Who Owns Social and Environmental Performance in an Outsourced Economy?

By Tim Mohin, Director of Corporate Responsibility, AMD

A recent article in The New York Times has renewed the awareness of labor and environmental conditions in Chinese factories that supply components to global electronics companies. Despite the surge in interest, most readers understand that these issues are not new and not restricted to any single OEM.

We live in an age of globalization where companies have the ability to maximize efficiency and help lower costs by using manufacturing services anywhere in the world. In the 1990s, Stan Shih -- the founder of Acer computers -- made an observation known as the "smiling curve" that elegantly explains this trend: When return on investment (ROI) is plotted against a product's life-cycle, the most profitable stages are at the beginning (design) and end (marketing and retail). The middle stages (manufacturing), return the lowest value and this bends the ROI line upward on the right and left, forming a smile. This can also help explain why the lowest margin activities -- like manufacturing -- are increasingly outsourced to low-cost countries.

As the outsourcing trend continues the question becomes: Who is responsible for the social and environmental impacts of manufacturing the product? Of course, companies that manufacture their own products are directly responsible for the labor and environmental conditions in their factories. But, when manufacturing is outsourced, this responsibility can become less clear. In essence, outsourcing moves labor and environmental issues from the black-and-white realm of compliance to the murkier area of business ethics.

Ethics, as opposed to compliance, feels murky because there is no one telling us what we can do and can't. The late Rushworth Kidder, author of How Good People Make Tough Choices, defined ethics as "adherence to the unenforceable." This succinct definition sums up the dilemma faced by many companies in the age of outsourcing: How far should a company go to ensure its suppliers are appropriately managing social and environmental conditions?

Continue reading and comment on the original article, published on Huffington Post.

Tim Mohin is Director of Corporate Responsibility for Advanced Micro Devices (AMD) and the author of the forthcoming book, Changing Business from the Inside Out: A Treehugger's Guide to Working in Corporations (Greenleaf and Berrett-Kohler). His postings and comments made in his book are his own opinions and may not represent AMD's positions, strategies or opinions. Links to third party sites, and references to third party trademarks, are provided for convenience and illustrative purposes only. Unless explicitly stated, AMD is not responsible for the contents of such links, and no third party endorsement of AMD or any of its products is implied.