Electrocorp Case Study Summary

TO: Board of Directors for Electrocorp
FROM: Yessica Alvarez, Chief Executive of Electrocorp
RE: Analysis of possible plant relocation
DATE: October 2, 2013
INTRODUCTION:
The purpose of this case memo is fully administer an investigation in detail to determine if it is Electrocorp’s best interest to relocate outside of US borders to solve the current decline in profits due to increases in production costs. Investigations will take into account ethical issues that may arise in domestic and global business environments to assure the best possible solution to keep Electrocorp profitable.
FACTS SUMMARY:
Electrocorp profits have continuously dropped due to rising costs of production, union concessions, and strict environmental
regulations. Many factors have contributed to the increase of production costs. For instance, the coalition that represents the workers in my plant facility formed a strike and as a result there has been an increase in salary and benefits for employees. In addition, new beginning employees are now entitled to a minimum pay of $15/hour. New safety and strict regulations also took effect inside our various plants that we must obey to that have caused extra time and expense. The company is now required to put its waste through an expensive process before placing it in a specific disposal facility. Shareholders have expressed their frustration and demand quick action. It is our due diligence to provide the best possible alternative/solution. I hired Martha Smith to investigate possible plant relocations in Mexico, Philippines, and South Africa. Smith has extensive knowledge and experience in companies that have moved their operations to foreign countries to cut down on operating and overhead costs. I will explain the findings of each individual country further in this memo by weighing their pros and cons. With Electrocorp having the duty to ease rising costs in labor and productions, a well-developed strategy for possible relocation is vital to minimize a bad reputation that will cost a negative impact and instead focus on maximizing the profits of our company that will continue providing on-board electronics for vehicles.
ETHICAL DILEMMA:

Although the goal for all profit businesses is to gain money, ethics equally plays a huge role in a successful business. Business ethics commonly relates to a larger number of issues and aspects, because activities that occur inside a business directly affect more shareholders. Daily operations that undergo in a company affect employees, managers, customers, the local community and suppliers and as a result life’s of people all over the nation. The main dilemma Electrocorp has is what consequences it will face by relocating their plants overseas. We must determine moral and ethical problems in this situation including the consequences of the wrong decision.

ETHICAL ISSUE:
There are many ethical issues arising from this situation, such as is a relocation of the companies plants ethical taking into account the loss of jobs U.S. Electrocorp workers will have, what about workers’ exploitation in foreign countries, what harm will Electrocorp have in foreign countries in regards to the environment, and differences in wages and living standards in other foreign countries. In my opinion the main two issues arising are the loss of Electrocorp workers if plants were to relocate and workers’ exploitation in the possible foreign countries.
ALTERNATIVES:
Through detailed research and weighing out the pros and cons of relocation of our plants I have concluded possible alternatives to the two main ethical issues I think we must address.
First I would like to share what Martha Smith found with her research and my own findings in regards to the three possible countries to relocate to. Mexico and the Philippines are the most cost effective, as workers will be receiving $3 and $1 per day. However, these wages are insufficient for the standards of living in both countries. Furthermore, Mexico would be out of question since it will raise suspicion when it is discovered that people work for less money and more birth defects are happening because their regulations are less strict. On the other hand, the Philippines will be more favorable because there has been no public complaints regarding environmental hazardous and/or illnesses. In South Africa, conditions are less favorable with regard to the economy; employees there are entitled to $10 a day. In addition, their environmental regulations and safety requirements are similar to the U.S. regulations, but are less costly. Therefore, taking into account Ms. Smith’s findings, the first possible alternative/solution is to keep the plants in the U.S. to avoid the ethical issue of Electrocorp employees losing their jobs if the company were to relocate. Most companies would say you have to separate business from personal relationships, but care ethicists for instance would suggest that
relationships with employees is essential to ethical thinking to carry out the best ethical solution for the company. The second alternative/solution is to relocate to South Africa because of its similar environmental and safety regulations to prevent exploitation of workers once relocation occurs. The benefit of outsourcing to South Africa is we will have to obey by the same regulations as in the U.S., but are less expensive making the company increase its profit. Although, South Africa has the highest paying pay and stricter regulations compared to the other two countries, it will be suitable for the company in the long run. Electrocorp will avoid bad publicity and further complication with employee’s wages.
RECOMMENDATION (S):
It is Electrocorp’s responsibility to choose whether to continue operations in the U.S.
and perhaps increase financial risks for the company or to choose one of the possible countries for outsourcing and relocate production operations to this country. Regardless of the decision the company makes, it will affect many groups that are part of Electrocorp, internal and external shareholders. In addition, if the company decides to relocate it will also be affecting the people in that country. In my opinion I suggest you take the first alternative, keep all activity within the U.S. borders to prevent possible liability from any foreign country. By keeping the plants located within the U.S. the company will have faster access to monitor plants for possible irregularities; opposed to having plants overseas that will take a longer time to act upon. With having new plants overseas you will have to train new management and employees for them to expedite the onboard computer components for automobiles correctly and efficiently. I recommend Electrocorp to first consider its social responsibility to avoid damage to the company’s image. Bad publicity in relocating to other countries may cause the company to lose clients throughout the process. To address the ethical issue in avoiding any Electrocorp employee to lose its job, I would suggest you close down the smaller facilities and consolidate operations into a larger facility reducing the amount the company spends in overhead costs.
Employees that would have to move elsewhere in the U.S. offer them a relocation package, that would include free move, flight, and closing costs for the employee’s prior property and for their new real property. This will show that Electrocorp acknowledges the value of each employee and the major stress it brings throughout the process of relocation while keeping in mind costs of operation.
FUTURE IMPLICATIONS for RECOMMENDATION:
As a company that has strict regulations to obey and follow we must establish a strategic plan with our shareholders to prevent future downsizing and/or relocating. As I explained earlier, the best alternative is to consolidate smaller plants into a larger plant. This is where the relocation packages come into play. I suggest in the future for the Board of Directors to gather with all stakeholders of the company to come up with a range of relocation packages adjusting to the various circumstances employees may have, such as a package targeted to an employee with kids and a distinct package to an employee that is single and has no family. Keep in mind according to the Journal of Managerial Sciences, the failure of business “may either stem from the inability to hold management to account, or the inadequacy of the management accountability process that has failed to produce timely insight into the real operational status, directing concerned parties to adopt timely measures against undesirable situations (Karim & Taqi 62).” Furthermore, I also suggest having the accounting department provide a breakdown of the accruing expenses to possibly cut down on certain expenses that are not vital for the company. Therefore, for the company’s future growth each department must communicate to make the correct ethical decision, as it is vital to for a company to sustain any hardship.

CONCLUSION:

It is vital for Electrocorp to monitor its spending, demonstrate to its employees and customers how valuable they are in order to increase the financial future of the company. After having to investigate possible alternatives to the rising cost of production I conclude having plants overseas will be more expensive and more time consuming. Remember it might seem a smart strategic move to relocate out of the U.S., but in reality it will be damaging and costly in the long run. The best course of action to determine the most effective solution is to consider three main questions, how will the public perceive the company by what actions it may take, the financial state of the company, and any ethical issues that may arise. Thus, for Electrocorp to avoid bad publicity, substantial finance lost, and to avoid foreign issues with other countries, it is best to keep the company within the U.S.

REFERENCES:

Karim, N., & Taqi, S. (2013). The Importance of Corporate Management Accountability. Journal
Of Managerial Sciences, 7(1), 59-73.