Faculty

Breaking Global Ground

Bauer Researchers Examine Ethical Concerns & Buying Intentions

By Julie Bonnin

Global sourcing has allowed large multinational corporations to reduce supply chain costs and provide lower-priced products to U.S. consumers. However, many consumers have ethical concerns about the practices that have led to these lower-cost supply chains.

Three researchers from Bauer College's Department of Decision & Information Sciences — Associate Professor Robert Bregman, Associate Professor Xiaosong (David) Peng and Professor Wynne Chin — collaborated on research designed to evaluate how consumers’ perceptions of ethical concerns impact their buying intentions.

"This research was particularly challenging because the supply chain practices of these firms are legal and do not violate corporate codes of conduct, but are nonetheless controversial," says Bregman, an associate professor whose areas of research include materials management, purchasing, logistics, project management and the development of cross-functional business solutions. Bregman has taught operations and supply chain management to students for more than 30 years.

"For example, a U.S. corporation might close their U.S. manufacturing plant and move the assembly of their consumer products to a supplier’s overseas plant. Wages at this new location are substantially lower than the minimum rate in the U.S. and result in a quality of life far below definitions of poverty in the U.S. However, workers at this location might wait in long lines for the opportunity to work in this new plant because these wages are higher than can be obtained from other employers in the area."

Bregman notes that the U.S. Bureau of Labor Statistics estimated that manufacturing compensation in China averaged $1.36 per hour in 2008, approximately 5 percent of the average U.S. rate of $25.64. The displacement of assembly operations from the U.S. to overseas locations with the resulting reduction in wages is entirely legal, but is it ethical?

 

 

The Bauer College research, published in the Journal of Operations Management, was the first to study this "gray area" of supply chain ethics, Bregman says.

He adds: "This is going to continue to be a major issue. A lot of people are now doing follow-up studies about ethical issues. It started a whole trend in recent research of ethics in operations and supply chain management."

The supply chain practices Bregman and his colleagues investigated covered human capital (per the previous example), effect on the environment, social responsibilities to communities and supply chain oversight of product origins.

Results from a large-scale U.S. survey showed that consumers evaluate supply chain practices from two perspectives: the rightness or wrongness of a practice and the consequences of the practice. Those evaluations combined to strongly affect consumer intentions to alter purchase intentions. In other words, this research showed that legal actions of firms (that are perceived as unethical) may lead to negative consequences for those firms (loss of sales).

The researchers were also able to identify a number of demographic differences among consumers as to how global sourcing practices are perceived and behavioral intentions are processed. In general, younger consumers seem more empathetic about the plight of overseas workers who are typically of similar age and the environment, while oversight issues related to product origin resonate more strongly with older, more experienced consumers.

"Those results are managerially important because firms operate in market segments with demographic differences," Bregman says.

"Companies can use the results from this study to identify individual practices that need to be modified or better explained to consumers based on the effects of those practices on the ethical reasoning and consumption intentions of consumers in specific market segments," he adds.