Unethical trade practices of Tesco on fresh produce from developing countries - Essay Example

Unethical trade practices of Tesco on fresh produce from developing countries The impact of unethical practices of business especially conducted by multinational corporations has long been the center of debates. Multinational companies operating in developing countries in the complex supply chain and the increased international trades, their business activities and decisions can have profound impact on local communities and people from developing countries, which are producers in the supply chain. This essay aims to discuss ethical aspects of business practices using Tesco as an example and will discuss issues relating to ethical trade movement in agricultural supply chain as well as remedies for improving sustainable ethical agricultural trade. According to the ILO (2013), agriculture is the largest sector of employment in most developing countries, which employs one third of the world’s labor force. Many families and people rely on agricultural and production for export for their livelihoods. Agricultural supply chains are complex and international (ILO, . However, it is considered a vulnerable sector for its high production cost, price fluctuations and the unbalanced market power. In the complex supply chain, multinational companies that purchase their products from developing countries can have immense impacts on people living in those countries. In the international market, actions taken by the dominant buyers and retailers may create a situation where it undermines the capacity of suppliers and compromises farmers and worker’s basic rights. According to Wearden (2010), the United Kingdom imports over 90 percent of its fresh fruits and 60% vegetables from other countries each year. These products are imported mainly from European countries and some developing African countries such as Kenya and Morocco and have estimated value of GBP 1.5 billion per annum. In the UK, a small number of retailers dominate the food retail market a factor which is seen to in turn generally contribute to the power imbalance in the trading relationship between purchasers and suppliers. According to the UK Competition Commission, supermarket chains are increasingly exerting pressure on suppliers and farmers from developing countries to conform to ethical standards. Tesco PLC Tesco PLC is the grocery market leader in the United Kingdom with a market share of around 30 percent in 2013. It is one of the world’s largest merchandise retailers. Founded by Jack Cohen in 1919 as a group of grocery stalls in East End of London. In forming the name TESCO, the first two letter of Jack Cohen’s his surname were combined with the initials of his tea supplier, Thomas Edward Stockwell. The first Tesco store was opened in Middlesex in 1229. Originally Tesco focused its business on grocery retailer until the early 1990s when it diversified its products and services into a wider range inclusive of items such as clothing, furniture, books, DVD rental electronics, financial services, internet services and software in addition to its expanding its business abroad. Since then Tesco has continued to grow and offers new services in addition to opening new stores globally with a principle to sell wide range of quality products with lower prices for everyone. In the present, Tesco has more than 6,500 stores worldwide and employs over 500,000 staffs around the world (Tesco, 2013). Tesco is considered to be Britain’s biggest and most profitable supermarket chain and is currently seen to be expanding globally at a rapid rate. In 2013, Tesco announced its group trading profit before tax at GBP 3.5 billion with the UK sales accounting for over GBP 2 billion. With its aggressive worldwide expansions Tesco purchases its products from suppliers in over 70 countries around the world. Given its continual success and the highest market share in the UK retails market, Tesco is in a powerful position especially in grocery supply chain (Tesco, 2012). The Ethical Issues at Tesco In recent years, Tesco has faced criticisms from various groups of activists and organizations such as Friend of the Earth, Tradecraft and Oxfam. One of the biggest criticisms is its unethical trading practices and the abuse of its monopoly position by infringing upon interests of suppliers and farmers. Tesco has been criticized for its unfair trading practices including selling products below cost price which lead to burden costs for suppliers and small farmers, the supermarket chain also demands that its suppliers increase food safety standards but is not responsible for any related costs. Tesco also requires the delivery of supplies at short notice and making late changes to the volume of goods ordered. Other unethical practices include the fact that goods can be rejected on delivery, constant delayed payments, unclear contractual terms and the lack of firm prices. These issues indicate that Tesco can potentially use its buying power to dictate trading terms, conditions and prices to suppliers and vulnerable farmers in the agricultural supply chain. Given its strong position in the food retails market, suppliers are almost always left powerless in the negotiation and determination of terms of trade. Other unethical practices that are reported to be carried out by Tesco including; unethical branding and de-branding of producer products, the use of pricing and advertising that misleads customers, exploitation of labor seen in the poor treatment of workers in the supplying countries, aggressively expanding the number of new stores in the UK while violating planning permission, food hygiene allegations over selling goods after their sell-by date and the sale of burgers that were found to be largely contaminated with horse meat (BBC News, 2013). Tesco is one of the lowest priced food retailers and has the largest market share in the UK which results in its having a strong purchasing power in the supply chain. A number of supermarkets critics claim that Tesco transferred burdens and costs down the supply chain to small suppliers such as farmers by consistently paying them lower prices than its rival supermarkets. According to the Competition Commission’s report in 2000, Tesco paid the lowest prices to suppliers (Seely, 2000). The critics also claimed that Tesco exploits overseas labors in order to stay in profit by squeezing the price, suppliers are left with smaller margins and in turn they may pass the pressure down the chain to farmers and workers by cutting wages, breaching workers rights, diminishing working conditions and maintaining low labor standards in an attempt to seek greater benefits (Hennessy, 2013). In 2003, the Competition Commission’s report stated that supplier’s negotiating power with Tesco had been reduced. The consequence of the market power imbalance affects both local and overseas farmers especially in developing countries. Tesco purchases a large amount of fruit and fresh produce from South African countries annually. Overseas farmers whom sell most of their produce to the giant supermarket are at the mercy of actions and decisions made by the buyer thus its unethical practices can potentially have a great impact on many lives in agricultural sector and human rights. Supermarket critics and organizations such as Friend of the Earth produced a report in 2004, that criticized Tesco for its aggressive expansion strategy that swept small retailers out of business and caused the company to profit at the expense of the UK and overseas farmers (Doherty et al., 2009). The company responded to the criticism by adopting new trading fairly policies as well as being one of the four initial members that formed the Ethical Trading Initiative (ETI) with the objective of ensuring that their suppliers meet the Ethical standards based on the code set by the ETI to ensure workers rights. In 2004 Tesco volunteered to pilot the principles of fair trade and established the Suppliers Ethical Data Exchange (SEDEX) to encourage retailers to share labor standards information. Amidst all criticism, the giant retailer claimed that it is an important source of jobs and employments especially in the UK where its direct supply chain employs around 1.4 million workers. In its efforts to promote ethical trading and improve workers rights in the supply chains, Tesco adopted the “trading fairly” policy as part of the organization’s key strategy for corporate responsibility and set up a specialist ethical trading team which includes local employees in supplying countries to tackle ethical trading issues. However, despite the implementation of its ethical policies and the effort made by the supermarket giant, a number of supermarket critics still claimed that the basic worker rights and standards which stated in the Ethical Trading Initiative Based Code, have not been met especially its suppliers in developing countries. The Ethical and Philosophical Aspects of the Ethical Issues at Tesco’s Consumer interest in ethical practices such as fair trade and corporate social responsibility activities is seen to have quickly been growing in the recent decade. This shows that consumers are aware and prepared to spend more on the purchase of various services and products that enhance not only the quality of their lives but also, their social conscience as well. Increasing pressure from individual consumers, governmental agencies and activists toward the company is seen to drives the company to rethink its ethical code of conduct and purchasing policies (Enz, 2009). It has also caused it to develop models of ethical trade practices and purchasing policies designed to improve working conditions in its supply chain, put more emphasis on corporate social responsibility and ensure sustainability of ethical behavior. A number of studies suggested that perceived ethical practices carried out by companies could potentially have a rather positive impact on their actual image and reputation (Mike). In relation to ethical theory, this essay seeks to examine ethical trade practices and workers rights and how the leading retailers treats their suppliers and workers especially those in developing countries. The major philosophical aspect in business ethics is mainly categorized into two approaches, the utilitarian approach and the deontological or the kantian approach (Nantel and Weeks, 1996). The utilitarian approach is based on the consequences of an action. It is defined as the maximizing happiness and reducing of suffering for all people and proposes that a proper course of action should maximize happiness and utility. The two most influential advocates of this approach are Jermy Bentham and John Stuart Mill. In this approach, the actual ethical action is determined by consequences or resulting outcome. Under the Utilitarian approach, holding proper course of action is the way to maximize utility. Inline with the utilitarian approach, managers should aim to generate the greatest positive value while limiting the negative value as much as possible. However, this approach may pay more attention to the cost and benefit calculation in business rather than emphasizing on making moral decisions as matter of principles. According to Natel and Weeks (1996), A number of studies suggested that businesses, especially marketing practices are inclined to utilitarianism as the purpose of marketing is closely related to the utilitarian dimension of ethic, which is to maximize happiness and satisfaction of the needs of consumers. While this approach may be popular in business and marketing, the principle of utilitarianism may cause managers to consider the immediate consequences of their decisions as well as consider the various people that will potentially be affected by their actions. However, there has been criticism that it may be difficult to rely on this approach as the only method for making ethical decisions. The utilitarian approach may be considered as a form of consequentialism that may fail to take into account the justice and rights of individuals (Nantel and Weeks, 1996). Considering Tesco’s trading practices and strategy, in order increase profitability and stay competitive the firm seeks to reduce costs by various ways including reducing its supplier cost, cost of manufacture and packaging as well as the alleged unethical trading practices and hiring low wage part time workers. One may assume that Tesco’s strategy may follow utilitarian approach in this respect. Deontological approach is based on the work of the philosopher Emmanuel Kant, which often referred to as a Kantian approach. This approach emphasizes on obeying general principles concerned with equality, dignity, rights and norms that govern human behavior (Chaun, 2005). Of note is that no single idea is essentially able to capture all the various features in virtue of which it may then become possible for an ethical theory to deserve being called a deontology. The approach takes certain universal values – for instance, the respecting of some important given rights – to be given and strongly argues that all institutions should be structured in a manner in which they are seen to bear witness to this given value, honoring it in a punctilious manner in the treatment that they happen to give different human beings (Gaus, 2001). In an incident that was perceived as being against the dictates of the deontological approach that is concerned with rights and critically argues that institutions should essentially be shaped to bear witness to the universally acceptable values and different human beings in a manner that indicates that they honor these values, Tesco was recently accused of workers’ rights violations when the company was accused of having children as young as 12 years working in a number of factories in India that produced clothes for Tesco (Genevi and Roberts, 2006). According to Genevi & Egrave (2006) two of the factories employed an estimated between 200 to 300 child workers. This use of child labor is seen to essentially be against the rights theory that points out that all members of a society happen to have certain rights that have been set forth by their respective societies. Hiring child labor is also seen to a clearly be in conflict with the utilitarian approach that epitomizes the reduction of suffering and maximization of happiness for all people. This is because child labor is seen to deny children the right to childhood which has been variously described as being a critical time period in which children are educated, nourished and given all the proper conditions found to be necessary for them to thrive. Child labor is also seen to contradict the ethical theory of least harm as child laborers are not able to access an appropriate education in addition to their being placed at a greater health risk. This harm is seen to eventually affect not only the children concerned, but the society as a whole as uneducated and unhealthy adults are found to be quite likely to continue with the continuous cycle of poverty. Tesco engagement in predatory pricing where the company has been seen to engage in a number of aggressive pricing strategies aimed at attempting to try and eliminate the smaller competitors. In predatory pricing, companies generally cut their prices to the extent that healthy profit margins become unsustainable and services and goods are sold at below cost. While large companies such as Tesco can be able to sustain the associated loses, smaller competitors are unable to do this a factor that subsequently results in these smaller competitors being forced out of business while the remaining companies are left with an operating environment that his found to be less competitive. The predatory pricing strategy that is currently being used by Tesco can arguably be seen to be conflicting with the stakeholder theory that suggests that the principal purpose of any business is to try and create as much value as possible for all its various stakeholders. In order for a business to be sustainable and succeed over time, it is vital for executive to ensure that they constantly keep the interests of the employees, customer, communities, financiers suppliers and shareholders. Tesco is seen to betray its suppliers as the losses associated with its predatory pricing are solely borne by its suppliers who are forced to reduce the costs at which they sell their supplies and consequently undergo substantial losses while Tesco is free to continue making impressive profit margins that enable it to make rapid expansion. This is seen to essentially be against the utilitarian approach and its emphasis on maximizing the happiness of all the concerned individuals. Predatory pricing can also be seen to violate all of the three required categorical imperatives of deontological Kantian ethics which includes the first formulation that requires one to only act on the maxims which one can be able to will to be considered to be universal laws of nature. This first categorical imperative states that people cannot be allowed to do things that they themselves would not be found to be willing to generally allow everyone else to do the very same things as well. It does not allow people to make exceptions for themselves. In this instance, it can be seen that Tesco is arguably engaging in a practice that it would not be willing to allow other companies to engage in and is actually making exceptions for itself and taking advantage of its large market share to try to reduce and eliminate completion. The second categorical imperative seen to be conflicting with Tesco’s predatory pricing is commonly referred to as the formula of the end in itself in which people are required to treat humanity both in their own person and other persons as an end and not simply to be perceived as a means. Tesco is seen to go against this ethical imperative by its use of suppliers simply as a means to obtain a larger market share and compete effectively while disregarding the suppliers who continue to record decreasing sales and make losses. In violating the third categorization of Kantian ethics, that requires that all individuals should try to act as if they happen to be members of a given ideal kingdom of ends that allows them to both be sovereign and subject at the same time, Tesco’s is seen to not be treating its suppliers with the necessary dignity and respect that should be availed to them. This categorization is seen to requires that the rules that happen to govern an organizations should be unanimously agreed upon by all the different concerned individuals including the suppliers. However, in Tesco’s case, this third formulation is seen to be disregarded as the interests of the suppliers are generally placed well above those of other stake holders (Mass and Blackwell, 1999). Remedy for Sustainable Ethical Trade According to an ethical trading report affecting the food and drinks industry that was released by the NCBS, survey indicated that an approximated 54% of 81 organizations that happened to take part in a phone survey indicated that it was very important for the country’s food and beverage sector to ensure that it became more involved in ethical trade (NCBS 2005). To this end, Tesco is seen to have adopted a number of fair trade policies such as the ethical trading fairly program that has seen the company to sell and buy all its products in a ethical manner so as to ensure that all of the company’s customers are made aware that measures have been taken to ensure that everything they buy has been bought under decent conditions and that everyone involved in the production and supply process has been treated in an fair manner are seen to aid the company in achieving its objective sustainable ethical trade. Tesco is also seen to be engaged in enabling its Trading Fairly Awards to have a wider reach so as for the company to be able to recognize and reward those suppliers that are seen to be making significant achievements pertaining to their work on ethical trade. Despite all these measure, more still needs to be done to ensure that Tesco is able to engage in sustainable ethical trade, this includes all the various stakeholders in the food and beverage industry working in harmony and attempting to harmonize all the various requirements that retailers place on suppliers so as to ensure that there is only one set of codes and supply chain relations are effectively harmonized (Drake and Schlachter, 2007). The government could also ensure that it introduces effective regulation/legislation to ensure that there are some proper enforcement mechanisms that have been laid down to regulate the industry by enforcing various penalties (Street, Lawson and Loynd, 2005). According to CIPS (2009), organizations should also be encouraged to try and focus on developing reward and performance structures as they are seen to significantly influence behavior. To this end, industry players can keep an integrated and balanced score card recording the performance appraisals of both the individual suppliers and buyers. Conclusion Tesco has faced a number of criticisms over its ethical trading practices and especially so in relation to its perceived violation of workers rights as well as the company’s treatment to both workers and suppliers located in developing countries. The company’s treatment of its suppliers both abroad and in the United Kingdom is seen to be quite unethical as the company’s unethical practices are seen to cause suppliers in its supply chain to undergo considerable loses; this is in addition to accusations that the company has been using child labor in some of its factories. These practices have been show to negatively impact companies as consumers are becoming increasingly more conscious of the ethical standards of the goods that they purchase. While Tesco can essentially be seen to currently be the grocery market leader in Britain it is important that it ensures that it adopts ethical trading policies and guidelines as ethical trading has been found to be one of the key priority areas that a company in the food and beverage industry should ensure it looks into for it to become more sustainable. Bibliography BBC. 2013. Horsemeat in Tesco burgers prompts apology in UK papers. BBC News. Available at Chun, R. 2005. Ethical Character and Virtue of Organizations: An Empirical Assessment and Strategic Implications. Journal of Business Ethics (2005) 57: 269–284. CIPS. 2009. Win/Win: Achieving Sustainable Procurement with the Developing World. Available at http://www.sustainableprocurement.eu.com/documents/SSCG_dec2010_CIP S_Goochand_Moorcroft.pdf Doherty, B. et al. 2009. Management for Social Enterprise. London : Sage Publications. Drake, M. and Schlachter, J. 2007.A Virtue-Ethics Analysis of Supply Chain Collaboration. 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