Labour Standards and International Marketing

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How does wealth polarisation impact upon international marketers

The discussion will focus on the concept of ‘stakeholders’ and the ‘stakeholder corporation’ (Wheeler and Sillanpaa 1996).  The question is whether international marketers, in the context of wealth polarisation, consider their stakeholders fully.

Stakeholder theory suggests that firms pursue a range of objectives.  It suggests that firms have a responsibility to ‘maintain an equitable and working balance among the claims of the interested groups’ (Appleby 1992:78).  The ‘interested groups’ of a multinational enterprise could include the following: the home country government, individual politicians and civil servants in the home country, pressure groups in the home country; and local workers and their organisations in the host country community (Lowe 1997:376).  The stakeholder model is relevant to multinationals as there are many ‘interested groups’ who affect these international firms.  In particular, the international firm will have to deal with ‘multi-national’ pressure groups.

At a strategic level the marketing management of the firm faces the problem of having to balance the needs of its domestic stakeholders against the needs of its host country stakeholders.  For example Tesco has been criticized for selling cheap clothing.  Tesco’s British customers want low prices, its employees want high turnover and so more secure jobs while its shareholders want increasing profit and dividends.  All of these factors have to be weighted against the welfare of workers in the host country, such as China, where the clothing is produced.  International trade, and the use of low wage economies, is now making the role of the marketer more complex.  They are now required to make ethical judgements over their use of international suppliers.  Multinationals have to give consideration to their stakeholders as this is linked to their corporate image.  If a multinational is accused of exploitation then the business’ reputation can be affected.  The domestic Tesco consumer could encourage the business to be ethical.  This is because sales may be linked to proper treatment of clothing suppliers.

The Friedman view that ‘there is one and only one social responsibility of business to increase profits’ (Lowe 1997:375) is unlikely to be sufficient for successful business.  The following examples of tobacco exporting and the sale of powdered infant milk in developing countries highlights the relevance of social responsibility.

Firms can increase their sales, by developing ‘present products’ into ‘new markets’ as in Ansoff’s growth vector (Thompson 1993:461).  If a product has reached maturity or decline in a developed country’s market then marketers may look to develop the market by selling in a developing country.

The major tobacco product suppliers have been criticized for selling cigarettes in developing countries as part of a ‘market development strategy.  Arguably, tobacco firms have exploited inequality by selling cigarettes to consumers who due to their poverty may not have been aware of the risks of smoking compared to western consumers (Lowe 1997:381).

Nestle have also been criticized as they were accused of inappropriately selling powdered milk in the third world without considering the full implications for public health.  Products, which may have been acceptable in Western markets, are found to be unacceptable in developing countries if insufficient thought is put into selling them.

Wealth polarisation will be examined with a comparison between Europe and South East Asia.  It means that relatively cheap textile manufacturing labour is relevant to say Euopean clothing buyers.  European clothing prices can be cheaper through low cost sourcing of products.  Low-cost sourcing means that wages are low and so the price of the item sold to the European retailer is low too.  Marketers at Primark, or Tesco, have been able to exploit this situation as these companies, use buying economies of scale to lead on price. Clothes can purchased at a low price, given the large quantity of the order.  The low price obtained can then be partly passed on, to the consumer with a low market price in the shop.  The low price in the shop can generate higher levels of sales, which in turn justifies the large quantity of the order.  A 'vituous circle' can then continue for the retailer with higher sales leading to greater purchaes from the low manufacturing cost economies.  the previous discussion has implied that the quality of the clothing garment has remained consistent.

This has changed market forces as customers may now expect clothing to be cheaper for the same level of quality.  Companies cannot afford to sell at prices, which are not seen to be ‘value for money’.  Companies, which have built strong relations with domestic producers into their brand, such as Marks and Spencer, have felt obliged to conform to the cost imperative.  Marks have increased the amount of clothing that they source from the developing world (Robins 2004).

An examination of IKEA and Wal-Mart will help develop the discussion.  IKEA uses low wage economies so that it can achieve a lower cost position than its competition.  This has been achieved through the sourcing of furniture from a network of more than 1600 suppliers in 55 countries (Keegan 2005:510).

Although IKEA can be used as an ethical example of cost leadership there are problems with this approach.  Competition through a cost leadership strategy invariably means that companies, like IKEA, exert pressure on their suppliers to cut costs.  Global inequality, in terms of weak policies to support workers, gives corporations the freedom to seek out inexpensive labour in the developing world. Companies go ‘regime shopping’ whereby they make use of countries, which support their cost cutting objectives (Christopherson and Lillee 2004:3).  A relevant part of a corporation’s marketing strategy could be to buy from countries, which see advantages in not enforcing labour standards.  Marketers have a wide remit now.  This may include looking at how labour standards, in developing countries, can be exploited to a company’s strategic cost advantage.

However, the country of origin may have an affect on marketing.  It is suggested that Nordic labour politics is a relevant influence on IKEA (Christopherson and Lillee 2004:3).  IKEA may believe in decent labour standards and would feel that it would be inappropriate to focus exclusively on the cheap sourcing of products.  The opportunity for exploitation may not be pursued fully by IKEA’s marketers due to a Nordic influence.

Market forces have had a powerful effect on companies’ strategies as was shown by the example of Marks and Spencer above.  However, market forces do not dictate what marketing policy is approached. Ikea projects ‘a warm image’ through a multi-stakeholder approach to labour standards.  IKEA tries to demand high labour standards from its suppliers particularly as its socially responsible image is part of its marketing appeal.  In practice, with a growing network of suppliers in developing countries, IKEA has found it difficult to maintain this ‘warm image’.  Ikea has not been able to avoid being implicated in labour rights violations of its suppliers (Christopherson and Lillee 2004:11).  IKEA has a cost reduction strategy to fit in with the prevailing market forces but this does not fit in with the desire for high standards at its suppliers.   IKEA is finding it difficult to confront this inconsistency (Christopherson and Lillie (2004:13).

However, IKEA is involved in long term working relationships with suppliers and sees this as a route to cost effectiveness.  IKEA attempts to have both low costs and high standards and while this may not be fully achievable in practice it does have other benefits.  In comparison to Wal-Mart, IKEA does not hear about labour standard violations through the media but through internal dispute mechanisms.  Wal–Mart’s approach is different.  Instead of fully trying to work with suppliers Wal-Mart tries to ‘anticipate bad publicity from labour standards violators among its subcontractors and severs its relationship with the subcontractor before the bad publicity hits the press’ (Christopherson and Lillee 2004:14).  Wal-mart may be compliant in the abuse of labour standards as a consequence of its practices to continually squeeze profits out of subcontractors.  Profit can be achieved by Wal-Mart given that it is sourcing from factories in China that were paying 8 cents per hour.  However, the risk of failing to meet International Labour Standard conventions is put on the subcontractor.

Poor American consumers benefit from Wal-Mart’s low prices.  Wealth polarisation in the United States is leading to the success of Wal-Mart’s high turnover low price marketing.  Wal-mart’s poor consumers can do little if labour standards are violated as they have few options but spend their limited incomes at Wal mart.  However, this lack of accountability from Wal-Mart’s customers has instead led to criticism from non-governmental organisations.

The following example from the fresh produce sector is an example of a non-governmental organisational, Oxfam, being critical of large-scale businesses.  Large supermarkets can capitalise upon global inequality.  They squeeze suppliers so that they can run their cut-price promotions.  Squeezing suppliers means that farmers are “increasingly hiring women on temporary contracts to work 11 hours a day in the fields for poverty wages, with no sick leave, no maternity leave, and no income security” (Coryndon 2004).  However, marketing now has an increasingly strategic role in developing policies to defend the corporation from challenges from non-governmental organizations.

A negative portrayal, of the role of marketing, has generally been given.  There are other examples of marketing, which are more positive.  For example, fair trade, which is a concept, ‘based on the marketing of products from poor countries that have been produced under the guarantee of minimum social criteria’ (Jones et. al. 2003).  The theoretical objective of fair trade is to maximise the return to the supplier rather than the margin of the buyer, within an agreed development structure. Some firms, such as Traidcraft, have made their mission of trying to use trade to alleviate poverty. However, fair trade or speciality products, such as coffees marketed by Starbucks, are regarded as niche products.  These only account for about 2 percent of the world supply of coffee beans (Keegan 2005:147).  Although Starbucks has attempted a policy of improving the working conditions of its suppliers; its annual coffee purchases amount to only $180 million.  The problem is that the power in the coffee chain rests with commercial interests in the industrialised world with around 10% of retail value retained in producing countries (Vorley last updated 2006).

In the United Kingdom, fair trade products are still a minority feature of the retail market but they are now more accessible to consumers (Jones et. al. 2003).  To conclude wealth inequality can have a positive influence on marketing as more enlightened marketers have used marketing to try and reduce inequality.  However, this type of marketing appears to be in a small minority.  The world economy is dominated by the likes of Wal-Mart and its British equivalents Asda and Tesco.  Supply chains have developed so that a large number of competitive and relatively powerless suppliers face a few large buyers.  In the food sector, farmers operate under rules close to perfect competition while their customers are part of a monopoly.  Producers are confronted with a global supermarket sector where the top 30 companies account for one third of grocery sales.  In the United Kingdom the top five supermarkets in most parts of the country account for 70% or more of grocery sales (Vorley last updated 2006).

Telegraph article: The end of China's cheap denim dream

BBC article:  Clothing and Sports Direct

Christopherson paper referenced above.  

Bibliography

Appleby R. 1992, Modern Business Administration, Fifth Edition, Pitman, London

Christopherson S. and Lillie N., (2004), neither global nor standard, Corporate Strategies in the new era of Labour Standards, Department of City and Regional Planning and School of Industrial and Labour Relations, Cornell University,html version at http://www.geog.ac.uk/research/wpapers/economic/wpg04-07.pdf [last updated 18/10/2006]

Coryndon A. 2004, Oxfam International, www.oxfam.org, report downloaded from www.maketradefair.com

Keegan W. 2005, Global Marketing, Fourth Edition, Pearson / Prentice Hall

Lowe R., 1997, Ethics and the Challenge for international marketing managers, chapter 19 in International Marketing Strategy: Contemporary Readings, International Thompson Publishing, London

Robins N (2004), Stimulating SustainableTrade project report , www.iied.org

Jones P. Comfort D., Hillier D., Retailing fair trade food products in the UK, British Food Journal Volume 105, Number 11, 2003, pp. 800-810, www.emeraldinsight.com http://www.emeraldinsight.com/ p. 1-8

Thompson J., 1993, Strategic Awareness and change, Second edition, Chapman and Hall, London

Vorley B.  Food, Inc.  Corporate concentration from farm to consumer, U.K. Food Group, www.ukfg.org.uk_docs_UKFG_Food­_Inc­_Summary.pdf [updated 29/10/06]

Wheeler D. and Sillanpaa M.  , 1997, The Stakeholder Corporation a blueprint for maximising stakeholder, Pitman, London

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