Ethical Dilemas When Outsourcing and Csr

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Outsourcing Production or Moving Away The Locus of Ethical Accountability? Some Findings about Product Safety

Francesca Magno
PH.d. candidate
University of Bergamo
Faculty of Economics
Department of Business Administration
Via dei Caniana, 2
24127 Bergamo
ITALY

e-mail: francesca.magno@unibg.it

Outsourcing Production or Moving Away The Locus of Ethical Accountability? Some Findings about Product Safety

ABSTRACT

The first structured debate about the application of ethics principles to business decisions dates back to the 1960s (Sele, 2006). Anyway the notions of Corporate Social Responsibility developed in that period differ substantially from our modern perspective (Smith, 2001). As a matter of fact today academicians and practitioners recognize that business has an obligation to society that goes beyond obedience to the law when producing and distributing goods and services at a profit (Buchholz, 1991). Due to its role of gateway between the corporate environment and the company itself, marketing is probably the most important area within the firm to be affected by ethical choices (Tsalikis & Fritzsche, 1989). Therefore ethics and Corporate Social Responsibility have become central topics for marketing decisions (Hunt & Vitell, 2006): they are considered instruments to achieve competitive advantages (Cheah et al., 2007; Hart, 1995) and they therefore represent a clever investment (McWilliams and Siegel, 2001). According to most advanced theories, companies should not only respect contractual obligations but should also prevent customers from any potential damage deriving from their products (Velasquez, 1988). In order to make it possible, firms should have a complete control over the entire production process in order to be sure that their decisions and declarations about product ethics are then really incorporated in final products. At the same time, as production outsourcing is gaining increasing importance in many sectors due to cost pressures (Engardio et al. 2005), many companies are running the risk to lose control over some phases of the supply chain. This is emphasized by governance difficulties of the outsourced activities (Langfield-Smith, 2003; Ulset, 1996). As a matter of fact, while on the one side the company is still accountable towards the customers, on the other side it has to develop new methods and tools in order retain control over the outsourced production to ensure product safety and quality. Recent outsourcing practices have therefore enhanced risks, as demonstrated by recent pitfalls by some famous companies, highlighting the existence of a large gap between corporate statements about ethics and CSR and the final output, produced through outsourcing. Through a case study research this paper aims to establish if and how the choice to outsource production can be consistent with CSR and with the declarations about product safety included in companies’ Code of Ethics. Theoretical and managerial implications are discussed and patterns for future research are derived, as well.

1. INTRODUCTION

Ethics and Corporate Social Responsibility have become central topics in marketing decisions (Hunt & Vitell, 2006). According to most advanced theories, companies should not only observe contractual duties but should also prevent customers from any potential damage deriving from their products (Velasquez, 1988). As a consequence, the firm should have a complete control over the entire production process in order to be sure that its decisions and declarations about product ethics are then really incorporated in final products. Anyway outsourcing practices (even to companies owned by the main firm under consideration) brings about new risks, in that they increase the distance between the locus of ethical choices and the locus of applications of those choices. Some data obtained through a second-order analysis of...
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