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How has Wal-Mart responded to different ethical issues arising over the last few years of its operations?

Introduction

Background Information

         The commentary is on the responses of Wal-Mart to different ethical issues that have crept up its door in the previous yours. The ethical issues carry significance because these have overshadowed the low-cost value offered by Wal-Mart to its customers. A striking ethical issue that Wal-Mart continues to face is allegations of its involvement in unfair labor practices, particularly child labor in developing countries such as China, India, and Bangladesh among others. A decade ago, Wal-M...

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...art positioned itself in the U.S and global market as a leader in retail by capitalizing on its low cost strategy. Now, child labor, among other ethical issues, offsets the value creating power of the low cost of labor by outsourcing production in developing countries.

         The initial reaction of Wal-Mart to allegations of child labor by its suppliers was to issue press statements denying the allegations and reaffirming its commitment to fair labor practices and respect for human rights. However, the mounting evidence shown to the public by labor activists through the media and the filing of human rights and other cases, led Wal-Mart to take a more offensive stance on the issue by inspecting and auditing its suppliers and renewing supplier agreements.

          I got wind of the Wal-Mart’s furtherance of active response against child labor by condemning the employment of children in the factories in Uzbekistan in late 2008 by renewing the terms of its supplier agreements.

Procedure

         My commendatory on the responses of Wal-Mart to its involvement in child labor find support from the following supporting sources:

1.     Wal-Mart press release – Wal-Mart Stores, Inc. Releases 2006 Ethical Sourcing Report

2.     Wal-Mart press release – Wal-Mart Takes Action to End Forced Child Labor in Uzbekistan

3.     The New York Times – Wal-Mart to Toughen Standards
4.     International Herald Tribune – Despite a decade of criticism, worker abuse persists in China
5.     UNI Global Union – Wal-Mart caught once again for misusing young workers

SWOT Analysis

         A SWOT analysis[1] provides a better appreciation of the perspectives over the response of Wal-Mart, particularly the renewal of supplier contracts, to the ethical issue of child labor.

Strengths

§  Solidifies compliance with ethical standards

§  Creates value for consumers

§  Changes public perception of the company
Weaknesses

§  Artificial or superficial

§  Inconsistencies or non-uniform renewal of suppliers contracts

§  Insufficient response
Opportunities

§  Establish long-term and standard compliant agreements

§  Establish the corporate social responsibility of the company

Threats

§  Non-fulfillment by suppliers

§  Decline of competitive advantage

         Renewing supplier contracts as response to the ethical issue of child labor comprise an active or offensive response by Wal-Mart thus far. This constitutes a more compelling response than merely relying on press releases denying allegations of its involvement in child labor. However, the effectiveness of this response comes to question with new allegations of child labor emerging after the company has reported audit of its suppliers and renewal of supplier contracts. This caused skepticism over the sincerity of Wal-Mart in its stand against child labor. This ethical issue has strong impact on the brand equity[2] of Wal-Mart and it needs consistency between corporate communications and strategic response to turnaround its situation.

         If Wal-Mart can solidify the renewal of supplier contracts as a response to the ethical issue of child labor, it can develop long-term relations with suppliers through agreements compliant with regulatory labor standards and human rights. It can also establish its corporate social responsibility[3] and create links with local communities comprising its labor pool and consumers. Otherwise, it could face added negative publicity and court cases. These could increase cost to a value greater than the cost involved in auditing suppliers and renewing contracts with compliance suppliers leading to a decline in its competitive advantage through cost leadership.

         While the response of Wal-Mart may be a positive development when compared to its previous response, it arrived at this response after failing in its previous responses and there remains a wide room for improvement.

Force Field Analysis

         Decision-making at the top executive level determines the long-term success of the supplier contract renewal, as the response of Wal-Mart on the issue of child labor. Employing the force field analysis[4] classified the perspectives over this response under either driving or restraining forces to determine the viability of the response.

         Driving Forces

§  Customers demand value-added products

§  Turnaround the declining brand equity of the Wal-Mart

§  Enhance its domestic and global competitive competition

§  Ensure sustainable growth

Renewal of Supplier Contracts
Restraining Forces

§  Increase in cost

§  Loss of business networks

         There is greater benefit in improving the use of renewal of supplier contracts as response to the ethical issue of child labor. The apparent hesitance of Wal-Mart in solidifying this response by selecting suppliers and renewing supplier contracts for all its retail products has a long-term impact on the competitiveness and growth of the company in the global market.

         The downside is the likely increase in cost with the decision-makers at Wal-Mart hesitant to give-up cost advantages derived from existing partners, also covered in the allegations of child labor. The response would also likely lead to the loss of existing business networks.

         Wal-Mart needs to focus on the identification of its stakeholders and target groups[5] for its response to enhance the forces supporting the response and allaying the forces against the solidification of the response. Wal-Mart has two primary stakeholders relative to the child labor issue and these are suppliers and customers with competing interests. The effective solution to the ethical issue involves change in supplier agreements because Wal-Mart can influence the change in labor practices by having the advantage of alternatives of suppliers. It has to improve corporate communications for its press releases to target customers by using a wide range of media to communicate its active response to the issue of child labor.

Critical Success Factors

         Wal-Mart can identify and understand the aspects of its response to the ethical issue of child labor by determining the critical success factors[6] of this strategic move. These are necessary to ensure the actualization of all the essential areas for performance to achieve the objectives of the response.

         One critical success factor is securing compliance of all its suppliers with standards of labor and human rights. As of 2008, Wal-Mart still received allegations of involvement in child labor in Eastern Europe. This reflects the failure of the company to renew supply agreement terms with all its suppliers. Another critical success factor is cost management. An increase in cost is inevitable but by effectively managing costs and developing contingency plans, the company can continue with its cost leadership competitive strategy.  The last critical success factor is accurate and effective communications targeting its stakeholders. The company needs to focus on two lines of corporation communication, towards customers and suppliers. These stakeholders carry different interests and require different messages and media of communication. This is an area where Wal-Mart has failed in the past by merely issuing press releases without considering differences in the interests of customers and supporters, which the company needs to consider. Suppliers need reassurance of equitable terms in the renewed agreement. Customers require reports of positive actions against child labor.

         By determining and understanding these critical success factors, Wal-Mart can optimize the benefit of renewing supplier contracts as response to the issue of child labor and minimize the downsides of this action. Knowing these essential areas would also speed-up the response of Wal-Mart to developments in the ethical issues it faces.

Conclusion

         In conclusion, Wal-Mart has devised a viable response to the ethical issue of child labor. This response emerged from a trial-and-error process by implementing alternative responses to learn which of the options work and which do not work. Wal-Mart started with the issuance of press releases as a response and failing to substantiate its press releases before moving on the renewal of supplier but only after mounting allegations of its involvement in child labor. Due to Wal-Mart’s manner of responding to ethical issues, there remain areas for improvement in its response, which are:

§  including ensuring uniform compliance of suppliers in labor laws and human rights,

§  identification of stakeholders to develop precise or targeted corporation communications, and

§  fulfillment of the critical success factors.

By addressing the identified areas for improvement, Wal-Mart can enhance its competencies in responding to ethical issues and speed-up responsiveness.

Bibliography

General Texts:

Bradford, Robert, Peter Duncan, and Brian Tarcy. Simplified Strategic           Planning: A No-Nonsense Guide for Busy People Who Want Results  Fast!. Worcester, MA:Chandler House Press, 2000.

David, Fred. Concept of Strategic Management. 7th ed. New York: Prentice     Hall, 2008.

Schwering, Randolph “Focusing leadership through force field analysis: new variations on a venerable planning tool.” Leadership and Organization Development Journal 24.7 (2003): 361-370.

Supporting Documents:

Barboza, David. “Despite a decade of criticism, worker abuse persists in China.” International Herald Tribune 4 Jan. 2008. 1 February 2009 <http://www.iht.com/articles/2008/01/04/business/sweatshop.php>

Rosenbloom, Stephanie. “Wal-Mart to Toughen Standards.” The New York Times 22 Oct. 2008. 1 February 2009 <http://www.nytimes.com/2008/10/22/business/22walmart.html>

Uni Global Union. Wal-Mart caught once again for misusing young workers. 14 August 2007. 1 February 2009 <http://www.union-network.org/unisite/sectors/commerce/Multinationals/Wal-Mart_Mexico_misuses_young_workers.htm>

Wal-Mart. “Wal-Mart Stores, Inc. Releases 2006 Ethical Sourcing Report.” 15 August 2007. 1 February 2009

< http://walmartstores.com/FactsNews/NewsRoom/6665.aspx>

Wal-Mart. “Wal-Mart Takes Action to End Forced Child Labor in Uzbekistan.” 30 September 2008. 1 February 2009 <http://walmartstores.com/FactsNews/NewsRoom/8637.aspx>

Appendix

1. Wal-Mart Stores, Inc. Releases 2006 Ethical Sourcing Report
Wal-Mart’s Ethical Standards program audited more factories than any company in the world; high-risk factory violations decreased more than 23 percent; program scope increased to include environmental criteria

BENTONVILLE, Ark. – August 15, 2007 – Wal-Mart Stores, Inc. has announced the release of its 2006 Ethical Sourcing report, providing information on the company’s Ethical Standards Program, its impact on factory working conditions and the lives of factory workers. The report details results of more than 16,000 audits of supplier factories, as well as enhancements to the program during the past year, such as strengthened environmental criteria and increased program scope. The report can be viewed at www.walmartstores.com/ethicalstandards.

The report shows that in 2006, Wal-Mart conducted more factory audits than any other company in the world, at 8,873 factories producing goods for Wal-Mart, 15 percent more than in 2005. Unannounced audits made up 26 percent of the audits undertaken, a six percent increase over 2005. High risk violations of the Wal-Mart Standards for Suppliers code decreased 23.5 percent in 2006, mainly due to educational outreach.

“The Wal-Mart Ethical Standards program is in place to do what is right for factory workers and the environment,” said Rajan Kamalanathan, vice president of Ethical Standards for Wal-Mart Stores, Inc. “The only way to achieve our objective is by moving beyond monitoring factories to working in collaboration with stakeholders. In this manner, we not only bring sustainable and positive change to working conditions in factories, we also to help build ladders to a better life in the countries where we’re sourcing.”

Program enhancements detailed in the 2006 report include the expansion of environmental elements into supplier factory audits to include waste identification, waste handling and disposal, wastewater treatment and discharge, and air emissions. Auditors now discuss environmental findings with factory management as part of the audit closing meetings to educate them on the new criteria and on environmental sustainability. In addition, Wal-Mart now includes environmental training in group training sessions for new and existing suppliers.

“Factories that are disapproved may close, and the impact on the factory workers can be devastating. To prevent this, we identify at-risk factories and invite factory management, along with the suppliers they do business with, to meet with members of the Wal-Mart Ethical Standards Team,” Kamalanathan said. “We facilitate dialogue on issues of concern and serve as a resource to factory management in a collaborative way. For example, in the Europe Middle East, and Africa region, meetings were held with eight targeted suppliers and factory management, and at the end of 2006, all eight showed substantial improvement, with six achieving our highest audit rating.”

In 2006, over 200 Ethical Standards associates were located in five regions around the globe: Southeast Asia; the Indian subcontinent; the Far East; the Americas; and the Middle East, Africa and Europe. The Ethical Standards team monitors supplier factories, engages with stakeholders, manages risk, and works to educate factories and suppliers to help prevent violations of Wal-Mart’s Standards for Suppliers code. The team is entrusted with verifying that suppliers comply with Wal-Mart’s Standards for Suppliers code of conduct and working to improve factory working conditions throughout the industry.

Established in 1992, Wal-Mart’s Standards for Suppliers code details the company’s expectations for labor practices in the production of merchandise for sale by Wal-Mart. Every supplier must sign an agreement that they, their contractors, and subcontractors will abide by the Standards for Suppliers code. As part of Wal-Mart’s agreement with suppliers, a poster of the Standards code, signed by factory management, must be displayed in a location visible to all employees at all facilities that manufacture merchandise for sale by Wal-Mart. A local helpline number and e-mail address is located on the poster for workers to contact Wal-Mart with any concerns they may have.

2. Wal-Mart Takes Action to End Forced Child Labor in Uzbekistan
Instructs Suppliers to Cease Sourcing of Cotton from Uzbekistan

BENTONVILLE, Ark., Sept. 30, 2008 – Wal-Mart Stores, Inc. has instructed its global supply base to cease sourcing cotton and cotton materials from Uzbekistan in an effort to persuade the Uzbek government to end the use of forced child labor in cotton harvesting. This action follows months of work with industry trade associations, government agencies, non-governmental organizations and socially responsible investment groups to form a common position in condemning the Uzbek government’s practices.

“We have formed an unprecedented coalition, representing 90 percent of the U.S. purchases of cotton and cotton-based merchandise, to bring these appalling child labor conditions to an end,” said Rajan Kamalanathan, vice president of ethical standards. “There is no tolerance for forced child labor in the Wal-Mart supply chain.”

With Wal-Mart’s active participation, four industry trade groups, the American Association of Footwear and Apparel, Retail Industry Leaders Association, National Retail Federation, and the United States Association of Importers of Textiles and Apparel sent a joint letter to the Embassy of Uzbekistan on Aug. 18, 2008, demanding an immediate end to the use of forced child labor in cotton harvesting. In response, the Uzbek government issued on Sept. 12, 2008 a National Action Plan which details steps to eradicate the use of child labor. Once these steps can be independently verified, Wal-Mart will modify the direction to its suppliers.

3. Wal-Mart to Toughen Standards
By STEPHANIE ROSENBLOOM

Published: October 22, 2008

Wal-Mart plans to announce Wednesday in Beijing that it will require manufacturers supplying goods for its stores to adhere to stricter ethical and environmental standards, the latest effort by the big retailer to answer criticism of its business practices.

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Adam Dean/Bloomberg News

Wal-Mart plans to announce in Beijing that after January the retailer will impose stricter labor standards and audits for its suppliers. Above, shoppers at a Wal-Mart store in Beijing.

At a gathering of more than 1,000 suppliers, Chinese officials and advocacy groups, Wal-Mart executives plan to reveal a new supplier agreement that will require manufacturers to allow outside audits and to adhere to specific social and environmental criteria. The agreement will be phased in beginning in January.

The changes signal a move on the part of Wal-Mart, the world’s largest retailer, away from intermittent transactions with many suppliers toward longer-term arrangements with a smaller group of manufacturers. Wal-Mart is betting that using its buying power this way can help keep prices low even as it keeps a closer eye on its suppliers.

Wal-Mart, long criticized for its treatment of workers in the United States and its ostensible willingness to overlook violations abroad, has in recent years offered a series of environmental and labor initiatives. A Beijing meeting now under way is the company’s first “sustainability summit.”

By next year, Wal-Mart will start keeping close track of the factories from which its products originate, even if they pass through many hands. By 2012, Wal-Mart will require suppliers to source 95 percent of their production from factories that receive the highest ratings in audits of environmental and social practices.

The agreement includes a ban on child and forced labor and pay below the local minimum wage.

“Meeting social and environmental standards is not optional,” Lee Scott, Wal-Mart’s chief executive, plans to say at the Beijing summit, according to his prepared remarks. “I firmly believe that a company that cheats on overtime and on the age of its labor, that dumps its scraps and its chemicals in our rivers, that does not pay its taxes or honor its contracts, will ultimately cheat on the quality of its products. And cheating on the quality of products is the same as cheating on customers.”

To ensure suppliers are making changes, Wal-Mart said it would require three levels of audits: from the vendors themselves, from an outside party and from Wal-Mart, which will initiate more of its own random, unannounced audits.

Wal-Mart said the audits would assess factory working conditions as well as compliance by manufacturers with standards regarding air pollution, wastewater discharge, management of toxic substances and disposal of hazardous waste.

Environmental and labor groups that follow Wal-Mart said the retailer had a mixed history when it came to the environment and labor practices — and that sometimes the company’s goals were lofty, while the measurable outcomes were less so. Through the years, Wal-Mart has been accused of various abuses.

In the 1990s it came to light that workers at factories producing Kathie Lee Gifford clothing for Wal-Mart were subjected to inhumane conditions. Last year two nongovernmental organizations said abuse and labor violations (including child labor) occurred at 15 factories that produce or supply goods for Wal-Mart and other retailers. In June the United States government and the state of Oklahoma filed a complaint in federal court claiming that Wal-Mart and other companies dumped hazardous waste in Oklahoma City. In Bangladesh, it was charged that factory workers were made to work 19-hour shifts, with some bringing home just $20 a month.

Michael Green, executive director of the Center for Environmental Health, a watchdog group in Oakland, Calif., said he believed Wal-Mart’s effort to improve suppliers’ practices began as a program to counter public-relations damage. “I think what happened along the way is some people there actually got convinced,” he said. “It became more than a sophisticated P.R. stunt, but something they believed in.”

However, without knowing the specifics of Wal-Mart’s new plan, Mr. Green said it would not be easy sledding. Suppliers under pressure to offer the company the lowest prices are likely to have an incentive to cheat, he noted, and outside auditors may not want to report violations for fear of losing a lucrative Wal-Mart contract. Additionally, tracing the origins of all the working parts that go into a single toy, for instance, is difficult because it involves multiple factories.

Still, groups that have criticized Wal-Mart are attending the Beijing summit to hear the company’s plans.

In a telephone interview from Beijing Tuesday night, Mr. Scott said Wal-Mart may offer longer-term agreements to suppliers willing to make the big investments needed to live up to its environmental demands.

The company said that within China, a nation with major environmental problems, Wal-Mart would aim by 2010 to cut water use in half in all stores, design and open a prototype store that used 40 percent less energy, and reduce energy use in existing stores by 30 percent. “People will judge us,” Mr. Scott said, “based on the results.”

4. Despite a decade of criticism, worker abuse persists in China

By David Barboza

Published: January 4, 2008

GUANGZHOU, China:

Nearly a decade after some of the most powerful companies in the world — often under considerable criticism and consumer pressure — began an effort to eliminate sweatshop labor conditions in Asia, worker abuse is still commonplace in many of the Chinese factories that supply Western companies, according to labor rights groups.

The groups say some Chinese companies routinely shortchange their employees on wages, withhold health benefits and expose their workers to dangerous machinery and harmful chemicals, like lead, cadmium and mercury.

“If these things are so dangerous for the consumer, then how about the workers?” said Anita Chan, a labor rights advocate who teaches at the Australian National University. “We may be dealing with these things for a short time, but they deal with them every day.”

And so while American and European consumers worry about exposing their children to Chinese-made toys coated in lead, Chinese workers, often as young as 16, face far more serious hazards. Here in the Pearl River Delta region near Hong Kong, for example, factory workers lose or break about 40,000 fingers on the job every year, according to a study published a few years ago by the Shanghai Academy of Social Sciences.

Pushing to keep big corporations honest, labor groups regularly smuggle photographs, videos, pay stubs, shipping records and other evidence out of factories that they say violate local law and international worker standards.

In 2007, factories that supplied more than a dozen corporations, including Wal-Mart, Disney and Dell, were accused of unfair labor practices, including using child labor, forcing employees to work 16-hour days on fast-moving assembly lines, and paying workers less than minimum wage. (Minimum wage in this part of China is about 55 cents an hour.)

In recent weeks, a flood of reports detailing labor abuse have been released, at a time when China is still coping with last year’s wave of made-in-China product safety recalls, and as it tries to change workplace rules with a new labor law that took effect on Jan. 1.

No company has come under as harsh a spotlight as Wal-Mart, the world’s biggest retailer, which sourced about $9 billion in goods from China in 2006, everything from hammers and toys to high-definition televisions.

In December, two nongovernmental organizations, or NGO’s, documented what they said were abuse and labor violations at 15 factories that produce or supply goods for Wal-Mart — including the use of child labor at Huanya Gifts, a factory here in Guangzhou that makes Christmas tree ornaments.

Wal-Mart officials say they are investigating the allegations, which were in a report issued three weeks ago by the National Labor Committee, a New York-based NGO.

Guangzhou labor bureau officials say they recently fined Huanya for wage violations, but officials say they found no evidence of child labor.

A spokesman for Huanya, which employs 8,000 workers, denied that the company broke any labor laws.

But two workers interviewed outside Huanya’s huge complex in late December said that they were forced to work long hours to meet production quotas in harsh conditions.

“I work on the plastic molding machine from 6 in the morning to 6 at night,” said Xu Wenquan, a tiny, baby-faced 16-year-old whose hands were covered with blisters. Asked what had happened to his hands, he replied, the machines are “quite hot, so I’ve burned my hands.”

His brother, Xu Wenjie, 18, said the two young men left their small village in impoverished Guizhou Province four months ago and traveled more than 500 miles to find work at Huanya.

The brothers said they worked 12 hours a day, six days a week, for $120 to $200 a month, far less than they are required to be paid by law.

When government inspectors visit the factory, the young brothers are given the day off, they said.

A former Huanya employee who was reached by telephone gave a similar account of working conditions, saying many workers suffered from skin rashes after working with gold powders and that others were forced to sign papers “volunteering” to work overtime.

“It’s quite noisy, and you stand up all day, 12 hours, and there’s no air-conditioning,” he said. “We get paid by the piece we make but they never told us how much. Sometimes I got $110, sometimes I got $150 a month.”

In its 58-page report, the National Labor Committee scolded Wal-Mart for not doing more to protect workers. The group charged that last July, Huanya recruited about 500 16-year-old high school students to work seven days a week, often 15 hours a day, during peak production months for holiday merchandise.

5.  Mexican teenagers work without wages:
Wal-Mart caught once again for misusing young workers

Wal-Mart is doing well in Mexico, at least if one is to believe the company itself. But once again, reality is catching up with the US retail giant. According to Newsweek magazine, the Bentonville-based multinational employs thousands of young people to pack its customers’ bags. But the 4,300 young teenagers don’t receive any pay from Wal-Mart.

So, Wal-Mart succeeds to defend its position as the undisputed leader of the pack when it comes to violating fundamental workers’ rights. To make use of the enormous social problems in Mexico by taking on impoverished children to do the work, but making them rely only on tips from customers, is immoral. This behaviour should send yet another signal that Wal-Mart and walmartization must be stopped.

For those who may have thought that Wal-Mart’s social dumping and denying its workers a decent income and social benefits is a US problem, this exploitation of Mexican youngsters should be an eye-opener. Walmartization is a disease that spreads easily, as also Europeans have seen in the cases of Lidl, Schlecker and other employers. And in Korea today, we see a really grotesque example in the bitter fight that E.Land’s workers have to engage themselves in to protect their jobs.

[1] Robert Bradford, Peter Duncan and Brian Tarcy, pp76-78, 112
[2] Fred David, p152
[3] Fred David, p154
[4] Randolph Schwering, p361
[5] Fred David, p153
[6] Ibid p107, 142

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