In 2004 filmmaker Thomas Balmès
followed the Finnish cellphone producer Nokia for his documentary “A Decent
Factory”[1].
At that time Nokia was the world leader in producing mobile phones. Because of
the magnitude of this company, many other companies were reliant on Nokia for
supplying parts and materials that Nokia needs for producing its mobile phones.
At the time of making this documentary, Nokia tries to implement its high
ethical standards through its whole supply chain. Therefore, not only Nokia
itself has to meet these standards but also its suppliers. A team of ethical
specialists on behave of Nokia visits suppliers who have their activities mainly
based in China. In this documentary these specialists visits a German owned factory
which produces adaptors and other electronic parts for Nokia’s mobile phones in
China.
The
question arises why Nokia was/ is focusing so explicitly on ethical standards
in its supply chain? Especially when the subtitle of this documentary is
Friedman’s quote; “The one and only social responsibility of business is to
make profits”. Initially it seems like a contradictory between Nokia’s
business philosophy and Friedman’s philosophy how companies should look like. But
actually, in my opinion, these two philosophies can go hand in hand. I still
share the opinion of American economist and Nobel prizewinner Milton Friedman
that the business of business is to increase its profits. And I also think that
Nokia is doing this as well. The first argument is a simple one. Why are the
factories of Nokia’s supplier, the German company, mainly based in China and
not in Germany any more? The answer is that the production costs are much
higher in Germany than in China. By keeping the production costs down, the
German company can sell their goods to Nokia
for a much lower price and still make profits. This means that to
production costs of Nokia’s phone are also lower. Eventually, the prices of
mobile phone in the stores are lower.
When the
production is outsourced to developing countries, where the production costs
are much lower than in the West, most of the time the working conditions are quite
different. Lower wages, longer workdays, bad facilities, no safety standards,
corruption etc. etc. Normally, these virtues do not match with Western ethical
standards. Form a Western perspective these production activities can be seen illegitimate
since it does not meet the standards of actions which are desirable, proper, or
appropriate within the Western socially constructed system of norms, values,
beliefs, and definitions[2].
For this reason, Nokia as an Western company, tries to adapt the production
standards to meet with Western standards to make the way it is doing business
legitimate.
The
pressure on Nokia to make their business legitimate could come from many
different actors; the shareholders, the consumers, employees or governmental
regulations etc. . When consumers find the way Nokia’s cellphones are produced
illegitimate, they will probably more hesitant to buy a Nokia product. For this
reason it is in Nokia’s own interest to set high ethical standards into its
supply chain. So, it is for Nokia a combination of normative and rational
motives to comply with the high ethical standards. Because Nokia is a costumer
of its supplier, Nokia can request its suppliers to meet the high ethical
standards also. If not, Nokia could find another supplier of adaptors. This is
a more coercive method. But since Nokia was in that moment of time the biggest
producer in the world of mobile phones, it probably would succeed to diffuse
their ideas of high ethical standards in the rest of the mobile phone market
you might think.
Evidence
this actually happened after Nokia’s campaign to set high ethical standards is
difficult to find. More likely is that nothing fundamental really happens. In
2012 there was a worldwide consternation about a Chinese/Taiwanese company
called Foxconn. The company was a big supplier of Apple for producing IPhones.
Apple had become the biggest company in the world and Nokia was now rapidly
declining. Rumors about riots, suicides and other bed working conditions in
Foxconn factories occurred[3].
Even suicide nets were installed to prevent employees from jumping off the
factory buildings[4]. This
shows it is very difficult to make changes in working conditions to set high
ethical standards as a company in a competitive industry where making profits
is the main business. Only creating public awareness and governmental
regulations and coercion mechanisms can make these types of structural changes.
If the public is more aware about under what kind of circumstances their goods
are produced, they will probably would not buy these kinds of goods any more or
put more pressure to produces under higher ethical standards.
[1]ThomasBalmès.com.
http://www.thomasbalmes.com/filmography/a-decent-factory/ (15 October 2014).
[2] Suchman.
M.C. 1995. Managing Legitimacy: Strategic and Institutional Approaches. In
Academy of Management Review. Vol. 20 no. 3, 571-610.
[3] The
Guardian. 2013. The woman who nearly died making your iPad. http://www.theguardian.com/commentisfree/2013/aug/05/woman-nearly-died-making-ipad
(15 October 2014).
[4] Bloomberg.
2012. Inside Apple’s Foxconn Factories. http://www.bloomberg.com/slideshow/2012-03-30/inside-apple-s-foxconn-factory.html#slide9
(15 October 2014).
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