Contemporary business issues

Tesco is a leading player in the economic system and is aiming to maintain it’s a greater position in the market, which has been affecting the consumers. Recession has affected Tesco in many ways and it has put pressure on them in order to compete. For them recession means decline in profits – less consumer spending which means less sales, hence they must gain the competitive edge, to maximise profits and continue to grow. This brings in the ideology of capitalism – must grow in order to be successful. Collective bargaining – Marxism, the idea of collective ownership- socialism- collecting persuasive decisions – allocation of profits through capitalism

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The competitive element for Tesco’s is the shareholders as they must endeavour to maximise profits during recession. Tesco have a legal obligation towards the shareholders. This links to the classical approach of Milton Friedman- maximising profits is the only concern a company should have. Tesco’s mains aims are to increase the profit margins – higher to the shareholders of the company.

To gain market share during recession, Tesco’s have been cutting prices and also competing with other leading supermarkets such as Sainsbury’s, ASDA and Morrison’s, since the rivals are doing better in recession. In order to maximise profits they are buying cheaply form suppliers, which leads to many concerns relating to policies and ethics. Cheap labour would mean unethical to those whom are making the products as they are working long hours but are getting paid less.

The main aim of the business is to maximise their profits by concentrating on commercial activities. Social involvement results in higher prices to customers, which means if they make a loss, the shareholders would receive a low return on their investment for that particular year, or until the costs of the loss are recovered. Social involvement reduces economic efficiency. Social activities reduce the international competitiveness.

Tesco must meet the needs and increase the value of the investors’ shares. If Tesco can meet all three needs then it increases the value of all the investors’ shares. This is done through improving and diversifying the business, and pleasing the customers with their business developments.

Tesco has adopted the ethical policies as it is ‘a set of principles which state the moral obligations of a company in its relations with a wide audience of subjects or stakeholder.’ (Hopkins, 2003). The ethics policy balances the economic, social and environment. The policy which is widely aimed to be used by Tesco’s is the Ethical Trading Initiative (ETI) policy.

Tesco’s have many responsibilities towards its stakeholders via the attempt of the Caux principle. Firstly, the responsibilities are beyond the shareholders and towards the stakeholders. (Hopkins, 2003) This means that Tesco’s has certain standards in order to be ethical, which are followed through the EU regulations, banking codes, etc. the stakeholders have a non-monetary interest in the business, therefore are less concerned about them. Tesco’s has responsibilities toward the suppliers such as how many days should they pay back the suppliers. Would it be ethical to pay pack the suppliers on time especially since Tesco’s is a large company.

By adopting the ethics policy it would mean justice would be involved toward the young labour to the wider community. Pollution has a wider impact globally – must have responsibility to world community. The behaviour of the business would generate trust in the economic and business system, and also has a social trust of exploitation. This would also involve by adopting regulations, civil law, environmental laws, Healthy and safety in the work place etc.

Consumers are also being unethical as they demand premium products at a lower price. (The Tesco’s of South co Dublin 2009)This means that Tesco does have an input when allocating prices as they are interested in increasing their revenue. For this to be possible they are lowering the cost in every possible way. This means cheap labour, using just in time (J.I.T) production – having no stock in the store itself. This leads to less store space used for storage and more used for selling products. This creates fast turnover and increase in revenues. The prices which consumers pay are passed down onto employees cutting down the profits at each stage, before reaching the employees. Consumers are only paying for promotions and money cut products.

The leading concerns have been not paying the suppliers on time, this leads to a threat to the suppliers not being able to pay their work force on time, due to the lengthy credit periods.

Main ethical issues determining Tesco’s policies – want to see ethics being implied in the policies. Ethical considerations are being held back by Tesco. Complexity of the two concepts: differences between the utilitarian approach and the stakeholder approach. Ethical dimensions being bought into the policies

A utilitarian approach is an ultimate consequentalist theory as it examines the outcomes of all the decisions which are made. Jeremy Bentham states ‘according to utilitarianism, an action is morally right if it results in the greatest amount of good of greatest amount of people affected by the action’. (Crane et al, 2007). Individuals are motivated to pursue pleasure and avoid pain. A measure conforms to utility when it tends to enhance happiness of the community rather than to diminish it. The justification of utilitarianism would be the collective welfare the testing the good outcome and gaining an ethical position of specific goods. The way Tesco’s have approached the utilitarian theory is by increasing its market share in the market; hence it is an unethical perspective to look at the behaviour of the company as it concerns competition and leadership. Adam Smith states that it is an ‘invisible hand leading people to maximise happiness through self interest.’ Smith states the theory of egoism, focusing on the consequences. This means the utilitarian approach uses the aggregated outcomes of individual behaviour, by creating more employment.

Utilitarian approach increases the wealth and capital in the economy. However taking recession into consideration the only way this would be possible is through government intervening in the economy to recover from the slump. It is not possible to get an ethical approach through free markets. In recession government intervention is the only ethical approach that would be more ethical.

The criticism of a utilitarian approach would be ‘how would you decide the greatest good?’ It only takes into consideration what is good rather than what is difficult. The shareholders are the ones whom are benefiting the most through aggregated growth of the business. It does not consider any ethics of duty as it does not pay anyone as it unemploys people and it is uncooperative.

Other criticisms of utilitarian approach is subjectivity, as the consequences must be assessed by the person carrying out the analysis, which a subjective perspective. When making an analysis there can be many problems assessing the costs and benefits (pain and pleasure). E.g. ‘Losing a good contract comparable to forcing children into labour’ (Crane et al, 2007). The distribution of utility would be clearly undefined as it is gaining one or another. The greatest good cannot always bring the greatest benefit, and the greatest number cannot bring the greatest good.

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Stakeholder approach takes into consideration all those whom are concerned. It about the right beyond the good and the bad and gaining ethical approach globally. it is non-consequencialist as it thinks beyond rationality of the ethics. Freedom of association is based on free structures and it all depends on the shareholders views. The stakeholder approach is the principles of logics and takes into consideration corporate social responsibility. There are many stakeholders in which Tesco has responsibility towards. These are: owners and investors; managers, employers; customers; natural environment; wider community; and the suppliers.

Immaneul Kant defines the ethics of duties ‘gave rise of ideas of corporate social responsibility, on the grounds thee business managers have a duty to take account of the interests of the stakeholders.’ Looking at the ethics from the shareholder point of view the stakeholders would be the managers taking a pay cut in order to help the company. They have relations beyond money and helping out the suppliers, being cooperative and making the business more ethical.

John Lock and John Rawls focuses on the rights, when evaluating business ethics. ‘Man is a being that is distinguished by dignity’ (Crane and Matten, 2007) (Fisher and Lovell, 2009). It implies the rights and respect for human beings. Rawls justifies the reasons of principles – it would bring justice to those whom are non workers in the society as it is bringing them to work. Looking at this from Tesco point of view, they are creating jobs to those whom are not working. They are creating an income in the family. Workers have a choice of freedom to work by their own will.

The criticisms which could be raise from the stakeholder approach are firstly under evaluating outcomes. The issue as such would take into consideration actions of individuals is the underlying concept for actions taken. Another criticism is complexity, as it can be argued that certain correct actions may just be the moral duty to do something, such as to earn and create an income in the household. Finally optimism, as it is rational to form duties. Not all duties have been performed by Tesco in order to be ethical towards its stakeholders.

Overall, it is rhetoric approach which Tesco is performing, some of it is the truth and whereas some is not. However, after critically analysing, Tesco is using the stakeholder approach as the customers hold the majority of the shares in Tesco. I believe that Milton Friedman’s arguments of corporations are responsible for using shareholders money in profitable ways- and nothing more, is partially true. However, in order to this customers are the main stakeholders of the business whom are going to buy and use the products and services. This is the only way that the business is going to gain profit. From this profit it will meet the shareholders needs for their investments.

Make a critical analysis of the way Tesco has applied the Ethical Trading Initiative Base Code. Explain the objectives and principles of the Ethical Trading Initiative. How is the Code enforced? Will it be possible to strengthen the enforcement of the Code during the recession?

An Ethical Trading Initiative is an alliance of non-governmental organisations and trade union organisations, which encourage ethical consumerism. They encourage other companies whom sell food and clothes to comply and adopt a code of practice by laying out the minimum labour standards. This policy is important for Tesco as it an important part of its corporate structure. This policy allows Tesco’s to put forward an idea of moral responsibility and such grounds for responsibility, highlighting the facts of which Tesco should pursue ethics to make a profit. It is a voluntary policy which Tesco has adopted to create a better image of the company.

As outlined in the mission statement, made by the Ethical Trading Initiatives (ETI), ‘Our mission is to assist workers throughout global supply chains to secure their fundamental rights by ensuring that they are treated in accordance with international labour standards’ Through this they try to improve working conditions, for the workers, and respect the workers’ rights, by enforcing policies to ensure that the companies are following the socially responsible trading practices.

Tesco uses the Ethical Trading Initiative as their primary base code form their suppliers. The base code is as follows: (www.eti.org)

1. Employment is freely chosen – no one is forced to do such work in an imprisonment manner, it is believed that the employees should work freely and works voluntary. If they wish to terminate their employment, they have the ability to do so when desired, with a reasonable leaving notice. This would usually be outlined in the Tesco’s employee’s handbook, when the employee agrees to work with them.
2. Freedom of association and the right to collective bargaining are respected – At Tesco, the workers can freely join form trade unions, distinctly, to collectively bargain. All employees should have a right to freedom of association, which is all restricted under law.
3. Working conditions are safe and hygienic – The environment which is to be provided would to avoid such hazards, to prevent accidents and injury to health, when working. The company should train the employees sufficiently to minimize injuries and make the working environment sufficient to work in. Tesco has been assigned to be responsible for health and safety, where all injuries at work are reported to the senior management representative.
4. Child labour shall not be used – there are many businesses that are making a greater profit but are paying less to their suppliers. Such suppliers are from developing countries, and are mainly children. Tesco are participating and contributing to policies such as Ethical Trading Initiative. They would prefer, by following the code not to employ any person, under the age of 18, to work at night or in hazardous conditions. All young people’s should attend and remain in quality education. ‘In January 2008, Tesco decided not to stock cotton products from Uzbekistan. This followed a 3-year investigation on cotton production in Uzbekistan which led to the recent BBC Newsnight programme on forced child labour in Uzbekistan, as reported by Simon Ostrovsky of Insight News TV’
5. Living wages are paid – Tesco believe that the employees form the developing countries should be paid enough in order to survive – the ability to buy food and cloth themselves, as well as to provide discretionary income. This should be done to the national and legal minimum of meeting the standard week. Wages and benefits paid for a standard working week meet, at a minimum, national legal standards or industry benchmark standards. All employed workers should be given clearly written information before they enter employment at Tesco. This would enable the employee to have a greater understanding of the company.
6. Working hours are not excessive – There should be sufficient number of hours an employee should work, in order to gain good performance ad progress. None of the workers should exceed the legal working hours – 48 hours per week, however, the workers work voluntary but it should not exceed 12hours per week.
7. No discrimination is practised – when employing new worker, Tesco’s does not base their decisions on political affiliation, union membership, sexual orientation, marital status, gender, disability, age, religion, national origin, caste or race. The same applies to when an employee is retiring, being promoted or bring compensated.
8. Regular employment is provided – any obligations to employees of Tesco under labour or social security laws and regulations arising from the regular employment relationship shall not be avoided through the use of labour-only contracting, sub- contracting, or home-working arrangements, or through apprenticeship schemes where there is no real intent to impart skills or provide regular employment, nor shall any such obligations be avoided through the excessive use of fixed-term contracts of employment.
9. No harsh or inhuman treatment is allowed – Physical abuse or discipline, the threat of physical abuse, sexual or other harassment and verbal abuse or other forms of intimidation shall be prohibited.

The main reason for Tesco to follow this code is to avoid any problems for their suppliers, as they are mainly based in the developing countries and are every vulnerable. If Tesco’s put their prices too low, their suppliers could easily be out of business. ‘In September 2007, the Office of Fair Trading accused the big supermarket chain, Tesco, Asda, Safeway (now owned by Morrisons) and Sainsburys, plus some of the main suppliers, Arla, Dairy Crest, Lactalis McLelland, of fixing the retail price of milk, overcharging consumers about 3p on a pint of milk.’ (Doward, 2009)Few of the companies admitted the offences and have been fined with it. In a survey by Friends of the Earth Survey on Dairy Farming, 2007. They had investigated ‘78% of farmers who responded were not covering the cost of production.’ (Friends of Earth Survey on Dairy Farming) Tesco’s are trying to be as ethical as possible; however, when it comes to competition, they have been unethical as they have not admitted to price fixing in milk, during this period.

As stated on the Ethical Trading Initiative policy, they have agreed they have agreed five objectives, which are inter-related and progress in one area. (Tesco Plc)

1. To develop greater capacity in supplier countries to make and sustain improvements in labour practices.
2. To create more commercial leverage for the implementation of the Base Code.
3. To raise the profile of ethical trade and of ETI.
4. To develop and disseminate practical tools to help companies implement the Base Code credibly and consistently.
5. To support our membership to work together more effectively to achieve our objectives.

As the policy is voluntary, Tesco is complying with the Ethical Trading Initiative both in policy and practice to limited extent. The need of such policy is ensure its customers that all goods are being dealt with ethically and also they are not harming others. Such issues in the past have raised criticism to many people, of what is happening to the worker in the developing countries. When such issues as price fixing occurs, it affects the suppliers as they are very vulnerable as well as threatening, and could lead to be out of business if they are not receiving a sufficient amount for their produce. ‘Since most suppliers in Britain will only be supplying one supermarket, delisting means that they will lose their only customer, and is likely to lead to financial ruin. Suppliers are therefore in a very weak position if they wish to resist the demands of the supermarket company.’

References

1. Business source complete November 2008, The Tesco’s of south co Dublin, Vol. 34 Issue 11, p95-96. Citation: http://web.ebscohost.com/ehost/detail?vid=1&hid=112&sid=57c51e79-f294-49dd-ba34-4916ffcbe1c5%40sessionmgr111&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bth&AN=35629251. Cited on 1st November 2009
2. Tesco Plc – Supplier relations – http://www.tescoplc.com/plc/corporate_responsibility_09/suppliers_ethical_trading/supplier_relations/ cited on 27th Oct 2009
3. Tesco Plc Risks and uncertainty – http://www.tescoplc.com/annualreport09/businessreview/risks_uncertainties/2/ cited on 27th Oct 2009

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