This decision can be viewed as beneficial to the company’s business at a corporate level, but it is at the same time, violating the Corporate Social Responsibility regulations. By outsourcing manufacturing, UT is reducing their labor costs and improving the productivity which increases profitability and margins. When manufacturing in Indianapolis, the wages per worker was of $21 per hour. This contrasts with the tremendous difference between the wages in the US and Mexico where jobs are set between 90 cents and $1.90 per hour. Reducing operational costs and focusing on the core business ensures long-term global competitiveness for the company. By outsourcing, UT can focus and invest in other projects that they’ve been longing for and innovate which could distinguish them on the market.
To adapt to the constant society we live in, organizations tend to change their products and service to make them more attractive and demanded by the market and to keep up their competitive advantage. As stated in the case, one of the factors driving this decision would be “enhancing shareholder value”. The latter is constituted of the Income (Revenue, Margin, Expenses), the Cash Flow (Inventory turns, Age of Receivables, Age of Payables) and Return on Assets (Inventory levels, Levels of Receivables-Payables, PPE) all these ingredients need to go in the right direction. Outsourcing usually reduces expenses which consequently increases income, cash flow, and ROA. Another advantage for UT to outsource in Mexico is the protection of intellectual property thanks to NAFTA, the first trade treaty to protect IP rights. Some companies that outsource in China, for example, suffer from the constant imitating products as the country merely have respect for the IP rights.
Even though outsourcing presents a huge economic advantage to United Technologies, the company is not acting socially responsible on many levels. On their website, there is an entire section where the company claims how much they care about their people, but these seem to only be words not translated into actions. The definition of Social Responsibility is the “idea that businesses should balance profit-making activities with activities that benefit society” (Investopedia). The society includes UT’s 1,400 employee victim of losing their jobs. Upon learning the new decision made by the enterprise they work for, employees are raging and unsatisfied with what will soon destroy their jobs. Some have been working there for more than 30 years and no respect is shown “They didn’t even thank us for our work” “And now they’re going to throw us under the bus”.
These people are feeling replaced, dehumanized and disrespected. A video of 3 minutes showing the reaction of these angry workers went viral which means it might have reached potential customers. UT has to prioritize its workers, make sure they are happy and safe. It’s putting their work and stability in danger and this is no sign of CSR. A Study shows that “Fifty-five percent of global online consumers across 60 countries say they are willing to pay more for products and services provided by companies that are committed to positive social and environmental impact.” The video could create a bad reputation for UT which will prevent customers from purchasing any product from them. This could even grow through social media (published on Instagram, Twitter, Facebook) or even word of mouth. It took only a 3 minutes video for UT to risk losing customers which may hinder the business advantage of the outsourcing decision.
Since 2000, the US has outsourced 5 million manufacturing jobs, and this enormous number kept on increasing since then. This accelerated especially when China became part of the World Trade Organization in 2001 when the US started losing 50,000 jobs per month. The majority of these jobs are blue collar jobs and outsourcing is the main reason for the shocking blue-collar job losses in the US. (Business Insider). The big corporations prioritize the maximization of their profit disregarding sometimes the wellbeing of their workers and they won’t stop outsourcing for the benefit of their employees. Employers often look for ways to replace their Blue-collar workers or send their jobs overseas by trying to reduce their labor costs. In the UT case, the 1,400 blue collar workers are being replaced by the Mexican workers whose salaries range from $9 to $19 per day, or from 90 cents to $1.90 per hour. In 2000, 20% of all jobs in the US were manufacturing jobs, today they represent only 5%. By losing their work, blue-collar workers have to switch to other jobs they could qualify for. However, these occupations ranged from retail to home and healthcare where pay is mostly low. With the constant loss of blue-collar jobs due to outsourcing and also the crucial development of Artificial Intelligence, civils is reduced to low paid jobs which makes them a victim of inequality.
In order to reduce income inequality in the trade situation, companies should start communicating more with their employers. When a company communicates with its stakeholders it shows a sense of caring and respect which belongs to the company’s culture. Before taking their decision, UT should have discussed the matter with their employers. UT could have at least offered its 1,400 workers career assistance and show the local community still cares about them. It is hard for manufacturing workers to find a job that pays well such as UT. Any company that considers outsourcing should consider investing in these people’s education and makes sure they are well trained to take over another job that doesn’t have to be in manufacturing. The government could also raise the minimum wage to $15 per hour which would be indexed to inflation.
United Technologies disregarded many important points while making its outsourcing decision, the first one being its act of Social Responsibility. The business is blinded by profit maximization alimented by various corporate factors which caused it to add another pile of unemployed blue-collar jobs to the already huge one the US has. Income inequality is a notion threatening the country, but many initiatives can be taken by the corporation as well as by the government.