Mod 02: Critical Thinking Assignment
Student Advocacy and “Sweatshop” Labor: The Case of Russell Athletics
Read the attached documents and below provided sources in order to understand and meet the requirements.
Using the Six Steps of Decision-Making framework from the slide, please develop an essay responding to the following questions related to the case study Student Advocacy and “Sweatshop” Labor: The Case of Russell Athletic (p. 109).
Recognize decision requirement: What are the factors to consider in a corporation when deciding to outsource labor to developing countries? Include the following:
Evaluation and feedback: Have your recommendations been implemented in other countries? Are they working? What has been the outcome?
In this course, you will have six Critical Thinking assignments where you will respond to assignment questions to develop an essay.
Essays have an introduction (to the topic of the assignment), a body (where you will integrate your responses), and a conclusion (your thoughts on the assignment).
Also, make sure you are using an APA (7th ed) paper template as a starting point.
Your well-written essay should meet the following requirements:
Well-written and free of any grammatical errors, otherwise, the paper cannot be accepted.
Student Advocacy and “Sweatshop”
Labor: The Case of Russell Athletic
Introduction
Outsourcing of production facilities and labor to developing countries has
been one of the important business strategies of large U.S. corporations.
While in the United States, a typical corporation is subject to various
regulations and laws such as minimum wage law, labor laws, safety and
sanitation requirements, and trade union organizing provisions, in some
developing countries these laws are soft and rudimentary, allowing a large
corporation to derive significant cost benefits from outsourcing. Moreover,
many developing countries like Bangladesh, China, Honduras, India,
Pakistan, and Vietnam encourage the outsourcing of work from the
developed world to factories within their borders as a source of employment
for their citizens, who otherwise would suffer from lack of jobs in their
country.
However, in spite of the obvious positive fact of creating new jobs in
the hosting country, large multinational corporations very often have been
criticized for violating the rights of the workers, creating unbearable working
conditions, and increasing workloads while cutting compensation. They have
been attacked for creating a so-called sweatshop environment for their
employees. A few of the recent targets of the criticism have been H&M,1
Gap, Walmart,2 Target,3 Nike,4 Adidas, Lululemon, Prada, Hermes, and
Louis Vuitton.5
A major turning point for labor rights came over a decade ago in
November 2009 when, after nearly two years of student campaigning in
coordination with the apparel workers, the Honduran workers’ union
concluded an agreement with Russell Athletic, a major supplier of clothing
and sportswear to college campuses around the country. The agreement
included a commitment by Russell to put all of the workers back to work,
provide compensation for lost wages, recognize the union and agree to
collective bargaining, and allow access for the union to all other Russell
apparel plants in Honduras for union organizing drives in which the
company will remain neutral.6
This case addresses advocacy by students and other stakeholders toward
one of these companies and documents the evolution and outcome of the
dispute.
What Is a Sweatshop?
By common agreement, a sweatshop is a workplace that provides low or
subsistence wages under harsh working conditions, such as long hours,
unhealthy conditions, and/or an oppressive environment. Some observers see
these work environments as essentially acceptable if the laborers freely
contract to work in such conditions. For others, to call a workplace a
sweatshop implies that the working conditions are illegitimate and immoral.
The U.S. Government Accountability Office (the name since July 7, 2004)
would hone this definition for U.S. workplaces to include those
environments where an employer violates more than one federal or state
labor, industrial homework, occupational safety and health, workers’
compensation, or industry registration laws. The AFL-CIO Union of
Needletrades, Industrial and Textile Employees would expand on that to
include workplaces with systematic violations of global fundamental
workers’ rights. The Interfaith Center on Corporate Responsibility (ICCR)
defines sweatshops much more broadly than either of these; even where a
factory is clean, well organized, and harassment free, the ICCR considers it a
sweatshop if its workers are not paid a sustainable living wage. The purpose
of reviewing these varied definitions is to acknowledge that, by definition,
sweatshops are oppressive, unethical, and patently unfair to workers.7
History of Sweatshops
Sweatshop labor systems were most often associated with garment and cigar
manufacturing of the period 1880–1920. Sweated labor can also be seen in
laundry work, green grocers, and most recently in the “day laborers,” often
legal or illegal immigrants, who landscape suburban lawns.8 Now,
sweatshops are often found in the clothing industry because it is easy to
separate higher- and lower-skilled jobs and contract out the lower-skilled
ones. Clothing companies can do their own designing, marketing, and cutting
and contract out sewing and finishing work. New contractors can start up
easily; all they need are a few sewing machines in a rented apartment or
factory loft located in a neighborhood where workers can be recruited.9
Sweatshops make the most fashion-oriented clothing—women’s and girls’—
because production has to be flexible, change quickly, and be done in small
batches. In less style-sensitive sectors—men’s and boys’ wear, hosiery, and
knit products—there is less change and longer production runs, and clothing
can be made competitively in large factories using advanced technology.10
Since their earliest days, sweatshops have relied on immigrant labor, usually
women, who were desperate for work under any pay and conditions. Page 110
Sweatshops in New York City, for example, opened in Chinatown,
the mostly Jewish Lower East Side, and Hispanic neighborhoods in the
boroughs. Sweatshops in Seattle are near neighborhoods of Asian
immigrants. The evolution of sweatshops in London and Paris—two early
and major centers of the garment industry—followed the pattern in New
York City. First, garment manufacturing was localized in a few districts: the
Sentier of Paris and the Hackney, Haringey, Islington, Tower Hamlets, and
Westminster boroughs of London. Second, the sweatshops employed mostly
immigrants, at first men but then primarily women, who had few job
alternatives.11
In developing countries, clothing sweatshops tend to be widely
dispersed geographically rather than concentrated in a few districts of major
cities, and they often operate alongside sweatshops, some of which are very
large, that produce toys, shoes (primarily athletic shoes), carpets, and athletic
equipment (particularly baseballs and soccer balls), among other goods.
Sweatshops of all types tend to have child labor, forced unpaid overtime, and
widespread violations of workers’ freedom of association (i.e., the right to
unionize). The underlying cause of sweatshops in developing nations—
whether in China, Southeast Asia, the Caribbean, or India and Bangladesh—
is intense cost-cutting done by contractors who compete among themselves
for orders from larger contractors, major manufacturers, and retailers.12
Sweatshops became visible through the public exposure given to them by
reformers in the late 19th and early 20th centuries in both England and the
United States. In 1889–1890, an investigation by the House of Lords Select
Committee on the Sweating System brought attention in Britain. In the
United States, the first public investigations came as a result of efforts to
curb tobacco homework, which led to the outlawing of the production of
cigars in living quarters in New York State in 1884.13
The spread of sweatshops was reversed in the United States in the years
following a horrific fire in 1911 that destroyed the Triangle Shirtwaist
Company, a women’s blouse manufacturer near Washington Square in New
York City. The company employed 500 workers in notoriously poor
conditions. One hundred forty-six workers perished in the fire; many jumped
out windows to their deaths because the building’s emergency exits were
locked. The Triangle fire made the public acutely aware of conditions in the
clothing industry and led to pressure for closer regulation. The number of
sweatshops gradually declined as unions organized and negotiated improved
wages and conditions and as government regulations were stiffened
(particularly under the 1938 Fair Labor Standards Act, which imposed a
minimum wage and required overtime pay for work of more than 40 hours
per week).14 Unionization and government regulation never completely
eliminated clothing sweatshops, and many continued on the edges of the
industry; small sweatshops were difficult to locate and could easily close and
move to avoid union organizers and government inspectors. In the 1960s,
sweatshops began to reappear in large numbers among the growing labor
force of immigrants, and by the 1980s sweatshops were again “business as
usual.” In the 1990s, atrocious conditions at a sweatshop once again shocked
the public.15 A 1994 U.S. Department of Labor spot check of garment
operations in California found that 93 percent had health and safety
violations, 73 percent of the garment makers had improper payroll records,
68 percent did not pay appropriate overtime wages, and 51 percent paid less
than the minimum wage.16
Sweatshop Dilemma
The fight against sweatshops is never a simple matter; there are mixed
motives and unexpected outcomes. For example, unions object to sweatshops
because they are genuinely concerned about the welfare of sweated labor, but
they also want to protect their own members’ jobs from low-wage
competition even if this means ending the jobs of the working poor in other
countries.17 Also, sweatshops can be evaluated from moral and economic
perspectives. Morally, it is easy to declare sweatshops unacceptable because
they exploit and endanger workers. But from an economic perspective, many
now argue that, without sweatshops, developing countries might not be able
to compete with industrialized countries and achieve export growth. Working
in a sweatshop may be the only alternative to subsistence farming, casual
labor, prostitution, and unemployment. At least most sweatshops in other
countries, it is argued, pay their workers above the poverty level and provide
jobs for women who are otherwise shut out of manufacturing. And American
consumers have greater purchasing power and a higher standard of living
because of the availability of inexpensive imports.18
NGOs’ Anti-Sweatshop Initiatives
International nongovernmental organizations (NGOs) have attempted to step
into the sweatshop conflict to suggest voluntary standards to which possible
signatory countries or organizations could commit. For instance, the
International Labour Office has promulgated its Tripartite Declaration of
Principles Concerning Multinational Enterprises and Social Policy, which
offers guidelines for employment, training, conditions of work and life, and
industrial relations. The “Tripartite” nature refers to the critical cooperation
necessary from governments, employers’ and workers’ organizations, and the
multinational enterprises involved.19
On December 10, 1948, the General Assembly of the United Nations
adopted its Universal Declaration of Human Rights, calling on all member
countries to publicize the text of the Declaration and to cause it to be
disseminated, displayed, and read. The Declaration recognizes that all
humans have an inherent dignity and specific equal and inalienable rights.
These rights are based on the foundation of freedom, justice, and Page 111
peace. The UN stated that the rights should be guaranteed without
distinction of any kind, such as race, color, sex, language, religion, political
or other opinion, national or social origin, property, birth, or other status.
Furthermore, no distinction shall be made on the basis of the political,
jurisdictional, or international status of the country or territory to which a
person belongs. The foundational rights also include the right to life, liberty,
and security of person and protection from slavery or servitude, torture, or
cruel, inhuman, or degrading treatment or punishment.20 Articles 23, 24, and
25 discuss issues with immediate implications for sweatshops. By
extrapolation, they provide recognition of the fundamental human right to
nondiscrimination, personal autonomy or liberty, equal pay, reasonable
working hours and the ability to attain an appropriate standard of living, and
other humane working conditions. All these rights were reinforced by the
United Nations in its 1966 International Covenant on Economic, Social, and
Cultural Rights.21
These are but two examples of standards promulgated by the
international labor community, though the enforcement of these and other
norms is spotty. In the apparel industry in particular, the process of internal
and external monitoring has matured such that it has become the norm at
least to self-monitor, if not to allow external third-party monitors to assess
compliance of a supplier factory with the code of conduct of a multinational
corporation or with that of NGOs. Though a number of factors affected this
evolution, one such factor involved pressure by American universities on
their apparel suppliers, which resulted in two multistakeholder efforts—the
Fair Labor Association, primarily comprising and funded by the
multinational retailers, and the Worker Rights Consortium, originally
perceived as university driven. Through a cooperative effort of these two
organizations, large retailers such as Nike and Adidas not only have allowed
external monitoring, but Nike has now published a complete list of each of
its suppliers.22
The Case of Russell Athletic
While some argue that sweatshop scandals cause little or no impact on the
corporate giants because people care more for the ability to buy cheap and
affordable products rather than for working conditions of those who make
these products,23 the scandal around the Russell Athletic brand has proved
that it may no longer be as easy for a corporation to avoid the social
responsibility for its outsourcing activities as it has been for a long time.
November 2009 became a tipping point in the many years of struggle
between the student anti-sweatshop movement and the corporate world. An
unprecedented victory was won by the United Students Against Sweatshops
(USAS) coalition against Russell Athletic, a corporate giant owned by Fruit
of the Loom, a Berkshire-Hathaway portfolio company. USAS pressure
tactics persuaded one of the nation’s leading sportswear companies, Russell
Athletic, to agree to rehire 1,200 workers in Honduras who lost their jobs
when Russell closed their factory soon after the workers had unionized.24
Russell Corporation, founded by Benjamin Russell in 1902, is a
manufacturer of athletic shoes, apparel, and sports equipment. Russell
products are marketed under many brands, including Russell Athletic,
Spalding, Brooks, Jerzees, Dudley Sports, and others. This company with
more than 100 years of history has been a leading supplier of team uniforms
at the high school, college, and professional level. Russell Athletic™ active
wear and college-licensed products are broadly distributed and marketed
through department stores, sports specialty stores, retail chains, and college
bookstores.25 After an acquisition in August 2006, Russell’s brands joined
Fruit of the Loom in the Berkshire-Hathaway family of products.
Russell/Fruit of the Loom is the largest private employer in Honduras.
Unlike other major apparel brands, Russell/Fruit of the Loom owns all eight
of its factories in Honduras rather than subcontracting to outside
manufacturers.26 The incident related to Russell Athletic’s business in
Honduras that led to a major scandal in 2009 was the company’s decision to
fire 145 workers in 2007 for supporting a union. This ignited the antisweatshop campaign against the company. Russell later admitted its
wrongdoing and was forced to reverse its decision. However, the company
continued violating worker rights in 2008 by constantly harassing the union
activists and making threats to close the Jerzees de Honduras factory. It
finally closed the factory on January 30, 2009, after months of battling with a
factory union.27
NGOs’ Anti-Sweatshop Pressure
The Worker Rights Consortium (WRC) has conducted a thorough
investigation of Russell’s activities, and ultimately released a 36-page report
on November 7, 2008, documenting the facts of worker rights violations by
Russell in its factory Jerzees de Honduras, including the instances of death
threats received by the union leaders.28 The union’s vice president, Norma
Mejia, publicly confessed at a Berkshire-Hathaway shareholders’ meeting in
May 2009 that she had received death threats for helping lead the union.29
The Worker Rights Consortium continued monitoring the flow of the Russell
Athletic scandal and issued new reports and updates on this matter
throughout 2009, including its recommendation for Russell’s management on
how to mediate the situation and resolve the conflict.
As stated in its mission statement, the Worker Rights Consortium is an
independent labor rights monitoring organization, whose purpose is to
combat sweatshops and protect the rights of workers who sew apparel and
make other products sold in the United States. The WRC conducts
independent, in-depth investigations, issues public reports on factories
producing for major U.S. brands, and aids workers at these factories Page 112
in their efforts to end labor abuses and defend their workplace
rights. The WRC is supported by over 175 college and university affiliates
and is primarily focused on the labor practices of factories that make apparel
and other goods bearing university logos.30
Worker Rights Consortium assessed that Russell’s decision to close the
plant represented one of the most serious challenges yet faced to the
enforcement of university codes of conduct. If allowed to stand, the closure
would not only unlawfully deprive workers of their livelihoods, it would also
send an unmistakable message to workers in Honduras and elsewhere in
Central America that there is no practical point in standing up for their rights
under domestic or international law and university codes of conduct and that
any effort to do so will result in the loss of one’s job. This would have a
substantial chilling effect on the exercise of worker rights throughout the
region.31
The results of the WRC investigation of Russell Athletic unfair labor
practices in Honduras spurred the nationwide student campaign led by
United Students Against Sweatshops (USAS), who persuaded the
administrations of Boston College, Columbia, Harvard, NYU, Stanford,
Michigan, North Carolina, and 89 other colleges and universities to sever or
suspend their licensing agreements with Russell. The agreements—some
yielding more than $1 million in sales—allowed Russell to put university
logos on T-shirts, sweatshirts, and fleeces.32
As written in its mission statement, USAS is a grassroots organization
run entirely by youth and students. USAS strives to develop youth leadership
and run strategic student-labor solidarity campaigns with the goal of building
sustainable power for working people. It defines “sweatshop” broadly and
considers all struggles against the daily abuses of the global economic
system to be a struggle against sweatshops. The core of its vision is a world
in which society and human relationships are organized cooperatively, not
competitively. USAS struggles toward a world in which all people live in
freedom from oppression, in which people are valued as whole human
beings rather than exploited in a quest for productivity and profits.33
The role of USAS in advocating for the rights of the Honduran workers
in the Russell Athletic scandal is hard to overestimate. One can only envy
the enthusiasm and effort contributed by students fighting the problem that
did not seem to have any direct relationship to their own lives. They did not
just passively sit on campus, but went out to the public with creative tactical
actions such as picketing the NBA finals in Orlando and Los Angeles to
protest the league’s licensing agreement with Russell, distributing fliers
inside Sports Authority sporting goods stores, and sending Twitter messages
to customers of Dick’s Sporting Goods urging them to boycott Russell
products. The students even sent activists to knock on Warren Buffett’s door
in Omaha because his company, Berkshire-Hathaway, owns Fruit of the
Loom, Russell’s parent company.34
United Students Against Sweatshops involved students from more than
100 campuses where it did not have chapters in the anti-Russell campaign. It
also contacted students at Western Kentucky University in Bowling Green,
where Fruit of the Loom has its headquarters.35 The USAS activists even
reached Congress, trying to gain more support and inflict more political and
public pressure on Russell Athletic. On May 13, 2009, 65 congressmen
signed the letter addressed to Russell CEO John Holland expressing their
grave concern over the labor violations.
In addition, the Fair Labor Association (FLA), a non-profit organization
dedicated to ending sweatshop conditions in factories worldwide, issued a
statement on June 25, 2009, putting Russell Athletic on probation for
noncompliance with FLA standards.36 The Fair Labor Association, one of
the powerful authorities that oversees the labor practices in the industry,
represents a powerful coalition of industry and nonprofit sectors. The FLA
brings together colleges and universities, civil society organizations, and
socially responsible companies in a unique multistakeholder initiative to end
sweatshop labor and improve working conditions in factories worldwide.
The FLA holds its participants, those involved in the manufacturing and
marketing processes, accountable to the FLA Workplace Code of Conduct.37
The 19-member Board of Directors, the FLA’s policy-making body,
comprises equal representation from each of its three constituent groups:
companies, colleges and universities, and civil society organizations.38
Victory for USAS and WRC
As mentioned at the start of this case, on November 2009, after nearly two
years of student campaigning in coordination with the apparel workers, the
Honduran workers’ union concluded an agreement with Russell that put all of
the workers back to work, provided compensation for lost wages, recognized
the union and agreed to collective bargaining, and provided access for the
union to all other Russell apparel plants in Honduras for union-organizing
drives in which the company will remain neutral. According to the
November 24, 2009, press release from Fibre2Fashion, this has been an
“unprecedented victory for labor rights.”39 Rod Palmquist, USAS
International Campaign Coordinator and University of Washington alumnus,
noted that there were no precedents for a factory apparently being shut down
to dislodge a union and “later reopened after a worker-activist campaign.”40
This was not an overnight victory for the student movement and the
coalition of NGOs such as USAS, WCR, and FLA. It took over 10 years of
building a movement that persuaded scores of universities to adopt detailed
codes of conduct for the factories used by licensees like Russell.41 It is
another important lesson for the corporate world in the era of globalization,
which can no longer expect to conduct business activities in isolation from
the rest of the world. The global corporations such as Russell Athletic, Nike,
Gap, Walmart, and others will have to assess the impact of their Page 113
business decisions on all the variety of stakeholders and take higher
social responsibility for what they do in any part of the world.
More recently, a fire at a Bangalore textile factory in late 2012, and two
horrific accidents at garment factories in Bangladesh in 2013, have placed
renewed pressure on U.S. and European clothing brands to take greater
responsibility for the working conditions of the factories from which they
source products. On April 24, 2013, more than 1,000 workers were killed
when an eight-story building collapsed while thousands of people were
working inside. Less than two weeks later, eight people were killed in a fire
at a factory in Dhaka that was producing clothes for Western retailers. After
a number of investor, religious, labor, and human rights groups voiced
concerns about the lack of oversight and accountability by the major
companies, several of the world’s largest apparel firms agreed to a plan to
help pay for fire safety and building improvements. Companies agreeing to
the plan included the Swedish-based retailer H&M; Inditex, owner of the
Zara chain; the Dutch retailer C&A; and British companies Primark and
Tesco. At the same time, the Bangladesh government announced that it
would improve its labor laws and raise wages, and ease restrictions on
forming trade unions. U.S. retailers Walmart and Gap did not commit to the
agreement, expressing concerns about legal liability in U.S. courts. Instead,
with the help of a U.S.-based think tank, they announced they would pursue
a separate accord to improve factory conditions in Bangladesh.42
Despite these promises by various companies and governmental
organizations, and a commitment of over a quarter of a billion dollars, much
work remains to be done. According to a report by NYU Stern Center for
Business and Human Rights, only eight out of over 3,000 factories in
Bangladesh had cleared violations in the years since the garment fires and
building collapse.43 Additionally, workers still face unhealthy levels of dust
and pollution inhalation, physical strain, long-term mental stress, exhaustion,
and overheating.44
Questions for Review
1.
Assume that you are an executive of a large U.S. multinational
corporation planning to open new manufacturing plants in China
and India to save on labor costs. What factors should you consider
when making your decision? Is labor outsourcing to developing
countries a legitimate business strategy that can be handled without
risk of running into a sweatshop scandal?
2.
Do you think that sweatshops can be completely eliminated
throughout the world in the near future? Provide an argument as to
why you think this can or cannot be achieved.
3.
Would you agree that in order to eliminate sweatshop conflicts,
large corporations such as Russell Athletic should retain the same
high labor standards and regulations that they have in the home
country (for example, in the U.S.) when they conduct business in
developing countries? How hard or easy can this be to implement?
4.
Do you think that the public and NGOs like USAS should care
about labor practices in other countries? Isn’t this a responsibility
of the government of each particular country to regulate the labor
practices within the borders of its country? Who do you think
provides a better mechanism of regulating and improving the labor
practices: NGOs or country governments?
5.
Would you agree that Russell Athletic made the right decision by
conceding to USAS and union demands? Isn’t a less expensive way
to handle this sort of situation simply to ignore the scandal? Please
state your pros and cons regarding Russell’s decision to
compromise with the workers’ union and NGOs as opposed to
ignoring this scandal.
This case was prepared by Professor Jonathan Doh and Tetyana Azarova of Villanova
University as the basis for class discussion.
ENDNOTES
1.
Kieran Guilbert, “H&M Accused of Failing to Ensure Fair Wages for
Global Factory Workers,” Reuters, September 24, 2018,
https://www.reuters.com/article/us-workers-garment-abuse/hmaccused-of-failing-to-ensure-fair-wages-for-global-factory-workersidUSKCN1M41GR.
2.
Aaron Smith, “Report Slams Walmart for ‘Exploitative’ Conditions in
Asia Factories,” CNN, May 31, 2016,
https://money.cnn.com/2016/05/31/news/companies/walmart-gaphm-garment-workers-asia/index.html.
3.
Rachel Eddie, “Target and Kmart Accused of Using ‘Slave Labour’
for Back-to-School Clothing Lines That Sell Shirts for Just $2 … but
They Deny Putting Price before Factory Workers’ Welfare,” Daily
Mail, January 16, 2016, https://www.dailymail.co.uk/news/article3403101/Target-Kmart-accused-using-slave-labour-school-clothinglines-sell-shirts-just-2-deny-putting-price-factory-workerswelfare.html.
4.
Elizabeth Segran, “Escalating Sweatshop Protests Keep Nike
Sweating,” Fast Company, July 28, 2017,
https://www.fastcompany.com/40444836/escalating-sweatshopprotests-keep-nike-sweating.
5.
Elizabeth Segran, “Did a Slave Make Your Sneakers? The Answer Is:
Probably,” Fast Company, December 14, 2018,
https://www.fastcompany.com/90279693/did-a-slave-make-yoursneakers-the-answer-is-probably.
6.
Steven Greenhouse, “Labor Fight Ends in Win for Students,”
Page 114
New York Times, November 17, 2009,
https://www.nytimes.com/2009/11/18/business/18labor.html.
7.
Laura P. Hartman, Encyclopedia of Business Ethics and Society, vol.
4, ed. Robert W. Kolb (Thousand Oaks, CA: Sage, 2008), 2034–41.
8.
Richard A. Greenwald, Dictionary of American History, 3rd ed., vol.
8, ed. Stanley I. Kutler (New York: Charles Scribner’s Sons, 2003),
34–35.
9.
Gary Chaison, Encyclopedia of Clothing and Fashion, vol. 3, ed.
Valerie Steele (Detroit: Charles Scribner’s Sons, 2005), 247–50.
10. Ibid.
11. Ibid.
12. Ibid.
13. Greenwald, Dictionary of American History, 34–35.
14. Chaison, Encyclopedia of Clothing and Fashion, 247–50.
15. Ibid.
16. Hartman, Encyclopedia of Business Ethics and Society, 2034–41.
17. Chaison, Encyclopedia of Clothing and Fashion, 247–50.
18. Ibid.
19. Hartman, Encyclopedia of Business Ethics and Society, 2034–41.
20. Ibid.
21. Ibid.
22. Ibid.
23. Laura Fitch, “Do Sweatshop Scandals Really Damage Brands?”
Brandchannel, November 20, 2009,
https://www.brandchannel.com/home/post/2009/11/20/DoSweatshop-Scandals-Really-Damage-Brands.aspx#continue.
24. Steven Greenhouse, “Labor Fight Ends in Win for Students,” New
York Times, November 17, 2009,
https://www.nytimes.com/2009/11/18/business/18labor.html.
25. Russell Athletic home page, https://www.fotlinc.com/pages/russellathletic-classic-athletic-apparel-anduniforms.html#.WCNTKPorKUk.
26. “WE WON! USAS Signs Historic Agreement with Russell Athletic!”
Fibre2Fashion, November 24, 2009,
https://www.fibre2fashion.com/news/apparel-news/newsdetails.aspx?
news_id=79520.
27. “Russell Corporation’s Rights Violations in Honduras,” Worker
Rights Consortium, News and Projects,
http://workersrights.org/RussellRightsViolations.asp.
28. Ibid.
29. Greenhouse, “Labor Fight Ends in Win for Students.”
30. “Mission,” Worker Rights Consortium,
31. “Russell Corporation’s Rights Violations in Honduras.”
32. Greenhouse, “Labor Fight Ends in Win for Students.”
33. “Mission and Vision,” USAS, https://usas.org/about.
34. Greenhouse, “Labor Fight Ends in Win for Students.”
35. Ibid.
36. FLA Board Resolution on Special Review for Russell Corporation,
adopted June 25, 2009, Fair Labor Association,
http://www.fairlabor.org/sites/default/files/documents/reports/board_r
esolution_06.28.09.pdf.
37. “FLA Workplace Code of Conduct,” Fair Labor Association,
http://www.fairlabor.org/our-work/labor-standards.
38. “Board of Directors,” Fair Labor Association,
http://www.fairlabor.org/about-us/board-directors.
39. “WE WON! USAS signs historic agreement with Russell Athletic!”
Fibre2Fashion, November 24, 2009,
https://www.fibre2fashion.com/news/apparel-news/newsdetails.aspx?
news_id=79520.
40. Ibid.
41. Greenhouse, “Labor Fight Ends in Win for Students.”
42. Steven Greenhouse and Jim Yardley, “Global Retailers Join Safety
Plan for Bangladesh.” New York Times, May 14, 2013, A1.
43. Gillian B. White, “Are Factories in Bangladesh Any Safer Now?”
Atlantic Magazine, December 17, 2015,
https://www.theatlantic.com/business/archive/2015/12/bangladeshfactory-workers/421005.
44. “Five Years after Deadly Factory Fire, Bangladesh’s Garment
Workers Are Still Vulnerable,” The Conversation, November 23,
2017, https://theconversation.com/five-years-after-deadly-factoryfire-bangladeshs-garment-workers-are-still-vulnerable-88027.
Page 115
In-Depth Integrative Case 1.2
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Chapter 2
The Political, Legal, and Technological
Environment
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Learning Objectives
• Introduce the basic political systems that
characterize regions and countries around the
world and offer brief examples of each and
their implications for international
management
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Learning Objectives (continued)
• Present an overview of the legal and
regulatory environment in which MNCs
operate worldwide, and highlight differences
in approach to legal and regulatory issues in
different jurisdictions
• Review key technological developments,
including the growth of e-commerce, and
discuss their impact on MNCs now and in the
future
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Social Media and Political Change
• Role of social media as an organizing tool, a
journalistic tool, and a support-building tool in
the context of political change underscores:
– Technological progress
– Political conflict and change
• Managing the political and legal environment
will be a challenge for international managers
– Need to keep track of the rapid changes in the
technological environment of global business
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Political Environment
• Ideology underlies the actions of government
– Reflects beliefs and values and behavior and
culture of nations and their political systems
• Dimensions in evaluating political systems
– Rights of citizens based on a system of government,
ranging from democratic to totalitarian
– Focus of political system on individualism or
collectivism
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Political Environment (continued)
• Democratic nations emphasize individualism
• Totalitarian nations lean toward collectivism
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Individualism
• People should be free to pursue economic and
political endeavors without constraint
• Similar to capitalism and connected to freemarket society
– Private property is more successful, productive,
and progressive than communal property
– Encourages betterment of society, which is related
to level of freedom individuals have to pursue
economic goals
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Individualism (continued 1)
• Research has shown that team performance is
negatively influenced by individualists
• Competition stimulates motivation and
encourages increased efforts to achieve goals
• Principles were evolved by David Hume, Adam
Smith, and Aristotle
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Individualism (continued 2)
• International managers must remain alert as
to how political changes may impact their
business
– Continuous struggle for a foothold in government
power affects leaders in office
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Collectivism
• Views the needs or goals of society as a whole
as more important than individual desires
• Plato believed individual rights should be
sacrificed and property should be commonly
owned
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Collectivism (continued)
• Has no rigid form as societal goals differ
greatly among cultures
– Reflects some attributes of fascism
• Nationalism and authoritarianism
• Militarism and corporatism
• Collectivism
• Totalitarianism
• Anticommunism
• Opposition to economic and political liberalism
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Socialism
• Society in which there is government
ownership of institutions but profit is not the
ultimate goal
• Has been practiced in China, North Korea, Cuba
• Democratic socialism
– More moderate form of socialism
– Practiced by Great Britain’s Labour Party,
Germany’s Social Democrats, and in France, Spain,
and Greece
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Socialism (continued)
• Modern socialism draws on philosophies of
Karl Marx, Friedrich Engels, and Vladimir Ilyich
Lenin
– Marx believed that governments should own
businesses because in a capitalistic society only a
few would benefit
• Communism – Extreme form of socialism
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Social Democracy
• Socialist movement that achieved its goals
through nonviolent revolution
• Reasons for not being viable
– Businesses that were nationalized were inefficient
due to the guarantee of funding and the
monopolistic structure
– Citizens suffered a hike in both taxes and prices,
which was contrary to the public interest and the
good of the people
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Social Democracy (continued)
• Reasons for nationalization of businesses
– Ideologies of the country encourage the
government to extract more money from the firm
– Government believes the firm is hiding money
– Government has a large investment in the
company
– Government wants to secure wages and
employment status because jobs would otherwise
be lost
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Political Systems: Democracy
• Government is controlled by citizens either
directly or through elections
• Democratic society cannot exist without at
least a two-party system
– Once elected, representative is held accountable
to the electorate for his or her actions
– Apart from getting reelected, the number of terms
is limited
– Winner can get voted out if he or she does not
adhere to the goals of the majority ruling
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Political System: Totalitarianism
• Only one representative party, which exhibits
control over every facet of political and
human life
• Power maintained by suppression of
opposition
– Dominant ideals – Media censorship, political
repression, and denial of rights and civil liberties
• Common form – Communist totalitarianism
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Political Environment in China
• Making trade liberalization a top priority since
joining WTO in 2001
• Supporting a more open and democratic
society
• Shifting toward greater tolerance of individual
freedoms
• Seeking to unleash a more dynamic market
economy
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Political Environment in the Middle
East
• In Iran and Saudi Arabia, laws and government
are based on Islamic principles
• Arab countries operate business that is in
many ways similar to the West
– Seeking modern technology and having the
financial ability to pay for quality services
• Worldwide fallout from war on terrorism has
made business environment risky and
potentially dangerous
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Legal and Regulatory Environment
• Many different laws and regulations in global
business operations create confusion and
pose challenges to MNCs
• Adhering to disparate legal frameworks can
prevent MNCs from capitalizing on
manufacturing economies
• MNCs must carefully evaluate legal framework
in each market before doing business
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Global Foundations of Law
Islamic law
Socialist law
Common law
Civil or code law
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Islamic Law
• Derived from interpretation of the Qur’an and
teachings of Prophet Muhammad
• Found in most Islamic countries in the Middle
East and Central Asia
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Socialist Law
• Originates from Marxist socialist system
• Continues to influence regulations in former
and current communist countries
– Soviet Union
– China and Vietnam
– North Korea and Cuba
• Forces MNCs to shy away from countries that
follow this law
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Common Law
• Derives from English law
• Foundation of legal system in:
– United States
– Canada
– England
– Australia
– New Zealand
– Several other nations
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Civil or Code Law
• Derived from Roman law
• Found in non-Islamic and nonsocialist
countries
– France
– Some Latin American countries
– Louisiana in U.S.
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International Law
• Sources
– Laws of individual countries
– Treaties – Universal, multilateral, and bilateral
– Conventions – Geneva Convention on Human
Rights or the Vienna Convention of Diplomatic
Security
• Contains unwritten understandings that arise
from repeated interactions among nations
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Principle of Sovereignty
• Holds that governments have the right to rule
themselves as they see fit
– One country’s court system cannot be used to
rectify injustices or impose penalties in another
country unless that country agrees
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Jurisdictional Principles of
International Law
• Nationality principle: Every country has
jurisdiction over its citizens no matter where
they are located
• Territoriality principle: Every nation has the
right of jurisdiction within its legal territory
• Protective principle: Every country has
jurisdiction over the behavior that adversely
affects its national security
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Jurisdictional Principles of
International Law (continued 1)
• Doctrine of comity
– Mutual respect for laws, institutions, and
governments of other countries in the matter of
jurisdiction over their own citizens
– Part of international custom and tradition and not
part of international law
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Jurisdictional Principles of
International Law (continued 2)
• Act of state doctrine
– All acts of other governments are considered to
be valid by U.S. courts
• Even if such acts are inappropriate under U.S. law
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Treatment and Rights of Aliens
• Countries have the legal right to:
– Refuse admission of foreign citizens
– Impose special restrictions on a foreign citizen’s
conduct, their right of travel, where they can stay,
and what business they may conduct
• Nations can deport aliens, which may result in
worker shortages
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Forum for Hearing and Settling Disputes
• U.S. courts:
– Can dismiss cases brought before them by
foreigners
– Are bound to examine issues such as:
• Where the plaintiffs are located
• Where the evidence must be gathered
• Where the property to be used in restitution is located
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Financial Services Regulation
• Global financial crisis of 2008–2010
underscored:
– Integrated nature of financial markets around the
world
– Reality that regulatory failure in one jurisdiction had
severe and immediate impacts on others
• Crisis and its broad economic effects have
prompted regulators to tighten the financial
services regulation
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Foreign Corrupt Practices Act (FCPA)
• Makes it illegal to influence foreign officials
through personal payment or political
contributions
• Objectives of the FCPA
– Stop U.S. MNCs from initiating or perpetuating
corruption in foreign governments
– Upgrade the image of both the United States and its
businesses abroad
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Foreign Corrupt Practices Act (FCPA)
(continued)
• Implementation allowed the U.S. Justice
Department to uncover several developments
– MNCs found that they could live within the
guidelines set down by the FCPA
– Many foreign governments applauded the
investigations under the FCPA
• Helped them crack down on corruption in their own
country
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Bureaucratization
• Restrictive foreign bureaucracies are one of the
biggest problems facing MNCs
– Particularly true when bureaucratic government
controls are inefficient and left uncorrected
• In many developing and emerging markets,
bureaucratic red tape impedes business growth
and innovation
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Regulation of Trade and Investment
• Individual countries use legal and regulatory
policies to affect the international
management environment
• Trade practices that distort trade
– Countries engage in government support
– MNCs are required to accept local partners
– MNCs are mandated to employ a certain
percentage of local workers or produce a specific
amount in their country
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Regulation of Trade and Investment
(continued)
• Trade agreements require that countries
extend most-favored-nation status
– Questioned by regional trade agreements
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Trends in Technology, Communication,
and Innovation
• Computers, telephones, televisions, and
wireless forms of communication have
merged to create multimedia products
– Allow users anywhere in the world to
communicate with one another
• Internet allows people to obtain information
from several sources
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Trends in Technology, Communication,
and Innovation (continued 1)
• Open-source model allows for free and legal
sharing of software and code
– Can be utilized by underdeveloped countries in an
attempt to gain competitive advantage while
minimizing costs
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Trends in Technology, Communication,
and Innovation (continued 2)
• For-profit and nonprofit firms have created
low-cost computers
– Provided them to several children in the
developing world
• Great potential exists for disruptions as the
world relies more and more on digital
communication and imaging
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Areas of International Management
Affected by Technology
• Biotechnology and nanotechnology
• Satellites
• Automatic translation telephones
• Artificial intelligence and embedded learning
technology
• Silicon chips
• Advancements in computer chip technology
• Supercomputers
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Biotechnology
• Creation of agricultural or medical products
through industrial use and manipulation of
living organisms
• Advancement has led to pharmaceutical
competition and cloning of animals
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Types of E-Business
Business to
business (B2B)
Business to
consumer (B2C)
E-retailing
Financial services
(e-cash)
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Telecommunications
• Technological leapfrogging is allowing the
entire world to have global access to affordable
cell phone services
• Merging of telephone and the Internet has
replaced access via computers
• Wireless technology has been beneficial to less
developed countries
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Telecommunications (continued)
• Reason for the rapid increase in
telecommunications services
– Many countries believe that without an efficient
communications system, their economic growth
may stall
• Governments cede control to private industry to attract
foreign investments
• Developing countries are eager to attract
telecommunication firms and offer liberal
terms
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Technological Advancements,
Outsourcing, and Offshoring
• Technology has reduced and eliminated
middle management and white-collar jobs
• Global competition has forced MNCs to
outsource or offshore production
• Emerging technology has made work more
portable
– Advantage – Reduction in cost of doing business
– Disadvantage – Loss of jobs or reduction in salaries
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Be the International Management
Consultant
• If you are a consultant for a business looking
to expand in Europe, is Greece even an
option?
• Do the facts that its population is comprised
largely of government workers, that the
citizens were largely in favor of defaulting on
its national debt, and that the country nearly
left the European Union constitute a deal
breaker?
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Be the International Management
Consultant (continued)
• If the government does, in fact, implement
the agreed-upon austerity measures, would
that be a sign that the country is on the right
track?
• What other concerns would you have about
entering the Greek market?
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Review and Discuss
1. In what ways do different ideologies and
political systems influence the environment
in which MNC’s operate?
– Would these challenges be less for those
operating in the EU than for those in Russia or
China?
• Why or why not?
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Review and Discuss (continued 1)
2. How do the following legal principles impact
MNC operations: the principle of sovereignty,
the nationality principle, the territoriality
principle, the protective principle, and
principle of comity?
3. How will advances in technology and
telecommunications affect developing
countries? Give some specific examples
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Review and Discuss (continued 2)
4. Why are developing countries interested in
privatizing their state-owned industries?
– What opportunities does privatization have for
MNCs?
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