Consumer Products, was considering selecting a site for a new answering systems manufacturing facility. He had a few options to choose from. However, there were more significant factors other than cost that needed to be taken into consideration while making the final decision. AT&T had to think about those factors because of the company’s mission of being concern about its role in society. Case Background:
Until January 1984, AT&T had been the largest employer in US employing one million people and representing 2% of the US GNP with annual revenue of $70 billion. AT&T was having a kind of monopoly on telephone equipment business until the Carterfone ruling went into effect in 1980. AT&T was charged with monopolizing the market for telephone equipment and long-distance services. Following a divestiture in January 1, 1984, AT&T was divided into two major sectors – AT&T Communications and AT&T Technologies.
AT&T Consumer Products belonged to AT&T Technologies. AT&T Consumer Products (CP) had never designed its telephones to be marketable. There was always demand for its products. The company was facing a new situation of tough competition, declining revenues and unacceptable profit levels. AT&T had to react to this new situation. AT&T invested tens of millions of dollars to upgrade and automate their production facility to decrease costs and become more competitive. This, however; did not help because the company found that their labor costs were still so high.
During 1985 – 1986, CP began to transform its very inelastic production to a highly flexible. “Business Passion” and “Shared Values” were two primary CP mottos established as the new foundation. “Business passion” signified their commitment to “Be the Best” for their owners, customers and people and “Shared Values” reflected to create an environment of caring, trust, love, integrity and respect on an individual level and quality, innovations and excellence on business level. The company began to move its plant to locations outside of the U.
S. This was not taken well by the U. S. society as it would be expected. AT&T; however, made sure that their lay-offs employees got sufficient benefit packages. AT&T opened manufacturing plants in Singapore and Thailand. The next decision to be made was where new manufacturing facility should be located for a new product, the answering systems. Mexico, Singapore, Malaysia and Thailand were taken into consideration in addition to the US. Countries in Asia like Malaysia and Singapore provided significant experience with them.
Wherever they go for selecting the facility, AT&T needED to consider different factors, such as, wages and benefits, sourcing of components, the profile of its work force in terms of gender, age, educational background and other related issues. Location Consideration: Mexico One of the considerations was Mexico. The country was holding a border industrialization program called Maquiladoras. The Mexican government through this program allowed foreign corporations to establish wholly-owned subsidiary operations in Mexico, import machinery, raw materials and component parts to be used in processing or assembling goods in Mexico duty free.
However, under Maquiladoras, exporting back to the home country was quoted but only for value of the produced product that was added in Mexico during manufacturing process. Because of the program Mexico became the second largest industry. There were; however, costs associated with Maquiladoras program. First, the hazardous wastes generated by manufacturers had harmful impact on the environment. Compliance to the law for the treatment of this hazardous waste had been significantly low so it allowed many of the manufacturers to abuse that.
Studies showed that primary sources of drinking water have been contaminated by chemicals in the border area. Different studies showed that maquiladora working conditions led to many health and safety problems to the workers. Critics also say this program disrupted the social and family structure of Mexican society by sex discrimination and employing child labor. 98% of the workers were women and they were preferred as they were more docile, politically unaware, inexperienced and less demanding. Children below 14 year were employed in hazardous jobs. Even the living conditions in the nearby areas were ffected as they used cardboard and scraps of wood taken from maquiladora trash bins and these contained in most of the cases once toxic substances. Thailand Thailand had one of the highest rates of economic growth but, it’s most spoken language was Thai – spoken by about 97% of the population. English was used in government and commerce on a small scale and only a small population of Thai people spoke English. This language barrier would make it very difficult for AT&T American corporate to effectively communicate with their Thai counterparts without the use of translators. Malaysia
Malaysia was a Southeast Asian country that had great infrastructure and support systems. The Malaysian Industrial Development Authority offered a central, one-stop shopping opportunity for foreign investors similar to the program offered in Singapore where CP already had a presence. However, CP was concerned that Malaysian wages and salaries were likely to rise as more companies moved into the region. Singapore Singapore was an island nation in Southeast Asia with a strategic position and an excellent natural harbor. Singapore is an English speaking country and CP already had presence there.
In January of 1985, CP picked Singapore as its first off-shore manufacturing location to manufacture corded and cordless telephones. The negotiation process was quick and a year later they had shipped their first product out of Singapore. Labor was available and the labor costs were not as low as Mexico but much lower than the US. The government of Singapore offered foreign investors incentive packages and corruption was not an issue in Singapore. Infrastructure was World class in Singapore which made it a perfect location for consideration.
The only negative for picking Singapore for its new facility would be the taking away of jobs from the US. However, CP had put in place programs in their 1986 contact talks with the union for laid off workers to prepare for life after AT&T. An enhanced Training Opportunity Program was in place that provided educational opportunities for workers including computer training and classes at community colleges. Laid off worker received Trade Readjustment Payments as well as benefits that included severance pay based on years of service and extended medical benefits.
The 1986 move to Singapore had reduced CP’s labor costs by 90%, overhead costs by 40%. Overall with consideration to tariffs and transportation costs, CP had reduced costs by a total of 30% by moving to Singapore in 1986. This was incentive enough based on past data for CP to consider Singapore as its choice for a new plant. Qualitative Analysis Our first decision whether we should focus on the cost only or we should take into consideration factors such as environment and social responsibility.
Because of the company mission we have decided to discard Mexico even this location was the most cost beneficial. Reasoning for not choosing Mexico: The primary reason why we have not decided to choose building new AT&T plant in the Mexico is company’s mission and shared value the company claims of carrying. Business motto is “be the best for our owners, our customers, and our people”. The department shared values are excellence, quality, commitment, innovation, caring, trust, love, integrity and respect.
Also, we would think as a AT&T management that labor and waste disposition regulations will have to bring concern in the market and will cause manufacturers either to increase cost of labor (because of increase of minimum wages or better working condition) or increase operating costs (by making sure than the waste is disposed as it supposed to be). Singapore, Malaysia, Thailand or U. S.? After we have decided that we are not going to choose Mexico as the potential location for the new AT&T plant we had to decide which location we are going to advice to pick for the new production plan.
We could choose the location where the company already has some expertise, Singapore, Thailand and of course U. S. is the possible places we are going to look at. Because we have not been provided with the specific information on production other than the average labor cost for mentioned above locations we have decided to make our decision based on quantitative factors. The table below contains chosen characteristics we look at in making our decision. AT&T (PC) management needs to take all of these quantitative characteristics into consideration because of the company motto and values.
The company cares a lot about other than cost aspects such as ethical and social. Also we were unable to perform any cost analyst since we have not been given enough facts on the other plant cost saving. To make a decision we have developed quantitative analysis, which hopefully provides us with the best solutions. In this test we have assigned the lowest number to the best initiative the highest to the worse. The best solution should obtain the lowest sum. | U. S. | Singapore| Malaysia| Thailand| Business Passion| 3| 2| 1| 4| Cost of production| 4| 2| 3| 1|
It received the fewest points. The most appealing characteristics for us of choosing Singapore are excellent strategic position and natural harbor, government initiative package, well developed infrastructure, expertise of doing business there, lack of corruption and language. Management can easily communicate with plant controllers without the necessity of engaging third persons for the purpose of translating. Also, as all of us know telecommunication and technological industry changes rapidly, so there was great possibility of restructuring the plant in the near future.
With skilled labor, experienced engineers it would be easier to make changes at the Singapore’s plant than at Thailand’s plant. In summary, based on our knowledge and research we have decided to advice AT&T to pick Singapore for its new plant location. We believe that this country complies with the company mission the most and that it is the safest, the most socially and environmentally conscious country. Mexico on the other hand, had no environmental regulations which caused great harm to the health of environmental conditions. Bribery and corruption were common method of doing business. However, Mexico offered the lowest cost option.