Management Accounting

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1. a) What is the rationale of founders of (product) Red?

Their main reason for creating Product Red was to raise awareness and money for the Global Fund by teaming up with the world’s most iconic brands to products that would be sold. A percentage of each product sold would be donated to the Global Fund to help women and children affected by pandemics such HIV/AIDS and malaria. A basket of consumer goods were launched to this effect which included Product Red- American express card, vintage t-shirts, Motorola handsets, converse wear, apple iPod, Emperio Armani and also an edition of the Independent.

The Red manifesto, clearly outlined the core reason as, “we believe that when consumers are offered this choice and the products meet their needs they will choose red…when they choose red over non-red, then more brands will choose to become red because it will make good sense to do so, and more lives will be saved.” It went on to state that “Red is not a charity. It is simply a business model…buy red stuff; we get the money, buy the pills and distribute them. (Infected individuals) take the pills, stay alive and continue to take care of their families and contribute socially and economically in their communities.

In the words of Bill Gates, “Red is about saving lives…if there’s not enough money to buy drugs, people die and so we can take all the avenues available to us.” In this case, the avenue being selling Red products to raise money for the aforementioned fund. The proponents of Product Red believed that consumers wanted to associate themselves with saving lives hence these products would sell successfully in the quest to raising the required funds.

Product Red was seen as an entirely new model for fundraising, one of its kind when compared to one-off payments emanating from corporate humanitarian budgets. It looked set to create a major source of cash for the Global Fund (continuous cash inflows). Prior research has shown that Bono and Bobby know that consumers would not donate directly to charity (would not give the cost of a new iPod to the Global Fund), hence this initiative of introducing Product Red.

b) What is the rationale of Dan Hankle and Gap?

It is another social responsibility initiative being introduced by Gap. Gap has done research and found out that its target aid area, Lesotho has a population of 1.8million, with one-third HIV positive. Investment in the manufacture of t-shirts is an initiative/model to boost productivity and economic growth through expansion of the local industry. This obviously, via the multiplier effect, would improve the standard of living for people in Lesotho.

By deciding to manufacture the Product Red t-shirts in Lesotho, Gap had helped to safeguard workers’ livelihoods there at a time when other companies were increasingly sourcing garments from China and India. There would be an improvement in the working conditions of garment workers in Lesotho, as sourcing of garments would be internalized, as support rendered by Labour Behind the Label highlights that. Gap also looked at this as a way of helping Lesotho people through HIV testing and treatment to garment workers. This massive support of the local garment industry would go a long way in improving peoples’ lives as earlier mentioned. It is Red Gap reasoning that its effort in Lesotho will bring about resolution of workers’ rights issues in its supply chain and overally bring about political change in that country- changes in political structure would bring about economic development, presumably.

c) What is the rationale of the author of the article in The Times?

The main reason behind edition of this Times column is to critique that shareholders’ money should not be used to such a charitable extent and it raises a point of the Agency Problem. The author is also of the thought that use of celebrated personalities (Hollywood stars) in campaigns for such a charity cause is just but an additional...
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