Analysis of a case study in business memo format for board directors

Plant relocation *** CONFIDENTIAL ***

We have discussed previously the issue of relocating one of our plants. I have received back from the consultant a report that outlines what she thinks are our best options. This report will present her findings.

Fact Summary: The consultant identified Mexico, the Philippines and South Africa as potential sites. Her findings are summarized in the following table

Mexico

Philippines

South Africa

Wages

$3/day

$1/day

$10/day

Living wage?

Maybe

Union strength

Minor

Moderately strong

Scandal risk

High

Low

Moderate

Environment Regs

Some

Few

Some

Environment Cost

Low

Low

Moderate

Env. Scandal risk

High

Low

Low

This table illustrates the issues on the table that form part of the ethical dilemma. South Africa has environmental regulations and union strength more akin to a developed country, but with lower wages and abundant labor supply. Philippines is basically anarchy, with no regulations, no enforcement, and rock bottom labor costs. Mexico sits somewhere in between, but in a border town we are more exposed to scandal than in a far-flung country on another continent.

Ethical Dilemma: Do we close an American plant, knowing that we can cut costs, but with the trade-off being that we know we will cut costs by cutting safety and environmental protection. If so, what level of trade-off is acceptable?

Ethical Issues: The human issue is with respect to wages. In Mexico and Philippines, the market rates are below living wage, which means high turnover (and its attendant problems) and potential scrutiny. We know labor groups will be watching us if we cut American union jobs. In South Africa, the jobs are union there as well, and $10/day is above the minimum wage for a laborer in an urban area (MyWage.co.za, 2014). It is still not really a living wage, but it is closer and subject to union negotiation.

The other ethical issue is the environment. The unions again will be watching us. The three countries differ considerably in terms of environmental policy, but the less we spend on protections the more competitive we can be -- the problem is that cutting back on protections could harm a lot of people given the chemicals that we work with.

Recommendation: The status quo is not acceptable. Mexico is recommended. We can do more than the minimum, for example with respect to the environment. We do not need to locate by the border, either, but can take advantage of different labor pools. Mexico has a free trade agreement, and has the benefit of being on the same continent. We believe that the shipping costs coming from the Philippines would offset the wage savings, and we cannot ethically abandon all environmental responsibility. South Africa is a good choice on many levels, but it is too far away from our markets, and we simply would not be able to save enough money to justify taking on the additional shipping distance. It's too bad, I was looking forward to taking a safari after breaking ground there!

Mexico will be good for shareholders, and our bottom line. Our labor force will struggle with this one, since we will not be able to move all of our jobs, and most of our workers would not want to relocate, unless we put the plant in Cancun. I jest -- that's too far away. We should pursue sites in the safer areas south of the border region and hire a local law firm to begin the discussions about real estate, business licenses, etc. We have some Spanish-speaking senior managers who can be promoted into a position of leadership on the new plant. Ethically, we need a policy that prevents scandal but will allow us to save on some of the more stringent regulations.