Business Ethics, Government and Society EXAM #3

Suppliers and Communities BUS 166, Week 14 Matthew Maguire [email protected] San José State University

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1. Suppliers

2. Communities

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Suppliers

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Suppliers

Supplier = an organization that provides goods or services to another organization.

• Suppliers are also known as vendors or contractors.

• They are an important market stakeholder of business.

• They provide critical inputs.

• They o ten manufacture entire products that companies then sell to customers under their own brand.

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Suppliers

Major transnational firms can have an enormous number of suppliers.

• Intel has 16,000 suppliers in 100 countries.

• Unilever’s supply chain works with over 70,000 suppliers and more than 1.5 million farmers.

• Nike’s manufacturing network consists of over 700 factories in 42 countries. Each product moves from 57 distribution centers across a network of 18,500 accounts and 140,000 retail doors.

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Level of suppliers

Companies o ten categorize their suppliers according to tier, or level.

• Tier-1 suppliers (sometimes called contractors). • H&M’s first tier manufacturing suppliers: https://hmgroup.com/sustainability/leading -the-change/supplier-list.html

• Hired to manufacture products and provide them directly to the company. These may in turn work with...

• Tier-2 suppliers (sometimes called subcontractors). • Who may in turn work with even more distant suppliers.

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Nike’s supply chain

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Supply chain

Supply chain = the multiple steps involved in the movement of a product or service from the most distant supplier to the customer.

• Because of the complexity of these systems, firms sometimes refer to their supply webs or networks, rather than use the term supply chain, which implies a simple, linear relationship.

• Keep in mind that suppliers o ten work with multiple lead firms.

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Supply chain map for a cotton t-shirt

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Suppliers

Most suppliers share an interest in obtaining orders that will enable them to:

• Make money

• Use their productive capacity efficiently

• Build long-term, stable relationships with business customers

Suppliers may have both economic and informational power.

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Suppliers

A supplier that is a sole source for a key component or natural resource naturally has more leverage than one which is not.

Suppliers that control critical worker skills, technical know-how, or relevant manufacturing infrastructure have more leverage than others.

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Social issues in supply chains

Global supply chains have many social impacts.

• Prominent among them are the wages, working conditions, and health and safety of employees in supplier factories.

Low wages are one of the main reasons that brands contract with suppliers in developing countries.

• They reduce overall costs and enable brands to price their products more competitively.

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Social issues in supply chains

Low wages are not necessarily unethical. However, if a company’s customers believe that its products are made in sweatshops, its reputation can be harmed.

• Sweatshops = a derogatory term referring to factories where workers toil long hours, at low wages, and under unsafe conditions.

• H&M accused of failing to ensure fair wages for global factory workers https: //www.reuters.com/article/us-workers-garment-a buse/hm-accused-of-failing-to-ensure-fair-wag es-for-global-factory-workers-idUSKCN1M41GR

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Social issues in supply chains

The challenge for business is to find the right balance between what is considered fair and what is needed to remain competitive.

Question: Should children be allowed to work? If so, at what age? For how many hours per week? Should particular forms of work be prohibited?

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Photo from Life magazine in 1996

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Ethical issues in supply chains

Human trafficking = modern-day slavery (i.e., forced labor); the illegal recruitment and movement of people against their will, usually to exploit them for economic gain.

• Of the estimated 2.5 million victims of trafficking in the world, about 80 percent are women and girls forced into prostitution.

• Political prisoners in the former East Germany provided labor for IKEA in the 1980s: https://www.nytimes.com/2012/11/17/business/glo bal/ikea-to-report-on-allegations-of-using-for ced-labor-during-cold-war.html

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Ethical issues in supply chains

Companies that set up operations in countries with anti-democratic, repressive regimes can be caught up in violations of human rights.

Transnational companies that depend on resources that are farmed, extracted, or mined (e.g., conflict minerals) are particularly at risk for human rights abuses by their suppliers.

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Environmental issues in supply chains

Arise when a supplier of raw materials, parts, or finished goods contributes to climate change, dumps toxic chemicals, emits air pollution, reduces biodiversity, etc.

Some companies have responded to environmental concerns by:

• Local sourcing = seeking to source from nearby suppliers where practical.

• Improve efficiency in their supply chains.

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Communities

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The business-community relationship

Community = a company’s area of local business influence.

• The meaning of the term has expanded with globalization and the rise of the internet.

• Interdependence between business and the community. There are expectations on both sides.

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The firm and its communities

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What do businesses and communities want from each other?

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The business case for community involvement

Civic engagement = the active involvement of businesses and individuals in changing and improving communities.

Reasons for community involvement:

• To carry out corporate citizenship mission.

• To win local support for business activity, i.e., to be granted an informal “license to operate” in the community. A kind of social contract.

• To build social capital, the norms and networks that enable collective action.

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