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The Wal-Mart Effect: is it really worth the price?


Built on the formula “buy cheap, sell for less than the other guy, and make a profit on high volume and fast turnover,” Wal-Mart today is the world’s largest retailer.  Founded in 1962 by Sam Walton, the company’s key focus is selling goods at the lowest price possible.  Wal-Mart places what seems like a fanatical emphasis on the slogan “Always low prices.  Always.”  Although this business strategy may appear to be very appealing in a consumer’s point of view, Wal-Mart has faced significant criticism for the way it operates.  Over the years, Wal-Mart has appeared to favor one group of stakeholders: its consumers.  Wal-Mart has placed so much emphasis on satisfying one group of stakeholders that it has neglected the other groups of stakeholders, like employees, or other businesses.  Wal-Mart has affected communities and businesses both nationwide and worldwide, but one big question remains – is Wal-Mart worth really worth price? In other words, does the money consumers save ultimately translate into a better quality of life for the majority of people?

In order to fully understand the criticisms of Wal-Mart, one must first grasp the phenomenon better known as “The Wal-Mart Effect.”  In The Wal-Mart Effect and a Decent Society: Who Knew Shopping Was So Important, Charles Fishman discusses what the Wal-Mart effect is and how it is shaping everyday life in both the United States and around the world. Fishman says that the “Wal-Mart Effect” is this:

“It is when Wal-Mart comes into town, reshapes shopping habits, and drains the viability of traditional local shopping areas or mom-and-pop shops.  It is the relentless downward pressure on the prices of everyday necessities that a single vast retailer can exert on behalf of customers.  It is the suburbanization of shopping; the downward pressure on wages at all kinds of stores trying to compete with Wal-Mart; the relentless scrutiny of unnecessary costs that allows companies to survive on thinner profits; the success of large business at the expense of its rivals and the way in which that success builds on itself” (Fishman, 2006).

Clearly, Wal-Mart effects more people than simply those who shop at the stores.  Fishman furthers his argument about the Wal-Mart effect and claims that the effect can be felt both directly and indirectly.  “Those who never shop at Wal-Mart typically pay 5% less for their groceries if Wal-Mart is in their town” (Fishman, 2006).  When a Wal-Mart opens in a surrounding area, businesses are forced to compete with the lower prices, and thus will lower their prices as well.  Even if people never set foot in a Wal-Mart, they still reap the benefits – specifically, lower prices (Fishman, 2006).  However, the real question is about how much Wal-Mart really saves the consumer, and whether or not those saving dramatically offset the costs of the Wal-Mart effect.

It is clear that Wal-Mart has a significant impact on businesses and communities in the area, but what is it that makes Wal-Mart so unique?  In other worlds, how are they able to lower prices to unprecedented amounts?  According to Professor Edna Bonacich of U.C. Riverside, featured in the Frontline documentary “Is Wal-Mart Good for America?” Wal-Mart operates by using something called the “pull system”.  Essentially, this involves retailers, like Wal-Mart, deciding what is being sold, collecting information on what is being sold, and then telling manufacturers what to produce and when to produce it (Frontline, 2004).

According to John Lehman, a former Wal-Mart store manager, this kind of business is apparently very one-sided.  In the documentary, Lehman discusses how Wal-Mart doesn’t leave much room for negotiation.  Essentially, Wal-Mart tells a company what price they want to sell something for, and then the manufacturer must find a way to make the product such that they can meet this demand. If a manufacturer cannot meet these expectations, Wal-Mart will find another manufacturer who can fulfill their needs.  This usually means outsourcing to Asian manufacturers, where they can meet these needs because standards of living are much lower, and companies can produce goods at a cheaper cost.  Skip Hartquist, an attorney at Five Rivers, mentioned in the documentary, discusses how outsourcing is affecting American manufacturers.

“It’s not fair trade. It’s not free trade. The Chinese are pricing their products in a manner contrary to the obligations they undertook when they joined the World Trade Organization a few years ago. The Chinese system has built-in advantages that no one else in the world has. Their currency is undervalued by, we estimate, about 40 percent. Their workers are not treated fairly in terms of worker rights. The government provides subsidies to Chinese producers at preferential interest rates that may not even have to be repaid. It’s a rigged system” (Frontline, 2004).

While Wal-Mart is now the leading retailer in the United States, their business model is not sustainable as they favor only one group of their stakeholders: their consumers.  Wal-Mart must operate as a social institution, not just a corporate system.  In other words, Wal-Mart must realize the connections between the private troubles and public issues in order to create a harmonious balance between stakeholders.  Connecting private troubles and public issues is imperative for companies, as discussed in The Sociological Imagination, by C. Wright Mills.  In this case, Wal-Mart is the public sector and its stakeholders make up the private sector.  The sociological imagination, according to Mills, is the capacity to shift from one perspective to another (Mills, 1959).  Wal-Mart must shift their paradigm and realize that focusing solely on low prices comes at the cost of many people.  People are not just consumers – they also need to earn a living as well.

In order to be a sustainable company, Wal-Mart must find a balance among its stakeholders.  In Stakeholder Theory of the Modern Corporation, Ed Freeman argues its management’s duty to look after the health of the corporation.  This means paying attention to anyone who is a stakeholder of Wal-Mart.  As companies get bigger, other groups of stakeholders, such as governments, NGOs, critics, etc. become equally as important.  Although Wal-Mart started out as a small company, it has grown to be the largest retailer in the United States.  Since the company has grown significantly, their responsibilities have grown as well.  According to The Wal-Mart Effect and Business, Ethics, and Society, Wal-Mart cannot view its stakeholders purely in economic terms.  R. Edward Freeman argues that Wal-Mart is focusing its business strategy only within the context of the traditional stakeholder theory – maximizing profits.

One example of a similar company that has managed to find a harmonious balance between stakeholders is Costco.  Costco’s business model is simple: sell a limited number of items, keep costs down, rely on high volume, pay workers well, have customers buy memberships, aim for upscale shoppers, and don’t advertise (Cascio, 2006).  The fundamental difference between Wal-Mart and Costco is that Costco delivers low prices in a more stainable manner, by focusing on satisfying all stakeholders, rather than just favoring one group of stakeholders, like Wal-Mart.  Costco not only pays its employers higher than the average Wal-Mart employee, but Costco also has better relations with their suppliers.  While Wal-Mart is notorious for having very one-sided relationships with their suppliers, Costco has a different approach.  According to Wayne Cascio in Decency Means More than “Always Low Prices”: A Comparison of Costco to Wal-Mart’s Sam’s Club, Costco is tough on its suppliers to keep prices low, but instead of refusing to do business with a supplier if they can’t exactly meet Costco’s needs, Costco simply warns suppliers not to offer other retailers lower prices than what they get (Cascio, 2006).  Furthermore, Cascio warns that Wal-Mart’s cheap-labor model is very costly in the long run.  “It can lead to poverty and related social problems, and transfer costs to other companies and taxpayers, who indirectly pay the health-care costs of all the workers not insured by their frugal employers” (Cascio, 2006).

In conclusion, The Wal-Mart effect is not a new phenomenon, nor is it going away any time soon.  Indirectly or directly, people who live in an area with a Wal-Mart store feel the effects of the retailer.  Although Wal-Mart prides itself on its ability to set the precedent for low prices, the reality is this: low prices come at the cost of many people.  Moving forward, Wal-Mart must recognize that favoring one group of stakeholders is both unsustainable and unethical.  Wal-Mart should adopt a business model more similar to Costco’s – one that balances the interests of all groups of stakeholders.

Bibliography

Cascio, Wayne F. Decency Means More Than “Always Low Prices”: A Comparison of Costco to Wal-Mart’s Sam’s Club. Academy of Management Perspectives (Aug.,       2006), pp 26-37.

Fishman, Charles. The Wal-Mart Effect and a Decent Society: Who Knew Shopping Was So Important? Academy of Management Perspectives, Vol. 20, No. 3  (Aug., 2006), pp 6-25. Published by Academy of Management. Article Stable URL:             http://www.jstor.org/stable/4166248

Freeman, Edward. “Stakeholder Theory of the Modern Corporation.” General Issues in Business Ethics: 39-49. Print.

Freeman, R. Edward. The Wal-Mart Effect and Business, Ethics, and Society. Academy of Management Perspectives, Vol. 20, No. 3 (Aug., 2006), pp 38-40. Published by: Academy of Management. Article Stable URL: http://www.jstor.org/stable/4166250

Frontline. 2004. Is Wal-Mart Good for America? November 16. Retrieved from http://www.pbs.org/wgbh/pages/frontline/shows/walmart/view/ on April 3, 2012.

Mills, C. Wright. “The Sociological Imagination.” Oxford University Press (1959). Print.

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Successful Value Chain Management


Onslaught of Green

Consumers are finding it more and more challenging to differentiate goods and services that are advertised as environmentally friendly. According to a 2010 study by TerraChoice, an independent testing and certification organization, there are 73% more green products on the market today than in 2009.1They also revealed that roughly 95% of green products are being greenwashed to some degree (based on their seven sins of greenwashing).1 While this study focused on home and family products, the purchasing power of greenwashing is evident across many industries. Greenwashing can be defined as the act of misleading consumers regarding the environmental practices of a company or the environmental benefits of a product or service.2 Additionally, Wikipedia defines green washing as a term describing the deceptive use of green PR or green marketing in order to promote the perception that an organization’s policies or products are environmentally friendly.3,4 While most organizations do not outright greenwash, any exaggerated behavior is inappropriate: greenwashing is “an extremely serious matter…it is insidious, eroding consumer trust, contaminating the credibility of all sustainability-related marketing and hence inhibiting progress toward a sustainable economy,” stated in a report by Ogilvy & Mather, a huge advertising firm.5 The Federal Trade Commission does provide guidelines for environmental marketing claims, but these are not enforceable.6,7 It has been the responsibility of corporations to not jump on the green public image bandwagon, spend resources on environmentally sound practices, and inform the public about the truthful environmental impacts of buying and using their products.

Fundamentals

A helpful document for corporations is Ogilvy’s guide on brand management: “From Greenwash to Great: A Practical Guide to Great Green Marketing (without the Greenwash).” The guide presents a framework that speaks to an honest green story starting from inside the company, not from a marketing idea that is created and spun for consumers.8 A company that has started in an honest place is Levi Strauss & Co. The company was founded in San Francisco, California in 1853 and created the very first pair of blue jeans in 1873.9 The Levi’s brand has become one of the most widely recognized brands, positioned as the original and authentic jeans brand. It’s merchandising and marketing seeks to reflect the brand’s core attributes: original, definitive, honest, confident, and youthful. It is obvious the company is proud of its history and heritage: “People have worn our products during the seminal moments of social change over the past 150 years.”10 The company has a long lineage of corporate social responsibility: shorter work weeks were implemented to mitigate the massive lay-offs happening during the Great Depression; factories were racially integrated prior to the Civil Rights Act; was one of the first companies to take action in the fight against HIV/AIDS, as well as remaining committed to the pandemic; established a set of Global Sourcing and Operating Guidelines; and joined the Federal Labor Association (FLA) efforts to improve working conditions around the globe.11,12,13 According to Ogilvy’s brand management guide, environmental improvements and benefits need to be measurable, verified and significant to the product’s real footprint.14 Beyond their corporate social responsibility, Levi’s is considered a pioneer in sustainability, making efforts to minimize their environmental footprint in all levels of their operations. Continue reading

The Cost of Safety: Ethics and the Airline Industry


INTRODUCTION

Today, regional airline carriers account for more than half of all domestic flights in the United States, as major airlines have been outsourcing more of their flights.  According to the U.S. government Accountability Office, the regional airlines are responsible for the last six fatal commercial airline accidents (Dillingham).  Thus, their business operations, especially with respect to safety standards, implicate a variety of ethical dimensions and perspectives.

THE STORY OF THE REGIONAL CARRIERS IN THE AIRLINE INDUSTRY

Over the past thirty years, a major transformation has been occurring in the United States airline industry.  It began in the late 1970s when the U.S. government deregulated the airline industry, which inevitably led to increased competition among the major airlines to offer lower airfares (Cunningham, et al).   In response, the airline companies created the regional industry and developed a new business operating strategy called the hub and spoke model as a way of lowering costs.  Basically, the major airlines created central hubs in large cities or metropolitan areas and began relying on small regional carriers or commuters to feed their domestic network system (Wei & Yanji).  (See Appendix A) Continue reading

Whole Foods Market


In 1978, John Mackey and Rene Lawson Hardy borrowed $45,000 to open a natural foods store in Austin, Texas.  In 1980, they renamed it Whole Foods Market and it was an immediate success due to the extremely low supply of natural foods stores at that time.  Since then, Whole Foods Market employs over 65,000 workers and has opened 310 stores across North America and in the United Kingdom.  The executives at Whole Foods Market have established a mission that focuses on Whole Foods-Whole People-Whole Planet.  Each of these is believed to play a major role in their success as a company.  In addition, the executives have embedded in the company culture the idea that “companies, like individuals, must assume their share of the responsibility as tenants of Planet Earth”.  As a profitable, public company, Whole Foods Market is proving that a company can generate returns to its stockholders and act responsibly toward other stakeholders such as customers, suppliers and the community.  (Wholefoodsmarket.com)

Continue reading

The Costs of Being Costco: Why Ethics Matter


Almost everyone has heard of the membership warehouse retailer, Costco Wholesale, whether or not you actually choose to shop there. You can find one of their warehouses in over 400 locations around the United States, as well as an additional 200 warehouses in Canada, Mexico, Australia, the United Kingdom, and parts of Asia. Although they are not quite as instantly recognizable as their main competitor, Sam’s Club of Wal-Mart Inc., Costco has attracted somewhat of a cult following due to their unusual business operations. In many financial comparisons, Costco seems to beat out all of their industry competitors. Even in the recent economic downtown, Costco still posted growth in their stock, as well as higher than industry average profits. So what exactly makes Costco so successful? Many business analysts argue that Costco’s focus on corporate social responsibility is what sets them apart from other retailers such as Sam’s Club or BJ’s Warehouse. Their focus on doing “the right thing” for all of their stakeholders, as well as a vision that aims for long-term success, is a unique business model that has interesting implications for many debates within the business world today. Should a company’s main focus be profit? Do they have a responsibility to act in the best interest of all stakeholders? What are the effects of these decisions? Using Costco as a prime example of a socially responsible corporation, I hope to prove that acting in a socially responsible manner towards all stakeholders is ultimately more beneficial for a company. Continue reading

Employers Creative Use of Facebook


Social media and social networking sites are becoming more and more popular in today’s world as a means of communication and marketing. The most used social media site that has emerged is Facebook which is used by all groups of society. Approximately 45% of employers (who the exact employers are is inaccessible due to confidentiality issues) are using Facebook as a means for screening potential job applicants (Rosen). Employers have recently started asking candidates for their username and passwords as part of the job hiring process (Castillo). If candidates say no, they are immediately eliminated from the job pool which is detrimental in a time when unemployment rates are relatively high. The process of employers viewing candidate’s profiles and now even requesting their user name and password has brought up ethical and legal questions concerning privacy rights. While employers “believe they have the right to obtain as much information as possible about applicants” by using social networking sites, many others feel it is an invasion of privacy (Byrnside, 458). The legality of the issue is being explored in the courts but the ethics of the employer is still in question. By utilizing Robert Nozick’s Entitlement Theory to understand the ethical issues that stem from this dilemma, I feel as though the employers are not entitled to access candidate’s Facebook profiles. Continue reading

Paper 2


So I have decided to look into Facebook for my paper 2 topic. Employers are now using Facebook as a screening process for job candidates. This is costing about 35% of those screened the position based on inappropriate content found. Recently, employers have begun to ask candidates for their passwords or to log on to view their profiles during an interview. This raises both legal and ethical questions.

As I have written up the actual case so far, I have found that I have developed two questions.
1. Are employers entitled to view candidate’s Facebook profiles by bypassing their privacy settings?
2. Are employers entitled to ask for a candidate’s password?

I have answered question 1 using Nozick’s Entitlement theory, however, I am now stuck on how to proceed. I don’t know if it would be beneficial to answer the second question using Nozick or should I concentrate on the first question only and compare that to Rawls? Or should I do both?

Stem Cells: The Great Debate


When I originally applied to Bucknell it was through the biology program. I grew up with a mom that worked as a nurse and a dad that worked with pharmaceutical companies, so I always heard a lot about healthcare. One of the studies that my dad frequently talked about was stem cell research. He would always say how amazing it was, and how many lives it could save, but I did not know the extent of this or about the ethical dilemmas behind it until recently.

For anyone that does not know, stem cells are cells found in organisms that divide and differentiate into specialized cell types. They can self-renew to produce more stem cells as well. These stem cells can be extracted from bone marrow, lipid cells, or blood. By extracting these cells from the donor and inserting them into another person, scientists have found that they can act as a repair system for the body and fight diseases such as heart disease, diabetes, cancer, Alzheimer’s, and Parkinson’s. Sounds great, right?

Stem cell research has raised ethical, legal, religious, and policy questions. The main reason is the derivation of embryonic stem cells from early human embryos and embryonic germ cells from aborted fetal tissues. Furthermore, the general concept of the potential of generating human organs is another debate.

The following video tells a true success story of stem cells:

On the ABI/INFORM search engine I found a report produced by the American Association for the Advancement of Science and Institute for Civil Society that performed a study to contribute to the public discussion related to stem cell research and its applications. The document, which is 51 pages long, is their study in which they propose recommendations for conducting stem cell research. This report was from 1999, but I figure the history of the debate will be important to take a look at.

One of the recommendations provided by the report was,

“Embryonic stem cells should be obtained from embryos remaining from infertility procedures after the embryo’s progenitors have made a decision that they do not wish to preserve them. This decision should be explicitly renewed prior to securing the progenitors’ consent to use the embryos in ES cell research.”

I thought this recommendation clearly added to the ethical debate surrounding stem cell research, because much of what is up for discussion is the actual process of gaining consent from the donors. This recommendation provides a basis for the process by which a couple should be addressed that is considering embryo donation, consent for research donation, or consent for destruction of the embryos. The report made it clear that only after the couple has definitely decided not to have the child that they should be approached a second time to discuss the use of embryos in ES cell research.

Obviously this is a huge ethical issue today, and there are many more details that I still do not know about stem cell research. I do think, however, that this report gave me the perfect understanding and potential solutions to the dilemma that I would need to write about this ethical dilemma.

Nozick’s False Advertising


For the second paper in our class, I will be focusing on the ethics surrounding false advertising. This issue is concerned with the rights of others compared to the rights of freedom of speech. In deciding how to go about pursuing such a topic, I thought it would be valuable to perform a cited reference search on Robert Nozick’s Entitlement Theory essay. This article discusses justice and inequality based on entitlement, thus I thought there may be some intriguing essays that reference his work using an entitlement perspective to discuss the ethics of advertising.

I utilized Google Scholar to perform a cited reference search on Nozick’s essay and over 10,000 articles were found. Performing a search within these results for “false advertising,” I discovered 18 articles that cited Nozick’s Entitlement Theory and discussed false advertising. Immediately, I found one article titled “Advertisements, stereotypes, and freedom of expression” that appeared to be exactly what I would want for my topic. Unfortunately, this article could not be obtained with Bucknell’s privileges, so I went back to the results and found another article entitled “The Value of Rights” that also focused on my aforementioned topic. Continue reading

BLOG INSTRUCTIONS

Blog 5 before session 6 What (interest) or Who (person) Inspires You? For this week’s prompt, the Blog Council wants you to examine how this class relates to your own interests. So, please write about how this class relates to some of your own intellectual or other learning interests. We are NOT interested in how it relates to a specific career goal. Plan B: same idea, but based on a person. See whole post for details.

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