Reference no: EM132157099

Answer the following based on the case.

1. Can a process of self-regulation ensure that labor rights will be upheld in foreign manufacturing operations? Explain.

2. What should Dexter Lewis do to solve this problem?

Mighty-Mart is a large retail chain that operates over 1,000 stores in the United States and Canada.The company has experienced phenomenal success over the years in terms of growth and return on shareholders’ equity.The firm has gained market share over its competitors through a strategy of low-cost leadership and dedication to customer service. Mighty-Mart prides itself on its ability to reduce costs and to pass those savings on to customers.The company has been a model of efficiency among mass merchandisers, and its ability to control costs has given it a strong competitive advantage.

Mighty-Mart was founded in 1968 in a small town in eastern Kentucky by Jimmy John Whitlow. This now-deceased decorated war veteran left a legacy of uncompromising business principles, which included complete customer satisfaction, low-cost business operations, and a strong commitment to buy from American suppliers. Anne-Marie Bradford is a well-known television personality who has developed a loyal following through her unwavering commitment to traditional American values. Most TV viewers see her as a kind-hearted and wholesome individual. Anne-Marie’s early morning TVpromotes health, fitness, and family values. She also has a newspaper column, which provides advice on marriage, family, and wardrobe decisions. So it seemed logical for Mighty-Mart and Bradford to team up to market a line of women’s apparel under the AnneMarie name.Although Mighty-Mart did prefer to source its products domestically, increasingly it has begun to rely on foreign suppliers. Under a contract manufacturing arrangement with China’s Yellow Dragon Enterprises, Mighty-Mart and Anne-Marie developed the product line, which would be sold exclusively in Mighty-Mart stores.The cost of production in China was much lower than anywhere else, and Yellow Dragon had developed a reputation for quality. Under the manufacturing contract, Anne-Marie approved all product designs and Mighty-Mart handled the administration of the business relationship.

Yellow Dragon Enterprise acted as an independent contractor; however, Mighty-Mart dictated what to produce, when to produce it, and, in many ways, how to produce the products. Day-to-day management of the operations was left to Yellow Dragon. Although some Chinese manufacturers had been known to violate the human rights of their factory workers, Mighty-Mart was confident that it could force Yellow Dragon to follow Chinese labor laws and treat the employees well. MightyMart had emphasized that it wanted nothing to do with any business that violated basic workplace rights. As a form of control, Mighty-Mart engaged one of the big US accounting firms to audit Yellow Dragon employment practices over the term of the contract. The US auditors visited Yellow Dragon factories from time to time and often found labor violations. None of the violations were considered to be of a serious nature and most involved the lack of payment for overtime. Yellow Dragon had been reluctant to pay overtime for Saturday work, which was mandated under Chinese law. A few safety violations were uncovered as well; however, Yellow Dragon always corrected the problems uncovered by the auditors and MightyMart was unconcerned with the problems the auditors discovered. Late one afternoon, Dexter Lewis, CEO of Mighty-Mart, received an urgent call fromCarol Dempsey, director of external relations for the company. Dempsey explained that she had just received a call from an international labor watchdog group that was accusing Mighty-Mart of running a sweatshop in China.

A representative from the International Organization for the Elimination of Sweatshops (IOES) had been told that an angry group of Yellow Dragon employees had stormed the local labor office in the Guangdong province of China, demanding that employment conditions at the company be improved.The workers accused the company of numerous unfair labor practices, including fines, beatings, and underpayment for hours worked. Lewis told Dempsey that she should look into the matter further, and he expressed concern that this incident could tarnish the company’s image. While Dempsey investigated the matter further, IOES alerted the media about the working conditions in “Mighty-Mart’s Chinese sweatshops” and public criticism grew against the company and Anne-Marie Bradford. After a week of being attacked in the media,Anne-Marie went before her television audience and tearfully explained that she had no idea that her popular clothing line was being manufactured under sweatshop conditions. She assured the audience that she and Mighty-Mart would end their relationship with Yellow Dragon Enterprises and that her clothes would never again be made under such “horrible” working conditions.An investigation by the IOES concluded that workers at Yellow Dragon had been working under sweatshop conditions.The IOES stated that the accusations against the company were true and that Mighty-Mart and Anne-Marie Bradford should be ashamed to have allowed these things to happen. According to the IOES, workers had routinely been beaten by company guards, denied overtime pay, forced to work 16-hour workdays, and exposed to unsafe conditions.

Management fined workers who spoke out against the company and even refused to allow them to leave company property when they were not working. Yellow Dragon charged workers excessive prices for company housing and food, and sometimes had children as young as ten years old working in unsafe factory conditions. Many of the charges against the company violated Chinese labor laws. It was learned that Yellow Dragon had deceived Mighty-Mart and the auditors, sometimes in elaborate fashion. For example, the company had created showcase factories for the auditors to inspect, when most of the clothes were being produced in other factories under less desirable conditions.The company warned employees against speaking to the auditors unless they had good things to say about the company. Threats, beatings, and fines kept Yellow Dragon employees from informing the auditors about the real working conditions of the company. Although Mighty-Mart had been duped by Yellow Dragon, a number of public interest groups began to speak out against the company. Mighty-Mart was accused of negligence in the control of its foreign manufacturing arrangements. Many in the press questioned the effectiveness of self-regulation of foreign manufacturing and they demanded more government regulation and social accountability.