in 2007, throwing some 1,200 out of work.
The factory now produces under a new label, Alta Gracia, which is derived from the name of the local town, Ville Altagracia, and means "exalted grace." The minimum wage in the area is $14 7 a month, a figure so low that it is insufficient to live on. Bozich's factory pays its workers more than 3 .5 times this amount. According a study done by a workers' rights group, this is the pay level required to support a family of four in the region. Bozich has allowed his employees to unionize and has made investments in safety and good working conditions a priority. Knights Apparel invested some $500,000 in upgrading the factory with features that include bright lights, five new sewing lines, and ergonomic chairs for employees, which many seamstresses thought were for the managers. Clearly the higher pay translates into higher costs. Bozich calculates that the factory's cost per unit of clothing is 20 percent higher than if it paid the minimum wage.
Given the competitive nature of the market for apparel, Knights cannot pass this cost increase on to wholesalers and retailers in the form of higher prices, so Bozich has elected to take smaller profit margins. For a product such as a basic T-shirt with a logo, the manufacturing cost at Alta Gracia is $4.80, about 80 cents more than if the pay was minimum wage. The shirt is sold for $8 to wholesalers, with most retailers marking them up to about $18. Bozich realizes he has a strong marketing message built around "fair labor." This is particularly useful selling into colleges. Student groups have often agitated for boycotts against companies such as Nike and Reebok for using sweatshop labor.
(Since being the target of protests in the 1990s, Nike has put rigorous procedures in place for auditing the operations of suppliers to make sure they adhere to Nike's own code of ethics for suppliers.) The "fair labor" marketing message seems to be resonating with colleges. Several universities have backed the project. Duke University's bookstore, for example, placed an initial order for $25,000 of merchandise. Barnes & Noble College Booksellers planned to have Alta Gracia products at some 350 stores in college campuses by early 2011. Barnes & Noble plans to promote the product heavily and expects to take lower margins to begin with. The United Students Against Sweatshops, a nationwide student group that often attacks apparel manufacturers, has also backed the project and has been distributing flyers at college bookstores urging students to purchase the Alta Gracia shirts. Companies such as Nike and Reebok that also serve the college market are reportedly watching what happens carefully
Case Discussion Questions
1. The case states that higher wage rates at the Alta Gracia factory have raised the cost per item by 20 percent. Can you see any way in which the philosophy with regard to pay and working conditions at Alta Gracia might lower costs in the long run?
2. Do you think Joseph Bozich would have been able to try the Alta Gracia experiment if Knights Apparel was a publicly traded enterprise?
3. What do you think might stand in the way of Alta Gracia becoming successful? What strategies might Bozich adopt to minimize the risk of failure while still adhering to his high ethical standards?
4. Alta Gracia serves a niche market, colleges, where there is higher awareness of ethical issues in apparel production. Do you think the strategy would work if the company tried to sell to the mass market through retailers such as Walmart?
5. Is it ethical for apparel companies to move production around the world in pursuit of the lowest possible labor costs, even if that means paying wage rates that are below a living wage? What if the good ethics are also good business practice? alternative is not to produce at all?
6. To what extent does the Alta Gracia experiment suggest that good ethics are also good business practice?