Question

B. Compare and contrast these two case studies:

The first one we discussed in class, General Motors (GM), which decided to offshore production from the USA to Mexico. When GM began this in the late 70s, it was a relatively new idea for a major American producer, and was highly controversial, but the trend has grown over the decades, and nowadays other major car companies, including European and Asian giants like BMW and Honda, have followed the same strategy to close plants in their homelands and reopen in Mexico where labor is much cheaper. In 1978, there were 80,000 GM employees in the Flint, Michigan area, and today there are around 7,000. As those plants closed, the consequences have been very destructive for the surrounding towns, where unemployment skyrocketed (and with it crime, gangs and drugs), and areas have become like ghost towns where people have been evicted from their homes, and apartment buildings and businesses have been abandoned. As GM first began this offshoring in the late 70s they were enjoying a 49% share of the American car market, but changes in the market were showing that they would soon be losing this high position. By the mid 80’s they were down to 40% and this downward trend has continued (not only for them but for other American car manufacturers as well). Today, they stand at 15%.

The second one involves Malden Mills, a textile company (fabrics and clothing) in Lawrence, Massachusetts, near the city of Boston in the USA. In the 80s, other textile companies in the region had closed their Boston area factories to relocate to where labor was cheaper, often to Asia and Mexico, but Malden Mills decided to stay. During the 80s they survived near-bankruptcy and decided to gamble and re-focus their production on high-end, high-priced specialty fabrics, especially Polartec, a lightweight, fleecy material that turned out to be very popular with brands like L. L. Bean and Ralph Lauren. The gamble paid off and the Polartec profits rose from $5 million in 1982 to $200 million in 1995. The company was quite strong and successful when a crisis hit in December of 1995—an accidental industrial fire completely destroyed the factory. Everyone in the industry expected Malden Mills to do the only ‘smart’ thing at this point and take the $100 million insurance money and reopen in a developing country where labor would be cheaper. But they shocked everyone by announcing that they would rebuild in Lawrence, and also they would pay full salaries to their 3,000 employees for 3 months and continued health insurance for 6 months. Rebuilding in Lawrence ended up costing the company around $450 million and keeping the laid-off workers on salary and health benefits cost $20 million more, but the company gained a national reputation as a business ‘with a heart’ and enjoyed a very positive boost to their brand. They reopened in 1996, and most of the original employees were hired back, as their jobs were held for them. As the years went by, however, the company fell upon hard times. Perhaps due to the amount of money they spent on rebuilding, or perhaps it was mostly due to changes in the marketplace, but Malden Mills had to declare bankruptcy in 2007. The family that had run the plant for generations was forced out as another company took over, changed the name to Polartec, reduced the staff to 800, and moved most of the operations to other countries.

As you compare and contrast these two case studies, make sure you apply contrasting theories as well, such as Shareholder vs Stakeholder, or perhaps Social Darwinism vs. Ethic of Care. Since this is an essay, make sure you have a central point that you are developing along the way, which will be important to your conclusion.

Answer 1

Post reading both the Case studies, i feel General Motors's decision of migrating from USA to Mexico is much efficient and a wise decision in comparision to Malden Mills's decision to stay back in Larence, Massachusetts. I provide the following pointers to justify my conclusion:

1) A Company is always started with a Vision, making profits, improving brand value, providing quality of Goods and Services, Employee welfare, benefits to Share holders and Stake-Holders.

2) The decions taken by the Management during any crisis plays a very important role in shaping the future of any Company. In the case of both above Companies. i feel General Motors was able to balance the situation with a proper decison which stood beneficial to Employees, Share holders, Stake holders, Management and Brand.

3) Maybe, Malden Mills took the decision to secure the existing employees, but when there is a possibility of going Bankrupt, the Management should have convinced all the employees, staff, Share holders and Stakeholders to support them in winding-up the operations temporarily at the existing location and restart them by relocating to a place where they could have a better future. I am sure, all of them would have supported the decision to make sure the Company survivies and they also will have an oppurtunity to have their jobs in long term.

4) I feel that Malden Mills just felt that they can use the existing reserves to adjust the situation, but that doesn't work out everytime and especially in the kind of situation, they were in. Following Ethics is a great example to set, but it should not take away the long benefits of any dependant of the Company. If they had gone with the decision of migating the operations, i think they would have not gone Bankrupt and no one from the Company would have lost their jobs and investments.

5) Whereas, General Motors's decision made them stay strong and not to face any Bankruptcy nor lose of jobs or investors.

I Conclude by saying a Company has to follow all the rules and regulations by keeping in view the Vision of the Company as well as the Employees, Share holders and Stake holders, Money lenders also will be monitoring the decisions taken by the companies bery closely and take future decisions based on such decisions taken by the Companies during Crisis.