Explain what globalisation drivers are and, using the information provided in Case Study II, discuss how each of the four globalisation drivers relates to business practices in the Philippines.

Part 1: Case study analysis
Part 1 of this TMA will be marked out of 90 marks.
The total word limit for Part 1 of this TMA is 2000 words.
Note that Questions 1 and 2 cover material from Block 6, and Question 3 covers material primarily from Block 7.
After having read through the case study below, answer the following questions.
Part 1 questions
Note: Questions 1 and 2 should be answered using Case Study I (Crying shame behind Boohoo’s Leicester
suppliers)

Question 1

Using Carroll’s pyramid of Corporate Social Responsibility (CSR) and information from Case Study I, identify
the corporate social responsibilities of Boohoo and discuss how these responsibilities have been addressed
in relation to its suppliers or sub-contractors in Leicester. (25 marks)
Question 2

Identify key ethical issues in Case Study I. Describe at least two of the perspectives on ethics (deontological,
consequential, justice or virtue ethics) discussed in this module and apply to them to the case study in
relation to the actions of Boohoo’s suppliers or sub-contractors. (25 marks)
Note: Questions 3 and 4 should be answered using Case Study II (Philippines outsourcing: ‘Customers want
people, not robots’)

Question 3

Explain what globalisation drivers are and, using the information provided in Case Study II, discuss how each
of the four globalisation drivers relates to business practices in the Philippines. In your answer, think about
which of the globalisation drivers (or which combination of them) is likely to be of most importance in the
context discussed in Case Study II. (20 marks)

Question 4

Drawing on the module material, explain the differences between outsourcing and offshoring and discuss
whether the notions of outsourcing or offshoring or of both outsourcing and offshoring can be used to discuss
business practices in Case Study II. Based on the Case Study II material, briefly outline key risks of US
companies offshoring or outsourcing decisions. (20 marks)

Case Study I: Crying shame behind Boohoo’s Leicester suppliers

Most doors in Leicester’s ramshackle Imperial Typewriter building were padlocked this week, seemingly in
retreat from a Victorian-era scandal pulling at the seams of Boohoo’s fast-fashion business. Garment
workshops that fill this disused factory sew clothes that go to retailers such as Boohoo, the city’s main buyer,
for barely more than the price of a coffee.

They are at the heart of an unlikely resurgence of Leicester’s textile trade, which came in tandem with the
stellar 14-year rise of Boohoo, from a Manchester market stall to a retailer worth, until this week, more than
£5bn. But the rickety iron staircases and filthy corridors in the Imperial building symbolise allegations that
some clothes makers have relied, in part, on flouting labour laws. At the few units still operating this week,
workers shied away from questions.

‘I’d rather manufacture in Bangladesh than in Leicester, because they’re far further advanced [in terms of
labour protection],’ said Anders Kristiansen, chief executive of the retailer Esprit.
Manufacturers in Leicester who stick to minimum standards complain of the fierce competition, orchestrated
by retailers, that has driven down prices and forced others down a darker path.

‘We’re kind of put into a cage and we have to run around like rats,’ said Mohamed Karbhari, general
manager at Top Fashion, which produces clothes a short distance from the Imperial building. ‘[Retailers] say,
this person is doing it for three [pounds an item]. Can you do it for that? This person is doing it for four. Can
you do it?’ He is one of three manufacturers that told the Financial Times they do not bid for Boohoo work as
its prices do not cover their costs. This week Boohoo was selling discounted bikinis for just £2.50.

Leicester’s problem of illegal factories has been an open secret for almost a decade. But never before have
Leicestershire Police, who are stationed a few metres away from the Imperial building, paid such close
attention to their neighbours. This week officers – in a group involving at least seven government agencies –
walked the dilapidated corridors looking for evidence of modern slavery. On that visit, none was found.
The urgency came from squalid, cramped rooms of garment workers being blamed, in late June, for helping
Leicester develop twice the coronavirus infection rate of the next worst-hit English area. Then an undercover
Sunday Times reporter was offered a job for as little as £3.50 an hour – half the minimum wage – to pack
clothes destined for Boohoo.

Ministers spoke out and Boohoo’s share price plunged – just a few weeks after it proposed a bonus scheme
for executives worth up to £150m. The online business prospered during lockdown, while some of its high
street rivals faced ruin. The company, which has said it takes a ‘zero-tolerance’ approach to malpractice, has
terminated contracts with one supplier and one subcontractor and launched an independent review into its
supply chain. John Lyttle, chief executive, this week insisted: ‘we have nothing to hide’.
Over the past 15 years, the revival of Leicester’s textile trade has been the story of Boohoo’s rise.
Abandoned by big retailers three decades ago, Leicester’s industry splintered into 1,500 mini-factories,
typically employing fewer than 10 people.

After a wave of allegations over illegal conditions – including a groundbreaking FT investigation in 2018 –
fashion retailers such as Asos, New Look and Missguided reduced their reliance on the city. Boohoo, by
contrast, maintained a significant presence. Manufacturers say most of the city’s output goes to Boohoo and
its brands, such as Nasty Gal and Pretty Little Thing. The retailer sources around a third of its stock there,
with orders worth at least £100m last year, according to FT analysis of company filings.

Leicester’s flotilla of small workshops competed with rivals in Bangladesh and Turkey by offering an ultra-
flexible service, handling small orders in quick time. It helps Boohoo test almost 3,000 lines of clothes every
week and ramp-up production of trends that catch on, be they brassy bodycon dresses or lockdown
loungewear. The retailer’s founder, Mahmud Kamani, has a famed back-story: the former market trader, who
often slept in the back of his van, managed to build Britain’s fastest-growing fashion group and become a
billionaire.

Mr Kamani long gave up manufacturing but still has close connections with Leicester’s clothes trade. One of
the factories that Boohoo ended its contract with this week is controlled by a director who has business
interests with Mr Kamani’s elder brother. His sons now enjoy playboy lifestyles, draped with celebrities, while
Mr Kamani’s entrepreneurial flair has been lauded by ministers. ‘The motto of Boohoo is ‘do your thing’ and I
want everyone in Britain to be able to do their thing,’ declared Liz Truss, then a Treasury minister and now
trade secretary, in 2019.

Boohoo’s decision to keep a large chunk of production in Leicester is now facing a critical test, as some of its
biggest shareholders ramp up pressure over working conditions. ‘In Leicester … it is slave like conditions,’
said Mr Kristiansen, who was previously chief executive of New Look. ‘Everybody knows about it and some
firms are clearly ignoring it.’ ‘I knew we had to move production out of Leicester in 2017 after we had
meetings with local authorities who were just stalling, afraid to destroy the industry,’ he said. ‘I could have
expected to have those kinds of meetings in Myanmar but not in the UK.’ Nitin Passi, chief executive of fast
fashion brand Missguided, said his company reduced its Leicester supply base in 2018, from roughly 80
suppliers to ‘around a dozen’, to ‘properly get our arms around issues there’.

Official statistics show workers making basic apparel are Britain’s worst paid sector, on average earning gross wages of around £350 a week. In practice, for some the pay is much worse. As far back as 2015, a
Leicester university study found below minimum wage employment to be ‘endemic’. More than three-
quarters of garment workers surveyed earned £3 an hour on average. So cheap were rates that subagents
directed work to Leicester that was supposed to be completed in Romania.

One reason manufacturers could do this was the state: many Leicester workers were told to ‘make up’ the
wage shortfall by under-reporting hours and claiming welfare benefits. Leicester-based manufacturer Bhavik
Master, a director at Paul James Knitwear, said some employers preyed on the vulnerability of local workers
who are often South Asian immigrants with poor English and few options. ‘Modern fast-fashion retailers
exploit this poverty in Leicester, and people in Leicester start exploiting the benefit system,’ he said. ‘Fast-
fashion retailers completely take advantage.’

The Resolution Foundation, a thinktank, has calculated that under-reporting hours never pays more in
benefits than full-time work on the minimum wage. Yet it still remains attractive to some workers and offers
employers a cushion to get away with illegal wages. Mick Cheema, manager of Basic Premier, said he was
desperate to hire garment workers on legal wages, but that potential employees often demanded he under-
report hours. ‘It’s been so hard to crack this issue because there’s collusion between … sweatshop operators
and workers [who want] lower wages in return for still being able to receive welfare benefits,’ he said. He
struggles to believe Boohoo would be unaware of such practices: ‘You legally can’t make clothes at those
prices without corners being cut in a big way’. But he added that the retailer may be the wrong target for
blame. ‘It’s under the jurisdiction of HMRC not Boohoo. The crime is being committed here in Leicester –
why isn’t anything being done?’

Since 2001 there has been a stream of initiatives to raise standards: two pilot projects, four multi-agency efforts to work with industry, and an immigration crackdown dubbed ‘Operation Serbal’. Two parliamentary committees touched on Leicester’s problems – making recommendations the government duly ignored. Critics said little had changed. Andrew Bridgen, an MP in Leicestershire, said whistleblowers had told him that ‘across the whole city, there are over 200 units like one the Sunday Times went into. If you go to any of them, you’ll find they’re paying £3.50, £4 an hour.’

Confusion reigns over who is responsible for enforcement. HMRC, which patrols the minimum wage, was notably absent from recent factory visits. David Metcalf, the former director of labour market enforcement, said at a recent event that HMRC tended to focus on larger employers whose records showed less serious rule breaches, affecting many people, rather than more serious abuses. ‘Often, HMRC doesn’t go after the people who don’t have records,’ he said. Unions said local authorities lacked capacity to conduct spot checks
on unsafe workplaces.

Boohoo is confident about its main suppliers. But to root out any problems it has brought in a top QC and two ‘ethical auditors’ to review its supply chain. One of the auditors said it was hired in March but did not visit factories until June because of virus-related health risks to inspectors. Other retailers attest to how hard it is to monitor supplies in Leicester. Missguided’s head of sourcing, Paul Smith, told MPs in 2018 that one of his colleagues ‘was chased out of the building’ he was supposed to inspect. Another was ‘gripped by the throat
and pushed out the door’.

Manufacturers in Leicester who say they play by the rules have an air of despair. ‘We’ve literally done things the right way the last 10 years and we’ve really struggled to keep ourselves afloat,’ said Mr Karbhari at Top Fashion. ‘Other people have bloomed and bloomed within that same time period. It’s a little bit confusing as
to how that happened.’

Additional reporting by Alex Barker and Delphine Strauss.
Credit: Robert Wright – Leicester; Patricia Nilsson – London
Source: Wright, 2020
Case Study II: Philippines outsourcing: ‘Customers want people, not robots’

In a Manila call centre, Sarah Prestoza spends hours helping exasperated callers on the other side of the world troubleshoot problems with their internet connections.

Almost all of them are in a bad mood; some are rude, others are racist. A few ‘difficult callers’ can’t even explain what they want, which is a problem when your boss won’t let you hang up on them. But most are just frustrated and want a little help. ‘Especially the older people. They would like to have patient people who could help them,’ Ms Prestoza says.

Grunt work

The Philippines sits at the heart of the “business process outsourcing” industry. And that is not just call
centres. It includes much of the repetitive white collar grunt work that American companies think is too
expensive to do domestically, things like data processing, software development, medical transcription and animation services.

Success relies on the strong customer service ethic of people like Ms Prestoza, as well as good English skills. And never more so than now, as it navigates the twin threats of artificial intelligence and protectionism in the US, from where most of these jobs were outsourced.

Workers here often start their shifts late at night to line up with US time zones. Getting robbed on the way to work is a genuine risk, they say. Shift work kills social lives and has negative health effects. And customers often feel entitled to take out their frustrations. In fact, many suggest that only Filipinos have the patience for this type of work, which is why US companies are here.

Pay factor

But despite getting abuse from a stranger twelve time zones away, many are remarkably upbeat about their jobs. By local standards, they’re well paid. A surprising number have degrees in other disciplines, but work in call centres because the money is better. Entry level salaries are comparatively good and they don’t need to
join the millions of Filipinos who have moved abroad in search of bigger pay cheques.

By 2022, the sector will employ about 1.8 million people, with about half a million of them working outside
Manila, predicts the Information Technology and Business Process Association of the Philippines (IBPAP).
The sector helped keep jobs growth alive through the global financial crisis and looks likely to overtake foreign remittances as the country’s biggest revenue generator. Not bad for an industry that didn’t exist 20
years ago.

‘Growing’

Although most of these jobs have been outsourced from the US, the industry says it isn’t too worried about a wave of protectionism. The Trump administration, for all its ‘America First’ rhetoric, has not enacted any legislation that would have an impact, says IBPAP. It is harder to slap a duty on a service than on a good that physically needs to enter the country, the organisation points out. And US trade policy seems to be more
focused on manufacturing, anyway.

‘So far, I haven’t really encountered a reduction or a contraction. A number of these companies are growing and continue to grow,’ said Rey Untal, IBPAP’s president. But one company, Verizon, just created a thousand new jobs at its US call centres, at the expense of a contract with an operation in the Philippine province of Cebu. Although some of the 1,500 workers will be moved onto other contracts, many expect to lose their
jobs.

Verizon has made no suggestion that the move has anything to do with Donald Trump or US protectionist policy, saying only that the company ‘takes pride each time we create good-paying, American jobs’. But the workers here see Mr Trump’s fingerprints, however faint. ‘Yeah, somehow,’ says Hannah De Anas, one of the workers at risk. She points to the president’s previous demands that US companies stop outsourcing and ‘use whatever labour they have in the US’.

Language advantage

IBPAP insists these cases are isolated, saying US companies come here because it’s cheaper and that this is not likely to change. And nominally, the Philippines has more English speakers than the UK, although it is a second language for most people here. That provides at least some insurance against US companies seeking out even cheaper markets. ‘It’s not like garments, where you don’t need a language at all, just the ability to sew a shirt or the ability to sew together athletic shoes,’ says John Forbes, an industry analyst who advises the US Chamber of Commerce.

Instead, he sees the biggest threat coming from automation. ‘Business process outsourcing’ is exactly the kind of jobs that artificial intelligence (AI) companies expect they’ll replace. One Frost and Sullivan report suggested more than one in four of these jobs in the Philippines might be at risk. And the industry body is being realistic. ‘We acknowledge that it is going to be a headwind down the road and in fact it could happen within the next two or three years,’ says IBPAP’s Rey Untal.

Now the sector is mulling over ways to improve workers’ skills so that they’re ready for the jobs of tomorrow.
But the workers themselves suggest the threat of AI is a little overblown. After all, a large part of their job is
about the human touch. Sarah Prestoza said people only talk to her when technology fails and they’ve
struggled through endless phone menus just to find someone who can help.

‘What does the customer say? “I’m glad I was talking to a live representative. I’m glad I was not talking to a
robot”.’

Source: McDonald, 2017

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