Etch-A-Sketch Ethics.
Summary.
The case describes the decision by Etch-A-Sketch to move its production from Ohio to China. The Ohio Art Company was perhaps well known to be one of the top selling toys producing company of all time. In the 1990s, Etch-A-Sketch, the maker of the popular drawing board, was faced with a sluggish toy market and strong pressure to keep prices low. Consequently, the company made the unpopular decision to outsource production in December of 2000 to Kin Ki Industrial, a leading Chinese toy maker, laying off 100 U.S workers in the process. The closure of the company was expected by the employees but the thought of it moving was not emotionally easy since the company was the one holding the community together. The small Ohio town of Bryan where the manufacturing took place faced significant effects from the outsourcing. The population declined heavily and the tax base of Bryan, Ohio was severely eroded. Homes were also on auction and there were notices of foreclosures on the local paper.
The rationale behind the decision for outsourcing was mainly cost saving. First and foremost the company wanted to lower their wages. Chinese factory workers made $75 per month compared to $1500 per month for U.S factory workers. On top of that, there were also low overhead costs for plants, maintenance, electricity and health benefits. All in all, they had to keep the cost of Etch-A-Sketch under $10 in order to compete with big retailers such as Walmart and Toy “R” Us. In December 2003, New York Times published a report stating that there were dismal pictures of working conditions in China. Workers were working from 7:30 am to 10:00 pm everyday whereby they worked for 84 hrs/wk compared to the 40 hrs/wk set by local authorities and also at a rate of 24 cents/hr versus 33 cents/hr minimum wage. They also stated that there were no pensions or medical benefits given to the workers and that the dormitories where the workers lived were in poor condition and the food was very unhealthy.
Meanwhile in Ohio, William Killgallon, Ohio Art Company’s CEO responded that senior partners at the Chinese plant acknowledged that the wages were indeed low and that it will be raised. Furthermore, he claimed to have no knowledge of the labor problems and that he will visit China soon to make sure expectations were met.
Q1). Was it ethical of the Ohio Art Co. to move production to China? What were the economic and social costs and benefits of this decision? What would have happened if production had not been moved?
Whether or not Ohio Art Company’s decision to shift production outsource was ethically wrong is more of a debatable topic. In legal terms, the company did not break any laws and so its decision to offshore was merely based on other options. If the company did not find ways to lower production costs below $10, the company would have eventually gone bankrupt. If production had not been moved, the company would be unable to generate enough profits to continue business. Either way, the employees would have suffered job losses. The Company’s sole responsibility was to maximize profit within legal constraints. Furthermore, the company’s decision benefited shareholders, which is seen as an ethical decision. However, OAC’s obligations to its employees are something that must be considered as well. The company, which is perceived as a family by the community, should not just abandon its employees. They have a moral obligation to look after the community’s interest at large. On the other hand we can say that it was unethical to its employee’s in China in that, they did not even guarantee minimum working conditions in China.
The economic benefit of OAC’s decision was that, the company did not go bankrupt, which enabled the company to stay competitive against all the other big retailers and that the owners were still a source of revenue for the government.