MGMT - 7600 case 1

MGMT-7600-01 International Business Dr. Olu Ijose Spring 2014 Name: Marina Machado Case 1: Knights Apparel Questions 1. The case states that higher wage rates at the Alta Gracia factory have raised the cost per item by 20 percent. Can you see any way in which the philosophy with regard to pay and working conditions at Alta Gracia might lower costs in the long run? Knights Apparel must continue to give the best, fastest and cheapest service to continue to be one of the best distributors and hold a perfect competition. It is not easy to keep quality, cost, price and profit all on their maximum rate but it is possible. If the company keeps their quality on performance wasting will be reduced and in a long run profits will be maximized. Evidence suggests that some higher costs of Alta Gracia‟s employment arrangement will be recovered through operating efficiencies. Employees assume responsibility for their productivity and quality of work, thereby eliminating at least one layer of supervision and reducing costs of waste and defective merchandise. Turnover has been exceptionally low, as has absenteeism, thereby reducing costs of training and backup labor.

2. Do you think Joseph Bozich would have been able to try the Alta Gracia experiment if Knights Apparel was a publicly traded enterprise? I believe if Knights Apparel was a publicly traded enterprise, the CEO‟s dream could be coming true. Most of people think that since it is a public company, most of stakeholders are just focused on the highest profits they could get, and this is not true. They do think in their profits but most of them especially nowadays think on the return to the community once better community means better life and fewer problems overall. “I wanted to do something more important with my business than just worry about winning market share – that seemed kind of empty after what I had been through, and I wanted to find a way to use my business to impact the people that it touched on a daily basis. On visits to thirdworld countries, I saw the people that are manufacturing our products and where they live, and it really made me think about what it would be like to go through (a tragedy) without hope. I asked myself, „how can you use your business to make a life-changing difference in the lives of the people who your business touches?‟ And that‟s really what Alta Gracia is all about – it‟s about 1 creating hope for a better future.” As stated above, Bozich said at the Penn State Forum that he wanted to do something more than just sell apparel, something that could impact people‟s life in a good way and I‟m sure a lot of CEOs and stockholders think the same way as him and more than worry with huge profits they are worry with the environment, community and the people that work for the company. Happy 1

Joseph Bozich, Knights Apparel CEO and founder of Alta Gracia Apparel in Alta Gracia, Dominican Republic, speaking at the Penn State Forum

people produce more and better. So once again, I believe that Knights Apparel would be able to succeed and try Alta Gracia experiment the company if was a publicly traded enterprise. It is possible and probably with a long way to work through it. There are people outside worry with ethics in business, but there are people that just don‟t care about it and put in first place the amount of profit they will have back at the end of the year. Convince those people to give up their material profit, in benefit of a living wage for workers, is not be an easy task.

3. What do you think might stand in the way of Alta Gracia becoming successful? What strategies might Bozich adopt to minimize the risk of failure while still adhering to his high ethical standards? “Knights Apparel's Mission is to Strive every day to be the supplier of choice of licensed sports apparel to our retail customers and licensors by providing the best valued innovative product, and the best service in the industry.” (Knights Apparel‟s website) With a mission like that it is hard to fail, but doing business is not easy at all times and it is important to deal with ethic and hope your competitors have the same ethic as yours. Bozich needs a good strategy to keep doing the ethical standards and at the same time improving the company sales. It is important to focus and to know how to work on internal and external environments. Things like, let everybody knows the company‟s mission, vision and objectives, what they are doing to improve the workers life and at the same time improving the quality of product are very important; such as let the market knows how different they are from others apparel companies that keep working with sweatshops, focusing on the ethic world. Every day more and more people are becoming aware of how important it is to be ethic in business and in every part of their lives. The students are more likely to avoid the sweatshops, they are creating an “anti-sweatshop 2 work environment” , once their target consumers are aware of what is happening with others apparel companies , Alta Garcia should find a way to let the other buyers know, the sports jerseys consumers, the moms or house wives that buy apparels for their husband or child. 4. Alta Gracia serves a niche market, colleges, where there is higher awareness of ethical issues in apparel production. Do you think the strategy would work if the company tried to sell to the mass market through retailers such as Walmart? I do believe that nowadays the strategy would work. The consumers of a mass market are becoming every day more conscious about ethic problems and are trying to pursue better habits and purchases, trying to protect the environment and also the human rights. The sales tend to increase, once the products price does not affect the consumers‟ budget. Also, I think it is necessary to state with a sign on the product, letting them know that those products are produced in a good environment, protecting the workers and everything else. Niche marketing can be defined as “Where a business targets a smaller segment of a larger market, where customers have specific needs and wants”. First of all, Knights Apparel target the students as their niche, and then all the sports fans. Targeting a product at a niche segment has some advantages for the company like less competition and clear focus; it is also easy to build up specialist skill and knowledge; and the most important, customers tend to be more loyal. 2

https://thebutlercollegian.com/2010/09/bookstore-welcomes-clothing-line/

Introducing the product into a mass market, it is possible to face lack of “economies of scale”, which you will encounter a lot of products with lower unit costs that arise from operating at high production volumes. Also, the company can find issues on depending on a single product or market and the competition will be larger as well. Mass market creates more individual groups and this relies on better possibilities of consumer purchasing, bringing more option on the purchasing goods scenario. There are a huge variety of buyers actively shopping for the best item, and those will probably hold the on their loyalty within the preservation of usual standards. In my opinion the strategy would work in this market as well, since you can show to the mass that there is a differentiated product comparing to others and that the same time the price is not affected. 5. Is it ethical for apparel companies to move production around the world in pursuit of the lowest possible labor costs, even if that means paying wage rates that are below a living wage? What if the alternative is not to produce at all? I do believe it is ethical and totally valid to find a country that the company is able to produce for less costs. But at the same time, I think it is not ethical or fair if those low costs mean paying rates below the living wage. So, if a company wants to reduce its costs finding a country with low taxes, low labor costs, they should at least try to collaborate with the population, community involved and the workers giving them a decent life with a decent wage; and at the same time guarantee a safe place to work, legal rights, and human rights for the employees. As we can find in the Alta Garcia‟ website, “Every Alta Gracia product carries a WRC tag confirming the product was sewn by workers who are paid a living wage, have a union to represent them, and are treated fairly when they come to work.” And this has a huge importance nowadays for the consumers. Knights Apparel, with the Alta Garcia was pioneer in pay a living wage and demonstrates full respect for workers‟ rights and once a company follows the same purpose, it is then valid to move to other places pursuing the lowest possible labor costs.

6. To what extent does the Alta Gracia experiment suggest that good ethics are also good business practice?

Joseph Bozich, the C.E.O. of Knights, have always been optimistic about having an ethic company along with a profit company. He said for a New York Times‟ article: “We‟re hoping to 3 prove that doing good can be good business, that they‟re not mutually exclusive”. It is possible to observe in the section below taken from the company‟s website that their strategy is definitely working, and could have many reasons to do that. But in my opinion, the main reason for being so successful is because the company is pursuing good ethics independent of market or prices. “When we launched, The New York Times called our business model a “high-minded experiment” and now, a year later, we can say with confidence, that doing good is good business. And that yes, students DO support the brand because it is socially responsible. We launched at 250 stores, and now, just over a year later, we‟re supplying over 400 college and university

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http://www.nytimes.com/2010/07/18/business/global/18shirt.html?_r=0

bookstores with “living wage/union made” t-shirts and sweatshirts. We have learned that when 4 students are aware of Alta Gracia at their school, they buy Alta Gracia.” Jim Wilkerson, Duke University‟s director of licensing and a leader of American universities‟ 5 fair-labor movement said on the NY Times article : “What really counts is not what happens with this factory over the next six months,” Mr. Wilkerson says. “It‟s what happens six years or 10 years from now. We want badly for this to live on.” And not just him, but a lot of people also want this to keep happening. Consumers have responded favorably to Alta Gracia merchandise. Available in over 400 college bookstores nationally, the garments are of equal or better quality as the most popular established brands and priced comparably. Bookstores report that Alta Gracia merchandise sells as briskly as competing brands and the margins on sales are equivalent. This is just one more example that the company‟s strategy can work and this should be performed for more brands national wise, developing communities and bringing dream and profits together.

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Alta

Gracia

One

Year

Later:

Doing

Good

IS

Good

Business

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http://www.knightsapparel.com/news/entry/alta_gracia_one_year_later_doing_good_is_good_business 5

http://www.nytimes.com/2010/07/18/business/global/18shirt.html?_r=0

10.21.2011

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