Samsung Electronic one of the largest multi-billion dollar corporations in the world recently found itself on the wrong side of ethical behaviour. In 2010 Samsung Electronic exceeded the $150bn mark in the annual sales for the first time in its history. This makes it one of the world’s top three companies in the electronic industry after Siemens and Hewlett-Packard.
Samsung’s all business units, including end-product and component businesses, posted solid earnings in last year thanks to strong sales of Galaxy smartphones and increased shipments of display panels used in tablets and smartphones, which put extra pressure on company to meet the demand of the market. So in order to meet the demand Samsung asked their outsourcing company (electronic component) HEG electronic (china) to hire more workers and increase the shift timings. This resulted into hiring of underage workers and long shift timing without proper breaks.
In the past as well, there were some horror stories about Foxconn, one of the world’s biggest electronic components manufacturers, whose major clients include Acer, Apple, and Amazon, and how they mistreated their workers. But the region is brimming with countless numbers of factories operated by lesser known firms that Foxconn may not be the worst perpetrator. Human rights group China Labor Watch is trying to raise the issue of unethical labor practices at HEG Electronics, a major supplier for Samsung, Motorola and LG.
According to the group, HEG Electronic has started employing underage workers (under 16 years of age) to work at its factory due to the high demand of the electronic components. Initial investigation put the number down at seven, but later research reveals that up to 100 underage workers are possibly being employed by HEC, earning significantly less than older workers there. The underage workers reportedly only receive a monthly take home pay of 750 yuan, which translates to about $120.
The average minimum wage in China is 950 yuan, which means HEG is potentially breaking yet another labor law, one that’s admittedly not being forcefully enforced by the government. Other violations uncovered, as stated on China Labor Watch’s blog, include: * Discrimination based on sex, age, and individuality during the hiring process. * Excessive working time. The workers toil 11 hours per day (including 3-5 hours of forced overtime), 6 days per week, 26-28 days per month. Their attendance system is also defective and unfair, negatively influencing the physical and mental health of the student and child workers. Legal problems exist in issues regarding the labor contract, remuneration system, and reward and punishment system of the company. There are extremely strict punishments, and the workers are frequently fined. * Night shift workers are only given time to eat one meal during the 11-hour work shift. The normal meal break is 30-40 minutes long. * The workers always work under dangerous conditions, and work injuries are common. If we compare it to Foxconn that employs hundreds of thousands of workers, HEG Electronics is relatively minuscule – as it only employs 2,000 workers within a single factory.
But size shouldn’t matter when it comes to pointing out the truth about the possible exploitation of young workers. With Samsung’s name being dragged into the controversy, the Korean company told Bloomberg that on-site inspections at HEG Electronics has been done on two separate occasions, where they found no irregularities. Following the finding by China Labor Watch, Samsung said that “[It] will conduct another field survey at the earliest possible time to ensure our previous inspections have been based on full information and take appropriate measures to correct any problems that may surface. ”
ADVERSE DOWNSTREAM CONSEQUENCES. Any organisation which is caught following unethical practices has to face various consequences. Apart from the legal action there are other long term consequences that they have to bear which can affect the organisation very deeply. The ethical failure of Samsung Electronic on this business decision could lead to a million dollar lawsuit from Human right and Child labour commission. Apart from the compensation there is a possibility that HEG Electronic (their outsourcing company) could be shut down, which would affect Samsung’s business heavily as most of their electronic components are produced by HEG Electronic.
They won’t be able to meet the market demand and their competitor would take advantage of the situation by supplying their products. Which would eventually lead to the reduction in their market share would and profit. The biggest downstream consequences would be that these kind of unethical practices have a huge potential to dilute the image and the brand value of any organisation. Samsung Electronics has earned huge value as a brand and such incident to temper to that brand value heavily. So, it is really important for an organisation to look into the ethical aspect of any business decision.
Question (B): Identify sensible management practices or regulatory changes that would significantly reduce repeat occurrences of this type of ethical failure with explanation of why the recommended change is both minimal and sufficient to produce the desired change. Unethical behaviors can plague a workplace and a business. Unethical behaviors can damage a company’s credibility, causing the business to lose customers and ultimately shut down. However, business owners and their management teams can work with employees to prevent unethical behaviors.
Business houses that comply with ethics to determine their conduct are shrinking in number. The lack of business ethics in the market is a big reason to worry. Organizations now recognize the positive effects and outcomes of being ethical, humane and considerate. They have a competitive edge in the market, because of the honesty they show in their services. Their morally upright reputation attracts better staff and helps in retention. Though ethics are legally binding in most cases, self-monitoring, transparency and accountability will go a long way in establishing trust of the people.
Besides this, it makes sense to change, before you are penalized. Samsung Electronic can’t get away with the excuse of that they are outsourcing their business and conducted a field survey to check the working condition so they are not accountable of what happened in HEG Electronic because it has put a huge dent on the company’s image and hampered their brand value. So, firstly Samsung Electronic needs to take accept their fault and take the accountability for the entire incident. Then they need to change their management practices or put some regulatory changes in order to make sure such incidents does occurs in future.
Samsung electronics need to increase the frequency of the field survey of their outsourced business in order to make sure that ethical aspect of the business is taken care of properly by their business partners. And also need to convey them the consequences of not following the business ethics in a appropriate way. Samsung Electronics need to make code of ethics which many organizations are now implementing during induction and regular training. A code of ethics is generally a more blanket statement of values and beliefs that defines the organization or group.
It is primarily for the following areas: * Company’s assets, funds and records * Conflict of interest * Management and employee practices * Information on competition There should be a proper agreement between the company and the outsourcing firm to decide who would be accountable for if there is any discrepancy in the ethical business practices, so that if such incidents happen again in future than rather than playing a blame game they could come to a mutual conclusion on the accountability issue.
So if Samsung Electronic wants to make sure that such issues of unethical business practices doesn’t raise in front of the organization than they seriously need to look into the management practices mentioned above. These practices would help them till great extent and minimizes the changes of unethical practices in organizations business.
