WARD 1

KPAN Textiles- Outsourcing and Globalization in America Anthony Ward MBA-5321 Decision Making and Strategy in Complex Situations Concordia University- Austin, Texas Lamar Campus Dr. Roy Steele

WARD 2

Research Topic: What impact does outsourcing and globalization have on an Americancompany, and is it the right decision to make? How the research was conducted The research method used was a literature and on-line search of print materials, research journals, public policy handbooks, business reviews, and periodicals relative to globalization and outsourcing in America. An Analysis of the Information Outsourcing and the process of globalization are often viewed by the American worker as an aggressive action taken by companies to garner a more lucrative profit margin, while cutting out the salaries and jobs of front-line employees. These accusations do have some validity behind them, as companies (as a standard) are always seeking more ways to increase profit margins, but the truth is, that (when speaking in general terms) it is nothing more than a strategic move or a natural reaction/transition to changes taking place within a specific company or supply chain relative to the current industrial or technological revolution taking place at any given time. Historically, companies in the United States, Europe, and Japan have led globalization efforts, basically due to these mentioned countries pushing products and services into developing countries. Enterprises in developing countries and emerging markets are now reaching farther into both developed and undeveloped economies to stay competitive, in essence exploiting each others markets, economies, and labor forces. Robert Reich, former Secretary of Labor under President Carter, had long predicted the fall of the industrialized America, noting that jobs would be lost, never to return. This paper will address the topic of globalization and outsourcing from the perspective of an American company within the textile industry (KPAN Textiles) and what they have experienced as a result of their decision to outsource their manufacturing and plant to Central America. A brief introduction and background of the company will be noted in this paper, along with an analysis of the topic, followed by a look at alternative strategies, discussion, and personal reflection on the noted topics. Introduction K-PAN Textiles is a publicly traded Nevada corporation that manufactures and markets textiles, prominently known for their production of men and womens work clothes. It is headquartered out of Fort Worth, Texas, and operates several plants in both Texas and North Carolina. Due to a multitude of changes within the textile industry over several decades, the companys profit-margin began to decrease dramatically, forcing them to follow their competitors in outsourcing the work to other countries outside of the United States. When doing

WARD 3

so, K-PAN phased out their domestic operations program stateside over a three-year period, offering generous re-training and re-settlement options to their affected employees, while building a state-of-the art manufacturing plant in Nicaragua. In moving their operations out of the United States, K-PAN began to fall victim to the same scrutiny that other major manufacturers had experienced when they had begun outsourcing their own commodities, causing tremendous negative publicity for the company. Protestors claimed such accusations as having a sweatshop environment, and taking advantage of the indigenous populations within the developing third-world countries that they had chosen to move their operations to. The negative publicity went so far as to accuse the company of having faults within their model plant that had been built in Nicaragua, alleging a number of shortcomings such as having long hours, low pay, and coupled with health, environmental, and safety issues; even though the company had a standard set of ethics that had been espoused since 1980. The K-PAN Ethics were patterned after codes of other prominent Multi-National Enterprises (MNEs), and incorporated such ethical components as supporting a living wage, having community responsibility, and driving customer confidence, and up to this date had never been protested since their inception. Faced with this negative publicity dilemma, K-PAN began to diligently review their options relative to handling such accusations, discussing a multitude of remedies, from employee profit-sharing to increasing employee wages one-hundred and fifty percent over the local minimum wage. My paper will address the topic of outsourcing and globalization, offering alternatives to the above noted dilemma. By presenting viable alternatives and argument, I hope to create an understanding of the underlying ethical issues that drive such accusations, and present my own opinion as to the sustainability of corporations who outsource their work loads. Causal Analysis as it Pertains to Outsourcing and Globalization Given the Invisible Hand theory presented by Adam Smith, economists have long argued the fact that free-markets thrive on the basis of mutual interest. If one couples Ricardos Iron Law of Wages theory, where he notes that attempts to improve the real income of workers was futile, and that wages tend to stabilize at subsistence levels, we can derive the primary argument for outsourcing and globalization. These two philosophers, in essence, made the argument for outsourcing and globalization long before we (ourselves) came to coin the terms. In fact, from 1860 to 1914, there were significant trends that would be considered as centric to a global perspective which were spurred by technological developments. Economies in developing countries grew at exponential rates, due to inventions or businesses in the transportation and communication industries. Inventions such as the steam engine, motorized car, telegraph, telephone, and computer technology have played key roles in the use of outsourcing for jobs and thus giving the impression of a global labor force. When speaking of outsourcing in modern terms, Fiona Torrance, in her paper titled The Ethics of In-House vs. Outsourcing (2006) gives a good definition by noting, Outsourcing is a legal business activity affecting America. And it is an inevitable response to globalization-

WARD 4

international trade. Outsourcing occurs when a business purchases services or products from a foreign supplier or manufacturer, or when a business pays another company to provide services that a business might otherwise have employed its own staff to perform. Businesses outsource for the purpose of cutting costs and raising profits. (Torrance, Para 2) The idea of globalization has long been a controversial issue. The topic crosses all academic disciplines relative to study and application, having an inter-connected relationship between economics, trade, marketing, business management, political science, and also within the fields of sociology and cultural anthropology. Even Karl Marx, in his Communist Manifesto, predicted that the relentless search for alternative markets would alter older social structures or orders, and thus alluding to a more global attitude within local or national markets. When we look at the definition given by Ms. Torrance, one might argue that there is an inherent nature in (not just) all Americans, but other cultures as well, to outsource jobs from one degree or another. This is a prominent factor that pro-globalists have continuously adopted and promoted, noting that competition drives cost and profit-margins within businesses, whether local, nationally, or internationally. Colin Hay corroborates this in his article titled Globalization and Public Policy (2006) by commenting, More significantly still, domestic economic growth is now predicated upon success in international markets- in other words, competitiveness. Competitiveness, moreover, is frequently understood in rather narrow and cost-centered terms- the capacity to produce, distribute, and ultimately sell a given commodity in international markets for less than the competition. Consequently, the imperatives of competitiveness that (global) trade integration brings tend to be seen in terms of cost-saving measures- the elimination of burdensome regulations, the reduction in non-wage labor costs (such as those out of which welfare states are funded), and the exertion of downward pressure on labor costs (by, for instance, scaling back workers bargaining power and removing institutional settings in which it might be exercised.) (Hay, Pg. 596) Pro-globalists tend to take a utilitarian viewpoint in applying outsourcing to a global perspective, noting that the greater good is served more so in the underdeveloped countries versus being served in developed countries; and, in my own opinion, this is wherein the true ethics of the issue lies. Do we not see how the benefit of outsourcing services or labor creates a benefit for the greater good of all more so in an under-developed country than in a developed country, when viewing it from a global perspective? In his article Pros and Cons of Globalization, Poushali Ganguly gives several advantages and disadvantages of globalization, noting the following advantages as: There is a worldwide market for the companies and for the customers there is a better access to products from different countries There is a steady cash flow into the developing countries, which gradually decreases the dollar difference

WARD 5

Due to the presence of a worldwide market, there is an increase in the production sector and there are lots of options for investments for different countries. Gradually, a world power is being created instead of compartmentalization of power sectors. The influx of information between two countries increases, especially those nations who do not have anything in common between them. Cultural intermingling increases and every nation tries to know more about the other nations cultural preferences. In this process, we are actually coming across things that we like and in the course of time adopt it. Since we share financial interests, corporations and governments are trying to sort out ecological problems for each other. Socially we have become more open and tolerant towards each other and those who live in the other parts of the world appear more approachable than before. There is a lot of technological development that countries have undergone over the years. Thus, helping in sharing of information and technology. This helps most of the developing nations progress at the same speed as the developed nations. Globalization helps in increase of demand of products. This in turn increases rate of production. Manufacturers thus, find this profitable and helps in availability of more jobs. Globalization makes the economy of one country dependent on the economy of another country. Any change in the economy of one country will affect the other. Thus, governments become more concerned about one another to curb the economical balance between them. Disadvantages discussed by Ganguly include:

Many people from developed nations are losing jobs, and that is posing a problem for them since the companies are outsourcing work to developing countries since the cost of labor is low and profits the company considerable. There is immense pressure on the employed people of the developed countries who are always under the threat of their jobs being outsourced. Corporations are building up units in other countries that are equally well equipped, thus transferring that quality to other countries. There are some experts who think that globalization along with the positive aspects is also leading to the incursion of negatives like communicable diseases and social degeneration. There is also a threat of corporations ruling the world because there is a lot of power and money invested by them due to globalization. For nations on the receiving end, they are giving up the reigns to a foreign company, which might again lead to a sophisticated form of colonization.

WARD 6

Globalization may lead to a loss of cultural identity as Western ideas are always imposed upon the Eastern thoughts.

This being noted, it appears (at times) that the argument against globalization, when directed at American economics and foreign policies, falls more so towards the philosophy of American Capitalism or American Imperialism these days, as it has also been argued in the past against the Romans and the British during their times of global conquest, colonial rule, and subsequent growth within their given empires. James G. Hendee touches on this very notion in his article titled Profitable Globalization and the Ethical Dilemma of U.S. Jobs Loss (2010). He writes: British scholar Aidan Arrowsmith defines these views towards globalization and has stated: The Marxist critic of post-modernism Fredric Jameson argues that American capitalism, in the form of huge multi-national corporations backed by the Western media, is (re)colonizing the world. This cocacolonization of the globe is seen to result in a cultural homogenization as native cultures are swallowed up by Western values (Arrowsmith, 2008) [ ] The Marxist viewpoint has stimulated a philosophy within certain socialist circles that has been responsible for creating the anti-thesis of globalization which is now called anti-globalization. Persons sharing the anti-globalization political and philosophical viewpoints are generally against offshore outsourcing, believing that with it comes a hidden agenda of U.S. economic imperialism, or as the movement has phrased it, cocacolinisation (sic) (Hendee, Pg. 55) Hendee continues further by pointing out that this is where the ethical dilemma actually exists, when one entity must ignore some type of negative consequence in order to carry out or implement the plan of a certain goal (Hendee, Pg. 56). He correlates the ethical dilemma to the loss of jobs within the U.S., as corporations seek to improve their profit margins and curtail costs by outsourcing jobs to poorer, developing, foreign countries. Research Conclusions Although jobs are being lost within the confines of the United States, the reality of the matter is that outsourcing is being driven by the one motivation that capitalism thrives on, the

WARD 7

notion of profit. Companies are seeking to raise their profit margins and contain costs by moving their operations to areas where there are greater advantages on wages, resources, and capital. Additionally, most are now merely following the route of their supply-chain vendors, who are also seeking the same notion relative to their own profit margins or costs. Not only is the U.S. competing for labor nowadays, but so is virtually every other country on the planet, and even the countries that are currently being outsourced are also included in that market or category. When we look at this scenario from a utilitarian viewpoint, it is obvious to see that the greater good is being served by companies outsourcing their commodities and services. The company most certainly wins by gaining the ability to increase their profits and holdings (due to cost-savings); and the developing countries benefit dramatically from every aspect of the deal, from gaining a plethora of knowledge to upgrading their economies and quality of life for their citizens. From my own perspective, and when speaking of equal justice relative to outsourcing and globalization, this would also meet the two basic tests for John Rawls Theory of Justice (at a minimum), which notes that: 1) All the basic civil rights and liberties will be distributed to all, and 2) Social and economic advantages must be attached to positions open to all, with the inequalities being justifiable only if they maximize the level of primary goods enjoyed by the least well off people in society. No longer can the American society sit back and demand that they be included as a consideration into this type of process, as they have to be proactive and innovative in their own rights when addressing the issue of whether a company should outsource or not. If viable alternatives are not presented that will encourage consideration or loyalty on the part of the companies in question who are considering outsourcing, then the host nation has surely failed and lost the capacity to deliver their own standards of a quality product, and they will be subject to the same competition that other nations face in recruiting companies to develop their economies. The loss of jobs within the host country (in this case, the United States) should be perceived merely as a trade-off versus a crisis, as it is a direct result of the competitive global market that we now thrive in, given the technological advances of our times; and in order to be competitive, one must be innovative, challenging, and persistent. Alternative Strategies The most important factor that a host nation or company needs to focus on when dealing with outsourcing is the need to be innovative in their approaches when considering strategic alternatives. In an article titled The Politics of Globalization, Peter Mandelson points to how governments are addressing their concerns regarding outsourcing by implementing laws or programs to protect their own needs. He notes, As global competition grows more intense, each country grasps any tool to gain advantage in others markets while protecting their own: Russia has set up a sovereign wealth fund so it can subsidize inward private equity investment. China has added rules governing national security, adding to investment uncertainty as it seeks increased international access for outgoing investment. Australia has revised its takeover rules to prevent China buying up wholesale its natural resources. (Mandelson, Para. 5)

WARD 8

Even within the United States there are states that are actively dealing with this issue as well, passing their own versions of protectionist laws and incentives. Tennessee has implemented a bill that makes it the first state to give business incentives to companies that do not outsource data-entry and call-center jobs to cheaper offshore locales. The law specifically asks state procurement officials to give preference in bids to contractors employing workers only within the United States. Protectionism alone, however, will not resolve the matter. Organizations need to adopt a more disruptive or holistic business model (whichever suits their needs), creating a greater advantage over the competition as much as possible. In the October, 2010 edition of the Harvard Business Review, Hau L. Lee advocates a more holistic approach for businesses dealing with their supply chains in his article titled Dont Tweak Your Supply Chain- Rethink It End to End (2010). Mr. Hau writes, Instead, companies- throughout the supply chain, not just at the endshould take a holistic approach to sustainability and pursue broader structural changes than they typically do. These may include sweeping innovations in production processes, the development of fundamentally different relationships with business partners that can evolve into new service models, and even collaboration with multiple companies to create new industry structures. (Hau, Pg. 64-65) Discussion and Reflection In being a labor advocate and union president for some twelve years, one would naturally think that my viewpoint would tend to lean more with the anti-globalization movement. I am a realist, however, and see globalization as an event that has already transpired throughout the course of history on several occasions. With the advent of new technology, changes are inevitable, and this is merely what we are experiencing with our current trend of outsourcing. I have no sympathy for workers who feel that their country owes them some sort of a living, as we must understand that there is an incumbency upon ourselves to assure our own survivability in these trying times, and this attitude must prevail when applied to this particular study with KPan Textiles. In fact, my own experiences with outsourcing have seen American workers who feel that their country or state owed them employment or a job. My most prominent memory is with the closure of Kelly Air Force Base in San Antonio, Texas. Kelly had a long history of sustaining the economy of Southside San Antonians for generations, and when the decision to close the base was made, every effort was included to give workers some sort of alternative employment, albeit out of the local area. The decision had been made by our government to transfer the jobs to Wichita Falls, Texas and Oklahoma City, Oklahoma. The majority of employees affected transferred along with the jobs, but there was a hold-out group of several hundred employees who insisted that the base remain open, as My grandfather, my father, and my own family members have worked at Kelly for generations, and as such, it is our destiny to work there also. These employees, naturally, were left behind amid protests, claims of abandonment, and even

WARD 9

several lawsuits filed on the employees behalfs. Was the government at fault for not maintaining their employment? I think not, rather, it was the employees themselves who had served their own demise relative to their employment and future. From a business perspective, the government was merely attempting to save money, as much (and historically) as any other company in this sort of dilemma. Unfortunately, outsourcing is a direct result of our newfound technologies serving the greater good of all in this new technological and industrial revolution that we are experiencing and not just exclusive to one or two countries anymore. One must look beyond the local geography and realize that to be gainfully employed or to sustain a living we should be far more mobile than our predecessors. In essence, we are already a global society, in that we have transcended the ideals that American workers have a safe harbor when speaking of jobs locally. Future generations need to realize this, and adjust their challenges and goals accordingly. If the idea is to maintain a local job market, then the organizations advocating such need to be innovative in their thinking and recruiting of companies within their respective locales. It is incumbent upon us to ensure our own survivability and sustainability, and not a requirement for our government entities. K-PAN has done everything within their own means to ensure that their employees were taken care of during the course of this decision to outsource their labor and costs, and they should continue to be socially responsible in their own right relative to their given employees, whether stateside or out of country, which is what they are currently doing. As Peter Mandelson states, One of the biggest misconceptions about globalization is that it forces us to make a tradeoff between collective action and social protection on one hand and competitiveness on the other. This is not the case. Globalization does not make strong social protections untenable. If anything, it makes them more essential. K-PAN had made the right decision; they merely need to stand by it, as their own actions are helping to promote economic growth within a country that is in dire need of such. Globalization has made way for free trade and business on numerous levels. It has also helped to improve communication around the globe, as well as affording an opportunity to make this world a better place to live in. As it is currently being shown, it is changing the political scenario and shifts in power around the world, and as such is playing a role in resolving deep-seated problems that have long needed addressing. To succumb to the negative interpretations of anti-globalists is like placing a gun to ones own head, as the direct or end result equates to nothing more than mere suicide. In taking the actions that it took, KPAN is not only ensuring the welfare and success of their own company, but the lives and economies of the countries and employees that they choose to invest in. For countries and corporations to stay competitive, they need to do precisely what KPAN has done, which is to be innovative and adaptable to change; much like our own forefathers had done when first founding this country that we call America.

WARD 10

References Donaldson, Thomas (et al) (2008). Ethical Issues in Business; A Philosophical Approach (8th Edition). Copyright 2008 by Pearson Prentice Hall. Ganguly, Poushali (2011). Pros and Cons of Globalization. Excerpted from Buzzle.com, 19 December 2011. Hay, Colin (2006). Globalization and Public Policy. Excerpted from The Oxford Handbook of Public Policy, copyright 2006 by Oxford University, 8 Jun, 2006. Hendee, James G. (2010). Profitable Globalization and the Ethical Dilemma of U.S. Job Loss. McNair Scholars Research Journal, Volume 1, Issue 1, Article 7. http://commons.emich.edu/mcnair/vol1/iss1/7 Lee, Hau L. (2010). Dont Tweak Your Supply Chain- Rethink It End to End. Excerpted from the Harvard Business Review, October 2010 Edition. Mandelson, Peter (2011). The Politics of Globalization. YaleGlobal Online Magazine, 8 April 2011. http://yaleglobal.yale.edu Torrance, Fiona (2006). The Ethics of In-House vs. Outsourcing. Excerpted from INSIGHT BUSINESS published by USCs Center for Management Communication, copyright 2006 by USC Marshall School of Business. www.marshallinsight.com