The ethics of outsourcing: when companies fail at responsibility

Abstract

Purpose: The purpose of this paper is to demonstrate that costs reduction is no longer a complete indication of performance and should not be attained at the expense of the firm?s sustainable social responsibility and environmental aspects. The question of whether outsourcing is a ?blessing? or a ?lesson? remains unresolved in the minds of practitioners and researchers alike. The literature is replete with the up- and down-sides of outsourcing, all going in different directions, making it very cumbersome particularly for practitioners to articulate when and what to outsource (if at all) and how to contain or mitigate outsourcing downsides. Design/methodology/approach: Outsourcing as a two-edged sword can be value creating strategy or a firm?s soft spot. This paper focusses on the latter through a review of sourcing in two leading multinational companies: Benetton, in the fast fashion industry, and Nestl?, in the food industry. Findings: Benetton experienced the biggest catastrophe in the garment industry, the Rana Plaza collapse. Nestl? went through the horse meat scandal, perhaps one of the most complex food crime cases in history. Both cases illustrated the strategic vulnerability that arises from the international outsourcing of production. Research limitations/implications: Clearly, production costs are no longer a complete indication of performance as the two cases unveil. Management control systems should be especially vigilant when outsourcing transfers social and environmental responsibility from one contract to another in a global business context. Monitoring costs cannot be outsourced when it comes to sustainable social responsibility and environmental aspects. Practical implications: Firms can leverage relationships with stakeholder groups, activists and NGOs to help them to monitor their international operations. Institution-based trust to protect brands, increased integration and control are necessary mechanisms. Originality/value: Indeed, global outsourcing in any industry should transfer not only industrial operations but also credible and responsible social and environmental benchmarks.