Economics and Business Department
September 16, 2011
Shoe production in Indonesia
Recently one of the company’s competitors was accused of exploitative labor practices because they used Indonesian labor that are paid similar wage like the company plans to. Due to the accusation imposed, that company suffered 50 % decrease in monthly sales and incurred negative publicity. If the company is to go ahead and implement the plan to relocate manufacturing in Indonesia by paying similar wages, it will not be long before human rights advocates will act upon it. The company will suffer similar consequences like the competitor and it will be a hard work to reestablish positive publicity once negative publicity circulates. The company might earn short term profit margin but in long run, this plan will cost future income and reputation. Thus, the company should not implement this plan, because there are alternatives that will be equally profitable in long run.
The company can still relocate the manufacturing in Indonesia and use cheap labor, but increase the wage rate to the point that is agreeable to minimum wage requirement in Indonesia and human rights law. The company can fund education project for the Indonesian employees and contribute to their well being. This plan may incur slightly greater expense than the previous one, but if this plan becomes successful, in long run the company will be able to earn good profit margin. Although the expense might remain high in the beginning year but in long run it will be profitable.
The company can also relocate the manufacturing industry to other countries that provide good profit margin like Indonesia. As long as the company implements several good will gestures in that manufacturing town, it will be enough to justify their cheap labor input.
If the above recommendation still brings potential negative publicity upon the company, the other option can...
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