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The Case of Plant Relocation
Introduction: This memo seeks to look into the ethical issues affecting the operational effectiveness of Electrocorp’s production plants operating within the US as well as offshore countries in which it is looking to relocate its production plants to (Musalo, 2014). This memo will discuss the analysis of the cost of doing business in the US as well as in Mexico, the Philippines and South Africa, countries which have been shortlisted as future homes to Electrocorp’s manufacturing plants.
Facts Summary: Our Company, Electrocorp, is currently being faced with operational challenges which have resulted in an increase in production costs resulting in ever decreasing profits eliciting concern from our shareholders (Musalo, 2014). The sensitive nature of our production process and pressure from labor unions have caused us to think of other alternatives other than continuing the production of onboard computer components for automobiles here in the US. Other players in this industry have opted and are already relocating their operations to other countries where operational environments are more conducive and have completely shut down their operations based here. Electrocorp is looking to move in a similar direction and relocate its business to countries where operational costs and regimes are more favorable. We have cited three countries where Electrocorp can relocate its operations to and set up new production plants there (Musalo, 2014). These countries include Mexico, the Philippines and South America.
The electronic components manufacturing industry has in the recent past been on the spotlight for all the wrong reasons ranging from disputes with labor unions, environmental degradation concerns and rising costs of production (Musalo, 2014). This has presented Electrocorp with an ethical dilemma incase it opts to continue operating in the domestic electronic components manufacturing industry. Should the company opt to relocate its production plants to offshore countries where regulatory authorities and production costs are more favorable, it will also have to look into ethical considerations before setting up new production plants in offshore countries.
Ethical dilemma: In the US, Electrocorp’s operating environment has been challenged by ethical issues ranging from the sensitive nature of the production of chips needed to assemble onboard computer components for automobiles to disputes with labor unions calling higher workers pay. In the production of chips for automobile onboard computer components hydrocarbon based solvents are universally used (Musalo, 2014). These hydrocarbons have been known to contain carcinogenic compounds which environmental regulatory bodies in the US are aware of. This has resulted in increased cost of production as waste from Electrocorp’s production plants have to undergo an expensive disposal process. Safety regulations in the US are considerably high and these have to b adhered to within the plant through out the production process further increasing production costs. Labor costs stand at 15 dollar per hour for each employee due to pressures from labor unions (Musalo, 2014).
The ethical dilemma is such that, if Electrocorp’s Board of Directors opts to continue operations in its US plants, the rising costs of productions may eventually force the company to shut down its operations yet its primary concern is to continue operating as a going concern. A large percentage of the populations in cities within which Electrocorp’s production plants operate depend on the company for their livelihood (Musalo, 2014). Should Electrocorp decide to close down its domestic operations as other player in the industries in the US have, it could severely affect the economic condition of dependent communities. The dilemma facing Electrocorp is whether to continue with it production plants operations in the US or opt to close down its US domestic operations and move to an offshore country and set up new production plants (Musalo, 2014).
Ethical issues: there are two major ethical issues arising from the ethical dilemma discussed above. The first ethical issue tends to consider whether it will be fair to the communities that have served Electrocorp over the years if it closed it US production plants in favor of relocating to another country and setting up new production plants there (Musalo, 2014).
The communities which have offered Electrocorp’s production plants with the labor needed to carry out its operations are at risk of suffering from the adverse effects of increased unemployment. Many people in these communities have depended on incomes from the company’s production plants for years (Musalo, 2014). The fact that the company may opt to relocate may bring about socioeconomic strife stemming from the negative effects of employment.
The second ethical issue arising from the ethical dilemma discussed above is whether to consider favoring production in an offshore country at the expense of the domestic US labor market. The problems causing Electrocorp to consider relocating its production plants to another country have largely been as a result of the stringent rules endorsed by the US federal and state governments. As such, it may be possible for the shareholders of the company to feel that should it relocate and the US government experience negative effects of lost employment opportunities has been in the federal and state government’s making. As much as the US government may be taking on a virtuous approach to the issue of worker’s safety concerns, sound environmental management strategies and good remuneration for its citizens this may not be the views of Electrocorp. Electrocorp’s shareholders and board of directors may be on the other hand favoring a utilitarian approach that is, doing more good than harm (Velasquez, Moberg, Meyer, Shanks, McLean, DeCosse, André & Hanson, 2009).
Alternatives: For the first ethical issue, a feasible and logical alternative for Electrocorp would be to relocate to a country that will lower its costs of production so as to realize its core objective that is, optimizing shareholder’s return on investments (Musalo, 2014). As an organization the company is tasked with making profits for its shareholders and thus, the concerns of the communities should not be a priority.
For the second ethical issue, the alternative would also be to relocate to a country where the cost of production is relatively higher. This is because the US government has failed to offer subsidies or other incentives to encourage the company to continue operations domestically.
Recommendations: As Electrocorp’s consultant, it’s my recommendation that the company closes down operation on all domestic plants and relocates its plants to the Philippines. This will eliminate the company’s ethical dilemma conclusively as it main objective is to create shareholder wealth. This decision will definitely present negative impacts to the workers, their communities as well as the US government in general. The company will realize rising profits due to low costs but may gain negative publicity in the US for bringing about massive layoffs (Musalo, 2014). These recommendations are feasible as the company will continue to operate as a going concern, continue to keep afloat in a competitive industry and ensure shareholders get a return on their investments. These recommendations should however be implemented in phases to reduce the amount of shock to be experienced by the workers and communities in the US where it will have to close down operations. This will translate to the company taking on fairness and justice approach as the principle for its ethical standards (Velasquez et al. 2009).
Future implications for recommendation: There are number of future implications bound to affect the company, other businesses within the industry and other industries. Other industries are bound to follow suite in an effort to endure shareholders realize a return on their investments. Other business in the industry may return to the US to take advantage of the experienced labor market left unemployed in the US (Musalo, 2014). Electrocorp as a company may have to do a lot of damage control to even out the negative publicity it may gain from both the US government and the US public.
Conclusion: Every profit oriented organization has to look for alternatives when its operating environment becomes unfavorable and profits begin to decline as is the case with Elecrocorp. The company has had to decide on whether to continue operations in the US under unfavorable operating conditions and close down completely or relocate to another country and continue as a going concern. The ethical dilemma resulting from such an eventuality has resulted into two ethical issues of which it is prudent for the company to take on a utilitarian approach as an ethical standard. Relocation has remained as the only logical and viable cause thus the company should set up new plants in the Philippines. This may come at a cost but it will do the company more good than harm.
Musalo, K. (2014). The Case of the Plant Relocation. Markkula Center for Applied Ethics.
Velasquez, M., Moberg, D., Meyer, M. J. Shanks, T. McLean, M. R., DeCosse, D., André, C. & Hanson, K. O. (2009). A Framework for Thinking Ethically. Accessed from http://www.scu.edu/ethics/practicing/decision/framework.html