One of the most influential fashion houses in the world is Gucci, with 270 stores operating worldwide serving elite goods to their clients and having annual revenue of billions of dollars being generated. Gucci has, in some way, managed to defeat LV and Hermes on the belts, and in the hearts of consumers from China, it has been shown to generate millions of searches from online platforms. In the year 2015, Gucci had an increased revenue of about 35.6 percent in the region of China as it symbolizes luxury nobility or even an iconic brand image (Argandoña, 1998). In 2015 after the fashion powerhouse announced its intention to open more stores on China's mainland, the company was accused of labor mistreatment and working conditions that were inhumane by five former employees from its Shenzhen store (Weiss, J, 2014). This paper will focus on the outline of the company's background, demonstrating the dilemma that had been faced by the parties ethically, also evaluate and identify stakeholders that were directly affected by the ethical issue, and how the decision negatively or positively impacted the parties plus was it ethical.
The Presented Allegations
Ethical problems from practices of labor management and some violations on a legal basis have been rampant in the People's Republic of China (PRC) by foreign firms like Gucci. In contrast, the prevention of further abuses like the one stated earlier has been problematic (Cai, S., 2016). The five former employees of Gucci in the Shenzhen branch, which was their flagship store, wrote a letter to their former employers (which was later uploaded to the internet). In the letter, they had the following allegations; an occupational disease was going around the store, one reported miscarriage by an employee due to excessive working hours, and no compensation was awarded for the overtime.
Inhumane Labor Practices
Additionally, the letter indicated that there were excess restrictions on the behavior of employees like getting authorization before getting a snack or a drink and the limits given on time in the bathroom. It further stated that while these strict restrictions applied to most employees, including a pregnant woman, it did not apply to supervisors. The letter also alleged that workers had to compensate for any merchandise that was reported to have gone missing or stolen, although Gucci has an insurance plan for all their goods (Wang, L., 2013). Briefly, the letter accused the company of inhumane and unsystematic management policies that have the dignity and rights of employees.
Ethical Decisions Introduced to Improve Working Conditions
The letter was later found to have false information like the operational hours' records and the burden of unpaid mandatory overtime labor, hence Gucci established a method of one complete day of work charted through a day’s leave. A day’s job remained around ten hours. Still, there was a complaint by the employees that they were required to officially clock out at a specified time to implement a false electronic record and then work continually until two or three o'clock in the morning counting goods without compensation (Filatotchev, I, 2015). As the story went viral, some netizens (people who frequently use the internet) even branded the fashion powerhouse as a "sweatshop." In contrast, many others relayed that the practices of labor management of numerous brand owners and international companies failed to match their global status.
Local Authorities Partake Legal Investigations.
After the story hit the internet, Gucci officials from its head office in China delivered a press report saying, “The company does not and will not approve or stand the misconducts that are alleged in the letter” (Kim, T., 2016). Gucci also said that it had shepherded an inquiry on the matter and had come up with several measures the store manager and their assistant being replaced (Bergman, M., 2015). Further investigations on the case were taken by the Human Resources Bureau which is in the Legal Department of Shenzhen’s Luohu District. In October of the same year, those ex-employees and Gucci ultimately attained a settlement concurrently with the Shenzhen Federation of Trade Unions.
The “Labor Dispatch System”
For Gucci, they use a system known as the 'labor dispatch' to hire their employees, particularly in China, the term "Labor Dispatch," as explained by the International Labour Organization (ILO). It refers to the practice of employee hiring through a third party, which may be done by an employment service agency (Hsu, C., 2013). The ILO also states that this type of employment is tremendously widespread in China so much so that it is not only used by local companies but also by foreign entities to supply their demand for labor (Kuntz, J., 2013). Gucci has its headquarters in China, followed this model with the Shenzhen stores going a step further by hiring three different employment service agencies located in Shanghai.
Limitations Faced by the System
The main problem that arises with this type of employment system is, the labor contract which only exists between the dispatched employees and the employment agency not considering the actual job relationship is between the company which they are going to work (in this case Gucci) and the workers (Stahl, G., 2020). Henceforth, the advantage ultimately falls on the multinational corporation because the only accountability they have is paying the workers their wages and incurring low costs of training their workers. However, other vital features like the dismissal compensation of employees and social security arrangements are passed on to the employment agencies (Drake, M., 2011). The stated aspects of the labor dispatch system have allowed companies like Gucci to practice this method in China, where it is widely used. With this ethical dilemma in mind, the actual workers employed in these “sweatshops” bear a difficult time having their grievances listened to, to being changed.
The Dilemma of Ethical Issues
In this study, the underlying ethical issue that is witnessed in the case of labor rights being violated through forced labor, strict restrictions that are inhuman, work not compensated, and other policies that are unreasonable (Langtry, B., 1994). Many companies have been accused of literary operating "sweatshops" in the Asian continent; thus, Gucci isn't the first to face criticism in this area. For example, in 2001, the press reported that Nike had admitted its employees suffered widespread physical and verbal abuse at its factories in which the company said on these unethical practices itself (Krueger, 2008). But in Gucci's case, it involved retail workers rather than Nike's case factory employees. The noteworthy aspect in all of this is such abuses of employees are mostly uncommon in countries from the West where international corporations are stationed.
In conclusion, the reasons why companies come to China are, that one illegal working condition is accepted among Chinese organizations, and hence when foreign corporations (like Gucci) step in the country, they are tempted to follow the same malpractices (Hofstede, G 1993). Secondly, some multinational firms pay less attention to labor laws because they think that the local government has a shared imperative on economic objectives rather than their employees' needs (Giuliani, E., 2014). The final reason is that the provincial government remains under intense pressure from their superiors to meet economic targets; thus, if there are strict labor laws, it might drive investors to other countries; hence the lax unethical practices persist.
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